Because 401(k) plans are tax-qualified defined contribution
plans that include a CODA, they must satisfy all of the requirements
for qualified plans, the special requirements of IRC Sec. 401(k),
and all the
Employee Retirement Income Security Act (ERISA) requirements that apply to defined contribution plans, including
minimum participation and vesting standards, fiduciary rules, and
reporting and disclosure requirements. Many special rules apply to
401(k) plans, including special vesting and nondiscrimination testing
requirements. In addition, the rules on plan loans and blackout periods,
while they impact other types of retirement plans, most often affect
the design and administration of 401(k) plans.
Please see the
national ERISA, national Benefits Recordkeeping and Disclosures
sections.
While many 401(k) plans only include a CODA, they often
also provide for employer-matching contributions and discretionary
employer contributions. Many CODAs are part of a larger defined contribution
plan that may include a profit-sharing component. For some employers,
a 401(k) plan is part of a retirement package that may include a defined
benefit plan or a hybrid plan.
Matching contributions. Perhaps the most crucial design consideration for a 401(k) plan
sponsor is whether and how to provide matching contributions. Matching
contributions are the best way to encourage employees to participate
in a 401(k) plan. A 100 percent match is a large incentive to participation
but is also expensive. Common match formulas are 50 percent of employee
contributions up to the first 6 percent of compensation and no match
on the portion of the contribution that exceeds 6 percent of compensation.
Contributions of unused paid
time off. The IRS has ruled that a 401(k) plan may permit
contributions of payments employees would receive for unused vacation
or other similar leave at the end of the year or at termination of
employment, whether the contributions are employer contributions or
elective 401(k) contributions (Rev. Rul. 2009-31 and Rev. Rul. 2009-32). The 401(k) nondiscrimination tests must still be passed, and the contributions may
not exceed any applicable limits, including the limit on total contributions to an individual's
account during a year. In addition, a plan participant does not include
in gross income the dollar equivalent of unused paid time off that
is not contributed to the 401(k) plan until the year in which the
amount is paid to the participant.
The IRS provides for dollar limitations on benefits and
contributions under qualified retirement plans, including 401(k) plans.
These limits are adjusted annually for cost-of-living increases. For
current limits on an employee’s elective deferrals to a 401(k) plan,
visit
http://www.irs.gov. A plan may provide for the employer to
match all, part, or none of an employee's deferrals.
Employer contributions to defined benefit plans, including
matching contributions to 401(k) plans, must vest either 100 percent
after 3 years of service or 20 percent per year of service beginning
after the second year and reaching 100 percent after 6 years.
SEP and SIMPLE individual
retirement account (IRA) (and other IRA-based) plans
require that all contributions to the plan are always 100 percent
vested.
Because ERISA's fiduciary rules bar employers from using
plan assets for their own benefit, the Department of Labor (DOL) has
issued regulations that define when employees' contributions to a
benefit plan become plan assets, must no longer be in the employer's
possession, and must be deposited into a plan account. This is the
number one fiduciary trouble spot. Late deposits are an invitation
for an audit by the DOL.
In general, amounts that a participant had withheld from
his or her wages by an employer for contribution to an ERISA plan
are deemed to be plan assets on the earliest date on which such contributions
can reasonably be segregated from the employer's general assets. However,
in no case may pension benefit plan and welfare benefit plan deposits
of employee contributions be made later than the 15th business day
of the month following the month in which such amounts would otherwise
have been payable to the participant in cash. This rule also applies
to SIMPLE IRAs and salary
reduction SEPs.
Warning:The DOL's rule of thumb is that
small plans sponsored by an employer with a simple payroll process
should be able to make deposits of employee contributions within 7
days. Large plans, which may have multiple locations and multiple
paydays, should be able to make deposits within 10 to 14 days, in the DOL's view. The deposit timing
rules apply to withholding for plan loan repayments as well as employee
contributions.
Small employer safe harbor.The DOL regulations
create a safe harbor for plans with fewer than 100 participants if
deposits of employee contributions are made within 7 business days
of receipt or withholding. Thus, if such plans make their deposits
within 7 business days, the deposit is deemed to be on time without
having to determine when they reasonably could be segregated. To qualify
for the safe harbor, loan repayments must also be deposited within
7 business days. Participant contributions are considered deposited
when placed in an account of the plan, without regard to whether the
contributed amounts have been allocated to specific participants or
investments. The safe harbor also applies to SIMPLE IRAs and salary
reduction SEPs.
