By John Carl
The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an independent advisor in Colorado is representative of a common inquiry regarding important plan notices due before year end. The advisor asked:
“I have several clients who maintain 401(k) plans for their businesses. What notices are required to be given to participants before year end, and what are their deadlines?”
There are several plan-related participant notices that 401(k) plan sponsors must distribute to participants at least 30 days before the beginning of the next plan year (i.e., no later than December 2 for a calendar year plan), including notices for:
• Qualified default investment alternatives (QDIAs)
• Various automatic contribution arrangements
• Safe harbor plans
QDIA notices apply to plans that invest participant contributions and account balances in QDIAs, and sponsors of these plans must provide them annually to participants no more than 90 days and at least 30 days before the beginning of each plan year.
Plans that include eligible automatic contribution arrangements (EACAs) and qualified automatic contribution arrangements (QACAs, which provide a safe harbor for nondiscrimination testing) require plan sponsors to provide annual notices to participants no more than 90 days and at least 30 days before the beginning of each plan year. Plans with automatic contribution arrangements (ACAs) must provide annual participant notices within “a reasonable period of time before the beginning of the plan year.” In light of the guidance on EACA and QACA notice timing, most apply the “no more than 90 days/no less than 30 days” timeframe.
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401(k) plans that have adopted safe harbor provisions must provide annual participant notices no more than 90 days and at least 30 days before the beginning of the plan year. Those plan sponsors who want to consider adding safe harbor provisions for the next plan year are required to give a “maybe” notice (indicating that they might provide a 3% nonelective contribution during the next plan year). Then, if a plan sponsor decides to give the 3% nonelective safe harbor contribution for the year, he or she must distribute a supplemental notice to participants at least 30 days before the end of the plan year.
Note: The notices discussed above are in addition to applicable initial notices.
Conclusion
Annual participant notices are a fact of life. Financial advisors who understand what the various notices are and when they are required set themselves apart from the average advisor and are better positioned to support their plan sponsor clients.
John Carl is the President of the Retirement Learning Center, LLC.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2012 Columbia Management Investment Advisers, LLC. Used with permission.
