my flash drive is nearly full - disclosures and notices...

1

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.

2

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

3

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

4

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

5

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

6

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

7

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)

8

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

9

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

10

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

11

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

12

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

13

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

14

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

15

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

16

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.”

17

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

18

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

19

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.


• 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.

20


• 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

21


• 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


• 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)

22

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

23

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

24

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

25

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)

26

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.

27

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

28

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

http://www.dol.gov/ebsa/investing.html

29

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

30

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.

31

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

32

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


6

8

ERISA Penalty

Statute


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


ERISA Penalty

Statute


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.

7

0

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

36

Questions or Comments