Is Your Safe Harbor Section 401(k) Plan Required to Provide an Annual Notice?

Sponsors of safe harbor Section 401(k) plans should consider whether they are required to provide their annual safe harbor notice in 2020 for the upcoming 2021 plan year.  The Setting Every Community Up for Retirement (“SECURE”) Act, which was enacted on December 20, 2019, changed the annual notice requirements for some safe harbor Section 401(k) plans.

Prior to the SECURE Act, safe harbor Section 401(k) plans were required to meet certain annual notice requirements regardless of whether they relied on matching or nonelective contributions to satisfy the safe harbor requirement.  The Internal Revenue Code requires that this annual safe harbor notice be provided to participants within a reasonable period before the beginning of the plan year.  This requirement is deemed to be satisfied if the plan sponsor provides the notice at least 30 days and no more than 90 days before the beginning of the plan year.  We currently are in the annual notice “season” for calendar year safe harbor plans.

This annual notice season looks different for plan sponsors of Section 401(k) safe harbor plans that make nonelective contributions.  Section 103(a) of the SECURE Act eliminates the annual safe harbor notice requirement for safe harbor plans that make nonelective contributions, effective for plan years beginning after December 31, 2019 (i.e., for calendar year plans, plan sponsors no longer are required to send an annual notice beginning in the fall of 2020).  However, Section 401(k) safe harbor plans that make matching contributions are still required to provide the annual notice.

Section 103(b) of the SECURE Act also extended the deadline for Section 401(k) plan sponsors to adopt a nonelective contribution safe harbor design.  Plan sponsors previously were required to adopt a Section 401(k) safe harbor plan with nonelective contributions at least 30 days before the end of the plan year.  The SECURE Act allows plan sponsors to adopt a Section 401(k) safe harbor plan (that is not otherwise using a matching contribution safe harbor) any time before the close of the following plan year, as long as the plan sponsor makes a 4% nonelective contribution rather than a 3% nonelective contribution.

To learn more about the SECURE Act, see our SW Benefits Blog, “New Year, New Age: the SECURE Act Increases the Required Minimum Distribution Age to 72.”