401(k) Blackout Period

401(k) plans that permit participants and beneficiaries to direct the investment of their own accounts (“participant-directed 401(k) plans”) must issue advance notice of certain “blackout periods.” The term “blackout period” means a period of more than three consecutive business days during which participants or beneficiaries are temporarily suspended or restricted from:

• Directing or diversifying investments, or
• Obtaining loans or distributions from the plan.

A blackout period typically occurs when a participant-directed 401(k) plan changes recordkeepers, trustees, and/or its menu of investment options. It can also occur in certain plan merger or spin-off situations.

The term “blackout period” does not include any suspensions, limitations, or restrictions imposed on a participant’s account due to:

• A qualified domestic relations order (“QDRO”);
• Application of securities laws: or
• Changes in regularly scheduled periods that are disclosed to participants through plan materials (for example, quarterly investment direction as opposed to daily investment direction).

 Notice Content

The blackout notice must be written in a manner that can be understood by the average plan participant, and must contain the following information:

• The reasons for the blackout;
• A description of the rights otherwise available under the plan to affected participants and beneficiaries that will be temporarily suspended during the blackout period, including identification of each of the investments subject to the blackout period;
• The expected beginning date and ending date of the blackout period;
• A statement advising participants and beneficiaries to review their current investments due to their inability to make changes to their investments during the blackout period;
• In situations where the notice is provided less than 30 days in advance:
  • A statement that Federal law requires the notice to be provided at least 30 days in advance; and
  • An explanation as to why the plan was unable to meet these timing requirements. (The explanation as to why the plan was unable to meet the timing requirements is not required for certain exceptional situations involving mergers, acquisitions, or similar transactions; and
• The name, address, and telephone number of the plan administrator or other person responsible for answering questions regarding the blackout period.

Distribution

The notice must be provided to all participants and beneficiaries to whom the blackout applies (i.e., all participants who have the ability to direct their own investments under the plan).

• The notice must be delivered in a manner that is likely to ensure actual receipt, including delivery by means of U.S. mail or hand delivery.
• The notice also may be sent electronically.

Timing

A copy of the notice generally must be distributed to each participant:

• No later than 30 days before the beginning of the blackout period; and
• Not more than 60 calendar days in advance of the last date on which affected participants and beneficiaries could exercise their rights immediately before the blackout period begins.

Timing Exceptions

The DOL has indicated that plan sponsors are permitted to provide the notice earlier and more frequently than required by the interim rule, as long as at least one notice is provided during the required notice period.

In addition, the guidance lists certain situations under which the 30-day advance notice requirement does not apply. In these situations, the plan administrator is still required to provide the notice as soon as reasonably possible, unless such notice is impracticable.

Advance notice might be impracticable, for example, if the blackout period is determined only a few days before it begins, and the duration of the blackout is only for a short period.

The situations in which the 30-day requirement does not apply are:

• Deferral of the blackout period would result in a violation of fiduciary requirements;
• Events were unforeseeable, or circumstances were beyond the control of the plan administrator (the DOL anticipates that this exception will only be used in rare circumstances); and
• A blackout applies only to one or more participants or beneficiaries solely in connection with their becoming or ceasing to be participants or beneficiaries under the plan as a result of a merger, acquisition, divestiture, or similar transaction involving the plan or plan sponsor.

There are also special rules that apply to changes in the anticipated length of the original blackout period.  In general, a new blackout notice must be provided in these cases.