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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Final Rule

Final Rule Relating to Notice of Blackout Periods to Participants and Beneficiaries; Civil Penalties and Conforming Technical Changes on Civil Penalties Under ERISA; Final Rules [01/24/2003]

[PDF Version]

Volume 68, Number 16, Page 3715-3729




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Part IV










Department of Labor










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Pension and Welfare Benefits Administration






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29 CFR Parts 2520, et al.






Final Rule Relating to Notice of Blackout Periods to Participants and 
Beneficiaries; Civil Penalties and Conforming Technical Changes on 
Civil Penalties Under ERISA; Final Rules




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DEPARTMENT OF LABOR


Pension and Welfare Benefits Administration


29 CFR Part 2520


RIN 1210-AA90


 
Final Rule Relating to Notice of Blackout Periods to Participants 
and Beneficiaries


AGENCY: Pension and Welfare Benefits Administration, Labor.


ACTION: Final rule.


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SUMMARY: This document contains a final rule under new section 101(i) 
of the Employee Retirement Income Security Act of 1974 (the Act or 
ERISA). Section 101(i) of ERISA, which was enacted into law on July 30, 
2002 as part of the Sarbanes-Oxley Act of 2002 (the SOA), provides that 
written notice is to be provided to affected participants and 
beneficiaries of individual account plans of any ``blackout period'' 
during which their right to direct or diversify investments, obtain a 
loan or obtain a distribution under the plan may be temporarily 
suspended. The final rules provide guidance to plan sponsors, 
administrators, participants and beneficiaries regarding the 
requirements for furnishing notices of blackout periods in individual 
account pension plans.


DATES: Effective date: This final rule is effective January 26, 2003. 
Applicability date: This final rule shall apply to blackout periods 
commencing on or after January 26, 2003.


FOR FURTHER INFORMATION CONTACT: Janet A. Walters, Office of 
Regulations and Interpretations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, Washington, DC 20210, (202) 
693-8510 (not a toll free number).


SUPPLEMENTARY INFORMATION:


A. Background


    The Sarbanes-Oxley Act of 2002 (the SOA), Pub. L. 107-204, was 
enacted on July 30, 2002. Section 306(b)(1) of the SOA amended section 
101 of ERISA to add a new subsection (i), requiring that administrators 
of individual account plans provide notice to affected participants and 
beneficiaries in advance of the commencement of any blackout period. 
For purposes of this notice requirement, a blackout period generally 
includes any period during which the ability of participants or 
beneficiaries to direct or diversify assets credited to their accounts, 
to obtain loans from the plan or to obtain distributions from the plan 
will be temporarily suspended, limited or restricted. The most common 
reasons for imposition of a blackout period include changes in 
investment alternatives or recordkeepers, and corporate mergers, 
acquisitions, and spin-offs that impact the pension coverage of groups 
of participants.
    ERISA section 101(i)(6) provides that the Secretary shall issue 
model notices that meet the requirements of subsection (i). A model 
notice is included as part of this final rule.
    Section 306(b)(3) of the SOA amends ERISA section 502 to establish 
a new civil penalty applicable to a plan administrator's failure or 
refusal to provide the blackout notice required by section 101(i) of 
ERISA. Final rules implementing this civil penalty appear elsewhere in 
today's issue of the Federal Register.
    On October 21, 2002, the Department published an interim final 
rule, including a model notice, in the Federal Register (67 FR 64766) 
for public comment. The Department received 14 comment letters in 
response to its request for comments. Set forth below is an overview of 
the final rule and the public comments submitted on the interim final 
rule.


B. Overview of Final Rule and Comments


1. General


    Paragraph (a) of Sec.  2520.101-3 of the final rule, like the 
interim final rule, describes the general requirement of section 101(i) 
of ERISA that administrators of certain individual account plans 
provide notice of blackout periods to participants and beneficiaries 
whose rights under the plan will be temporarily suspended, limited or 
restricted by a blackout period (the ``affected participants and 
beneficiaries''), as well as to issuers of employer securities held by 
the plan.


