my flash drive is nearly full - disclosures and notices...
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My Flash Drive is Nearly Full - Disclosures and Notices 2017William C. Grossman, Managing Member
WCG ERISA CONSULTING, LLC
William C. Grossman, Managing Member, WCG ERISA CONSULTING, LLC
Until December 31, 2016, William Grossman was with McKay
Hochman Co., Inc. During Bill’s 15 years at McKay, he held
various positions including Director of Education and
Communication and Senior Consultant. Bill was the primary
author of most of the McKay Hochman Co. website articles and
the firm’s three newsletters. Bill is an ERPA. Bill was Director of
401(k) Training for a major record keeper, and has over 20 years’
experience running a bank’s 1 billion small retirement plan and
IRA business. Bill has a BA from New Jersey City University, an
MBA from Fairleigh Dickinson University and is a graduate of the
NY AIB where he served as an instructor for 17 years. Bill was
NIPA’s Volunteer of the year in 2011.
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Agenda
• IRS Notices• Safe Harbor 401(k) Notices
• Automatic Contribution, EACA, QACA Notice
• SIMPLE IRA Notice
• Divestiture of ER Stock Notice
• Participant Loan Related Notices/Disclosures
• Notice to Interested Parties
• IRS Distribution Related Notices• 402(f) or rollover notice,
• Tax withholding notice
• QJSA, QOSA and
• QPSA Notice
Agenda
• ERISA/DOL Disclosures• 404(a)(5) Participant Disclosure
• Summary Plan Description
• Summary of Material Modifications
• Summary Annual Report
• Documents Available for Review/Copy
• ERISA 404(c) Related Disclosures
• Mapping Notice
• Blackout Notice
• ERISA 204(h) Notice
• Benefit Statements
• QDIA Notice
• QDRO Related Notices
• ERISA Civil Monetary Penalties Increased for Inflation
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IRS NOTICES
Safe Harbor 401(k) Plan Notice
• Annual: reasonable time before each plan year
• 30 to 90 days is deemed reasonable
• e.g. Calendar year plan: Oct 2 to Dec. 1
• Otherwise: Facts and circumstances
• New 401(k) plan: 90 days before plan effective date, through to
the effective date of the plan
• Newly eligible participants: 90 days before becoming a
participant; up to date a participant
• Citation: IRC section 401(k)(12)(D), Regulations 1.401(k)-3(d)
• Failure to provide: Operational failure
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Safe Harbor 401(k) Notice: Failure to Provide Notice
• Each eligible employee must get annual SH Notice
• If Notice is not timely provided, an operational failure
and IRS may disqualify plan
• safe harbor contribution still required
• Awaiting formal IRS EPCRS procedures, but IRS Fall 2008
Retirement News for Employers Newsletter provides correction
• Facts and circumstances examples based on whether participant
was affected by not having received notice
Safe Harbor 401(k) Notice “Maybe Not Notice” Content Requirements
• Safe Harbor formula
• Other contributions available and conditions available
• Plan to which the safe harbor contribution will be made
• Amount and type of compensation that can be deferred
• How to make the deferral election
• Time period for making deferral elections
• Withdrawal and vesting provisions
• How to obtain additional info about the plan
• May cross reference SPD for:
• Any other contributions,
• Plan to which safe harbor contribution made, or
• Type or amount of compensation that may be deferred
• Plan may be amended mid-year to stop or reduce the safe harbor
contribution, in such event a supplemental notice will be provided
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Safe Harbor 401(k) Plan “Flexible” or “Maybe” Notice
• “Flexible” or “Maybe” Safe Harbor Notice
• 30 to 90 days before each plan year
• Supplemental Notice
• if providing safe harbor contribution
• by December 1 of year stating that plan is making SH NEC
• Able to be combined with next year’s safe harbor notice
• Citation: IRC section 401(k)(12)(D), Reg. 1.401(k)-3(f)
• Failure to provide: Plan is ADP/ACP tested
Supplemental Notice to Reduce/Suspend Safe Harbor 401(k) Mid-year
• To stop safe harbor contributions mid-year:
• A board resolution must be passed
• Amend plan to remove the safe harbor provisions
• A supplemental notice must be provided to all eligible employees 30
days in advance of the safe harbor contribution being stopped
