The U.S. Labor Department’s Pension and Welfare Benefits Administration has published rules to implement a new federal law”the Sarbanes-Oxley Act”; that, among other things, requires 401(k)-type plans to give participants 30 days’ advance notice of individual retirement plan blackout periods. The rules apply to blackout periods occurring on or after Jan. 26, 2003. We’ll explain what the new rules require.
What Is A Blackout Period?
Under the new rules, a blackout period generally includes any time when participants or beneficiaries in individual account plans—such as 401(k)s—are suspended, limited or restricted from directing or diversifying assets credited to their accounts or from obtaining loans or distributions from the plan.Common reasons for a blackout include changes in investment options or recordkeepers, as well as corporate mergers, acquisitions and spin-offs that impact plan coverage.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
What’s Required
Participants must receive at least 30 calendar days’—but not more than 60 days’—advance written notice of a blackout period. The 30 days must be counted back from the last date the participant or beneficiary has the right to take action under the plan in anticipation of the blackout period. Notice can be provided electronically.The blackout notice must include the reasons for the blackout; a description of the rights to be suspended; the start and end dates of the blackout period; and the name, address and phone number of the plan administrator or other person responsible for answering questions about the blackout period. It must also contain a statement advising participants to evaluate their investments based on the inability to direct or diversify their assets during the blackout period. If the notice isn’t provided 30 days before the blackout period, the notice must state: 1) that federal law generally requires that notice be furnished to affected participants and beneficiaries at least 30 days in advance; and 2) why timely notice couldn’t be given.
Penalties And Special Rules
Not providing the new notice can result in civil penalties of up to $100 per day per participant. The penalty is computed from the date of the plan administrator’s failure or refusal to provide the notice up to and including the final day of the blackout period for which the notice was required.
Note that there are special notice rules when the plan includes employer stock as an investment option. Also, the new regulations specify several exemptions from the notice requirements.