Advisories November 12, 2019

Employee Benefits & Executive Compensation Advisory: Do You Need to Send an Annual Notice to Plan Participants? If So, You May Need to Do So by December 1, 2019*

Executive Summary
Minute Read

Our Employee Benefits & Executive Compensation Group reviews the multiple year-end notices that defined contribution plans must issue to participants.

  • 2020 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 

Important News…
IRS Announces 2020 Retirement Plan Limits


The IRS recently announced increases to some of the dollar limits for qualified retirement plans (and generally for 403(b) and 457(b) plans) for 2020.  

The following is a list of some important limits affecting retirement plans in 2020:

  • The annual limit on elective deferrals to Section 401(k) plans, Section 403(b) annuity contracts, and eligible Section 457 plans has increased to $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 has increased to $6,500.
  • The limit on total compensation used in computing contributions and benefits under Section 401(a)(17) has increased to $285,000.
  • The dollar limit on aggregate annual additions to defined contribution plans has increased to $57,000 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) has increased to $230,000.
  • The earnings threshold for determining who qualifies as a highly compensated employee has increased to $130,000.
  • The Social Security taxable wage base has increased to $137,700.

Annual Notice Content and Deadlines 
Annual Notice Content and Deadlines Table

Practice Pointers

  • 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)). 
  • Recent IRS guidance changes several rules concerning hardship withdrawals. These are discussed in greater detail in our advisory, “Final Hardship Distribution Rules Are Here: Does Your 401(k) or 403(b) Plan Comply?” To the extent plan notices reference hardship rules, ensure that the appropriate language is updated to reflect any changes adopted by the plan.
  • 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. 

Please do not hesitate to contact your Alston & Bird attorney if you have any questions about notice obligations or if we can assist you in providing proper notices for your qualified retirement plan. 

 


* This deadline applies to calendar-year plans. Non-calendar-year plans have similar requirements, though their deadlines may be different. 
 

 

Media Contact
Nicholas Clarke
Senior Communications Manager
Phone: 212.210.1222
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