• To stop safe harbor NEC/match, the employer must have provided a
safe harbor notice with language about the safe harbor being stopped
mid-year or the employer must be operating at an economic loss as
described in code section 412(c)(2)(A) for the plan year
• Plan must be tested for the year
• SH Contribution must be provided through end of 30 days after notice
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Automatic Contribution Notice
• All Automatic Enrollment Plans, must provide the notice:
• Prior to the pay date for the pay period that includes the
employees eligibility date
• Annually, 30 to 90 days before the plan year, 1.401(k)-1(e)(2)(ii)
• Must be provided each year for “affected” employees
• May be combined with QDIA or safe harbor notice
• Some provide at date of hire as a best practice
• Model notice provided by IRS
Automatic Contribution Notices
• Spells out the rights and obligations to employees:
• Explanation of automatic enrollment
• Level of elective contributions that will be deducted if an
affirmative election is not made
• Explanation that the employee has the right to elect not to have
default deferrals made on his/her behalf, or that he/she may
choose a different deferral percentage
• How investments will be made if there is no investment election
form returned
• Permissible withdrawals, if applicable
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Automatic Contribution Notice
• What if the automatic enrollment notice is not provided? • EACA, IRC Section 414(w)
• Failure to give notice means plan fails to be EACA, may lose:
permissible withdrawal, 6 months to test ADP/ACP
• May not implement mid-year
• ACA, ERISA Section 514(e)
• Failure to give notice under ERISA §514(e), results in Title I penalty,
but ERISA preemption of state law is preserved
• QACA, IRC Section 401(k)(13)
• Failure to give safe harbor notice under a QACA may cause an
incomplete auto enrollment feature – a failure that could impact the
QACA safe harbor
• ERISA section 502(c)(4) penalty of up to $1,632 per day
SIMPLE IRA Notice and Summary Description
“within a reasonable time” prior to 60 days before each plan year (allows for 60 day
election period)
New participant /new plan: 60 days before, through date a participant/plan effective
date
Notice = Content similar to safe harbor 401(k) notice
Summary description = Providing a Completed Form 5305 SIMPLE or 5304 SIMPLE
Citation: • SIMPLE IRA Code section 408(p)(5)(C),Notice 98-4, Q&A, E-1,
• Failure to provide: Employer liable under Sec. 6693(c)(1) for penalty = $50 per day until notice provided;
Notice 98-4: penalty shall not apply if employer can show reasonable cause for failure
• NOTE: SIMPLE 401(k) Notice Prior to 60 days before each plan year to provide
a 60 day election period; Regulation 1.401(k)-4(d)(3)
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Divestiture of Employer Stock Notice Requirements
• Defined contribution (other than ESOP) plans holding employer
stock provide for divestiture of the employer stock
• Elective deferrals and after-tax contributions have the right to
immediate divestiture
• Employer contributions are required to be able to be divested upon
the completion of three years of vesting service
• Notice to be provided no later than 30 days before the first date
the diversification applies to a participant or beneficiary
• Citation: IRC section 401(a)(35), IRS Notice 2006-107, ERISA
sections 101(m) & 204(j), PPA sections 507 & 901
• Failure to provide: Up to $100 per day per failure ERISA 502(c)(7)
Participant Loan Related Disclosures
• To qualify for the participant loan prohibited transaction
exemption, the plan must provide the following to a
participant requesting a loan:• Participant loan policy program (if not provided in the SPD); DOL
Regulation 2550.408b-1(d)(2)
• Failure to provide: $110/day maximum $1,100/occurrence
• Loan application; IRC 72(p)
• Failure to provide: If participants do not have equal opportunity to
request a loan, then a qualification failure
• Promissory note; Reg. 1.72(p)-1, Q/A 3(b)
• Failure to provide: Deemed distribution tax/penalty; 15% prohibited
transaction tax if no enforceable agreement
• Amortization schedule; IRC 72(p)
• Failure to provide: no penalty. Failure to pay on amortized schedule:
deemed distribution and 15% PT tax
