Our Employee Benefits & Executive Compensation Group reviews the multiple year-end notices that defined contribution plans must issue to participants.
- 2021 retirement plan limits
- Notice content and deadlines
- Practice pointers
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 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, before 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 (QACA) Notice for a Safe Harbor 401(k)
- Eligible Automatic Contribution Arrangement (EACA) Notice
- Qualified Default Investment Alternative (QDIA) Notice
- Non-Safe-Harbor Automatic Contribution Arrangement Notice
- Annual participant fee disclosures
IRS Announces 2021 Retirement Plan Limits
The IRS recently announced the dollar limits for qualified retirement plans (and generally for 403(b) and 457(b) plans) for 2021.
The following is a list of some important limits affecting retirement plans in 2021:
- The annual limit on elective deferrals to Section 401(k) plans, Section 403(b) annuity contracts, and eligible Section 457 plans is remaining at $19,500.
- 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 unchanged at $6,500.
- The limit on total compensation used in computing contributions and benefits under Section 401(a)(17) has increased to $290,000.
- The dollar limit on aggregate annual additions to defined contribution plans has increased to $58,000 plus any catch-up contributions.
- The dollar limit on annual benefits in a defined benefit plan under Section 415(b) (before adjustment for age and form) is remaining at $230,000.
- The earnings threshold for determining who qualifies as a highly compensated employee remains $130,000.
- The Social Security taxable wage base has increased to $142,800.
- 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), Summary Annual Reports (SARs), and notices regarding changes to investment funds and certain other information in the Annual Fee Disclosure.
- Plan sponsors can generally combine multiple notices in a single notice. However, since different notices have different distribution requirements, generally a combined notice should be distributed to the broadest applicable recipient group.
- These and other 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)).
- Plans that issue a safe harbor notice should include language in the notice clearly reserving the employer’s right to reduce or eliminate employer safe harbor contributions.
- Recent DOL guidance may allow distribution of many annual notices through electronic means, subject to certain rules and restrictions. Some recordkeepers may have adopted some of these guidelines by default, so plan administrators are encouraged to contact their recordkeepers to see whether any of these electronic communications programs have been implemented.
* This deadline applies to calendar-year plans. Non-calendar-year plans have similar requirements, though their deadlines may be different.
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