401(k) Notice: Safe Harbor

A 401(k) plan may be designed to meet certain requirements under the Internal Revenue Code which make it a safe harbor 401(k) plan. For information regarding those requirements, click here. One of those requirements is an annual notice requirement. An employer that sponsors a safe harbor 401(k) plan must provide each eligible employee under the plan with written notice of the employee’s rights and obligations under the plan, and this notice must satisfy certain timing and content requirements.

Timing Requirement

In order satisfy the timing requirement, the notice must be provided to all eligible employees within a reasonable period before the beginning of each plan year. This requirement is deemed to be satisfied if the notice is provided to each eligible employee at least 30 days and not more than 90 days before the beginning of each plan year. For employees who become eligible after the annual notice is provided, it is deemed reasonable if the notice is provided on or before the date the employee becomes eligible (but not more than 90 days in advance).

If the plan uses the wait-and-see alternative to decide whether to make a 3% safe harbor nonelective contribution (for information on this alternative, click here) in addition to the annual notice, the employer must also provide a second notice at least 30 days before the end of the plan year only if the employer decides to make the 3% safe harbor nonelective contribution for the year.

Content Requirement

In order to satisfy the content requirement, the initial and annual safe harbor plan notice must describe:

• the safe harbor nonelective or matching contribution formula used under the plan (this must include a description of the levels of matching contributions, if any, available under the plan, as well as any nonelective contributions which may be made under the “wait-and-see” option);
• any other contributions under the plan (including the potential for discretionary matching contributions) and the conditions under which such contributions are made (this may be done with a cross reference to the summary plan description which provides this information);
• the plan to which safe harbor contributions will be made, if different that the plan under which the deferral contributions are made by the participant (this is not common, but if it applies, this information may be provided using a cross reference to the summary plan description which provides this information);
• the type and amount of compensation that may be deferred under the plan (this may be done with a cross reference to the summary plan description which provides this information);
• how to make deferral elections, including any administrative requirements that apply to those elections;
• the periods available under the plan for making deferral elections;
• vesting and distribution provisions applicable to contributions under the plan; and
• information that makes it easy for employees to obtain additional information, such as telephone numbers, addresses, and e-mail addresses of individuals or offices from which the information is available.

As note above, several of the content requirements can be satisfied by including a cross reference to the relevant portion of a summary plan description which provides the same information that would be provided in the notice, provided that the summary plan description has already been provided to the participant or is being provided at the same time as the notice (such as for newly eligible employees).