DOL issues Enron-driven "blackout" rules.

• Author: Kautter, David J.
• Position: Advance notice of blackout-periods to 401k plan participants

Department of Labor (DOL) interim final rules under ERISA require companies to give 30-60-day advance notice of "blackout periods" to Sec. 401(k) and other plan participants, who will temporarily be prevented from self-directing investments, obtaining loans or receiving distributions.

The DOL rules amplify new ERISA Sections 101 (i) and 502(c)(7), as added by Sarbanes-Oxley Act of 2002 (SOA) Section 306(b), and are separate from Securities Exchange Act of 1934 changes made by SOA Section 306(a) for executive disgorgement of profits during blackout periods. In addition, the new blackout-period requirements may be merely the "tip of the iceberg" of retirement plan changes resulting from Enron, Worldcom and other recent corporate failures.

The rules are effective for blackout periods beginning after Jan. 25, 2003. Violators are subject to penalties of as much as $100 per participant per day. Tax advisers should consider the new requirements if a client is contemplating a blackout period, to avoid the risk of incurring penalties.

General Requirements

A "blackout period" is the time during which a participant's ability to direct or diversify plan assets, obtain plan loans or receive distributions is temporarily suspended, limited or restricted for more than three consecutive business days.

A company must provide notice to a participant (including a beneficiary) who self-directs investment of plan assets in a defined contribution plan and is affected by the blackout period. It must also provide "timely" notice to the issuer of any employer securities held by a plan subject to the blackout provisions.

A blackout period does not include a suspension, limit or restriction (1) due to the application of the securities laws, (2) regularly scheduled to occur and already disclosed to participants or (3) pursuant to a qualified domestic relations order.

Content

The notice must be written in plain English, so as to be understood by the average plan participant, and provide the following information:

* The reasons for the blackout period;

* A description of the participants' plan rights affected by the blackout;

* The expected beginning and ending dates;

* A statement that participants should evaluate the appropriateness of current investments in light of the blackout period;

* If the notice is not furnished at least 30 days in advance, an explanation why it could not be furnished, including a...