In an article earlier this week on 401kTV covering compliance deadlines, we addressed the upcoming Safe Harbor plan design election notification deadline. Specifically, those plan sponsors choosing a Safe Harbor design using a calendar year will be required to make notification to eligible employees by December 1 (for existing plans).
Safe Harbor is a popular design for many plan sponsors because of the way it simplifies compliance with regard to discrimination testing required for traditional 401(k) plans. In a traditional plan, sponsors run the risk of having to refund contributions to higher-paid employees if they fail to meet non-discrimination requirements. Safe harbor design foregoes non-discrimination testing if the employer provides a pre-determined employee match in the form of safe harbor matching or safe harbor nonelective contributions.
According to the law firm Ice-Miller:
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:
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The identification of plan(s) intended to satisfy the safe harbor provisions
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The formula used to compute the safe harbor match or nonelective contribution
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Any other possible contributions that may be provided
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The eligible compensation on which the contributions are based
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The method for participants to make deferral elections
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The applicable withdrawal and vesting provisions
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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.
In addition, there are rules regarding distribution that must be followed. The notice must be provided in writing, free of charge to all participants and easily accessible. The content must be written in non-technical language understandable by the average person. It is common practice to make these distributions by mail or electronically via email.
However, Ice Miller makes the following caveat:
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.