2. Content of the Notice Sec.  2520.101-3(b)(1)


    Paragraph (b)(1) of Sec.  2520.101-3 of the final rule, like the 
interim final rule, sets forth the content requirements for notices to 
be furnished to affected participants and beneficiaries. Paragraph 
(b)(1) provides that the notices shall be written in a manner 
calculated to be understood by the average plan participant and sets 
forth the specific content requirements applicable to the notices. The 
content requirements of the regulation essentially track the 
requirements of section 101(i)(2)(A) of the Act. Paragraph (b)(1)(ii), 
like the interim final rule, provides that the notice must include a 
description of the rights otherwise available under the plan to 
affected participants and beneficiaries that will be temporarily 
suspended during the blackout period, in addition to the identification 
of the investments subject to the blackout period.
    Paragraph (b)(1)(iii) requires that the notice set forth 
information concerning the length of the blackout period. The interim 
final rule required that the notice set forth the expected beginning 
date and ending date of the blackout period. A number of commenters 
expressed concern about the difficulty of projecting thirty or more 
days in advance the specific beginning and ending dates of a blackout 
period, noting that a wide range of events (e.g., problems with plan 
records or recordkeeper, extensive document reviews and data 
reconciliation, required modifications to systems and software) that 
may affect actual dates. As a result of such events, commenters state 
that specific dates are likely to be missed, and updated notices with 
their attendant costs would have to be furnished. In an effort to avoid 
this problem, sponsors and fiduciaries may be encouraged to establish 
unnecessarily long blackout periods, thereby depriving participants and 
beneficiaries of their right to exercise their affected rights for a 
longer period of time. To address this problem, commenters suggested 
that the notice be permitted to identify a range of dates during which 
the blackout period might begin and end. The suggestions included: A 
range of plus or minus 3 business days, 5 days, 7 days; identification 
of the ``week of ----'' during which blackout period might begin and 
end; and a description of events that might result in the end of the 
blackout period. Some commenters suggested that where a range of dates 
is provided, participants also would be furnished a toll-free number or 
web site that would enable them to determine the specific date on which 
the blackout period began and ended. One commenter suggested that where 
other than a specific date is given in the notice, a subsequent less 
formal notice should be provided to inform the participants of the 
beginning or ending of the blackout.
    The Department continues to believe that it is important that 
participants and beneficiaries have sufficiently specific information 
to factor the duration of the blackout into their pre-blackout period 
investment and other decisions and to apprise participants and 
beneficiaries as to when they will be able to recommence exercising 
their rights