Generally, distributions from a 401(k) plan cannot be
made until a distributable event occurs. A “distributable event” is
an event that allows distribution of a participant’s plan benefit
and includes the following situations:
• The employee dies, becomes disabled, or otherwise has
a severance from employment.
• The plan is terminated and no other defined contribution
plan is established or continued.
• The employee reaches the age of 591/2 or suffers a financial hardship.
Tax on early distributions. If a distribution is made to an employee before he or she reaches
the age of 591/2, the employee may have to pay
a 10 percent additional tax on the distribution. This tax applies
to the amount received that the employee must include in income. The
10 percent tax does not apply to distributions before the age of 591/2 if the distribution is:
• Made to a beneficiary (or to the estate of the employee)
on or after the death of the employee
• Made due to the employee having a qualifying disability
• Made as part of a series of substantially equal periodic
payments beginning after separation from service and made at least
annually for the life or life expectancy of the employee or the joint
lives or life expectancies of the employee and his or her designated
beneficiary (The payments under this exception, except in the case
of death or disability, must continue for at least 5 years or until
the employee reaches age 591/2, whichever is
the longer period.)
• Made to an employee after separation from service if
the separation occurred during or after the calendar year in which
the employee reached the age of 55
• Made to an alternate payee under a qualified domestic
relations order (QDRO)
• Made to an employee for medical care up to the amount
allowable as a medical expense deduction (determined without regard
to whether the employee itemizes deductions)
• Timely made to reduce excess contributions under a 401(k)
plan
• Timely made to reduce excess employee or matching employer
contributions (excess aggregate contributions)
• Timely made to reduce excess elective deferrals
• Made because of an IRS levy on the plan
• Made as a qualified reservist distribution
Distribution starting requirements. Benefit payment must begin when required. Unless the participant
chooses otherwise, the payment of benefits to the participant must
begin within 60 days after the close of the latest of the following
periods:
• The plan year in which the participant reaches the earlier
of age 65 or the normal retirement age specified in the plan
• The plan year that includes the 10th anniversary of the
year in which the participant began participating in the plan
• The plan year in which the participant terminates service
with the employer
Minimum distribution requirements. A 401(k) plan must provide that each participant will either:
• Receive his or her entire interest (benefits) in the
plan by the required beginning date (defined below), or
• Begin receiving regular periodic distributions by the
required beginning date in annual amounts calculated to distribute
the participant's entire interest (benefits) over his or her life
expectancy or over the joint life expectancy of the participant and
the designated beneficiary (or over a shorter period).
These required distribution rules apply individually
to each qualified plan. The required distribution from a 401(k) plan
cannot be satisfied by making a distribution from another plan. The
plan document must provide that these rules override any inconsistent
distribution options previously offered. When the participant’s account
balance is to be distributed, the plan administrator must determine
the minimum amount required to be distributed to the participant each
calendar year.
The required beginning date for distributions is April
1 of the first year after the later of:
• The calendar year in which the participant reaches the
age of 701/2, or
• The calendar year in which the participant retires.
However, a plan may require that the participant begin
receiving distributions by April 1 of the year after the participant
reaches the age of 701/2, even if the participant
has not retired.
If the participant is a 5 percent owner of the employer
maintaining the plan, the participant must begin receiving distributions
by April 1 of the first year after the calendar year in which the
participant reaches age 701/2.
Distributions after the starting
year. The distribution required to be made by April 1 is
treated as a distribution for the starting year. (The starting year
is the year in which the participant reaches the age of 701/2 or retires, whichever applies, to determine the participant’s
required beginning date.) After the starting year, the participant
must receive the required distribution for each year by December 31
of that year. If no distribution is made in the starting year, required
distributions for 2 years must be made in the next year (one by April
1 and one by December 31).
The IRS
regulations set out the requirements for hardship distributions from
a 401(k) plan. The plan must specifically permit such a distribution.
In addition, a distribution qualifies as a hardship distribution only
if it is both (1) made because of an immediate and heavy financial
need of the employee and (2) is necessary to satisfy the financial
need. The determination of the existence of an immediate and heavy
financial need and of the amount necessary to meet the need must be
made in accordance with nondiscriminatory and objective standards
set forth in the plan and must be made separately. The maximum amount
of a hardship distributable amount is an employee’s total elective
contributions as of the date of distribution, reduced by the amount
of previous distributions of elective contributions.