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Participant Loan Related Disclosures
• Truth-in-lending disclosure not required for loans issued after July
1, 2010, provided:
• Loan is direct investment within participant’s account
• i.e. loan is not part of a pooled investment
• The loan satisfies IRC; Satisfies the amount limitation, repayment and
amortization requirements
• Loan must satisfy the PT requirements: reasonable rate of interest and
adequate security
• Exemption applies whether plan is Title I or not
• Plan may use Truth-in-Lending disclosure, if desired
Notice to Interested Parties
• If submitting for a determination letter, applicant provides notice to
interested parties
• Interested parties: generally all present employees eligible to
participate in plan and other employees who work in the same
place
• Provides employees a chance to notify DOL or IRS of any plan
issues or concerns
• Citation: 1.7476-2
• Penalty for failure to provide: DL application is invalid
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Notice to Interested Parties
• Must be given upon installment, amendment or termination of plan
• Must be provided no later than 10 and no more than 24 days
before the date of the application letter
• It may be necessary to use more than one method of delivery in
order to ensure timely and adequate notice to all interested parties
• May be provided as paper or electronic (IRS regs.)
• Citation for notice timing: Treas. Reg. 601.201(o)(3)
Distribution Related Notices
• Tax withholding (WH) notice
• For distributions not eligible for rollover
• Inform participant of
• Option to elect out
• Proper WH or estimated WH or Penalty
• Withholding Certificate W4-P
• W4-P usually built into distribution form
• Citation: Treasury Regulation 35.3405-1;
Failure to provide: $10/failure, $5,000 maximum
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402(f) Notice aka Rollover or Special Tax Notice
• Written explanation of distribution, rollover & tax rules
• Provided 30-180 days before distribution
• Provides participant time to study distribution options; e.g. direct rollover
• Participant may waive 30 day wait for distribution
• QJSA plans waive down to 7 days
• Citation: IRC 402(f), Regulation 1.402(f)-1
• Failure to provide penalty Up to $100/occurrence, maximum
$50,000 all failures in a calendar year Code 6642(i)
402(f) Notice Original Purpose
• Original Purpose of 402(f) Notice
• Participant’s right to direct rollover• To avoid 20% mandatory withholding
• Mandatory 20% withholding tax • if an eligible rollover distribution is not directly rolled to a traditional IRA or another
eligible retirement plan
• Example
• $100,000 eligible rollover distribution amount
• Participant requests payment in cash
• $20,000 mandatory withholding
• $80,000 paid to participant, age 30
• Within 60 days of receipt, participant rolls over $80,000 to IRA
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402(f) Contents
• Generally, all tax options explained
• Special distribution taxation rules
• Employer securities
• 10-year averaging, grandfathered
• Capital gains treatment, grandfathered
• After-tax
• Mandatory and Voluntary Withholding
• Tax result if not rolled over, generally:
• Subject to ordinary income tax
• Penalty of 10% if under age 59½
402(f) IRS Model Forms of 2015
• Updated IRS model 402(f) notices, Notice 2014-74 (prior N. 2009-
68)
• Last updated model went into effect as of Jan. 1, 2015
• Q & A format, emphasis on 20% withholding blurred
• IRS provides two models
• One for designated Roth distributions
• One for non-Roth distributions
• IRS working on Spanish versions
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402(f) IRS Model Forms of 2015
• The updated Sec. 402(f) notices incorporated the following items:
• Partial Direct Rollover: Pre-tax first rule: Notice 2014-54 included
• A summary of the current tax treatment of rollovers to Roth IRAs
• Information regarding the ineligibility of a rollover of a permissible
withdrawal of an automatic contribution requested by a participant
within 90 days of automatic enrollment
• Information regarding penalty-free distributions of amounts rolled over
to an IRA to pay for certain health insurance premiums
• Change after Model issued: waiver of missing the 60-day
rollover requirement, not by PLR, but by self-certifying to one
of the 11 reasons in Rev. Proc. 2016-47.