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under the plan. However, the Department also recognizes the difficulty 
of projecting specific beginning and ending dates thirty or more days 
in advance of a blackout period and that there may be significant costs 
to providing updated notices, most or all of which will be charged to 
the individual accounts of the plans' participants.
    The Department is persuaded that allowing a limited range of dates 
for purposes of defining the beginning and ending dates for a blackout 
period in the required notice will serve to provide participants and 
beneficiaries with adequate pre-blackout period planning information, 
provided that they also have access during such dates to information to 
determine whether the blackout period has begun or ended. In addition, 
the Department is persuaded that such an approach will help to reduce 
plan administrative costs that might otherwise result from multiple 
notices; thereby preserving assets for the retirement security of plan 
participants and beneficiaries.
    As amended, paragraph (b)(1)(iii) permits the notice to describe 
the length of the blackout period by reference to either: (A) The 
expected beginning date and ending date of the blackout period; or (B) 
the calendar week during which the blackout period is expected to begin 
and end, provided that during such weeks information as to whether the 
blackout period has begun or ended is readily available, without 
charge, to affected participants and beneficiaries, such as via a toll-
free number or access to a specific web site, and the notice describes 
how to access the information.
    The Department decided to permit reference to ``the calendar week'' 
because, unlike 3 or 5 or 7 day, plus or minus, ranges, it provides 
both the flexibility for plan administrators and a clearer degree of 
certainty for plan participants and beneficiaries. As reflected in the 
description of the change, specific information must be readily 
available, without charge, to participants and beneficiaries during the 
identified ``week of----'' as to whether the blackout has begun or 
ended. The regulation provides examples as how this requirement can be 
satisfied, namely via a toll-free number or access to a specific web 
site. ``Calendar week'' is defined in the regulation, at paragraph 
(d)(5) to mean ``a seven day period beginning on Sunday and ending on 
Saturday.''
    For example, in the case of a plan that expects to have a four week 
blackout period beginning February 10, 2003 and ending March 7, 2003, 
the notice of the blackout period could, in accordance with the final 
rule, indicate that the blackout period for the plan will begin ``the 
week of February 9, 2003 and end the week of March 2, 2003.'' The 
notice also would have to indicate the means by which participants and 
beneficiaries can determine, during the weeks of February 9 and March 
2, whether the blackout period has begun or ended. It is the view of 
the Department that, given the benefits to affected participants and 
beneficiaries of specific beginning and ending dates, the regulation 
should not be construed to preclude the use of a specific beginning 
date and a ``week of ----'' ending date, or the converse.
    The Department notes that, in the case of a plan that permits 
participants to exercise their rights up to the commencement of the 
blackout period (e.g., as might be the case where participants are 
permitted to trade daily), the timing of the advance notice must be 
calculated back from the earliest possible beginning date identified in 
the notice. For example, in the case of a plan identifying the blackout 
period as beginning the ``week of February 9,'' February 9 will be the 
beginning of the blackout period for purposes of applying the timing 
rule of the regulation.
    The Department has modified paragraph 3 of the model notice (at 
