SECURE Act 2.0 Participant Noticing Requirement Changes
The Secure Act 2.0, released in late December 2022, has significantly changed the retirement plan industry. Companies that sponsor a retirement plan for their employees must review each provision of this Act to keep their plans compliant. Since its enactment, many articles, webinars, and educational materials have been released regarding the changes imposed. One key area all plans must review and determine procedures is the changes to participant noticing.
You will need to review two key provisions. First, section 320 allows plan sponsors to no longer distribute notices to employees who have elected not to participate in the retirement plan and who do not have any assets in the plan. Section 338 requires plans to distribute at least one paper notice annually to all participants. These rules require the plan to implement administrative procedures to ensure they follow each one correctly.
As support plan sponsors, we have summarized these sections of the SECURE Act as provided by the Department of Treasury and made suggestions for implementation.
Section 320 - Eliminates unnecessary plan requirements related to unenrolled participants. For example, under current law, employees eligible to participate in a retirement plan must receive a broad array of notices to inform them of their various options and rights. However, for eligible employees who have not elected to participate in the plan (“unenrolled participants”), these notices—such as notices regarding the different investment options available under the plan—are generally unnecessary and can even adversely affect savings and coverage.
Section 320 no longer requires employers to provide certain intermittent ERISA or Code notices to unenrolled participants who have not elected to participate in a workplace retirement plan. However, to encourage unenrolled employees to participate, the plan must send: (1) an annual reminder notice of the participant’s eligibility to participate in the plan and any applicable election deadlines, and (2) any required document the participant may request at any time. This rule applies only to an unenrolled participant who received the summary plan description in connection with initial eligibility under the plan and any other required eligibility notices. Section 320 is effective for plan years beginning after December 31, 2022.
Plan sponsors and plan committees should review this section’s details and consider the following factors when determining how to implement this provision.
Plan sponsors should develop two classifications for distributing notices:
· Class 1 – Actively contributing participants or those who are not contributing but have a balance in the plan.
· Class 2 – Eligible employees who are not participating and do not have a balance in the plan.
This categorization will allow the fiduciary responsible for distributing notices to validate that they are sending a communication to the correct participants, not those exempt. The plan sponsor and plan committee must regularly review and update which classification applies to each employee. Additionally, plan sponsors should communicate this new procedure to all participants to ensure eligible, but non-participating employees know they will not receive plan communication. This notification should also provide these employees with their rights regarding requesting information.
Plan sponsors who outsource their noticing responsibility to a third-party service provider should verify how they will provide noticing and communication within these rules and assess fees regarding these notices. The plan sponsor should also request details regarding the third-party service provider’s responsibilities and indemnifications.
Finally, the plan sponsor and plan committee must ensure that participants who are exempt from regular notices (Class 2 above) receive annual communication regarding eligibility and are made aware of their ability to request and receive any plan communications.
Section 338 - Requirement to provide paper statements in certain cases. Section 338 amends ERISA to generally provide that, concerning defined contribution plans, unless a participant elects otherwise, the plan must provide a paper benefit statement at least once a year. The other three quarterly statements required under ERISA are not subject to this rule (i.e., they can be provided electronically). Unless a participant elects otherwise for defined benefit plans, the required statement that must be provided once every three years under ERISA must be a paper statement.
The Labor Secretary must update the relevant sections of their regulations and corresponding guidance by December 31, 2024, and the annual paper statement is effective for plan years beginning after December 31, 2025.
Plan sponsors must review this new responsibility and develop an implementation process. Section 338 requires that participants’ benefit statements are physically mailed a minimum of once a year. This process confirms that participants who are automatically enrolled in electronic distribution but don’t regularly (or ever) check their accounts will at least receive one physical notice to review. Plan sponsors and plan committees should develop a procedure to ensure this physical notice is sent annually and implement a system to prove it was sent and the participant received it.
In 2021, the Department of Labor issued guidance related to communication distribution and how to address participants who are considered “missing.” This best practice should be the basis of the plan’s process for physical notice distribution. The method includes a way to validate that the participant received the notice; if the validation doesn’t occur, the plan should perform and document the recommended escalation steps. By doing so, the plan will cover its requirements and have proof of diligence in case of an audit or litigation.
Suppose the plan sponsor outsources the noticing responsibility to a third-party service provider. In that case, the plan sponsor and plan committee should review the service provider’s service agreement to confirm the roles and responsibilities of the plan versus the service provider. Additionally, the plan sponsor should review any liability indemnifications in the service provider’s service agreement.
Utilizing internal procedures or outsourced support, the plan committee should regularly review the noticing process—primarily related to this new rule requiring physical notices. Noticing review includes the following:
· Verification of notices being sent
· Verification of notices being delivered
· Affirmative verification that each participant has received their notice
· Process execution related to missing participants
· Execution of beneficiary communication in case the participant cannot be located
Retaining proof of these processes ensures compliance with the DOL and Treasury Department requirements.
These two new sections require plans to review their current procedures and make the necessary changes to be compliant.
For more information on implementing these new responsibilities, please get in touch with us. Plan Notice can implement your new noticing requirements via its proprietary software. When a plan engages our services, we take full responsibility for participant communications and indemnify the plan and the plan sponsor from any costs or litigation arising from improper on noncompliant participant notifications.
