Q&A on Dealing with Blackout Periods for 401(k) Plans, Profit Sharing Plans and ESOPs

Q&A on Dealing with Blackout Periods for 401(k) Plans, Profit Sharing Plans and ESOPs

The following Q&A will prove helpful in better understanding significant aspects of blackout periods for defined contribution retirement plans. For a more in-depth understanding of the DOL’s final rule issued in 2003, related to blackout periods, plan sponsors and interested parties should consult with qualified ERISA legal counsel.

Question Response
1. What is a blackout period under ERISA? A blackout period is a period lasting more than 3 consecutive business days, during which participants (or beneficiaries) are suspended from directing or changing account balances, obtaining loans or obtaining distributions from the plan.
2. What are some examples that can trigger a black-out period requirement?
  • If the plan needs to place a temporary restriction on a particular investment, several investments or the entire plan in order to administer a change.
  • Any event that would cause a participant to lose control of their retirement account. Examples may include:
    • A change in a TPA or service provider
    • A corporate merger or acquisition
    • Major changes to the plan, such as changes to available investment options
3. What events are excluded from the black-out period definition?
  • Suspensions required by federal securities laws
  • Suspensions in accordance with QDROs
  • Regularly schedule suspensions, which are disclosed to participants, such as in summary plan description or in participation enrollment forms.
4. What are the blackout notice rules? Sarbanes-Oxley added ERISA Section 101(i) to require plan administrators to provide ERISA plan participants with at least 30 days (but not more than 60 days) advance written notice before the last date prior to any black-out period of an individual account plans (e.g. 401(k) plans, profit sharing plans and ESOPs).
5. What information is required to be included in the black-out notice? The black-out notice must include:

  • Reasons for the blackout
  • Investments subject to the blackout
  • Those participant rights that have been temporarily suspended
  • The beginning and ending date of the black-out
  • A statement that participants (or beneficiaries) should evaluate their investment decisions in light of their suspended rights during the black-out
  • If at least 30 days advance notice wasn’t provided to the affected participants, a statement that Federal law generally requires the advance notice and an explanation of why at least 30 days could not be furnished
  • The name (or department), address and telephone number of the plan administrator or responsible person for answering questions about the black-out.
6. How must the black-out notice be furnished to the participant? The black-out notice is considered furnished on the date of mailing either by first-class mail, certified mail, or Express mail or privately delivered.Reasonably accessible electronic media communications are permitted.
7. What is the penalty for non-compliance with the black-out notice requirement? The DOL can assess a civil penalty of $100 per day per individual for failure to satisfy the notice requirement, from the date of the administrator’s failure to provide notice.
8. What transactions are excluded from the 30-day black-out notice requirement but require notice as soon as reasonably possible?
  • A deferral of the black-out period, which would result in a violation of ERISA (requires written determination by plan administrator or fiduciary)
  • Inability to provide notice due to unforeseeable events or beyond the plan’s control
  • Participants who are becoming or ceasing to be plan participants in connection with an M&A transaction.

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