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Getting Noticed . . . A Guide to Enrollment Notices for New 401(k) Participants

December 6, 2018 - There are good times and bad times to be noticed.  Most 401(k) plan sponsors don’t want to be noticed (and then investigated) by the U.S. Department of Labor.But employers need to provide notices to employees as they become eligible to join a 401(k) plan . . . or face potential employee complaints and DOL investigation.

As I meet with employers, I learn they find notice requirements confusing and time-consuming to provide. There are many notices. There are different times when each notice must be sent.  And there are different groups of 401(k) plan participants that must receive each notice.

Let’s begin by saying:  Notice requirements don’t need to be confusing or time-consuming if you’ve hired the right service providers. Check with your advisor – does she or he guide you in staying compliant, helping you understand the notices you must send out to meet the specific requirements of your plan? What about your recordkeeper – does your recordkeeper keep you informed when a notice is necessary and send out notices for you?  If you’re looking for new providers, you’ll want to ask those questions before making a hiring decision. 

Last month, I reviewed some of the most common 401(k) notices required to be sent to plan participants throughout the year. This month, we’ll look at the notices employers must provide as employees become eligible 401(k) participants.

Plans differ in their eligibility and entry requirements. Some employers permit immediate eligibility, others require a period of service that can be as long as a year, and still others may have different eligibility requirements for different groups of employees, such as full-time vs. part-time employees. Once an eligibility period has been met, an employee may be able to enroll and begin contributing to the 401(k) plan immediately or may need to wait until a defined entry date, such as the first day of the following month or quarter. Employers may also adopt an age requirement, allowing entry only for employees who are 21 or older, for example.

Once an employee reaches eligibility and his or her entry date, the 401(k) plan sponsor must have provided certain enrollment information. Because there is a 30-day notice requirement for some of the notices, we recommend that an employer provide all the necessary materials at least 30 days before the employee is eligible to enroll in the 401(k) plan. If participants are immediately eligible upon hire, this may not be possible and then all materials should be provided as soon as practicable.

Among the information that must be provided:

·         An Enrollment Package can be given at any time, but employees must receive it prior to plan participation and it must include this “sufficient” information:

o   How to Enroll – This can include directions for logging onto a participant website and making salary deferral decisions or it may include a paper form or both.

o   Investment Options – If the plan permits participants to direct their investments – and most 401k plans do today, information on investment options must be provided along with instructions on how to make investment selections, either online or with a paper form or both.

o   Beneficiary Designation – Beneficiaries may be designated online or via paper. Keep in mind that if a married participant chooses to designate a non-spousal beneficiary, he or she will need to fill out a paper form and obtain a spousal signature of approval.

·         A Summary Plan Description must be provided participants within 90 days after they become eligible. The SPD presents in plain language the provisions of the 401(k) plan as well as the benefits and rights of the participant.

·         The Annual Participant Disclosure (or 404(a)5 Report) must be provided to new plan participants and annually thereafter to all participants. It includes information about plan investment options as well as plan administrative and investment fees.

·         Automatic Enrollment Notice – If the plan automatically enrolls participants at eligibility, this notice generally must be provided 30 days prior to their entry date. The notice will describe the percentage of compensation that will be deducted automatically from the participant’s pay as well as instructions on how to change the deferral or opt out of making plan contributions.

·         Safe Harbor Notice – If the plan intends to operate as a Safe Harbor plan – making eligible contributions to allow it to pass discrimination testing, this notice generally should be provided 30 days prior to a participant’s entry date.

·         Qualified Default Investment Alternative Notice – If the plan defaults participants who have not provided investment directions into an investment that meets DOL’s definition of a qualified alternative – thus allowing the plan sponsors to protect themselves from potential liability for the default selection, this notice generally should be provided 30 days prior to a participant’s entry date.

You will find providing notice to newly eligible 401(k) plan participants easier if you’ve hired a recordkeeper that generates, assembles and distributes the notices. You may find your job made easiest if your recordkeeper also tracks employees to identify when they will become eligible and schedules the notices to go out prior to eligibility. Then the plan sponsor’s job becomes simply providing accurate information about employees from the time they are hired, including their hire dates, hours worked, age and contact information.

Written by Laurie C. Wieder, PPC®, Vice President, Alliant Wealth Advisors, Qualified Plans Division


 

This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.

