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Podcast: Dealing with Blackout Periods

Podcast: Dealing with Blackout Periods

Dave Dacey, CPA, Withum Partner and Practice Leader of Employee Benefits Plan Services, interviews Sheri Wronko, CPA, Withum Senior Manager and ERISA expert, to take a closer look at the world of blackout periods.

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This podcast was transcribed through a third-party application. Please disregard any misrepresentations.

Speaker 1:
[inaudible].

Speaker 2:
Thank you for joining us for this segment Withum sounding board and practical audio based information for today’s on the go professional production of Withum Smith and Brown PC.

Speaker 3:
Hi, I’m Dave Dacy with Withum Smith and Brown’s employee benefit plan services group and joining me today is Sherry Rocco who is also from Withum’s employee benefit plan services group. Sherry is a senior manager and is domiciled in the new Brunswick office. Shari, thank you for joining me today. Thank you David. So let’s kick this off. Today’s topic is on the concept of blackout periods. So let’s just start with a basic question. What exactly is a blackout period under Orissa?

Speaker 4:
Well, a blackout period would be a period generally lasting more than three consecutive business days during which the participants or the beneficiaries of the plan are not allowed to direct or change their account balances are in essence suspended from any transactions in the plan, including obtaining loans or distributions for the plan.

Speaker 3:
Okay, so more than three business days, that’s the actual definition. Let’s drill down a little bit. What are some examples of what can actually trigger a blackout period?

Speaker 4:
There are several things that could trigger a blackout period. For example, a change in a third party administrator or [inaudible] would cause that as an example. If the plan was changing from one provider to another, there is time that’s needed to take care of the record, keeping aspects involved, so the new providers going to want some time to set up those new accounts. Another example would be a corporate merger or an acquisition or a major change to the plan such as a change to an available investment option.

Speaker 3:
Okay. So it’s three business days and those are some examples. What about exclusions? Are there any types of events that are excluded from the blackout period definition?

Speaker 4:
Yes. The suspensions that are required by federal securities laws or a suspension in accordance with a qualified domestic relations order. Those are both excluded well as any regularly scheduled suspensions, which are usually disclosed to participants in a summary plan description or in a participant enrollment form.

Speaker 3:
Yeah. I guess the theory being that the summary plan description occurred earlier, so they really were put on notice and it’s part and parcel with the plan. Exactly. Yeah. So. Okay, well let’s move on. Let’s get into the notice rules. When there’s a blackout period, there is a requirement to have a notice. What exactly are those walls?

Speaker 4:
Well, Sarbanes Oxley added a a section one Oh one which requires plan administrators to provide plan participants with generally at least 30 days. Notice. It can be up to 60 days advance written notice, but they don’t want it to be more than 60 days. Really the theory there is that if you provide more than 60 days, chances are people are going to forget. That’s too much a time period. So between 30 and 60 days is ideal and that’s triggered from the start of the blackout period.

Speaker 3:
Okay. So we know that if there’s more than three consecutive business days that at least a portion of the plan is going to be at an action with respect to the participants and if there’s not otherwise and exclusion that there needs to be a notice that’s produced. What type of information is included in the blackout? Notice Sherry,

Speaker 4:
the blackout notice should include the reasons for the blackout, the investments that are subject to the blackout. And the beginning and ending dates of the blackout period. So in the example that I gave before, if you’ve got a change in an investment custodian, the notice should say your blackout period will be from X date to X date. The reason for the blackout period is due to a change in the investment custodian and all of the investments of the plan will be subject during this blackout period. You also want to give participants a contact for who they can ask questions to regarding the blackout period. So for example, somebody at the company, a name of somebody or a department name as well as an address and a telephone number so people know where to call to get further information about the blackout period, your blackout period. Notice also should include a statement about participants’ rights and the fact that they’ve been temporarily suspended as well as a statement that participants should evaluate their investment decisions given light of this blackout period and the change in their rights. If more than 30 days advanced notice isn’t given to your participants of statement. That federal law generally requires advanced notice and an explanation as to why you couldn’t give your participants 30 days notice is needed.

Speaker 3:
Okay, so we’ve got the details on what goes into the notice. How does the notice have to be furnished to the participant, Sherry?

Speaker 4:
Well, the notice could be either via mail or in some sort of electronic format. So whether it’s first class mail, certified mail, express mail, all those would qualify. And with regards to electronic media, the notice could be furnished via email or even if it’s just available on a website. So long as it’s easily accessible to participants, that’s fine. Okay, great. Great.

Speaker 3:
What exactly happens if the plan doesn’t follow the blackout notice rules? I imagine there’s penalties. Can you maybe talk about the penalties for noncompliance?

Speaker 4:
Sure. Well, the department of labor can assess a civil penalty of up to a hundred dollars a day per individual for failure to satisfy these notice requirements.

Speaker 3:
So $100 per day per participants. So if you had a plan with a thousand participants, we’re talking about a lot of money for failure to do blackout notices. Yes, it could add up quickly. Oh, okay. I guess we better make sure we do the blackout notices or at least that our plans make sure that we do the blackout notices. Okay. One final question today, Sherry. What types of transactions are excluded from the 30 day blackout notice requirement but may still need to be made as as soon as reasonably possible?

Speaker 4:
Well, if there is an inability to provide the notice due to some sort of unforeseeable event that’s beyond the plan’s control. For example, a hurricane in the area areas out of power, you can’t possibly provide this notice. Another example would be if the plan is in a bankruptcy. So for example, in any kind of deferral of the blackout period, which would result in a violation of Rissa. So for example, in a bankruptcy where the company stock is an investment of the plan, you might not have the time to give that 30 day notice,

Speaker 3:
but it would be improved not to like cease transactions with that bankrupt entity. Exactly. Yeah, that’s a good point. Any other situations

Speaker 4:
in a merger and acquisition transaction. That’s another

Speaker 3:
area where you may not have 30 days notice to give participants enough time. Okay, great. Well, I think that really does a terrific and concise job as far as going over the blackout notice area rule. Sherry, thanks a lot for your time and thanks for making clear that this interesting topic. Appreciate your time. Thank you, David.

Speaker 2:
You’ve been listening to with them sounding board, practical audio-based information for today’s on the go professional. How can put them help put you in a position of strength. Contact us with your feedback or suggestions for future podcast topics, visit www.withum.com for additional information, send an email to info@withum.com or follow us on Facebook, Instagram, or Twitter at @withumCPA, thank you for listening.

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