IRS Model 402(f) and Notice 2007-7
• Section 1102 of PPA and Notice 2007-7: Q&A 33, Require in IRS
402(f):
• A description must be written to include:
• For DBs, a description of how much larger benefits will be if the
commencement of distributions is deferred;
• For DCs, and a description of the available investment options (including
fees) if distribution is deferred;
• DB & DC, portion of SPD that describes any special rules, i.e. fees, that
might materially affect participant’s decision to defer.
• A plan administrator of a DB may use a description that includes
the financial effect of deferring distributions, as described in
§1.417(a)(3)-1(d)(2)(i), based solely on the normal form of benefit
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QJSA Notice Rules
• Qualified Joint and Survivor Annuity (QJSA) Notice timeframe
• 30-180 days prior to annuity starting date.
• Notice must explain:
• normal form and optional forms of payment,
• the relative differences in the amount and term of the forms of payment,
and
• the procedures to elect an optional form of payment.
• must provide a financial comparison of the various available distribution
options
• Citation: IRC 411(a)(11), Regulations 1.411(a)-11
• Failure to provide: Operational Failure
• QOSA Rules Typically incorporated onto QJSA Notice
Qualified Pre-Retirement Survivor Annuity (QPSA) Notice
• For QJSA Plans, QPSAs apply if participant dies before benefits have
commenced.
• A QPSA is an annuity for surviving spouse
• QPSA may be waived (before 35 & again at 35)
• QPSA waiver: must be notarized signature of both spouses
• QPSA language often on beneficiary designation form
• QPSA Notice Explains QPSA Rules
• Citation: ERISA section 205(a), IRC 417(a)(3)
• Failure to provide: Operational Failure
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ERISA/DOL DISCLOSURES
Participant Fee and Expense Disclosure, ERISA 404(a)(5) Disclosure
• 3 Categories of Disclosures
1. Quarterly benefit statements to reflect fees and expenses actually
charged to participants accounts
2. Plan-related information
• administrative and individual fees,
• investment: alternatives, instructions & limitations
3. Investment-related information:
• Chart of info on each investment,
• Benchmark, performance, fee/expense data
• Website for current/additional info
• Glossary of terms
• Citation: ERISA 404(a); Reg, sec. 2520.404a-5
• Failure to provide: Fiduciary Breach
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404(a)(5) Annual Disclosure
• The annual 404(a)(5) disclosure is required to be provided within 12
months of the previous disclosure.
• For calendar year plans the initial disclosure had to be provided by August
30, 2012.
• The DOL interprets the within 12 months of the prior disclosure as
exactly that. For example:
• An employer beat the August 30th, 2012 deadline and provided the
disclosure on August 10th, 2012
• the within 12 month deadline is not August 30th, which was the
deadline for the mailing but rather that August 10th.
• This is referred to as “deadline creep”.
404(a)(5) Annual Disclosure
• An employer wanting to provide this annual disclosure at an
alternative date could by sending two notices in 12 months.
• E.G. to provide it with in November with other year end notices,
first send it August 30th and then again at the beginning of
November.
• Expensive, negatively impacting return
• March 2015, DOL final rule provided a 14 month
period from the last disclosure, rather than 12 months.• Suppose the disclosure was sent on August 12, next August the
notice can be sent at any time in August without worrying about “date
creep.”
