Have a Safe Harbor 401(k) Plan? – Annual Notice Deadline Approaches Have a Safe Harbor 401(k) Plan? – Annual Notice Deadline Approaches

Have a Safe Harbor 401(k) Plan? – Annual Notice Deadline Approaches

Plan sponsors of safe harbor 401(k) plans have many deadlines to keep in mind, one of those being the distribution of the safe harbor notice prior to the beginning of each plan year. The notice must be provided to eligible employees no later than 30 to 90 days prior to the start of the plan year. For calendar year plans the deadline for providing the notice is approaching – December 1.

Many plan sponsors prefer the safe harbor 401(k) plan design because this plan type is not subject to the nondiscrimination tests as required with traditional 401(k) plans (which may otherwise result in refunds to highly compensated employees).  In exchange for avoiding these nondiscrimination tests, employees must receive a pre-determined level of employer contribution either in the form of safe harbor matching or safe harbor nonelective contributions. The IRS requires that safe harbor 401(k) plans provide an annual notice informing participants of their rights and obligations under the plan and of their pre-determined level of employer contribution for the next plan year. The safe harbor notice must also be issued to each newly eligible participant throughout the year.

The content of notice must include specific information, such as:
  • The identification of plan(s) intended to satisfy the safe harbor provisions
  • The formula used to compute the safe harbor match or nonelective contribution
  • Any other possible contributions that may be provided
  • The eligible compensation on which the contributions are based
  • The method for participants to make deferral elections
  • The applicable withdrawal and vesting provisions
  • If the plan sponsor wishes to reserve the right to decrease or suspend the safe harbor contribution during the year, this must be included in the notice
The notice must be in writing and provided to all participants free of charge and be easily accessible and understandable by the average participant.  Most employers will provide the notice by mail or electronically. Please note that there are strict requirements (which, in very general terms, require either that (i) the participant consent to having the information provided electronically, or (ii) a determination is made that the participant has "effective ability to access" electronic disclosure and is advised that he or she may request and receive the notice in writing on paper at no charge) that must be satisfied before the notice can be provided electronically. In this case, the plan is required to provide a hard copy if requested by participants.

Plan sponsors of non-safe harbor 401(k) plans may convert them to a safe harbor design if certain requirements are met. Generally, this can only be done at the beginning of a plan year. The plan document would have to be amended or restated to add the safe harbor provision and be timely signed. The notice would have to be given 30 to 90 days before the first day of the plan year that the conversion is first effective. Furthermore, the effective date of the conversion cannot be before the start of the next plan year. So a plan wanting to convert in October 2016 cannot do so until January 1, 2017 for example.

If a safe harbor notice is not provided to eligible participants or instead is given verbally, the plan has not fulfilled the notice requirement. How to correct the failure often depends on how the affected participants are impacted. The plan’s unique facts and circumstances will determine if the mistake is purely administrative and/or if one of the IRS correction programs should be used.

If you have questions about the required safe harbor notice or about safe harbor plans in general please contact Craig Burke, Melissa Proffitt, Marc Sciscoe or the Ice Miller employee benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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