IRS provides guidance on how to correct late safe harbor 401(k) plan notice

In the latest edition of Retirement News for Employers, the IRS has provided guidance on how to correct the failure to timely provide a safe harbor 401(k) plan notice.

Requirement to provide notice

A safe harbor 401(k) plan requires the employer to provide timely notice to eligible employees informing them of their rights and obligations under the plan, and certain minimum benefits to eligible employees either in the form of matching or nonelective contributions.

Safe harbor notices should be sent within a reasonable period before the beginning of each plan year. Notices are generally considered timely if the employer gives them to employees at least 30 days (and no more than 90 days) before the beginning of each plan year. In the year an employee becomes eligible, the employer must generally provide such notices no earlier than 90 days before the employee becomes eligible and no later than the eligibility date.

According to the IRS, at a minimum, the notice must provide details on:

• whether the employer will make matching or nonelective contributions,

• other contributions under the terms of the plan,

• the plan to which the safe harbor contributions are made, if more than one plan,

• the type and amount of compensation that may be deferred under the plan,

• how to make salary deferral elections,

• the specific time periods under the plan to make salary deferral elections,

• withdrawal and vesting provisions for plan contributions, and

• how to easily obtain additional information about the plan (including a copy of the summary plan description).

Failure to provide safe harbor notices

The failure to provide a safe harbor notice is a failure to operate the plan in accordance with its safe harbor provisions.
According to the IRS, appropriate correction for a late safe harbor 401(k) notice depends on the impact on individual participants. For example, if the missing notice results in an employee not being able to make elective deferrals to the plan (either because he was not informed about the plan, or not informed about how to make deferrals to the plan), then the employer may need to make a corrective contribution that is similar to what might be required to correct an erroneous exclusion of an eligible employee.

On the other hand, if an employee was otherwise informed of the plan’s features and the method for making elective deferrals, the failure to provide notice may be treated as an administrative error that would be corrected by revising procedures to ensure that future notices are provided to employees in a timely manner, the IRS states.

The IRS has provided illustrative examples of how to make such corrections. The IRS also advises that the failure to provide timely notices to employees can be corrected using the Self-Correction Program and Voluntary Correction Program described in Rev. Proc. 2013-12.

Source: IRS Retirement News for Employers, February 24, 2014.

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