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Summary Plan DescriptionPlain Language Requirement
• Plain language description of plan’s major highlights
• Written to be understood by the average participant
• Generally, at no more than an 8th grade level
• Details of required content defined in the DOL regulations, Section
2520.102-3, 2520.104b-4
• SPD must include a claims procedure
• Citations: ERISA Section 102(b); also, ERISA section 503, regulation
2560.503-1
• Failure to provide: Up to $110/day maximum of $1,100 for failure to
provide DOL
Providing the SPD upon theInitial Establishment of Plan
• SPD should be given to participant no later than 120
days after the later of:
• Effective date of plan, or
• Date of the adoption of the plan
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Providing the SPD- Existing Plan, On-going Requirements
• SPD must be updated:
• every 10 years if there have been no changes to the plan (law
has not caught up to 5 and 6 year cycles), or
• every 5 years if material changes,
• no later than 210 days after the end of the fifth year
• Example: SPD to report plan changes, such as, PPA
document restatement:
• SPD due within 210 days after the plan year in which the
amendment was effective
Providing the SPD Existing Plan
• For new participants: Provide SPD no later than 90 days after the employee first becomes a participant
• For a beneficiary: Provide SPD no later than 90 days of first benefits provided to the beneficiary
• - Likewise for an alternate payee under QDRO
• For a rehire:If a rehire had taken full distribution, then treated as a new participant at rehire for
SPD purposes
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Summary Plan DescriptionForeign Language Rules
• If participants are only literate in a particular foreign
language,
• the plan administrator must provide a cover notice written in
their language, with the SPD:
• stating that assistance in understanding the SPD is available.
• The employer need not provide an SPD written in that
language.
• The notice must include:
• plan administrator’s phone number
• information about where and when the assistance will be made
available.
Summary Plan DescriptionForeign Language Rules
• The rules are applied differently based on whether it is
a small or large plan
• For small plans, fewer than 100 participants on first day
of plan year, the rules apply if:
• 25% or more are literate only in a particular foreign language
• Example:
• Plan has 90 participants, 40 are literate only in Spanish.
• The notice must be provided in Spanish.
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Summary Plan DescriptionForeign Language Rules
• For large plans, 100 or more participants on first day of plan year, the rules
apply if:
• The lesser of 500 participants or 10% of all participants are literate only in a particular
foreign language
• Example 1 – 10% rule
• A plan has 3,000 participants, 350 are literate only in Vietnamese and 50 are literate
only in Japanese.
• The notice must be provided in Vietnamese, but not Japanese
• Example 2 – 500-employee rule
• A plan has 9,000 participants. There are 700 who speak only Spanish.
• Even though less than 10%, since there are more than 500, the foreign language
notice must be provided.
Summary Plan DescriptionEnforcement
• DOL may request, or audit, an SPD at any time
• Up to $110/day maximum of $1,100 for failure to provide DOL
with an SPD that the DOL has requested. ERISA 104(a)(6) and
ERISA 502(c)(6)
• Participant enforcement
• Failure to provide SPD or failure to provide adequate
information
• DOL court enforcement
• DOL can seek injunction and seek “other equitable relief” to
handle any harm done to participants
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Summary Plan DescriptionEnforcement
• ERISA Section 501 provides criminal penalties for
anyone who willfully violates the disclosure
requirements:
• Personal liability of $5,000, and/or up to 1 year imprisonment
• Corporate liability, if culpable person is not an individual:
$100,000
Summary Plan DescriptionEnforcement
• Participant enforcement
• Failure to provide SPD or failure to provide adequate
information
• CAVEAT: If SPD and plan document do not match
• There had been a number of court cases and generally, the
SPD will be deemed to override the plan document if the
participant was
• prejudiced or harmed, or
• there was detrimental reliance
• Supreme Court Case: Cigna v. Mara (No. 09-804, May
16, 2011)
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Summary of Material Modifications
• SMM may be given instead of whole SPD, if there is a material
modification to the plan or when information in the SPD has been changed
• Due within 210 days (7 months) after the close of the plan year in
which the amendment was adopted
• If a new participant is receiving an SPD for the first time, he or she must
receive any SMM that describes an amendment not yet incorporated into
the SPD
• SMM no longer required once the SMM information is incorporated into the
SPD
• Citation: ERISA sec. 104(b); regulations: 2520.104b-3 and 4
• Failure to provide: Up to $110/day maximum of $1,100 for failure
to provide DOL
Summary Annual Report (SAR)
• Summary of Form 5500 financial transactions
Due within 60 days after the Form 5500 filing deadline
5500 extension extends the SAR deadline
To be delivered to each participant and beneficiary (not posted on bulletin
board)
Same enforcement as SPD
Annual Funding Notice for a DB Plan instead of SAR
• Citation: ERISA section 104(b)(3); DOL Regulations 2520.104b-10(c)
Failure to provide: Up to $110 per day; If willful: court enforcement or civil
penalties
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Documents Available for Review and to Be Provided Upon Written Request
• When Participants/Beneficiaries File a Written Request for
Documents, They Must Be Provided within 30 days After Receipt of
Written Request
• Applications for Determination Letter
• Form 5500
• Plan Documents under which the plan is established and operated
• Note: Employer can’t provide documents about other participants (privacy
laws)
• A reasonable charge for providing copies is permitted.
