Legislation that regulates the administration of retirement plans is constantly on the political discussion agenda.  While it can be difficult to keep updated on all the changes, we’ve seen a few notable modifications to existing guidance and revenue procedures that we thought you should know.

Relaxed correction requirements for missed (pre-tax) elective deferrals in automatic enrollment plans

Current legislation requires employers who missed (pre-tax) elective deferrals in automatic enrollment plans to make a corrective employer contribution, called a QNEC (Qualified Non-Elective Contribution), of 50% of the missed “opportunity.” The employer would also be responsible to replace 100% of any missed match contribution, plus applicable lost earnings on all contributions.

The revised legislation lets employers avoid the QNEC altogether as long as the following are true:

  • The amount of time deferrals were missed do not exceed 9 ½ months after the end of the plan year in which the first deferral was missed
  • The election is started on the first payroll following discovery
  • Notice is given within 45 days to the affected participant(s)
  • A QNEC is provided for any missed match contribution, plus applicable lost earnings

This update does not modify the corrective protocol for after-tax (Roth) corrections, which remains at current level of 40% corrective contribution. The employer is also responsible to replace 100% of any missed match contribution, plus applicable lost earnings on all contributions.

Additional (good) news for missed pre-tax elective deferrals, in general

  • Missed elections persisting less than 3 months do not require a QNEC, as long as the missed election was corrected timely and a notice is provided to the affected participant(s).
  • Missed elections persisting more than 3 months, but was identified before the end of the second plan year following the year in which the first deferral was missed, will require only a 25% QNEC, reduced from 50%. Timely correction and a notice to the affected participant(s) are still required.
  • For all situations, the employer is still responsible for replacing 100% of any missed match contribution, plus applicable lost earnings on all contributions.

Currently, these changes will expire on 12/31/2020 and revert to previous guidelines unless further notices are issued. For more detailed information, please see documentation from the IRS.

Relaxed timing requirements for fee disclosure delivery

Historically, the annual participant fee disclosure (404(a)(5) disclosure) needs to be supplied to all participants (eligible, active, and terminated with account balances) at least annually, which is defined as once every 365 days.

New regulations allow 14 months to pass between the deliveries of the prior year’s disclosure and the new year’s disclosure.

This could be beneficial to plan administrators because they now have more leeway to provide the required notice at a more opportune time, such as coordinating this notice with other required annual notices.

This modification will be effective June 17, 2015, but plan administrators can rely on this guidance immediately. However, please note that this update does not modify 404(a)(5) disclosure regulations related to newly eligible participants, or when plan investment changes occur.
 

Corrective protocols have many rules and exceptions; it is highly recommended that you seek guidance before applying a protocol to a specific situation.

 

Luciano Costantini – Director of 401(k) Services at Sequoia Consulting Group, helping companies help employees save for retirement. When not training for marathons and triathlons, he can be found icing his hamstrings and quietly whimpering in pain.