Determination of an immediate
and heavy financial need. Whether an employee has an immediate
and heavy financial need is to be determined based on all the relevant
facts and circumstances. A financial need may be immediate and heavy
even if it was reasonably foreseeable or voluntarily incurred by the
employee. A distribution is deemed to be due to an immediate and heavy
financial need of the employee if the distribution is for:
• Medical care expenses of the employee, the employee's
spouse, dependents, or a primary beneficiary under the plan
• The purchase of a principal residence for the employee
(excluding mortgage payments)
• Tuition, related educational fees, and room and board expenses for up to the next
12 months of postsecondary education for the employee, the employee’s
spouse, children, dependents, or a primary beneficiary under the plan
• Preventing eviction from or foreclosure of the mortgage
on the employee’s principal residence
• Burial or funeral expenses for the employee’s deceased
parent, spouse, children, dependents, or a primary beneficiary under
the plan
• Repairing damage to the employee’s principal residence
that could qualify for the casualty deduction on the employee's federal
income tax return
Under the Tax Cuts and Jobs Act of 2017, this last circumstance
is now limited to home repairs that result from presidentially declared
disasters.
A “primary beneficiary under the plan” is an individual
who is named as a beneficiary under the plan and has an unconditional
right to all or a portion of the participant’s account balance under
the plan upon the death of the participant.
For circumstances that
do not fall under one of the six safe harbors listed above, regulations
proposed on November 14, 2018 (83 Fed. Reg. 56763), replace
the “all relevant facts and circumstances” test with a three-part
standard:
1. The hardship distribution must
not exceed the amount of an employee’s need, including any amounts
necessary to pay any federal, state, or local income taxes or penalties
reasonably anticipated to result from the distribution.
2. The employee already must have obtained all other currently
available distributions and nontaxable loans under the plan and all
other plans maintained by the employer.
3. The
employee must represent that he or she has insufficient cash or other
liquid assets to satisfy the financial need. Consistent with the current
standard, a plan administrator will be allowed to rely on a participant’s
representation of the need unless the plan administrator has actual
knowledge to the contrary.
Plan administrators
may begin applying this general standard on and after January 1, 2019,
except that the third requirement (the participant’s representation)
will not become mandatory until January 1, 2020 (for hardship distributions
made on or after that date).
403(b) and 457 plans. The hardship distribution rules also apply to 403(b) and 457 plans.
There is an exemption from the 10 percent early withdrawal
penalty for individuals ordered or called to active duty. A "qualified
reservist distribution" is a distribution that is:
• Made from an IRA or attributable to elective deferrals
under a 401(k) plan, 403(b) annuity, or certain similar arrangements;
• Made to an individual who was ordered or called to active
military duty for a period in excess of 179 days or for an indefinite
period; and
• Made during the period beginning on the date of such
order or call to duty and ending at the close of the active duty period.
A 401(k) plan does not violate the distribution restrictions
if it makes a qualified reservist distribution.
An individual who receives a qualified reservist distribution
may, during the 2 years following the end of his or her active duty,
make one or more contributions to an IRA of the amount of such distribution.
One of the most popular features of 401(k) plans is a
provision allowing participants to borrow money from their own accounts.
Under the DOL regulations,
the loan must be available to all participants and beneficiaries on
a reasonably equivalent basis, must not be available to highly paid
employees in an amount greater than available to other employees,
must be specifically provided for in the plan document, must bear
a reasonable interest rate, and must be adequately secured. The loan
may be secured by the participant's account balance. A loan secured
by 50 percent of the account balance is considered adequately secured.
A loan is not treated as a distribution by the IRS (resulting in income tax
consequences) if it meets at least the following specific requirements:
• The loan plus the participant's other outstanding loans
from the plan may not exceed $50,000.
• The outstanding balance of loans may not exceed the greater
of one-half of the participant's vested benefits.
• Unless the proceeds are used to purchase a principal
residence, the loan must be paid back in 5 years or less.
• The loan must be paid back in equal payments made at
least four times per year.
• The loan is evidenced by an enforceable agreement.
Note: The Sarbanes-Oxley Act Sec. 402 prohibits publicly held companies from making personal
loans to their directors and executive officers. This arguably includes
401(k) loans. In view of the steep penalties that may be imposed for
violating Sarbanes-Oxley, a very conservative approach would be to
advise executive officers not to make new 401(k) loans or amend 401(k)
plans to bar loans to executive officers. The DOL indicated in Field
Assistance Bulletin 2003-1 that restrictions on loans to all officers
and directors do not violate participant loan rules under ERISA.
