401(k) plan sponsors have a fiduciary responsibility to distribute certain information to plan participants from time to time. The purpose of these disclosures is important - to equip plan participants with the information necessary to make timely and informed decisions about their 401(k) account. However, these important participant disclosures can also be many – and spread throughout the year - which can make their distribution seem like an overwhelming fiduciary responsibility to many 401(k) plan sponsors.
If you count yourself among these 401(k) plan sponsors, I have good news – your role in distributing participant notices should be basic. That’s because a qualified 401(k) provider will do the heavy lifting by preparing all of the disclosures applicable to your plan. You'll just need to ensure that each is distributed timely using an acceptable method. Typically, this responsibility can be easily managed using a 401(k) administration checklist.
Below is a description of the various participant disclosures that can apply to a participant-directed 401(k) plan - with guidelines for their distribution. You can use this information to confirm you’re distributing the participant disclosures applicable to your 401(k) plan appropriately. If you have further questions, ask your 401(k) provider – they should be able to help.
Summary Plan Description (SPD) – Summarizes the major provisions of the governing plan document and other important plan information.
Summary Annual Report (SAR) – Summarizes certain plan information reported by the Form 5500.
Annual fee disclosure notice – Describes information about plan fees and investments. This notice consists of two parts:
Quarterly statements – Each quarterly statement reports two types of participant information:
Safe harbor 401(k) notice – Applicable only to safe harbor 401(k) plans. Notice discloses the plan’s contribution and vesting provisions.
Automatic enrollment notice – Applicable only to 401(k) plans with an automatic enrollment feature. Notice discloses the automatic enrollment feature to participants, including a participant’s right to make their own deferral election
Qualified Default Investment Alternative (QDIA) notice – Applicable only to 401(k) plans that use a QDIA as their default fund. Notice explains the circumstances under which a participant may be defaulted into the QDIA.
The timing requirements for all three of these notices is the same:
When more than one of these notices applies, the applicable information is typically combined into a single notice
Summary of Material Modification (SMM) – Describes material changes made to the SPD. A SMM is generally due to a plan amendment.
Fee change notice – Describes upcoming changes to the fees and expenses that could be charged to participant accounts.
Investment change notice - Describes upcoming changes the plan’s investment fund lineup. As an alternative, you can you can distribute a new Annual fee disclosure notice.
Blackout notice – A 401(k) plan “blackout” is defined as 3 or more business days in which participants will be limited in their ability to direct assets, obtain loans or take a distribution. This notice is used to notify plan participants about the upcoming blackout.
401(k) plan participants have the right to receive certain plan information upon request – including latest SPD, the latest Form 5500 filing, any collective bargaining agreement that covers the plan, the trust agreement, a contract, or other instruments under which the plan is established or operated.
Required participants disclosures can always be distributed in hard copy form – either by distributing copies at a company meeting or by mailing them to each employee’s last known address. Posting a required disclosure in a break room or other common area is not acceptable.
Further, participant disclosures may be distributed electronically to current employees at their work e-mail address if the following requirements are met:
If a plan participant does not meet these requirements (e.g., a former employee or beneficiary with an account balance), electronic disclosure is not an option – they must be mailed or hand-delivered their disclosure.
When a 401(k) plan sponsor fails to distribute required participant disclosures, the consequences can be severe - including plan disqualification or personal liability. That said, you want to meet this important 401(k) fiduciary responsibility.
The good news is this job shouldn’t be overwhelming. A qualified 401(k) provider will do most of the heavy lifting by preparing all required disclosures. You just need to know what disclosures to expect and when to distribute each disclosure.