Back-to-Basics: Blackout Notice Rules
March 18, 2004

The Department of Labor issued the final regulations on the Blackout Notice, including a new Sample Blackout Notice (which may be found on our Sarbanes-Oxley resource page) on January 24, 2003. The final regulations incorporate clarifications and many of the comments received on the previously released interim regulations. The final rules apply to blackout periods that started on or after January 26, 2003.

Blackout Period Definition
A blackout period is defined as a period of more than three-business days during which a participant has been “temporarily suspended, limited or restricted” from either directing or diversifying assets credited to their account, obtaining a distribution or obtaining a loan.

Blackout Notice General Rules
The Blackout Notice must be provided to participants and beneficiaries between 30 and 60 days before the last date on which one of the above transactions may be exercised. The rule for notifying participants and beneficiaries 30 days in advance has been clarified to include the last day that participants may exercise affected rights. . For example, if the last day the participants could make a transaction is June 20, and the blackout would last 10 days, the Blackout Notice period of 30 to 60 days earlier than June 20 would be from April 21 to May 21. For all Blackout Notice purposes, the days being counted are calendar days, not business days. If the blackout dates change after the Notice is given, then a second notice must be provided to reflect the change.

The interim regulations stated that the notice must contain a specific beginning and ending date for the blackout period. The Final Regulations have added flexibility so that the sponsor may use the calendar week in which the blackout will begin and end. However, if this option is used, the sponsor must provide affected participants and beneficiaries with access to a toll-free number or a free website to get the specific beginning and ending date.

The Blackout Notice should only include language about the specific rights that are suspended under the plan. For example, if a plan does not permit individual investments, the notice need not include investment change language, but may include language about suspended rights such as loans or withdrawals.

The same Blackout Notice may be provided to address different restrictions. For example, a 25-day blackout for withdrawals and a 20-day blackout for investment changes may be addressed in the same notice. Blackout Notices are only required for plan level suspension of rights. Thus, the suspension of an individual's rights due to a QDRO would not trigger the requirement for a Blackout Notice. Single participant plans are exempt from the Blackout Notice rules. If the issuer of the stock and the plan administrator are the same entity, no “notice to yourself” is required.

Mailing Issues
The notice may be provided by electronic means, first class mail, certified mail, Express Mail, designated private delivery service or hand delivery, including interoffice mail. If the notice is sent by first class mail, compliance with the 30-day notice period is determined from the date mailed. If the notice is sent electronically, compliance with the 30-day notice period is determined from the date it is electronically sent. A Blackout Notice sent to the last known address of a participant or beneficiary is sufficient to comply with the notice requirements. The Blackout Notice may be mailed with other materials, provided the blackout information is prominently identified.

Exceptions to the Notice Being Provided 30 Days Prior to the Blackout:
In those situations where 30 days' advance notice is not furnished, participants and beneficiaries should be furnished an explanation as to why the plan was unable to furnish at least 30 days' advance notice. In the following cases, the notice must be given “as soon as reasonably possible” unless it is completely impossible, in which case no notice would be required.

If deferral of the blackout period would violate the exclusive purpose rule or the prudence rule of ERISA, or if the blackout commences due to events that were unforeseeable, or circumstances that were beyond the control of the plan administrator, the 30-day time period may be shortened.

If a blackout period occurs solely in connection with a merger, acquisition divestiture or similar transaction involving the plan sponsor.

Contact for Information about the Blackout
The DOL has modified the interim regulation requirement that an individual's name must be provided as a contact for information about the blackout to allow the use of a department name or office. This is permitted as long as the contact is clearly identified.

Company Directors and Executive Officers Blackout Rules under ERISA and Sarbanes-Oxley

During a blackout period imposed on participants in individual account plans of the employer, directors and executive officers are prohibited from trading in employer stock. Any profit realized by an officer or director from insider trading during a prohibited period would have to be paid back to the issuer.