The Who, the When and the “Oh, No” of 401(k) Plan Notices

Christine Cushman
Bricker Graydon LLP
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It’s that time of year again when calendar year 401(k) plans must send annual retirement plan notices. As you work with your service providers to make sure all notices are sent, now may be a good time to reacquaint yourself with the more common notices and related 401(k) plan documents that must be provided to employees. Mistakes can happen especially with the Who and the When, so here is a chart of the common notices with timing and recipients.

Annual Notices

Notice Timing Recipients
401(k) Safe Harbor (including Qualified Automatic Contribution Arrangements) Notice Newly eligible employees – a “reasonable” period prior to eligibility, and generally no later than the date the employee becomes eligible.

Annually – 30-90 days prior to new plan year.

 Eligible employees
QDIA Notice Initial Notice: 30 days in advance of the date of eligibility.

Subsequent Disclosure: At least 30 days before each new plan year.

 Newly eligible employees

All participants (includes beneficiaries, terminated participants and alternate payees with account balances) who have not made an affirmative investment election in the plan year (though some employers send to all participants so as not to miss anyone)
Eligible Automatic Contribution Arrangement Notice Initially – Prior to enrollment.

Annually – 30-90 days prior to new plan year.

 Eligible employees
Participant Fee Disclosure Notice (404a-5) On or before the date a participant first permitted to direct investments.

Annually, but at least once in any 14-month period.

 All eligible employees; participants (including terminated participants), beneficiaries and alternate payees with account balances
Periodic Benefit Statements At least quarterly if the plan allows participants to direct their investments. If not, the notice must be provided annually. Upon request to a beneficiary. Participants and beneficiaries
Summary Annual Report (SAR) (DC plans only) Nine months following plan year end (or two months following Form 5500 extension). All participants (including terminated participants), beneficiaries and alternate payees with account balances

Note: The 401(k) safe harbor, QDIA may be combined into a single document. For calendar year plans annual notices are due no later than December 2, 2023.

Notice upon specified events

Notice Timing Recipient
Summary of Material Modification No later than 210 days after the end of the plan year in which the change is adopted. Newly eligible employees

All participants and beneficiaries in the plan (Should include terminated participants and alternate payees with account balances)
Blackout notice At least 30, but not more than 60, days before commencement of the blackout period. All eligible employees; participants (including terminated participants), beneficiaries and alternate payees with account balances
Special tax notice for plan distributions At least 30 days prior to distribution, but timing is subject to waiver. Participants (including terminated participants), beneficiaries and alternate payees requesting plan distributions

Other Documents

Notice Timing Recipient
Summary Plan Description New Participant: Within 90 days after the employee becomes a participant or, for beneficiaries, after he/she first received benefits. Following Changes: An updated SPD must be provided every 5 years if changes are made and every 10 years if no changes are made. Newly eligible employees

All participants and beneficiaries in the plan (Should include terminated participants and alternate payees with account balances)
404(c) notice A one-time notice is required before investment instructions are to be made. Participants and beneficiaries

Also note that the plan sponsor must send certain documents to participants and beneficiaries generally within 30 days of their request, such as the plan document.

“Oh, no!” What happens if you miss a notice or send it to the wrong individuals? A mistake with the timing or recipients of your notices is generally considered a plan operational failure which may result in penalties for the plan sponsor. For example, the Department of Labor (DOL) may assess a penalty of up to $110 per day per incident for failing to provide an SAR, SPD, or SMM upon request. Far more concerning, the DOL could impose a penalty up to $2,046 per day per incident for failing to send an automatic enrollment notice. It’s unclear whether or not they would impose such a large penalty, but it’s best not to find out.

Some failures may require corrections under the Internal Revenue Service’s Employee Plans Correction Resolution System (EPCRS). For example, failure to provide the safe harbor notice could result in an employee not knowing they can defer into the plan. If they were deemed to be improperly excluded from participating, the employer may need to make corrective contributions to the plan pursuant to EPCRS.

Finally, a failure can have fiduciary concerns. Failure to send the QDIA notice, for example, will cause the plan to lose its fiduciary protection under ERISA’s QDIA safe harbor.

For a detailed list of disclosure requirements, see the DOL’s Reporting and Disclosure Guide for Employee Benefits Plans. 

[View source.]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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