paragraph (e)(2) of the final rule) to reflect the availability of 
alternative approaches to describing the length of the blackout period.
    Finally, some commenters noted that blackout periods often affect 
certain rights longer than others (e.g., a 20 day blackout for loans 
and a 10 day blackout for distributions and investment changes) and 
requested clarification that one notice describing the different 
blackout periods is permitted under the regulation. There is nothing in 
the regulation that is intended to limit the ability of plan 
administrators to use a single notice to describe different blackout 
periods, provided that the advance notice and other requirements of the 
regulation can be satisfied with respect to such blackout periods.
    Paragraph (b)(1)(iv) of the final rule, like the interim final 
rule, requires the inclusion of a statement advising participants and 
beneficiaries to review their current investments in light of their 
inability to direct or diversify their assets during the blackout 
period and provides that use of the advisory statement contained in 
paragraph 4 of the model notice (at paragraph (e)(2)) will satisfy this 
content requirement for the notice.
    With regard to paragraph 4 of the model, commenters requested a 
clarification that the sentences relating to the risks of investments 
in individual securities are not required in those instances where a 
plan does not permit investments in such securities. Paragraph 4 of the 
model in the final rule, therefore, has been modified to clarify that 
the last two sentences are required only where the plan permits 
investments in individual securities.
    Section 101(i)(2)(A)(v) of the Act provides that the notice shall 
contain ``such other matters as the Secretary may require by 
regulation.'' In this regard, the Department added, for purposes of the 
interim final rule, two informational items.
    First, given the importance of adequate advance notice of blackout 
periods to plan participants and beneficiaries, paragraph (b)(1)(v) of 
the interim final rule provided that, where notices are furnished less 
than 30 days in advance of the last date on which affected participants 
and beneficiaries could exercise affected rights immediately before the 
commencement of the blackout period, the notice must contain a general 
statement concerning the Federal law requirement of 30 days advance 
notice and an explanation as to why such notice could not be furnished. 
The requirement for a general statement in paragraph (b)(1)(v)(A) would 
be satisfied if the notice contains the general statement appearing in 
paragraph 5(A) of the model notice (at paragraph (e)(2)). Paragraph 
(b)(1)(v) would not apply to the exceptions in paragraph (b)(2)(ii)(C) 
involving blackout periods in connection with mergers, acquisitions, 
divestitures, or similar transactions inasmuch as notices of such 
blackout periods are required to be furnished as soon as reasonably 
possible. (See ERISA section 101(i)(3).) The Department received no 
comments on paragraph (b)(1)(v) and is adopting the provision without 
change in the final rule.
    Second, the Department had determined that the notice should 
contain the name, address and telephone number of a person who can 
answer questions concerning the blackout period. Specifically, 
paragraph (b)(1)(vi) provided that the notice must contain the name, 
address and telephone number of the plan administrator or other person 
responsible for answering questions regarding the blackout period. The 
Department received one comment on this provision requesting a 
clarification that the contact person is not required to be an 
individual and could be the department employing the individual who 
would be answering questions (such as the benefits department). The 
regulation is not intended to require the


