OUR THOUGHTS ON:

Timely Distribution of Annual Safe Harbor Notices

401(k) Plans

By Anthony Margiotta

Under Internal Revenue Service (IRS) guidelines, plan sponsors that offer “safe harbor” contributions within their qualified retirement plans are required to distribute annual safe harbor notices to all eligible plan participants no sooner than 60 days and no later than 30 days before the first day of each plan year. 

Annual safe harbor contributions include either 3% non-elective allocations or employer matching contributions as stated within the plan document.   As we quickly approach the turn of the new year, retirement plans with calendar plan years must distribute safe harbor notices no later than November 30.   

The IRS requires the distribution of safe harbor notices in advance of the beginning of each plan year in order to give all eligible plan participants sufficient time to adjust their future employee elective deferral percentages in conjunction with their anticipated safe harbor contributions.  These adjustments typically include increasing employee elective deferral percentages in order to ensure the receipt of the maximum safe harbor matching contribution.

Failure for plan sponsors to distribute safe harbor notices in a timely manner may result in the plan sponsor having to make corrective contributions to plan participants who did not receive maximum employer contributions as a result of being unaware of future safe harbor allocations.

While not required by IRS guidelines, it is good practice for plan sponsors to review employee elective deferral percentages with both new and existing participants so that they are fully aware of the potential employer contributions for which they are entitled.  By reviewing each employee’s elective deferral percentages, the plan sponsor can ensure that employees are receiving maximum retirement plan contributions while building a high level of trust among the workforce.

Schneider Downs Wealth Management Advisors is proud to employ a team of retirement plan specialists who are ready to help any company needing assistance in maintaining, modifying or enhancing their 401(k) plan. Please contact Karl W. Kunkle (412-697-5401) for any retirement plan assistance.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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