• Citation: ERISA section 104(b)(4)
• Failure to provide: Up to $110 per day
Documents Required to Be Provided Upon Written Request
• No charge to provide required disclosures. i.e. no charge for
providing initial copy of SPD, however , if participant request
another copy, plan could charge for the additional copy
• Reasonable charge for providing copies of a maximum of 25
cents per page. Guidelines for charging in DOL Regulation
2520.104b-30
• Penalty to plan administrator for not providing copies within 30
days of a written requested is $110 per day late that the court my
award to the participant. ERISA 502(c)(1)(B)
• Penalty does not apply if it is lateness is beyond the reasonable
control of the plan administrator
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Form 5500 Display
• For electronically filed Form 5500s, within 90 days after the date
the Form 5500 is filed with the DOL:
• DOL to display the Form 5500 information on the DOL website
• Companies with an intranet site for the purpose of communicating with
employees and not the public must display the Form 5500
information on their intranet site for a DB plan
• Citations: ERISA section 104(b)(5), PPA 504
ERISA 404(c) Related Disclosures
• List of investment options including general description of risk/return
characteristics; Summary Prospectus
List of investment managers;
Description of fees;
Limitations on the exercise of voting rights; and
Contact information for a responsible plan fiduciary
Mapping Notice
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Mapping Notice
• Mapping notice is sent to participants 30 to 60 days
before changes made and provides:• information comparing the existing and new investment options
• characteristics of remaining or new investment options,
including risk and rate of return, are reasonably similar
to those of investment options immediately before the
change.
• an explanation that, in the absence of affirmative investment
instructions from the participant or beneficiary to the contrary, the
account will be invested as described in the notice
• Failure to provide: No 404(c) protection after qualified change in
investment options
Blackout NoticeSarbanes-Oxley Act
• Blackout notice to be provided 30 to 60 days in advance of a blackout
• A blackout is defined as a period of at least 3 business days during which
a participant is unable to:
• Request a distribution,
• Request a loan, or
• Transfer assets from one investment to another
• Occurrence of any one of the three events brings notice requirement
• Citation: ERISA section 101(i), DOL Regulation 2520.101-3; PPA sections
509, 621
• Failure to provide: Up to $131 per day per participant, ERISA 101(i)
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Blackout Notice – Contents
• DOL issued a model blackout notice
• Notice is to contain:
• Reason for blackout
• Name/phone number of plan admin/contact
• Identification of investments or other rights affected
• Statement about evaluating investments before blackout
• Expected beginning and ending date
• If using the week of method, provide info to obtain exact date via
web and/or toll-free phone number
Blackout Notice
• 30-days in advance may be waived in event of
unforeseen events such as a hostile take-over, regs
state that notice must be provided ASAP.
• If 30 days advance notice not provided, the reason why
• Notice not required if:
• Participant investment direction is being removed from plan.
This is not be a blackout.
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ERISA 204(h) Notice
• ERISA 204(h) Notice is a reduction of benefit notice
• 45 days before effective date for plans with 100 or more
• 15 days before effective date for plans with less than 100
• For example, used when
• Money Purchase Merged into 401(k)
• Money Purchase terminated
• DB terminated
• Citation: ERISA section 204(h) and IRC section 4980F(e) and IRS
Regulation 54.4980F-1
• Failure to Provide: Amendment is invalid
Benefit Statements
• Defined Benefit (DB) Statement Requirements
• DB statements must be provided once every three years, OR
• A notice must be provided every year:
• informing the participants that a statement is available upon
request.