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identification of a specific person. Rather, the regulation is intended 
to require the identification of a sufficiently specific source for 
answering questions concerning the blackout period that participants 
and beneficiaries will not be confused as to whom their questions 
should be addressed. The Department has modified paragraph (b)(1)(vi) 
of the final rule and paragraph 6 of the model notice (at paragraph 
(e)(2) of the final rule) by substituting ``contact'' for ``person'' to 
clarify this matter.
    Finally, two commenters requested a clarification that notice of 
blackout periods may be furnished with other information, such as 
information relating to the change in service providers. There is 
nothing in the regulation that is intended to preclude blackout notice 
information from being furnished with other plan information, including 
benefit statements. However, given the importance of the blackout 
notice information to participants and beneficiaries, plan 
administrators should take steps to ensure that the blackout notice 
information is prominently identified in the furnished materials.


3. Timing of the Notice Sec.  2520.101-3(b)(2)


    Paragraph (b)(2) of the final rule, like the interim final rule, 
describes the timing requirements applicable to furnishing the notice 
to affected participants and beneficiaries. Paragraph (b)(2)(i) of the 
interim final rule provided that notice shall be furnished at least 30 
days, but not more than 60 days, in advance of the last date on which 
affected participants and beneficiaries could exercise their affected 
rights immediately before the commencement of any blackout period. Some 
commenters indicated that the 30 day window created by the regulation 
within which to provide notices to affected participants and 
beneficiaries was not sufficient to prepare and furnish notices and 
suggested that the regulation extend the 60 day maximum period for 
furnishing advance notice to 90 days. One commenter suggested changing 
the minimum notice requirement to 45 days and the maximum period to 90 
days, while another commenter suggested changing the minimum 
requirement to 60 days and the maximum requirement to 90 days to enable 
furnishing of the notice with quarterly benefit statements. After 
careful consideration of the comments on this provision, the Department 
has determined to retain the provision of the interim final rule 
without change.
    The Department continues to believe that the 30 day minimum and 60 
day maximum advance notice requirements of the interim final rule serve 
to ensure that affected participants and beneficiaries have 
sufficiently timely notice to enable them to both to consider the 
effects of the blackout period on their investments and financial plans 
and to take action, if appropriate, in anticipation of the blackout 
period. The 30-day minimum notice requirement is based on the statutory 
standard set forth in section 101(i)(2)(B) of ERISA. The 60-day maximum 
period is intended to ensure that notice is not furnished so far in 
advance of the commencement date so as to undermine the importance of 
the notice to affected participants and beneficiaries. The Department 
is concerned that if the only blackout notice is furnished 90 days in 
advance, many participants and beneficiaries would be inclined to defer 
consideration of the effects of the period on their individual accounts 
and some would, by virtue of the passage of time, forget altogether. As 
noted in the preamble to the interim final rule, there is nothing in 
the regulation that precludes an administrator from supplementing the 
requirements of the regulation, by furnishing earlier or more frequent 
notices than that required by regulation, provided that at least one 
notice is provided to participants and beneficiaries that complies with 
the timing and content of the rule. The Department also notes that, in 
most instances, plan administrators will have the flexibility to 
determine a beginning date for the blackout period that would permit 
timely notification of the blackout period to be made with the 
quarterly benefit statements furnished to affected participants and 
beneficiaries.
    Like the interim final rule, the final rule requires that the 
notice periods be counted back from the last date on which the 
participant or beneficiary could exercise the affected rights 
immediately before the commencement of the blackout period. One 
commenter requested a clarification that the time period must take into 
account implementation of the exercised rights of the participant or 
beneficiary. The point of the advance notice is to enable participants 
and beneficiaries to take action in anticipation of a blackout period. 
Accordingly, merely affording participants or beneficiaries the 
opportunity to give investment instruction, or request a loan, or 
request a distribution without the ability to have such instruction or 
request implemented prior to the blackout period would be contrary to 
both the regulation and the statute. Therefore, plan administrators 
must take into account plan requirements, procedures and other factors 
that may affect implementation of participant or beneficiary 
instructions or requests in determining the last date on which 
participants and beneficiaries could exercise the affected rights 
before the commencement of the blackout period.
    The timing rules are exemplified by the following. In the case of 
an individual account plan that provides for daily trading, the 30-day 
period would be counted back from the date immediately preceding the 
commencement of a blackout period affecting the right to trade. In the 
case of a plan that permits participants to direct their investments 
during the first fifteen days of each month, if a plan administrator 
determines that in order to change recordkeepers, participant direction 
of their investments will have to be suspended from the 1st to the 15th 
of May. If the 30-day notice period were counted from the date 
immediately preceding the commencement of the blackout period, notice 
could be provided on April 1st, thereby affording participants only 15 
days (April 1st-15th) to consider and take action in anticipation of 
the blackout period. Under the regulation, notice is required to be 
furnished at least 30 days in advance of the last date on which 
participants could exercise the affected rights immediately before the 
commencement of the blackout period. In the immediate example, the last 
date on which participants could take action in anticipation of the 
blackout period would be April 15th; accordingly notice would have to 
be provided to participants not later than March 16th.
    As with the interim final rule, all references in the regulation to 
``days'' are references to calendar days, not business days, unless 
specifically noted otherwise.
    Like the interim final rule, the final rule, at paragraph 
(b)(2)(ii)(A) and (B), sets forth two circumstances under which the 30-
day advance notice requirement does not apply. The first circumstance 
is where a deferral of the blackout period would result in a violation 
of the exclusive purpose and prudence requirements of section 
404(a)(1)(A) and (B) of the Act. For example, the ABC Company has 
announced that it is filing Chapter 11 bankruptcy. The ABC company's 
401(k) plan has ABC common stock as one of its investment options. F, 
the 401(k) plan fiduciary and administrator, determines that, given 
this event, it would be prudent to temporarily


