By Stacey Snyder, Staff Accountant, Belfint, Lyons & Shuman, P.A.
As previously discussed in K.I.S.S.: Keep it Simple and Straight Forward with Safe Harbor Plan Designs, the IRS requires that safe harbor 401(k) plans, prior to the beginning of each plan year, provide eligible employees with a notice that discloses all relevant details of the safe harbor match or nonelective contribution (the "Safe Harbor Notice” or the "Notice”). The purpose of this notice is to inform the employees of the matching or nonelective contribution.
The safe harbor notice must be provided to eligible employees no later than 30 days prior to the start of the plan year, but no more than 90 days. For plans with a plan year starting January 1, the deadline for providing the notice is quickly approaching – December 1. The safe harbor notice must also be issued to each newly eligible participant throughout the year.
The safe harbor notice must include the following descriptions:
- The plan(s) included in the safe harbor provision
The formula used to compute the
safe harbor match or safe harbor nonelective contribution
Any other possible contributions
that may be provided
The eligible compensation on
which the contributions are based
The method for participants to
- The applicable withdrawal and
The notice must
be written out and provided to all participants free of charge as either a hard
copy or electronic copy. The notice must be easily accessible and
understandable by the participant. If the notice is distributed electronically,
the plan is required to provide a hard copy if requested by participants.
If a written safe
harbor notice is not provided to eligible participants, but instead,
participants are informed verbally, the plan has not complied with the notice
requirement. If the plan, for any reason, does not provide the participants
with the safe harbor notice, corrective contributions by the plan sponsor are
required if the participants’ decision to defer would have been different had
the notice been provided. Please refer to the IRS
Correction Programs for more detail
on when to use the Self Correction Program (SCP), Voluntary Correction Program
(VCP) and Audit Closing Agreement Program (Audit CAP) and other Fix-It Guides
containing guidance on how to fix common mistakes. Additionally, the IRS
addressed this issue in its Retirement
News for Employers newsletter, Fall 2008 edition. In all cases, it is important for the
employer to review its administrative procedures to eliminate the likelihood
that the error will recur.
must be distributed to participants when the plan decides to abandon the safe
harbor feature. The abandoning notice has the same requirements as the regular
notice in regard to timing and distribution. The plan must provide details
concerning the plan amendment to abandon the safe harbor formula and the
effective date when these contributions will end. This notice allows time for
participants to make desired changes to their deferrals before the amendment
For more detail
please see our previous blogs, How
to Stop a Safe Harbor Non-Elective Contribution and the possibility of distributing "Maybe”
Notices for Safe Harbor Plans. Failing
to provide a safe harbor notice can be expensive to a plan sponsor.
Corrective contributions to plan participants may be necessary. Additionally,
DOL regulations impose penalties of up to $1,000 per day for failure to provide
disclosures, such as Qualified Automatic Contribution Arrangement (QACA), which
is a type of safe harbor plan. Needless to say, the best policy is to avoid
penalties and correction programs.
Remember, if you
have a safe harbor plan, don’t forget to distribute your safe harbor notices by
Snyder is a Staff Accountant in the Accounting and Auditing Department of
Belfint, Lyons & Shuman, P.A. As a member of the retirement plan
audit group, she enjoys auditing single employer and Taft-Harley multiemployer
benefit plans, including safe harbor plans, in addition to numerous other plan
designs. For more information about Belfint, Lyons & Shuman, P.A.