The Employee Retirement Income Security Act (ERISA) mandates that retirement plan sponsors must provide employees with updated information about their retirement plan in a timely manner. Several notices must be sent to employees during the last months of the year and other information about the plan should be distributed on an as-required basis throughout the year. The below summarizes the key requirements. It should be noted that the following notices are generally required for a defined contribution plan that is not subject to corrective action.
Safe harbor notice
A 401(k) plan that has a safe harbor design is required to give eligible employees a written notice describing the plan’s safe harbor provisions and employees’ rights and obligations under the plan. The notice must be distributed at least 30 days and not more than 90 days before the beginning of every new plan year. Employees who become eligible to enroll in the plan after the beginning of the year should receive the notice no later than their eligibility date, but not more than 90 days in advance.1
Automatic enrollment notice
Plans with an automatic enrollment feature are required to provide employees with an automatic enrollment notice 30 to 90 days before the beginning of the plan year. The notice informs employees about their right to decline automatic enrollment and explains that they can make changes to the election amount. In addition, the notice should inform employees of their right to opt out of the plan altogether. Employees should also receive the notice before their first plan contribution.2
QDIA Notice
Any retirement plan that uses a “Qualified Default Investment Alternative” (QDIA) must distribute this notice annually within a reasonable period of at least 30 days before the beginning of each plan year. The notice explains employees’ rights to designate how their contributions will be invested and how contributions will be invested if they don’t make an investment election (i.e., the notice provides a description of the QDIA and its investment objectives, risk and return characteristics, and any fees and expenses).
The notice must also let employees know that they may transfer assets invested in the QDIA to other plan investment options and where they can get information about those investments. The QDIA notice also should be distributed to employees when they first become eligible for plan participation, or at least 30 days in advance of the date of any first investment in a QDIA on behalf of a participant or a beneficiary, or on or before the date of plan eligibility provided the participant has the opportunity to make a permissible withdrawal.3
Investment/fee disclosure
Many 401(k) plans permit participants to direct the investment of their plan account assets. Participant-directed plans are required to periodically disclose certain plan-related and investment-related information, including a description of fees and expenses. This information should be provided to participants and beneficiaries on or before the date on which they can first direct their plan investments and at least annually after that. All information relating to fees and expenses actually charged to individual plan accounts must be disclosed on quarterly statements.4
404(c) Notice
All participant-directed plans that intend to satisfy the requirements of ERISA Section 404(c) must notify participants of that fact. ERISA Section 404(c) relieves fiduciaries from liability for the investment decisions of participants and beneficiaries in participant-directed individual account plans if the plans meet four requirements. The plan must:
– Offer a broad range of investments, including at least three diversified options
– Deliver information to participants about the plan before the participants make investing decisions
– Give participants the option to transfer any investment options, and
– Provide additional information about each investment option to participants upon request
In addition, such plans must include an explanation that plan fiduciaries may be relieved of liability for any losses that result from a participant’s investment instructions. If the plan allows participants to invest in employer securities, certain information about how the confidentiality of transactions in those securities will be maintained must be included.5
Blackout notice
A blackout period that lasts longer than three days during which participants and beneficiaries are unable to direct their account investments obligates plan sponsors to notify participants and beneficiaries ahead of the event—generally at least 30 days before the blackout period.6
Special tax notice (Rollover notice)
Plan sponsors are required to provide individuals who will receive an eligible rollover distribution from the plan with a Section 402(f) notice that explains the rollover rules—generally 30 to 180 days—before the distribution is made.7 A participant should receive this notice if he or she receives a distribution from the plan that is eligible to be rolled over. The plan is also required to offer a non-spouse beneficiary the opportunity to roll over the deceased participant’s account balance and must notify the non-spouse beneficiary that the deceased participant’s account balance is eligible for a rollover.
The notice should describe the effects of rolling an eligible rollover distribution to an IRA or to another plan and the effects of not rolling it over, including the automatic 20% withholding. Notice 2009-68 contains two sample explanations that satisfy the requirements of the notice employers must provide to employees leaving with retirement assets.
Additional documents
ERISA mandates that employees generally should receive a Summary Plan Description (SPD) within 90 days of becoming plan participants.8 If a plan amendment affects information that is required to be in the SPD, participants must receive an updated SPD or a Summary of Material Modifications (SMM) within 210 days after the close of the plan year in which the modification occurred.9
A Summary Annual Report (SAR), which is a one-page summary of Form 5500 and the plan’s finances, generally must be distributed within nine months after plan year-end, or, if the due date for filing Form 5500 is extended, within two months after the due date.10 A willful failure to distribute a SAR or failure to complete filing a Form 5500 reporting is subject to criminal penalties.
ERISA exceptions
Plans not governed by ERISA are not subject to these requirements. Exceptions include: Individual Retirement Arrangements (IRAs), state-mandated retirement savings programs, rollover IRA accounts, government employer retirement plans, Social Security and “church” plans.
Key takeaways for plan sponsors
It is critically important that plan sponsors familiarize themselves with their obligations to provide plan participants and beneficiaries with a range of written information about their plans and when certain plan-related events occur. Failure to adhere to these requirements can be costly. Plan sponsors who have any questions about their responsibilities should reach out to their UBS Advisor for insights and direction.
Employers want to help their employees develop the financial knowledge and the skills that can have a positive impact on their lives. They are looking into ways to incorporate financial wellness education with plan participant education because they understand the benefits that come from focusing on the overall financial well-being of their employees.
Recent data from the Employee Benefit Research Institute (EBRI)11 indicates that employers are adding or enhancing financial well-being programs for their employees to achieve a variety of goals. The research found that for 2023, employer wellness programs focused on these primary educational issues:
– High cost of living
– Retirement preparedness
– Healthcare costs
– Budgeting and money management
– Daily living expenses
expensesThe EBRI research found that financial planning education, seminars or webinars, and investment/investing seminars or webinars that provide broad-based financial knowledge were most likely to be included in financial wellness programs currently offered. Initiatives focused on a single issue were less likely to be included.
Measuring success
The survey determined that the top factors in measuring the success of financial wellness initiatives were:
– Increased employee productivity
– Improved overall worker satisfaction
– Improved use of existing employee benefits
– Improved employee retention
Employer concerns
The 2023 Financial Well-being Employer Survey found that 87% of companies reported having explicitly developed a cost-benefit analysis to evaluate their financial wellness programs. Specifically, the survey found that the cost-benefit analysis was based on:
– Employee satisfaction
– Employee productivity
– Employee attraction/retention
– Medical/mental health claims
The report’s authors noted that the fact that employee attraction/retention was just below productivity shows that employers are still looking at satisfaction measures but ”are also looking at these programs’ direct benefits to their company relative to the costs of them.”12
Issues and challenges
The top challenges that companies face when offering programs related to investments, retirement planning, basic financing and education were identified as:
– The costs of instituting and maintaining wellness programs
– Data and privacy concerns
– The complexity surrounding the programs
Encouraging plan participants to become more actively involved in retirement planning and to take the steps that will move them closer to retirement security is an ongoing process. For input and assistance with your participant messaging and engagement efforts, consult your UBS advisor.
