New Annual Reminder Notice for Unenrolled Participants

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with a financial advisor from California is representative of a common inquiry related to a plan notices. The advisor asked: “The recordkeeper for my client’s retirement plan announced that it would be incorporating a new notice into its plan notice distribution process as a result of SECURE 2.0. What is the “Unenrolled Participant Annual Reminder Notice?”

Highlights of the Discussion

Some employees, although they may meet their retirement plan’s eligibility requirements to participate, choose not to. Prior to SECURE 2.0 (Public Law 117-328), plan sponsors were required to continue to provide these otherwise eligible but nonparticipants with all the same IRS and DOL plan notices as required for active participants. This task is often completed by a plan’s recordkeeper. Effective for 2023 and later years, SECURE 2.0 allows for a simpler way to satisfy plan notice requirements for these nonparticipants.

Pursuant to section 320 of SECURE 2.0, after the initial year of eligibility, sponsors of defined contribution, 401(k) and 403(b) plans may choose to give an otherwise eligible employee that elects not to participate a single “Unenrolled Participant Annual Reminder Notice” for a year in lieu of myriad other DOL and IRS notices typically required. Under the rule, the plan must provide 

1. An annual reminder notice of the employee’s eligibility to participate in the plan and any applicable election deadlines, and 

2. Any otherwise required document requested at any time by the otherwise eligible employee.  

During the initial year of eligibility, all participants must receive all required notices related to initial eligibility, including the plan’s Summary Plan Description (SPD). 

Beginning in 2024, it is possible that an eligible, nonparticipant who received the Unenrolled Participant Annual Reminder Notice timely (within a reasonable period before the beginning of the plan year) will no longer receive the following, unless requested: 

• SPD 

• Summary of Material Modifications (SMM) 

• Safe Harbor, EACA and QACA notices 

• Fund Changes 

• Annual Participant Fee Disclosure 

• Summary Annual Report 

Depending on the plan’s recordkeeper, plan sponsors may see a reduction in their mailing volume and associated fees for the above-listed notices. Plan sponsors and their advisors should understand how their recordkeepers will be addressing this issue and be prepared to answer participant questions should they arise.

In its request for information (RFI) in August of 2023, the DOL inquired what additional guidance plan administrators may need to implement this simplified disclosure process, including whether the notice should include additional information and whether a model notice would be helpful. The DOL also asked whether it should provide additional criteria for determining if participants are unenrolled. Comments were due October 10, 2023, and we are still awaiting the outcome.

Conclusion

Effective for 2023 and later years, SECURE 2.0 allows for a simpler way to satisfy plan notice requirements for otherwise eligible participants who choose NOT to participate by providing a single Unenrolled Participant Annual Reminder Notice. Plan sponsors and their advisors should understand how their recordkeepers will be addressing this issue and be prepared to answer participant questions should they arise.