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suspend investments in the ABC company stock, effective immediately. In 
such a situation, F would not, pursuant to Sec.  2520.101-
3(b)(2)(ii)(A), be required to give 30 days notice to the affected 
participants and beneficiaries, but would be required to notify them in 
writing as soon as possible of the blackout period.
    The second circumstance under which the 30-day advance notice 
requirement does not apply is where commencement of the blackout period 
is due to events that were unforeseeable or circumstances that were 
beyond the control of the plan administrator. For example, the DEF 
company's profit-sharing plan's recordkeeper has informed plan 
administrator G that due to a major computer failure, the computer 
program for recording and processing loans and distributions from the 
plan has been incapacitated and that it will take approximately ten 
days to fix the system. In such a situation, G would not, pursuant to 
Sec.  2520.101-3(b)(2)(ii)(B), be required to give 30 days' notice to 
the affected participants and beneficiaries of their temporary 
inability to receive loans and distributions from the plan, but would 
be required to notify them as soon as reasonably possible, unless G 
determines that such notice in advance of the termination of the 
blackout is impracticable. The Department anticipates that plan 
administrators will rely on this exception only in rare circumstances. 
In this regard, the Department notes that problems attendant to changes 
in recordkeepers will rarely be unforeseeable or beyond the control of 
the plan.
    In both of the foregoing circumstances, a plan fiduciary, which can 
be the plan administrator, must make a written determination with 
respect to the exceptions to the 30-day advance notice requirement. 
Like the interim final rule, paragraph (b)(2)(iv) of the final rule 
requires that such determinations be dated and signed by a plan 
fiduciary.
    Section 101(i)(3) of ERISA provides that in any case in which a 
blackout period applies only to one or more participants or 
beneficiaries in connection with a merger, acquisition, divestiture, or 
similar transaction involving the plan or plan sponsor and occurs 
solely in connection with becoming or ceasing to be a participant or 
beneficiary under the plan by reason of such merger, acquisition, 
divestiture, or similar transaction, the 30-day advance notice 
requirement shall be treated as met if the notice is furnished to such 
participants and beneficiaries to whom the blackout period applies as 
soon as reasonably practicable. Like paragraph (b)(2)(ii)(C) of the 
interim final rule, the final rule makes clear that notice to such 
participants and beneficiaries is an exception to the general rule that 
the 30-day notice be furnished to all affected participants and 
beneficiaries.
    One commenter requested that the foregoing exception be extended to 
situations where the affected participants participate in both plans 
immediately before a plan merger and to situations where a plan merger 
or spin-off is not the result of a corporate merger, acquisition, 
divestiture or similar transaction. The Department believes that the 
exception at issue was intended to be applied to the narrow 
circumstances set forth in the statute. Moreover, the Department is not 
persuaded, on the basis of the information provided, that the burdens 
attendant to providing advance notice in the circumstances described by 
the commenter outweigh the benefits of the notice to affected 
participants and beneficiaries.
    Paragraph (b)(2)(iii), like the interim final rule, provides that, 
in any case in which the 30-day advance notice rule is not required to 
be applied, the administrator is required to provide notice as soon as 
reasonably possible under the circumstances, unless such notice in 
advance of the termination of the blackout period is impracticable. If, 
therefore, a plan administrator or other fiduciary concludes under such 
circumstances that notice could not be furnished in sufficient time in 
advance of the termination of the blackout period to alert participants 
and beneficiaries of the termination date and resumption of plan 
rights, no notice would be required to be provided under this section. 
Such might be the case where the need for a blackout period is 
determined only a few days before the beginning of the blackout period 
and the blackout period is only a few days in duration.
    One commenter requested as a clarification as to whether the 
ability to furnish sufficient advance notice is determined by reference 
to the ability of the plan administrator to provide such notice to all 
affected participants and beneficiaries. It is the view of the 
Department that paragraph (b)(2)(iii), as well as paragraph (b)(4) 
relating to changes in the length of the blackout period, require that 
an administrator take steps to furnish notice as soon as reasonably 
possible to all affected participants and beneficiaries and, therefore, 
to the extent that an administrator has the ability to furnish notice 
to some participants and beneficiaries earlier than other participants 
and beneficiaries, which may be the case where electronic disclosure is 
available, the administrator has an obligation to provide such notice, 
even though providing advance notice to other participants and 
beneficiaries (e.g., by mail) may be impracticable.
    Two commenters suggested that the timing rules should not apply 
with respect to new participants inasmuch as furnishing such notice as 
part of the plan enrollment package might be a problem because 
different third-party vendors may prepare the materials and, in 
addition, new participants are likely to have little, if any, funds 
that would be affected by the blackout period. The Department is not 
persuaded that administrative burdens and small account balances 
justify an exception to the timing rules for new plan participants. 
Accordingly, no exception from the timing requirements has been adopted 
for new participants. The Department notes, however, that if an 
employee becomes a participant after blackout notices have been 
furnished to the plan's participants and beneficiaries, the 
administrator would be required to furnish a notice to the newly 
eligible employee as soon as reasonably possible pursuant to the 
exception in Sec.  2520.101-3(b)(2)(ii)(B).


