Spring 2009
Plan Sponsors Ask…
Q: We’re confused by the various safe harbor notices for participants. What are the required safe harbor disclosures?
A: Generally, the “traditional” safe harbor notice describes how the employer will make matching or nonelective contributions to participants’ accounts to automatically satisfy the ADP and ACP nondiscrimination tests.
The qualified automatic contribution arrangements (QACA) disclosure must include the same information as the traditional notice. It also discloses the automatic deferral percentage that will apply, the employee’s right not to have elective contributions made or to change the amount, and how contributions will be invested in the absence of an employee’s election within 90 days, if applicable.
Another notice is the eligible automatic contribution arrangement (EACA) disclosure, which includes all of the information in the traditional and QACA notices. It also must describe the employee’s right to withdraw his or her contributions.
Lastly, the qualified default investment alternative (QDIA) notice describes when contributions will be invested in a QDIA, the right of participants to direct their assets into other choices, and the fees, investment objectives and risk/return features of the QDIA.
The notices must be distributed at least 30 days before the start of a new plan year, and can be combined in a single mailing.
Economic Relief for Safe Harbor Plans
For certain sponsors of 401(k) safe harbor plans who will be unable to make 3 percent nonelective contributions under IRC §401(k)(12) for the entire year due to economic conditions, relief may be on the way. On February 20, 2009, ASPPA (American Society of Pension Professionals & Actuaries) submitted comments to key governmental offices — the IRS, Office of Chief Counsel and Office of Tax Policy — requesting relief.
Based on public comments made by Treasury officials, ASPPA is optimistic that relief will be forthcoming. Based on the regulatory constraints that apply to issues of this nature, it is likely that any relief would be prospective in nature. Therefore, there are two options available to employers who are in this situation:
1. Follow the current regulations, which would require termination of the plan in order to eliminate the 3 percent nonelective contribution. Under this approach, the employer would not be able to establish another defined contribution plan until at least 12 months after the assets of the plan have been distributed (Regulation 1.401(k)-1(d)(4)).
2. Wait for relief from the Treasury, which may be available in mid-June. ASPPA recognizes the risk of this approach that the 3 percent contribution will continue to accrue. Each plan sponsor will need to determine whether he or she can afford to wait for the guidance.
For more information, read the request for employer relief posted on the ASPPA website.
