Disclosure notice for family only 401k

[pgold]

A husband, wife and two children are the only participants in a 401k plan.

Is it necessary to provide any disclosure notices?

[ETA Consulting LLC]

Yes; if they are subject to ERISA.

Good Luck!

[jpod]

The technically correct answer, as implied by toolkit, is that if the plan is subject to Title I of ERISA, and that certainly seems likely given the two children participating, is that the Section 404 disclosure rules apply to this plan. Is that the practical answer? Will anyone of these 4 people sue one or more of the other 3 or the incorporated employer (if applicable) or drop a dime on them with the DOL? As an aside, doesn't the plan's vendor crank these disclosures out automatically?

[pgold]

The technically correct answer, as implied by toolkit, is that if the plan is subject to Title I of ERISA, and that certainly seems likely given the two children participating, is that the Section 404 disclosure rules apply to this plan. Is that the practical answer? Will anyone of these 4 people sue one or more of the other 3 or the incorporated employer (if applicable) or drop a dime on them with the DOL? As an aside, doesn't the plan's vendor crank these disclosures out automatically?

No

What would happen if there was an audit

[jpod]

1. It is not a qualification issue, only a Title I compliance issue, so you must be referring to a DOL audit. 2. Extremel unlikely that DOL would ever pull such a small plan for audit, but if it did, I would expect that the examiner would employ some common sense and realize that the failure/refusal to go to the trouble of preparing a 404 disclosure package for a mother, father and their two children is a foot fault that can be ignored.

[pgold]

1. It is not a qualification issue, only a Title I compliance issue, so you must be referring to a DOL audit. 2. Extremel unlikely that DOL would ever pull such a small plan for audit, but if it did, I would expect that the examiner would employ some common sense and realize that the failure/refusal to go to the trouble of preparing a 404 disclosure package for a mother, father and their two children is a foot fault that can be ignored.

Thank you

[GMK]

If they are worried about doing nothing, an intermediate solution might be to print out one-page data sheets from the internet for each fund (from the fund company, Morningstar, MarketWatch, whatever), jot down other fees they know of, staple the sheets together, and file it. You could pass it around the dinner table so everyone has a chance to see it, or just tell everyone that this fee disclosure package exists. Even without the prescribed format, the information is on record. And it's not a bad idea to review fees and performance once a year, anyway.

[Belgarath]

I'll just make a couple of quick observations. Like jpod, I would hope that the DOL would be reasonable. However, they aren't necessarily noted for being reasonable. One other observation I'd make is that small, family businesses often have some of the nastiest situations I've ever encountered - divorce, parent/child conflicts, etc., so I would never assume that no one is going to complain because it is family. Once things turn ugly, they can get REALLY ugly, and someone is frequently out for blood and will use any avenue at their disposal to harass or punish another party - even if the expense is completely unjustified proportionate to the outcome. Personally, I would treat this "straight up" and handle just like any other plan.

[jpod]

So, Belgarath, how do you think the conversation between the DOL examiner and his or her boss is going to play out. Perhaps: "Boss, I got this husband-wife-two children plan of 4 participants and they are flagrantly violating 404 by not distributing notices to each other. Let's use the DOL's very limited enforcement resources and nail them. Will you call the Solicitor's office or shall I?

[Belgarath]

How would I know which way the wind is blowing?

A child who is an employee and participant in the plan, particularly a non-owner, is fully entitled to the same legal rights and protections as a "regular" employee. I have personally seen DOL enforcement and penalties levied on a similar family-only situation (not for reporting violations, but for fiduciary issues relating to unreasonable delay of distribution) so I never assume that a small, family plan will get a free pass, and I also never assume that a family member won't complain. They do!

Am I overly cautious? Perhaps. If the clients choose to ignore my advice, then at least my nose is clean. And in fact, in the situation I mentioned, the DOL looked pretty hard at our involvement, going beyond the written advice/disclaimer, to see if we had any actual involvement as a fiduciary. They quickly determined we did not, but I'm just passing it along.

I'm agreeing with you, by the way, that hardcore enforcement seems unlikely. But it ain't impossible by any means.