In its retirement plan newsletter, the IRS stated that plan sponsors of safe harbor 401(k) plans who fail to issue safe harbor notices to employees on a timely basis may be required to make different corrections for different employees, depending on the impact of the non-issuance on each employee.
For example, the newsletter stated, if the non-issuance of the notice resulted in an employee being unable to make elective deferrals to the plan, then the plan sponsor may need to make a corrective contribution to the plan. On the other hand, if an employee was otherwise informed of the plan’s features and the method for making elective deferrals, the failure to provide the notice may be treated as an administrative error and corrected by ensuring that notices are timely delivered in the future.
Failures to provide safe harbor notices may be corrected using either the Self-Correction Program (SCP) or the Voluntary Correction Program (VCP) under the IRS’s Employee Plans Compliance Resolution System (EPCRS), depending on the severity of the error. Generally, plan sponsors must provide the safe harbor notice to eligible participants 30 to 90 days before the beginning of each plan year. To employees who are due to become eligible, the notice must generally be provided no earlier than 90 days and no later than the eligibility date.