Employers may not force an employee whose accrued vested
benefit is worth more than $5,000 to take a distribution of benefits
when the employee terminates employment. The employer must allow the
employee to keep the money in the plan until retirement age. Plans
may require that terminating employees with accrued vested benefits
of less than $5,000 take a cash-out, thus reducing the administrative
cost of maintaining small accounts and keeping track of former employees.
Employer-mandated cash-outs of more than $1,000 from
a qualified retirement plan must be paid as a direct rollover to an
IRA setup by the employer for the employee unless the terminating
employee elects to have the amount rolled over to another retirement
plan or IRA or to receive the distribution directly. In circumstances
in which a portion of the distribution is attributable to a previous
rollover contribution, the rollover requirement may apply to distributions
of more than $5,000. The portion of the account attributable to the
previous rollover is not counted for the determination of whether
the present value of the accrued vested benefit is $5,000 or less.
On the other hand, the amount attributable to the previous rollover
is counted when determining if the cash-out exceeds $1,000.
Plans that provide for mandatory distributions have to
include a provision reflecting the automatic rollover requirements.
The plan administrator must notify the distributee in
writing that the distribution may be paid in a direct rollover to
an IRA. The notice may be mailed to the participant's most recent
mailing address in the records of the employer or plan administrator.
This notice may also be distributed electronically.
The automatic rollover provisions apply to governmental
plans, including deferred compensation plans under IRC Sec. 457, to
403(b) plans, and to church plans.
The DOL
regulations provide for a safe harbor to protect retirement plan fiduciaries
from liability when they select an institution to provide the IRAs
and select the investments for these accounts. For the safe harbor
to apply, the selected IRA provider must be qualified to offer individual
retirement plans; the investment options must be designed to preserve
principal; and the fees and expenses may not exceed those charged
by the selected provider to its other IRA customers.
Avoiding the rollover requirement. Many employers are avoiding the complications of required rollovers
by not cashing out accounts with a balance of more than $1,000.
Special nondiscrimination rules apply to 401(k) plans
in addition to all the regular requirements for tax-favored retirement
plans. These rules are designed to prevent discrimination in elective
contributions, matching contributions, and employee after-tax contributions.
These rules, the actual deferral percentage (ADP) test and the actual
contribution percentage (ACP) test, are also very complex and discourage
many employers from adopting a 401(k) plan. Under the ADP test, the
ADP for eligible highly compensated employees (HCEs) must either:
• Not be more than 125 percent of the ADP for nonhighly
compensated employees (NHCE); or
• Not more than 2 percentage points greater than that of
the NHCE and not be more than 200 percent of that of the NHCE.
The ACP applies similar formulas to the sum of employee
contributions and employer-matching contributions. If a plan is going
to fail the ACP or ADP tests, corrections must be made that often
involve reducing the deferrals of HCEs.
The IRS's
final 401(k) regulations include a provision designed to prevent plans
from circumventing the nondiscrimination rules. Under this antiabuse
provision, a plan will not be treated as satisfying the nondiscrimination
requirements if there are repeated changes to plan testing procedures
or plan provisions that have the effect of distorting the ADP so as
to increase significantly the permitted ADP for HCEs. In addition,
plans are barred from otherwise manipulating the nondiscrimination rules if a principal purpose
of the changes was to increase or distort the ADP for HCEs.
ADP/ACP safe harbors. 401(k) plans will generally be eligible for a safe harbor that may
automatically satisfy the nondiscrimination requirements if they are
designed to meet either of the following criteria:
• Provide guaranteed, 100 percent vested contributions
of at least 3 percent of compensation for each NHCE who is eligible to participate; or
• Provide a 100 percent vested matching contribution on
all of each non-HCE's elective contributions up to 3 percent of compensation
and on 50 percent of the elective contribution that is between 3 percent
and 5 percent of compensation.
401(k) plans, however, are required to specify the method
they will use to satisfy the nondiscrimination requirements in their
plan documents. Thus, a safe harbor plan may not specify that ADP testing will be used if the safe harbor requirements are
not satisfied.
