17 - Pension Blackout Rules

10/22/2002

The Department of Labor (“DoL”) has issued rules that implement the pension blackout provisions of the Sarbanes-Oxley Act of 2002 (the “Act”).  These rules require plan administrators of individual account plans to deliver advance notice of blackout periods and will be effective for blackouts which begin on or after January 26, 2003.

Unlike other blackout provisions of the Act that apply only to publicly-traded corporations, these blackout rules apply to all individual account plans covered by ERISA, including all 401(k) plans and individual account plans that are designed as “top-hat” plans.

Definition of Blackout Period.

The blackout period notice requirements apply to more than simply investment blackout periods.  “Blackout Period” means any period for which the ability to direct or diversify assets under the plan, to obtain loans from the plan, or to obtain distributions from the plan is temporarily suspended, limited, or restricted for a period of more than three consecutive business days.  There are exclusions, however, for certain suspensions imposed by the securities laws or the rules regarding qualified domestic relations orders, and for certain regularly-scheduled suspensions.

Notice Period.

Administrators of individual account plans must furnish a blackout notice to all affected participants and beneficiaries at least 30 days, but not more than 60 days, in advance of the last date on which the participants and beneficiaries could exercise the affected rights immediately before the blackout period.  However, for blackouts that begin between January 26 and February 25, 2003, notice must be furnished as soon as reasonably possible.

Form of Notice.

The blackout notice must be written in a manner calculated to be understood by the average plan participant. The DoL has issued a model form of notice which will satisfy these requirements.

Delivery of Notice.

The notice may be hand-delivered, sent by first class mail, or, subject to certain rules applicable to electronic delivery, sent electronically.  Posting the notice on a bulletin board will not satisfy the delivery requirements.  The blackout notice is considered furnished by the date of mailing, if mailed by first class mail, or the date of the electronic transmission, if delivered electronically.

Penalties for Non-Compliance.

A civil penalty equal to $100 per day per each affected participant or beneficiary may be incurred for failure to provide the blackout notice.

There are additional rules regarding changes in blackout periods, exceptions to the 30-day notice requirement, and additional parties to whom notice may be required to be given in certain circumstances.  For additional information on the blackout period notice rules or for a copy of the model form of notice,  please feel free to contact your regular Haynes and Boone attorney or any member of our Employee Benefits/Executive Compensation Practice Group listed above.

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