News Release

PWBA News Release: [01/23/2003]
Contact Name: Gloria Della
Phone Number: (202) 693-8664

Labor Department Issues Final Rules on Disclosure of Pension Plan “Blackout Periods”

Completes major step in President Bush’s Retirement Security Plan

WASHINGTON—The U.S. Labor Department’s Pension and Welfare Benefits Administration’s final rules implementing a new federal law requiring 401(k) plans to give workers 30-day advance notice of “blackout periods” when their rights to direct investments, take loans or obtain distributions are suspended will be published in the Federal Register on Jan. 24, 2003. The final rules made public today supersede interim final rules issued by the department on Oct. 21, 2002.

Blackout periods typically occur when plans change record keepers or investment options, or add participants due to corporate merger or acquisition.

“These rules are an essential part of the President’s efforts to improve workers’ retirement security,” said Secretary of Labor Elaine L. Chao. “Workers will now be assured of the opportunity to effectively manage their retirement accounts in advance of a blackout and they will no longer be forced to stand by as corporate executives bail out of company stock while rank-and-file workers’ accounts are frozen.

“The President’s pledge that ‘what’s good for the top floor is good for the shop floor’ is a reality,” said Chao. “Congress needs to take the next step to pass the remainder of the President’s retirement security plan to allow workers to diversify their investments in employer stock after three years, provide workers quarterly benefit statements that explain the value of diversified investments, and give workers better access to investment advice from professional advisers acting in the workers’ best interests.”

On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002 giving the Secretary of Labor authority to promulgate rules and a model notice implementing the blackout notice provisions. The act requires that participants and beneficiaries be given a 30-day advance notice of a blackout period. When a blackout period affects a plan that includes employer stock as an investment option, the plan must also notify the corporate issuer of the employer stock so that corporate insiders are aware that they may not trade employer securities or exercise options during the blackout. The law is effective for blackout periods occurring on or after Jan. 26, 2003.

Under the final rules, 401(k) plan administrators must provide blackout notices that contain the reasons for the blackout, a description of the workers’ rights that will be suspended, the start and end dates of the blackout period, and a statement advising workers to evaluate their current investments based on their inability to direct or diversify assets during the blackout period.

Changes made to the interim final rules in the final regulations include:

• flexibility for plan administrators in describing the starting and endings dates of the blackout period;
• clarification of situations that are not blackout periods such as suspensions resulting from pending qualified domestic relations order determinations and actions by individual participants; and
• a special rule for issuers of company stock who are also the plan administrators.

Failure or refusal to provide the required notice will result in civil penalties. A second set of final rules issued by the department adopts the interim final rules that provide for civil penalties of up to $100 per day per participant for plan administrators who fail or refuse to comply with the notice requirement.

The rules may be viewed at: www.dol.gov/pwba under “Laws and Regulations.”

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