In addition, 401(k) safe
harbor plans must provide each eligible employee with
a written notice of the employee’s rights and obligations under the
plan. This notice may be provided electronically. The notice must
be sufficiently accurate and comprehensive to inform employees of
the their rights and obligations under the plan, be written in a manner
calculated to be understood by the average employee eligible to participate
in the plan, and contain the following information:
• The safe harbor matching contribution or safe harbor nonelective contribution formula used under the plan (including
a description of the levels of safe
harbor matching contributions, if any, available under
the plan)
• Any other contributions under the plan or matching contributions
to another plan on account of elective contributions or employee contributions
under the plan (including the potential for discretionary matching
contributions) and the conditions under which such contributions are
made
• The plan to which safe
harbor contributions will be made (if different than
the plan containing the cash or deferred arrangement)
• The type and amount of compensation that may be deferred
under the plan
• How to make cash or deferred elections, including any
administrative requirements that apply to such elections
• The periods available under the plan for making cash
or deferred elections
• Withdrawal and vesting provisions applicable to contributions
under the plan
• Information that makes it easy to obtain additional information
about the plan (including an additional copy of the summary plan description)
such as telephone numbers, addresses and, if applicable, electronic addresses of individuals or
offices from whom employees can obtain such plan information
A plan may satisfy the requirements to provide information
about other contributions or matching contributions to another plan,
the plan to which safe harbor contributions will be made, or the type and amount of compensation
that may be deferred under the plan by providing cross-references
to the relevant portions of a summary plan description that provides
the same information and has been provided (or is concurrently provided)
to employees.
The notice must be provided within a reasonable period
before the beginning of the plan year (or within a reasonable period
before an employee becomes eligible). This requirement is deemed satisfied
if the notice is provided at least 30 days and no more than 90 days
before the beginning of each plan year. For newly eligible employees,
who become eligible after the 90th day before the beginning of the
plan year, the notice must be provided no more than 90 days before
the employee becomes eligible and no later than the date the employee
becomes eligible.
A 401(k) safe harbor plan must generally be adopted before the beginning of the plan
year and be maintained throughout a full 12-month plan year. The IRS's 401(k) regulations also
make it easy for employers to implement safe harbor plans by allowing plan sponsors to wait
until 30 days before the end of the plan year to adopt a 3 percent
automatic contribution feature. The plan must specify that it will
use NHCEs' current year ADPs in the event that the sponsor decides
not to utilize the safe harbor. A contingent notice must be given
30 to 90 days before the beginning of the plan year indicating that safe harbor nonelective contributions
may be made. A follow-up notice must be provided at least 30 days
before the end of the plan year stating that safe harbor contributions will be
made. Plans are not required to continue using that feature in the
following year and are not limited on the number of times that they
may switch back and forth.
Although safe harbor 401(k) plans provide generous benefits, they are also attractive
because they greatly simplify plan administration and eliminate the
possible need for HCEs to take back a portion of their elective deferrals
to satisfy nondiscrimination requirements.
Note: One of the
drawbacks to adopting a safe harbor plan has been the rapid vesting of the mandatory employer
contributions. With the gap between safe harbor vesting and non-safe harbor vesting narrowed by the minimum
vesting requirements for matching contributions to 401(k) plans, the
cost increase of adopting a safe harbor plan is diminished, especially for employers that already
provide a “3 percent of” compensation match. In addition, while lower-paid
employees are not likely to take advantage of the increased contribution
limits because they generally make contributions that are well below
the current limits, higher-paid employees are going to want to take
advantage of the increased limits. This will make it more difficult
for plans to pass the ADP and ACP tests. Utilizing a safe harbor may
not be too much of an expense, especially when it keeps key employees
happy, because they can maximize their 401(k) contributions and reduce
the time and expense of performing the antidiscrimination tests and
correcting any excess contributions.
Suspending nonelective contributions
to safe harbor plans
due to business hardship. The IRS’s final regulations allow employers to reduce
or suspend safe harbor
contributions (nonelective or matching) in the event of financial
hardship. Safe harbor matching contributions may be reduced or suspended under a midyear amendment only if the employer
is operating at an economic loss, or if the notice provided to participants
before the beginning of the plan year discloses that the contributions
might be reduced or suspended midyear, that participants will receive a supplemental notice if
that occurs, and that the reduction or suspension will not apply until
at least 30 days after the supplemental notice is provided. Additionally:
• All eligible employees must be provided a supplemental
notice of the reduction or suspension when it occurs;
• The reduction or suspension of safe harbor nonelective contributions
can be effective no earlier than the later of 30 days after eligible
employees are provided the supplemental notice or the date the amendment
is adopted;
• Eligible employees must be given a reasonable opportunity
(including a reasonable period after receipt of the supplemental notice)
before the reduction or suspension of the safe harbor nonelective contributions to change their
contribution elections; and
• The plan must be amended to provide that the ADP test
(and/or ACP test) will be satisfied for the entire plan year in which
the reduction or suspension occurs, using the current year testing
method.