• Statements must include the vested benefit
• Citations: ERISA section 105, DOL FABs 2006-3, 2007-
3, PPA section 508• Failure to provide: Civil penalty, up to $110 per day
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Defined Contribution StatementsEmployer Directed Investments
• ANNUAL STATEMENT REQUIREMENT for plans in
which Employer Directs All Plan Investments• i.e. where no participant direction of any investments in the plan
• value of each investment as of the valuation date, including
employer securities
• Deadline: same as Form 5500 deadline; i.e. last day of 7th
month after plan year end
• Possibility of 2 month extension
• Citation for deadline: FABs 2006-3, 2007-3
DC Quarterly Benefit StatementsEmployee Investment Direction
• Quarterly statement required for DC plans with any participant investment
direction
• Deadline: within 45 days after end of quarter
• Sources of funds and balance
• Investments and balance
• Optional plan Provisions to be included:
• Permitted Disparity
• Floor offset
• Any plan limits on investing
• Diversification language must be provided to participants, sample
language in FAB 2006-3
• Must provide DOL investment diversification web site:
http://www.dol.gov/ebsa/investing.html
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Benefit Statements
• FAB 2006-3, good faith compliance,
• Permits multiple documents from various vendors
• Employees must receive notice of multiple statement pieces before
statement pieces
• Electronic statement rules, (covered later)
• Vested account balance to be provided at least once a year, not
every quarter
• Vesting percentage is sufficient
• Model Benefit Statements were to be issued by DOL 1 year after
PPA, i.e. by August 17, 2007,
• still pending, but…
Qualified Default Investment Alternative (QDIA) Notice
• QDIA
• Provides employer fiduciary relief when making investment
selection for participants not responding to the request to make
investment elections. i.e.
• automatic enrollment plans
• change of investment provider
• Citations: ERISA section 404(c)(5), DOL regulation
2550.404c-5(d), PPA section 624
• Failure to provide: fiduciary has no QDIA protection
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Qualified Default Investment Alternative (QDIA) Notice
• QDIA Notice must be provided:
• at least 30 days before the first investment in a QDIA, and
• annually at least 30 days before the start of each plan year
• Guidance unclear as to who to provide the annual QDIA notice
to -- best practice is to provide to all participants
QDIA Notice Content Requirements Continued
• Circumstances causing participant’s assets to be invested in QDIA; plan’s ACA
provisions, if applicable
• A description of the QDIA, including a description of:• the investment objectives,
• risk and return characteristics (if applicable), and
• fees and expenses for the investment alternative;
• A description of participant’s right to direct QDIA into other plan investment(s), and
a description of any restrictions, fees or expenses with such transfer; and
• Where participant can obtain investment information concerning the other
investment alternatives available under the plan.
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QDIA Notice
• Must be written in a manner to be understood by the average plan
participant.
• The notice may not be part of the SPD or SMM.
• QDIA Notice
• may stand alone.
• any participant directed plan may have a QDIA.
• may be combined with the safe harbor notice and/or the automatic enrollment notice.
• 30 to 90 days before beginning of plan year
• may be provided electronically, provided the DOL or IRS rules for providing electronic
communications are satisfied.
• IRS included default investment language in ACA notice. DOL did not
provide a model.
