"Unenrolled Participant" Annual Reminder Notice

[Belgarath]

Seeking opinions on this, and whether the Safe Harbor Notice (depending upon content) suffices.

The Notice must be furnished in connection with the annual open election period, or if there is no such special period, within a “reasonable time” before the beginning of each plan year; it notifies the Unenrolled Participant of their eligibility to participate in the plan, and the key benefits and rights under the plan, with a focus on employer contributions and vesting provisions, and provides such information in a prominent manner calculated to be understood by the average participant.

So, if your normal Safe Harbor Notice merely directs the employee to the Summary Plan Description for Employer contributions other than the safe harbor contributions, then absent further IRS guidance specifying otherwise, it appears that the safe harbor notice couldn't satisfy the requirement. On the other hand, if the safe harbor notice either includes the employer contribution already, or is modified to do so, then it would seem the safe harbor notice could qualify, perhaps with a few other alterations as well.

Any other thoughts/opinions? Are you planning to consolidate these two Notices, or keep them separate? I'm leaning toward separate as ultimately being cleaner and easier in the long run, not to mention that lots of plans aren't safe harbor, so would need a separate Notice anyway...

[Paul I]

Take a look at 1.401(k)-(3)(d)(2)(ii) regarding the content of the Notice, (iii) regarding what is permitted to be included in the Notice by referencing the SPD, and (d)(3) on the timing requirements.

[Belgarath]

Thanks Paul - yeah, I had read that. My question isn't whether the SH Notice is valid when it refers to the SPD for employer contributions other than safe harbor (it's valid) but I'm questioning whether it could also serve as the annual Unenrolled Participant Notice. I don't think it can.

 

[Peter Gulia]

Before even SECURE 2019, some fiduciaries bunched several notices and other communications into one delivery. For example, in early November a calendar-year plan might deliver its:

summary annual report (for the year ended almost a year ago),

revised summary plan description,

401(k)/(m) safe-harbor notice,

notice of automatic-contribution arrangements,

notice of qualified default investment alternative,

notice about diversifying out of employer securities, and

rule 404a-5 information about account fees and investment expenses.

Even regarding participants with account balances and ongoing elective deferrals, some plans might meet almost all communications requirements with one mailing—whether electronic, paper, or some of each—only once a year.

Some Treasury department rules for some notices specify that a notice must be distinct—that is, not combined with another notice or other communication.

Under ERISA § 111(c)(3), an annual reminder notice to an unenrolled participant must “provide[] [the § 111(c)(2)] information in a prominent manner calculated to be understood by the average participant.” But that statute section does not say the annual reminder notice must be completely separate or distinct from other information.

Belgarath, I think you’re right that a typical 401(k)/(m) safe-harbor notice alone is not enough to prominently “notif[y] [an] unenrolled participant of” her “eligibility to participate in the plan[.]”

A plan’s administrator might write a one-pager addressed to “unenrolled” participants, and put that page at the top of the stack of whatever the administrator sends to those participants.

I’m aware many think this still is burdensome. But with default electronic delivery, it need not be.

[Paul I]

Just to clarify for my own understanding, your question is regarding Unenrolled Participants as referenced in SECURE 2.0 and the requirement to provide an Annual Reminder Notice.

In this case, the Unenrolled Participant is already eligible to participate, has already received an SPD, has already received any other notices required to be given to someone who was newly eligible, and is not participating.  I see the Safe Harbor Notice as a document apart from the SPD and the Safe Harbor Notice is among the other required notices.  The required notices also would include, if applicable, a QDIA notice and 404(a)(5) notice.

The Annual Reminder Notice is required to inform the Unenrolled Participant they are eligible, and let them know any applicable deadlines that may be applicable to their signing up for the plan.  The notice as you pointed out specifically needs to let them know about the key plan provisions with an emphasis on employer contributions and vesting.  My observation is the reminder notice is focused on the message to the Unenrolled Participant that:

• you are already eligible,
• you are not participating,
• here's what you're missing out on,
• here' how to start participating,
• here's where you can get more information,

without getting into the weeds.  Further, the timing requirement for the Annual Reminder Notice is more lenient than the timing requirement for other notices.

I agree it makes sense to keep the Annual Reminder Notice and the Safe Harbor Notice separate.

[Peter Gulia]

A fiduciary's evaluation about whether to make notices separate or combined turns on many factors, including the plan administrator's and its service provider's capabilities.

Some plans' regimes lack a useful capability to segregate notices.

[Paul I]

I agree, and observe that SECURE 2.0 320 was in response to plans that complained about the burden of providing notices to unenrolled participants.  I expect these plans pretty much have already made their decision to the point of having lobbied for it.  It will be interesting to see the path the rest of the plans will follow, and interesting to see if major recordkeeping service providers will influence the market place via a bully pulpit or creative pricing for distribution or mailing services.

[Belgarath]

Thank you both for your thoughts on this subject.

[austin3515]

My own unsophisticated commentary is that the "unenrolled participant exception" is too complicated for most. It requires 2 different sets of notices to be sent out to two different groups of people.  That's real clunky.

And don;t get me started on the new electronic delivery rules.  It's bazaar.  So complex I'm sure half of all plans are just going to go back to paper notices.  Sure maybe Empower and Fidelity can program their systems to track who gets paper and who gets electronic but not my guess is many recorkdeepers will not be able to do it.

It's as though they have no idea how most employers are structured, and what their focuses are.  They think every 401k plan is with Empower on  a full 360 bridge.  So disconnected from reality.

[Peter Gulia]

The lobbyists who asked Congress for an opportunity to use an unenrolled participant reminder notice spoke for situations in which the plan uses a recordkeeper that sorts participants’ accounts for electronic or paper, and soon will sort for “enrolled” or unenrolled.

Employers and plans austin3515 describes might have had no one in the room.

[austin3515]

I really did get a good laugh out loud chuckle when I saw that the relief for sending out notices to unenrolled to participants was to send them a notice.  I mean that is really hysterical.

[Paul I]

Let's call it "regulator logic".  They don't want to say it's okay not to send out a notice while de facto acknowledging that all of the required notices are equivalent to junk mail.  There is no opt-out and no mercy.  Queue strains of Hotel California.

[austin3515]

There is also no point to the relief.  Making something more complicated in an effort to make that same process more simple is crazy.

I'm nowhere near old enough to retire so I am bitter.

[TPABob]

Austin, I like to call it the "No Notice Notice".