The supplemental notice requirement is satisfied if each
eligible employee is given a notice that explains:
• The consequences of the amendment reducing or suspending
employer contributions;
• The procedures for changing deferred or posttax contribution elections; and
• The effective date of the plan amendment.
The Sarbanes-Oxley Act requires prior notices of 401(k)
blackout periods and bars directors and executives from trading employer
stock during blackout periods.
Blackout period definition. A "blackout period" is any period of more than 3 consecutive business
days during which the ability of participants or beneficiaries under
an individual account plan to direct or diversify assets credited
to their accounts, to obtain loans from the plan, or to obtain distributions
from the plan is temporarily suspended, limited, or restricted. A
blackout period does not include a suspension, limitation, or restriction
that:
• Occurs because of the application of the securities laws
• Is regularly scheduled under the plan and that has been
disclosed to affected plan participants and beneficiaries through
an official plan document
• Occurs because of a qualified domestic relations order
or because of a pending determination whether a domestic relations
order filed (or reasonably anticipated to be filed) with the plan
is a qualified order
• Occurs by reason of an act or a failure to act on the
part of an individual participant or by reason of an action or claim
by a party unrelated to the plan involving the account of an individual
Blackout notice requirements. At least 30 days before a blackout period, the plan administrator
is required to provide a notice to affected plan participants and
beneficiaries written in simple language. A similar notice must be
provided at the same time to issuers of employer securities. The DOL regulations include a model
notice that may be used.
Blackout notice contents. The notice must contain the following information:
• The reasons for the blackout period
• An identification of the rights otherwise available under
the plan that will be temporarily suspended, limited, or restricted
• The length of the blackout period by reference to the
expected beginning and ending dates or the expected beginning or ending
calendar weeks, provided that during such weeks, information about
whether the blackout period has begun or ended is readily available
without charge, such as via a toll-free number or access to a specific
website, to affected participants and beneficiaries
• A description of how to access the blackout period information
• A statement that the participant or beneficiary should
evaluate the appropriateness of their current investment decisions
in light of their inability to direct or diversify assets credited
to their accounts during the blackout period
• The name, address, and telephone number of the plan administrator
or other contact responsible for answering questions about the blackout
period
Blackout notice timing. The notice must be furnished to all affected participants and beneficiaries
at least 30 days, but not more than 60 days, in advance of the last
date on which such participants and beneficiaries could exercise the
affected rights before the blackout period. The 30 days' advance requirement
does not apply if:
• Postponing the blackout period would result in a violation
of ERISA's exclusive benefit and prudence requirements, and a fiduciary
of the plan reasonably so determines in writing.
• The inability to provide the advance notice of a blackout
is the result of events that were unforeseeable or circumstances beyond
the reasonable control of the plan administrator, and a fiduciary
of the plan reasonably so determines in writing.
• The blackout period applies solely in connection with
certain participants or beneficiaries becoming, or ceasing to be,
participants or beneficiaries of the plan as a result of a business
reorganization.
In these cases, the notice must be provided as soon as
reasonably possible.
If the notice is not furnished within the prescribed
time limits (unless the blackout period applies solely in connection
with certain participants or beneficiaries becoming, or ceasing to
be, participants or beneficiaries of the plan as a result of a business
reorganization), it must include a statement that federal law generally
requires that the notice be furnished to affected participants and
beneficiaries at least 30 days in advance of the last date on which
they could exercise the affected rights immediately before the commencement
of a blackout period and an explanation of the reasons why at least
30 days' advance notice could not be furnished.
The notice may be provided electronically if recipients
would have reasonable access to an electronic notice.
If the blackout period dates are changed, a revised notice
must be provided as soon as reasonably practicable explaining what
has changed and the reasons for those changes.
Blackout notice violations. If a plan administrator refuses or fails to provide the blackout
notice in a timely manner, the DOL may assess a civil penalty of up to $100 per day for each participant
or beneficiary who did not receive the notice.
Notice to issuer of employer
securities. A similar notice must be provided within the
same time frames to the issuer of employer securities held by the
plan and subject to the blackout period.
Insider trading restrictions. The Sarbanes-Oxley Act prohibits directors or executive officers
(insiders) from engaging in transactions involving employer securities
outside of the plan during a blackout period. The insider trading
prohibition applies to any employer securities acquired in connection
with the insider's services or employment.