Every year, around this time, many plan sponsors have just distributed various notices to employees eligible to participate in the plan, plan participants and beneficiaries. Here, we will focus on the annual QDIA notices and auto-enrollment notices that should have already been handed out no later than December 1, 2009. Our goal is to give you some tips on distributing these notices with less stress!
We begin with the annual QDIA notice. The annual QDIA notice must be handed out to those participants and beneficiaries who have been previously defaulted into the QDIA, and who did not thereafter direct their investments. ERISA §404(c) extends fiduciary relief for decisions to invest plan assets in a QDIA. A QDIA is a type of investment, such as target maturity funds or models (e.g., lifecycle or target date funds), balanced funds or models (including risk-based lifestyle funds) and managed accounts, that satisfy the requirements for a qualified default investment alternatives (as defined by the Department of Labor “DOL”). The notice must advise those participants that, if they continue to fail to direct the investment of their account they will continue to be invested in the QDIA. The notice must also satisfy the content requirements of DOL Regulation §2550.404c-5. In order to satisfy the content requirement of the DOL Regulation, many plan sponsors will attach a fund fact sheet and incorporate the contents into the notice.
While the DOL requires that the notice set forth the QDIA’s expenses, fees and risks, for many, this means attaching the fact fund sheet from the previous year. However, some of that information may have changed. Therefore, don’t rely on last year’s fund fact sheet. Request a new fund fact sheet and go through it to make sure it has what it needs to comply with the DOL regulation. The last thing you want is an inaccurate QDIA notice which can affect ERISA 404(c) protection.
For those plans which have a qualified automatic enrollment arrangement, each employee who is eligible for the plan must receive a notice that describes the arrangement. Further, the notice must advise the employee that he or she has the right to make different elective deferrals to the plan or not defer at all. The notice should also describe how those contributions will be invested should the participant not provide investment direction.
To avoid automatically enrolling a participant in the plan who later decides they do not want to defer into their account, get this notice to participants as soon as you can. Thus, with more time, you might avoid having to deal with forfeited employer contributions and distributions to participants.
One of the best and last tip that we can provide is to have the annual notices sent via electronic mail, when possible. Both the DOL and Department of Treasury have adopted regulations regarding electronic notices. If you can satisfy the Regulation, you will be able to reach your participants faster and more economically.
We hope that all of these tips will help in getting the notices out with less stress. If you did not get these notices out timely, please make sure you contact your legal advisor regarding your options.
Disclaimer Required by IRS Rules of Practice:
Any discussion of tax matters contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed under Federal tax laws.