If you are employed at a company offering a 401(k), you’ve probably received a fair number of notices regarding your plan. This happens particularly often toward the end of the year. If you’re unfamiliar with the ins and outs of 401(k)s, you may not know which notices should move you to act and which are purely informational. This article discuses how to understand the types of 401(k) notices and when to act.
Automatic Enrollment Notice
Many 401(k) plans today automatically enroll employees at a specific contribution level once they are eligible to join the plan. You may even be enrolled in automatic contribution increases every single year.
When To Act
If you would not like to be enrolled in the 401(k) or like to contribute an amount that is different from the default, you will need to opt out. Depending on how your plan is set up, you may need to make this change online or by speaking with your payroll department directly. In most cases, I like to encourage people to save at least a small amount to their 401(k) because of the tax advantages and discipline offered by being able to contribute directly through payroll.
Safe Harbor Notice
Safe Harbor notices are informational notices to let you know what your employer will contribute on your behalf to the plan and your rights to the match as an employee.
When To Act
While the Safe Harbor notice is largely informational, you may want to act in two cases. Firstly, if you are not contributing enough to take full advantage of the match, you might want to consider increasing your contributions. Secondly, the Safe Harbor match is often paid after the end of the calendar year. If you plan to leave your employer and potentially move money out of the plan, you’ll want to know to look out for a later contribution, so you don’t leave money on the table.
Qualified Default Investment Alternative Notice
Most 401(k) plans will put you in a default investment if you have not elected to make any changes. This notice is to inform employees of the options they will be defaulted into.
You should review this notice to understand the investments and associated costs. For many plans, but not all, the default investment option is known as a Target Date Retirement Fund. These funds assume a retirement age of 65 and automatically invest in a portfolio of mostly stocks when you are young and more conservative investments as you get older. They are usually more expensive than if someone chose to allocate their portfolio on their own.
When To Act
If you’d like to take a more customized approach or reduce fees, you may want to consider rebalancing your portfolio. Consider consulting a qualified financial professional and taking a risk assessment before making major changes.
Summary Plan Description
This is a notice to inform employees of plan provisions, rules, and options.
When To Act
While the notice is informational, it is beneficial to understand more about your plan. For instance, most people are defaulted into pre-tax contributions, but you may read the Summary Plan Description to discover you have both Roth and pre-tax options. Matching and vesting information may also give important insight as to how much you’d like to contribute and how long you may want to stay in your role.
Annual Fee Disclosure
This notice informs you of administrative charges and the costs of the investments inside your 401(k).
When To Act
While the administrative fees are not something you really have power to change, you can change your investments to reduce internal fees. When making an investment change, consider your risk tolerance, financial goals, investment performance, and the associated investment costs.
401(k) Plan Amendment Notice
This is to inform you of changes to the plan, including contribution limits and investment option changes.
When To Act
Usually, no action is needed. You will want to double check if any of your investments were affected by the changes and if you are trying to maximize your 401(k) contributions, you may want to consider increasing your contributions in line with the new limits.
Conclusion
While many notices about your 401(k) plan may get ignored, there are some instances when you will want to pay extra attention or act. When you have specific financial goals, want to maximize your match, want to reduce fees, or want to change the tax nature of your contributions, action may be needed. If you’re unsure how to approach this, consider consulting a qualified financial professional.
This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-7434072.1 (12/24)(exp. 12/28)
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