Do I send my retirement plan notices correctly?
The answer to this question is a resounding “maybe.” The notice-sending process has changed significantly over the years, so The Department of Labor (DOL) has implemented new best practices and suggestions to provide you with a template for sending notices to your retirement plan participants.
However, we’ve found that even with these detailed new practices spelled out for them, many 401k administers (and especially third-party providers) continue to use their old methods of sending notices. In this case, “tried and true” doesn’t cut the muster.
So, to which “old methods” am I referring?
Historically, most plans print required notices and mail them to each participant based on either the address in the payroll system or in the retirement plan system (the operational procedure typically informs census data). Additionally, some send a company email to all their active participants.
While these now-outdated methods were considered reasonable prior to the recent DOL clarifications, these prior practices will leave compliance gaps moving forward.
For instance, mailing notices is ineffective because many plans have a high percentage of incorrect census data. The inaccuracies result from participants moving and not updating the plan with their new address. Ex-employees who still have a balance in their 401k plan rarely remember to update their communication information. Even active employees frequently forget to update their information, as most receive their paycheck via direct deposit. Prior to direct deposit, if you didn’t update your address, you didn’t get a paycheck, but when money appears like magic in your bank account, your physical address starts to feel irrelevant. These census errors compound over the years the plan is in existence.
As the plan administrator, if you opt to send notice by email you need to follow detailed electronic delivery rules. First, participants must have a way to opt out of electronic delivery and default to free paper delivery. For that reason, every year the plan administrator must communicate that the plan will be sending its notices electronically, and these notices must chronicle the participants’ rights. Second, a mechanism must be in place to verify that the notice was sent to a valid email address. For instance, if employees use a work-issued email and then leave the company, will they continue to have access to that email address, or does the ex-employee’s email become obsolete, preventing the notice from ever being delivered? Electronic delivery can be very cost effective and simplify the process, but detailed rules must be followed.
Clearly, sending required plan notices via mail and email doesn’t necessarily meet the DOL’s overarching goal, which is to ensure that all participants receive their notification. To protect your plan from fees in the event of an audit, we recommended you not only have proof of distribution of notice, but that you also accumulate proof of verified census information and proof of receipt. Best practice is to interact with each participant multiple times a year, to ensure they’re receiving their information and haven’t gone missing.
With the DOL’s increased rule enforcement, if you need a way to outsource this burden, contact us at Plan Notice and we can review our helpful solutions with you.