There are good times and bad times to be noticed.  Most 401(k) plan sponsors don’t want to be noticed (and then investigated) by the U.S. Department of Labor.  But employers need to provide notices to employees as they become eligible to join a 401(k) plan . . . or face potential employee complaints and DOL investigation.

As I meet with employers, I learn they find notice requirements confusing and time-consuming to provide.  There are many notices.  There are different times when each notice must be sent. And there are different groups of 401(k) plan participants that must receive each notice.

Let’s begin by saying:  Notice requirements don’t need to be confusing or time-consuming if you’ve hired the right service providers.  Check with your advisor – does she or he guide you in staying compliant, helping you understand the notices you must send out to meet the specific requirements of your plan?  What about your recordkeeper – does your recordkeeper keep you informed when a notice is necessary and send out notices for you?  If you’re looking for new providers, you’ll want to ask those questions before making a hiring decision. 

Last month, I reviewed some of the most common 401(k) notices  required to be sent to plan participants throughout the year.  This month, we’ll look at the notices employers must provide as employees become eligible 401(k) participants.

Plans differ in their eligibility and entry requirements.  Some employers permit immediate eligibility, others require a period of service that can be as long as a year, and still others may have different eligibility requirements for different groups of employees, such as full-time vs. part-time employees. Once an eligibility period has been met, an employee may be able to enroll and begin contributing to the 401(k) plan immediately or may need to wait until a defined entry date, such as the first day of the following month or quarter.  Employers may also adopt an age requirement, allowing entry only for employees who are 21 or older, for example.

Once an employee reaches eligibility and his or her entry date, the 401(k) plan sponsor must have provided certain enrollment information.  Because there is a 30-day notice requirement for some of the notices, we recommend that an employer provide all the necessary materials at least 30 days before the employee is eligible to enroll in the 401(k) plan. If participants are immediately eligible upon hire, this may not be possible and then all materials should be provided as soon as practicable. 

Among the information that must be provided:

    ·   An Enrollment Package  can be given at any time, but employees must receive it prior to plan participation and it must include this “sufficient” information:

o       How to Enroll – This can include directions for logging onto a participant website and making salary deferral decisions or it may include a paper form or both.

o       Investment Options – If the plan permits participants to direct their investments – and most 401k plans do today, information on investment options must be provided along with instructions on how to make investment selections, either online or with a paper form or both.

o       Beneficiary Designation – Beneficiaries may be designated online or via paper. Keep in mind that if a married participant chooses to designate a non-spousal beneficiary, he or she will need to fill out a paper form and obtain a spousal signature of approval.

    ·   Summary Plan Description  must be provided participants within 90 days after they become eligible. The SPD presents in plain language the provisions of the 401(k) plan as well as the benefits and rights of the participant.

    ·   The Annual Participant Disclosure  (or 404(a)5 Report) must be provided to new plan participants and annually thereafter to all participants. It includes information about plan investment options as well as plan administrative and investment fees.

    ·    Automatic Enrollment Notice – If the plan automatically enrolls participants at eligibility, this notice generally must be provided 30 days prior to their entry date. The notice will describe the percentage of compensation that will be deducted automatically from the participant’s pay as well as instructions on how to change the deferral or opt out of making plan contributions.

    ·   Safe Harbor Notice – If the plan intends to operate as a Safe Harbor plan – making eligible contributions to allow it to pass discrimination testing, this notice generally should be provided 30 days prior to a participant’s entry date.

    ·  Qualified Default Investment Alternative – If the plan defaults participants who have not provided investment directions into an investment that meets DOL’s definition of a qualified alternative – thus allowing the plan sponsors to protect themselves from potential liability for the default selection, this notice generally should be provided 30 days prior to a participant’s entry date.

 

You will find providing notice to newly eligible 401(k) plan participants easier if you’ve hired a recordkeeper that generates, assembles and distributes the notices. You may find your job made easiest if your recordkeeper also tracks employees to identify when they will become eligible and schedules the notices to go out prior to eligibility. Then the plan sponsor’s job becomes simply providing accurate information about employees from the time they are hired, including their hire dates, hours worked, age and contact information.

Written by Laurie C. Wieder, PPC®, Vice President, Alliant Wealth Advisors, Qualified Plans Division

 

This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.

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