Default Enrollments - how important are they?

[ldr]

Hi to All,

John Hancock sends out an email every day with a list of alerts regarding plans we as the TPA have in common with them.  They seem to think that it is "Urgent" when a plan has contributions that come in for participants who are not enrolled in the contract or have missing investment instructions.

This is not the norm for most of the participants in most of our plans - if someone is employed and deliberately signs up to make deferrals, they usually choose investments too.  However, sometimes a Safe Harbor 3% non-elective contribution or a profit sharing contribution gets deposited for participants who didn't choose to defer, are indeed not enrolled in the contract, and do not have any investment directions on file.

How important is this?  Is it a violation of something or another to have participants on default enrollment?  What is John Hancock looking to us to do about it?

Your observations and advice are appreciated, as always.

 

[Sara Hotvedt]

I have treated these "urgent" notices as a "heads up" that there is no enrollment on file for that person & then I usually just clear out the message from the message board.  You will need to make sure that these default invested people receive the QDIA notice annually.

[Pam Shoup]

I guess the questions to ask would include the following:

1. Have these participants received all required enrollment notices (safe harbor, auto enrollment, QDIA, 404a-5, one time notice, etc.)?

2. Have the participants been given an effective opportunity to enroll in the plan (enrollment materials, forms, access to website, etc.) and to make investment allocation changes?

The question comes down to who is responsible and liable for the above?  If you don't have that responsibility/liability and the recordkeeper is just copying you on the email, then you don't need to do anything with them.  If the recordkeeper is sending to you and and not the responsible party, you should forward the information to that party.

On the other hand, if you do take on those responsibilities/liabilities, you should contact the employer to make sure that the affected employees receive the necessary information.

[ldr]

Thanks, Pam and Sara!  In our shop the employer is responsible for the duties Pam listed, but we try to remind them of the things they are supposed to be doing.  I think the best thing I can do going forward is to send the employer an email letting them know who has been default enrolled and reminding them to give all those materials to the participant if they have not already done so.  My guess is that a lot slips through the cracks and a reminder certainly can't hurt.  And then I can delete the message as Sara suggested.