QDIA Proposed Regulations Reflect Target Date Proposed Regulations
• When the Proposed Target Date Fund (TDF) and QDIA
Regulations are finalized the Notice will change because the
proposed regulations require new comprehensive TDF disclosure,
to include:
• Narrative of when fund changes and how
• Graphical depiction of allocation changes (glide path) over time and when
the most conservative investment point (landing point) will be reached
• If a fund uses a particular date, i.e. 2050 retirement fund, an explanation of
the relevance of that date
• TDF QDIA mechanism may be redefined
• TBD: TDF change may impact participant disclosures
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QDRO Related Disclosures
• DRO notice to notify participant, and all alternate payees of receipt
of DRO,
• Failure to provide = qualification failure
• Required by Code Sec. 414(p)(6)
• QDRO determination notice, notifies participant and all alternate
payees of DRO meeting requirements to be a QDRO
• Failure to provide = qualification failure
• Required by Code Sec. 414(p)(6)
• Failure to provide: Up to $110 per day penalty
QDRO Related Disclosures
• Plan must have QDRO procedures
• Required by Code section 414(p)(6) and ERISA section
206(d)(3)(G)
• If plan pays a benefit on a DRO that is not a QDRO:
• potential disqualification,
• fiduciary liability
33
ERISA Civil Monetary Penalties
Increased for Inflation
The Federal Civil Monetary Inflation Adjustment Act Improvements of 2015
ERISA Civil Monetary Penalties Inflation Adjustment
• The Federal Civil Monetary Inflation Adjustment Act
Improvements of 2015 requires federal agencies to issue
an interim final rule by July 1, 2016, adjusting their civil
monetary penalties for inflation through October 2015.
• DOL issued its interim final rule June 30, 2016.
• There will be annual review and possible increases
going forward.
• Last prior information adjustment was in 2003
34
New Penalty Amounts Adjusted for InflationExamples
ERISA Penalty
Statute
Description of ERISA Violations
Subject to Penalty
Current Penalty
Amount
New Penalty
Amount
ERISA §209(b) Failure to furnish reports (e.g.
pension benefit statements) to
certain former participants and
beneficiaries or maintain records
Up to $11 per
employee
Up to $28
per
employee
ERISA
§502(c)(2)
• Failure or refusal to file annual
report (Form 5500) required by
ERISA §104; and
• Failure of multiemployer plan to
certify endangered or critical
status under ERISA
305(b)(3)(C) treated as failure
to file annual report
Up to $1,100
per day
Up to $2,063
per day
New Penalty Amounts Adjusted for InflationExamples
6
8
ERISA Penalty
Statute
Description of ERISA Violations
Subject to Penalty
Current
Penalty
Amount
New Penalty
Amount
ERISA
§502(c)(4)
• Failure to notify participants under
ERISA §101(j) of certain benefit
restrictions and/or limitations under
Code §436;
• Failure to furnish certain
multiemployer plan financial and
actuarial reports upon request under
ERISA §101(k);
• Failure to furnish estimate of
withdrawal liability upon request
under ERISA §101(l);
• Failure to furnish automatic
contribution arrangement notice
under ERISA §514(e)(3)
Up to $1,000
per day
Up to $1,632
per day
35
New Penalty Amounts Adjusted for InflationExamples
ERISA Penalty
Statute
Description of ERISA Violations
Subject to Penalty
Current
Penalty
Amount
New Penalty
Amount
ERISA
§502(c)(6)
Failure to furnish information requested
by the Secretary of Labor under ERISA
§104(a)(6)
Up to $110
per day not to
exceed
$1,100 per
request
Up to $147
per day not
to exceed
$1,472 per
request
ERISA §502(7) Failure to furnish a blackout notice
under ERISA §101(i), or notice of the
right to divest employer securities
under ERISA §101(m)
Up to $100
per day
Up to $131
per day
https://www.dol.gov/ebsa/pdf/fs-interim-final-rule-adjusting-erisa-civil-monetary-penalties-for-inflation.pdf
https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/fs-interim-final-rule-
adjusting-erisa-civil-monetary-penalties-for-inflation.pdf
ERISA Civil Monetary Penalties Inflation Adjustment
• Transition Rules
• New fees assessed after Aug. 1, 2016, where
associated violations occurred after Nov. 2, 2015.
• Violations occurring on or before Nov. 2, 2015 and
assessments made on or before Aug. 1, 2016 for
violations occurring after Nov. 2, 2015, use old rates.
• Starting 2017, there may be an annual fee
adjustment, by January 15 of each year.
• E.G. by Jan. 15, 2017, DOL may adjust penalties for
inflation increase from Oct. 2015 to Oct. 2016.
• Changes will be posted on EBSA website.
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