Blackout period

What a blackout period is

Blackouts usually happen when a plan changes recordkeepers or investment menus. Records and assets have to be reconciled and moved, and during that time accounts are frozen. Under ERISA, a blackout is any period of more than three consecutive business days in which participants’ normal rights to direct investments, take loans or receive distributions are suspended.

Contributions from payroll generally continue during a blackout. Employees’ money also stays invested, either in the old funds until transfer or in the new funds they are mapped to.

The notice

The plan administrator must give written notice to every affected participant and beneficiary at least 30 days, and no more than 60 days, before the blackout begins. The notice must state:

• The reason for the blackout.

• Which rights are affected.

• The expected start and end dates.

• A statement that participants should review their investments, since they cannot change them during the blackout.

• Whom to contact with questions.

If the dates change, an updated notice is required as soon as reasonably possible.

Why it matters to employers

The legal duty sits with the plan administrator, which is the employer unless that role has been delegated. A late or missing notice can lead to civil penalties assessed per participant per day. Timing also drives your project plan: the notice window means the conversion date has to be fixed more than a month ahead.

Common mistakes

• Sending the notice less than 30 days ahead because the conversion date moved.

• Missing people who are not active employees: former employees with balances, beneficiaries and alternate payees.

• Scheduling the blackout over year end or bonus payroll without planning for it.

• Not telling employees with pending loans or distributions to finish them before the freeze.

• Having no proof of when and how the notice was delivered.