Blackout Period – 401k Retirement Glossary

A Blackout Period (limited or denied access) in terms of 401k retirement plans is an average of 60 days of the year during which plan participants are NOT allowed to modify the structure and covenants of their 401k retirement plans. For example, if the job of 401k administrator is being moved from one bank to another, a blackout period may occur to easily facilitate this move.

Other applications of a blackout period is when a candidate or party of the general elections is not allowed to campaign or advertise for a set period of time to make the election results fair.

History of Blackout Period

After then Enron bankruptcy in 2002, the US Federal Government introduced the Sarbanes-Oxley Act of 2002 that does not allow executives and directors to sell their stock or exercise their stock options during the time when the corporation’s 401k plans are being changed or modified. Remember, employees also own the company’s stock and it would not be fair to allow executives and directors to sell off their shares at a time when the 401k plan participants are restricted from selling.

Your 401k administrator must provide you with a minimum 30 days (maximum of 60 days) notice before a blackout period takes effect for atleast 3 days. This notice must contain the following information:

  • Reasons for the blackout period.
  • Beginning date of the blackout period and expected ending date.
  • Any modifications in the administration of 401k retirement investments and how it impacts the beneficaries.
  • Statement informing plan participants to critically analyze their current investments and preferably look for better investment opportunities in which to invest their 401k retirement savings.
  • Name, Address & Phone # of the 401k Administrator incase the 401k investor wishes to speak with an authority.If the beginning date & time of the Blackout Period is changed after the original notice has already been given out, the 401k plan administrator must make all efforts to issue another notice informing participants of the new beginning date of the Blackout Period. Any reasons for the blackout period (or any characteristics discussed above) that have changed must also be stated.

    Penalties for Late Notifications about Blackout Periods

    The US Department of Labor may initiate a penalty of $100 per day for every late notice of a blackout period that is given out to 401k plan participants. Each investor to whom the notice is delivered late is considered to be 1 late violation. Therefore, if the plan administrator is in charge of 15 401k accounts, he will pay a fine of 15 x $100 = $1500 per day if he delivers a late blackout period notice.

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