Plan sponsors of defined contribution qualified plans may need to issue one or more annual notices to participants before the end of each plan year. Failure to issue a required annual notice can have significant consequences. For example, if a plan sponsor forgets to issue the annual 401(k) safe harbor notice, the plan could lose its safe harbor status and be forced to limit (or refund) contributions made by highly compensated employees.
This advisory serves as a reminder of the multiple year-end notices that defined contribution plans must issue to participants. These notices must be distributed within a reasonable period of time, typically 30 days, prior to the start of the plan year.
The following table provides a list of the content and deadlines for the most common notices that plan sponsors may need to distribute. It includes:
- Traditional Safe Harbor 401(k) Notice
- Qualified Automatic Contribution Arrangements for a Safe Harbor 401(k) Notice
- Eligible Automatic Contribution Arrangement Notice
- Qualified Default Investment Alternative Notice (QDIA)
- Non-Safe-Harbor Automatic Contribution Arrangement Notice
*This deadline applies to calendar-year plans. Non-calendar-year plans have similar requirements, though their deadlines may be different.
IRS Announces 2015 Adjustments for Retirement Plan Limits
The IRS recently announced changes in the dollar limits for qualified retirement plans (and generally for 403(b) and 457(b) plans) for 2015.
The following is a list of some important retirement plan limits for 2015:
- The annual limit on elective deferrals to Section 401(k) plans, Section 403(b) annuity contracts and eligible Section 457 plans is $18,000 (increased from $17,500 in 2014).
- The annual limit for catch-up contributions for individuals age 50 and older to Section 401(k) plans, Section 403(b) annuity contracts and eligible Section 457 plans sponsored by governmental entities is $6,000 (increased from $5,500 in 2014).
- The limit on total compensation used in computing contributions and benefits under Section 401(a)(17) is $265,000 (increased from $260,000 in 2014).
- The dollar limit on aggregate annual additions to defined contribution plans is $53,000 plus any catch-up contributions (increased from $52,000 in 2014).
- The dollar limit on annual benefits in a defined benefit plan under Section 415(b) (before adjustment for age and form) is $210,000 (unchanged from 2014).
- An individual earning more than $120,000 in 2014 will generally be a highly compensated employee in 2015 (increased from $115,000 from 2014).
Please contact your Alston & Bird attorney if you have any questions about the 2015 plan limits.
Click here to view the table.
Suggested Change to Safe Harbor Notice
The IRS has generally taken the position that mid-year changes to any plan feature described in a plan’s annual safe harbor notice may cause the plan to violate the 401(k) safe harbor requirements. The IRS has provided specific exceptions for certain purposes (e.g. the addition of a Roth 401(k) feature). Plan sponsors may not be able to make any other changes to plan features that were previously described in the annual safe harbor notice (e.g., changes to the plan’s vesting schedule). The IRS’s reasoning is that the notice may cause the participants to rely on the information contained in the notice, and thus, mid-year changes would harm the participants.
The IRS does provide an exception for mid-year changes to employer contributions, but only if the notice clearly reserves the employer’s right to change these contributions. We suggest adding this language to your safe harbor notice to preserve this option.
More on Fee Disclosure
ERISA Section 404 requires that participants receive an annual fee disclosure notice at least once every 12 months. For 2014, there are two options to accomplish this:
- Furnish the fee disclosure notice no later than 12 months after the 2013 fee disclosure notice was issued.
- Furnish the 2014 fee disclosure notice no later than February 2015. For employers that wish to align their fee disclosure notice with other year-end notices, the 2014 fee disclosure notice would be issued no later than December 1, 2014.
No matter when your fee disclosure cycle occurs, we suggest making a note of the timing to help you and your service providers remember when the next fee disclosure is due.
- In addition to the year-end notices described above, there are several additional notices that must be provided from time to time. These include Summaries of Material Modifications (SMMs) and notices regarding changes to investment funds.
- Plan sponsors can combine multiple notices into a single notice.
- These notices may also require distribution during the plan year to newly eligible participants or rehired participants.
- Sponsors of defined contribution plans may also have other notices they must provide participants, such as diversification notices (ERISA Section 101(m), IRC Section 401(a)(35)) and quarterly or annual participant statements (ERISA Section 105(a)).