The Sarbanes-Oxley Act is the first legislation enacted in response to the Enron Corporation bankruptcy and related events that led to the demise of the company’s retirement plan and extensive financial losses by plan participants.
One of the requirements imposed by this Act is that retirement plan sponsors provide plan participants and beneficiaries with a “blackout notice,” which must be given before any suspension of access or rights under the plan that will last more than three consecutive business days.
This advance notice requirement is intended to protect plan participants and beneficiaries from unexpectedly losing the ability to direct or access their retirement plan assets. Otherwise, participants and beneficiaries with insider information about a pending blackout (most likely to be owners and highly-placed executives) could act to the advantage of their own retirement assets in advance, without providing the same opportunity to other participants and beneficiaries.
A “blackout period” generally is defined as a period of time during which plan participants and beneficiaries lose the ability to take such actions as directing or diversifying assets, obtaining loans, or receiving plan distributions. Common reasons for blackout periods include corporate mergers, acquisitions, spin-offs, and investment or recordkeeper changes.
The notice must be written in a manner that can be understood by the average plan participant, and must include the following information.
Department of Labor (DOL) regulations include a model notice to assist employers in satisfying these blackout notice requirements. Use of the model notice is not mandatory, however.
In general, the employer must provide the blackout notice to all affected participants and beneficiaries at least 30 days, but not more than 60 days, before the last date the affected rights could be exercised before the blackout period begins.
There may be exceptions to this timing requirement if there is an event that is unforeseeable or beyond the employer’s control, or if it would not be prudent to continue allowing participants to direct investments into certain investment options., For example, an employer with company stock as an investment alternative anticipates filing for bankruptcy, and determines that it would not be prudent to continue to allow participants to direct investments into that company stock.
If it is not possible to provide at least 30-day advance notice, or if there’s a change to the blackout period after the initial notice has been provided, the employer generally must provide an updated notice as soon as reasonably possible.
Failure to provide the notice at the proper times could result in civil penalties assessed by the DOL of up to $139 per day (2019), per participant or beneficiary. DOL regulations state that this penalty is a personal liability of the employer and not a liability of the plan. The penalty is calculated from the date that the employer failed to provide the notice, up to and including the final day of the blackout period.
Merely failing to provide a timely notice does not automatically result in the maximum penalty being enforced. The DOL must first provide written notice of its intent to assess a penalty, and provide the employer the opportunity to show whether there were circumstances that justify a waiver or reduction of the penalty.
expert, IRA Ascensus November 21, 2019 Compliance & Operations, IRA, Beneficiary, Distribution, Q&AAscensus ® and the Ascensus logo are trademarks of Ascensus, LLC.
All Rights Reserved © 2024 Ascensus, LLC.
Follow Us
By using our website, interacting with us on social media, or communicating with us via email or other electronic messages (“Digital Presence”), you consent to the collection, use, and storage of your personal and non personal information as described by our Terms & Conditions of Use, which includes our Privacy & Security Statement. We may amend this policy from time to time; if we do, we will post those changes on this page within a reasonable time after the change so that you are aware of what information we collect and how we intend to use it.
Depending on your interaction with Ascensus, other privacy policies may apply in addition to this Policy.
Before investing in any 529 plan, please consider whether your or the designated beneficiary’s home state offers its taxpayers any benefits that are only available through that state’s 529 plan. Investment objectives, risks, charges, expenses, and other important information are included in each 529 plan’s offering statement; please read and consider it carefully before investing in a 529 plan.
When you invest in a 529 plan, you are purchasing municipal securities whose value may vary based on market conditions. Investment returns are not guaranteed, and you could lose money by investing in a 529 plan. Account owners assume all investment risks as well as responsibility for any federal and state tax consequences.
The availability of tax advantages or other benefits may be contingent on meeting other requirements. Please consult your financial, tax, or other advisors to learn more about how state-based benefits and limitations would apply to your specific circumstance. You may also contact your home state’s 529 plan(s), or any other 529 plan, to learn more about those plans’ features, benefits and limitations.
Ascensus, LLC provides administrative and recordkeeping services. It is not a broker-dealer or an investment advisor and does not provide tax, legal, or accounting services. Ascensus® and the Ascensus logo are trademarks of Ascensus, LLC.
The information in this site: (i) is provided “as is”, with no guarantee for completeness or accuracy; (ii) has been prepared for informational purposes only; and (iii) is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consult your legal, tax, or accounting advisor for your particular situation.
