How to Handle a Blackout Period

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

What is a blackout?

A blackout is a period of three or more consecutive business days during which participants’ are temporarily limited in or restricted from the ability to perform the following activities:

  • Directing or diversifying investments
  • Obtaining distributions
  • Obtaining loans

What actions must Plan Administrators take in order to remain in compliance during a blackout?

In order to comply with IRS regulations, Plan Administrators must send notification to all participants regarding the blackout period unless the blackout falls under one of the exceptions. The notice must adhere to the following guidelines:

  • Notice must be written in layman’s terms so the average participant may understand
  • Notice must be provided between 30-60 calendar days before the last date on which the restricted activities may occur
  • Notice must include the reason for the blackout
  • Notice must include the length of the blackout period with the beginning and ending dates included
  • If exact beginning and ending dates are not provided contact information must be included in order for participants to obtain this information
  • Notice must detail what activities will be suspended during the blackout period and the duration of the suspension
  • This may differ for each type of activity
  • Notice must include contact information for the Plan Administrator

If any changes are made to the above items, a second notice must be provided to participants. The notice may be sent electronically, by hand delivery or by regular, certified or express mail. If the notice is sent by mail, the 30 day compliance period begins on the date the notice was mailed.

What happens if the Plan Administrator does not comply?

The penalties for not providing proper notice to participants are as follows:

  • A daily penalty of $100 will be imposed for each participant/beneficiary who does not receive the notice
  • This must be paid by the plan administrator and cannot be passed through to the plan

What situations constitute an exception?

As stated previously, there are circumstances in which the notice period can be reduced from 30 days to “As soon as administratively possible”, or where notice is not required at all are as follows:

  • Posting the blackout notice would violate ERISA’s exclusive purpose rule or prudence rule
  • Events leading to the blackout were unforeseeable and out of the plan administrator’s control
  • The blackout occurs as a result of a merger, acquisition, divestiture or other similar event
  • The plan is a single participant plan and is exempt from any and all rules

By Crystal L. Becerril, CPA