401 (K) Plan Blackout Periods

Blackout periods are a fact of life for plan administrators. New regulations impose some very stiff penalties for failing to recognize them and give adequate notice to plan participants.

• A blackout is any period of more than three days when a participant who could otherwise make the transaction is temporarily restricted from:

o Directing or diversifying assets in his or her account;

o Obtaining a plan loan; or

o Obtaining a distribution from the plan.

• Several circumstances are not blackouts. A suspension, limitation, or restriction that is regularly scheduled under the plan is not a blackout, as long as the suspension, limitation, or restriction has been disclosed through:

o The summary plan description;

o A summary of material modifications; or

o Participation or enrollment forms or materials describing specific investment alternatives available under the plan.

• Other suspensions of a participant's rights that may not be a blackout include:

o Permanent restrictions on new contributions to an investment option;

o Replacement of one investment option with another;

o The temporary freeze of a participant's account that occurs during the qualification of a Qualified Domestic Relations Order;

o Termination of the plan or a suspension that occurs only as a result of a participant's action (e.g., failure to obtain a PIN number, dispute over a deceased participant's account, etc.).

• Blackouts typically occur when plans change recordkeepers or investment options or add participants due to a merger or a corporate acquisition. Under the regulations, plan administrators must provide blackout notices that:

o Explain the reason for the blackout;

o Include a description of the rights that will be suspended (such as the right to change investments);

o Indicate the start and end date of the blackout period; and

o Include a notice to evaluate current investments based on the inability to direct or diversify assets during the blackout.