4. Form and Manner of Furnishing Notice Sec.  2520.101-3(b)(3)


    Like the interim final rule, paragraph (b)(3) of the final rule 
provides that the blackout notice must be in writing and may be 
furnished in any manner permitted under 29 CFR 2520.104b-1, including 
through electronic media. One commenter indicated that the ``reasonably 
accessible'' standard of the SOA is intended to be broader than the 
standards under Sec.  2520.104b-1 and the regulation, therefore should 
be modified accordingly. The Department disagrees with the commenter's 
interpretation of the statute. It is the view of the Department that 
the standards set forth in Sec.  2520.104b-1(c), relating to the use of 
electronic media, are intended to ensure reasonable access to 
electronic communications by participants and beneficiaries consistent 
with the statute. Accordingly, the provision of the interim final 
regulation is being retained without modification.
    In the preamble to the interim final rule, the Department indicated 
that a blackout notice will be considered furnished as of the date of 
mailing, if mailed by first class mail, or as of the date of electronic 
transmission, if transmitted electronically. Two commenters indicated 
that the circumstances under which a notice is considered to be 
furnished should be


[[Page 3720]]


expanded to include delivery by overnight mail, third class mail, 
private delivery services, and interoffice mail. It is the view of the 
Department that interoffice mail is essentially hand delivery and, 
therefore, a document would not be considered furnished until received 
by the participant. On the other hand, the Department agrees that with 
the commenters that there are other methods of delivery that should be 
accorded the same deference as electronic transmission and first class 
mail. In this regard, it is the view of the Department that a blackout 
notice will be considered furnished on the date of mailing if it is 
accomplished by first class mail, certified mail or Express Mail; or on 
the date of delivery to a ``designated private delivery service'' 
within the meaning of 26 U.S.C. 7502(f). In the case of notices 
furnished electronically, notices will be considered furnished on the 
date of transmission.
    One commenter requested clarification of whether furnishing notice 
to the last known address of a participant or beneficiary is 
sufficient. Furnishing a notice to the last known address of a 
participant or beneficiary would be sufficient where the plan utilizes 
a method of delivery described in Sec.  2520.104b-1 and the fiduciaries 
of the plan have taken reasonable steps to keep plan records up-to-date 
and to locate lost or missing participants.


5. Changes in Length of Blackout Period Sec.  2520.101(b)(4)


    Paragraph (b)(4) describes the notice requirements applicable to 
changes in the length of the blackout period. The final rule, like the 
interim final rule, provides that the administrator is required to 
provide all affected participants and beneficiaries with an updated 
notice explaining the reasons for the change in the date(s) and 
identifying all material changes in the information contained in the 
prior notice. The updated notice must be provided as soon as reasonably 
possible, unless such notice in advance of termination of the blackout 
period is impracticable. In this regard, the Department reiterates that 
to the extent that an administrator has the ability to furnish notice 
to some participants and beneficiaries earlier than other participants 
and beneficiaries, which may be the case where electronic disclosure is 
available, the administrator has an obligation to provide such notice, 
even though providing advance notice to other participants and 
beneficiaries (e.g., by mail) may be impracticable.


6. Notice to Issuer of Employer Securities Sec.  2520.101-3(c)


    Paragraph (c) of Sec.  2520.101-3 of the final rule, like the 
interim final rule, describes the plan administrator's obligation to 
provide notice of a blackout period to the issuer of employer 
securities held by the plan and subject to the blackout period. 
Paragraph (c)(1) generally provides that the content and timing 
requirements applicable to the furnishing of notices to participants 
and beneficiaries also apply to the furnishing of notices to the issuer 
of employer securities. As with the interim final rule, it is the view 
of the Department that a plan administrator may satisfy its obligation 
to notify the issuer by providing the same notice furnished to 
participants and beneficiaries. Paragraph (c)(2) provides that the 
notice of the blackout period shall be furnished to the agent for 
service of legal process for the issuer, unless the issuer has provided 
the plan administrator the name of another person for service of such 
notice. Paragraph (c)(2) is intended to ensure that there is no 
ambiguity as to whom the administrator must serve notice of the 
blackout period. Pursuant to section 306(a)(6) of the SOA, issuers are 
required to notify directors, executive officers, and the Securities 
and Exchange Commission of the blackout period.
    Three commenters suggested that notice to the issuer should not be 
required when the plan administrator and issuer are the same person. 
The Department does not believe that merely because an issuer and the 
plan administrator may, as a technical matter, be the same legal 
entity, that the parties will necessarily be privy to the same 
information. Nonetheless, there is nothing in the regulation that 
precludes an issuer of employer securities from designating the plan 
administrator as the party to receive notices of blackout periods. The 
Department has amended the regulation, at Sec.  2520.101-3(c), to add a 
new subparagraph (3) making clear that where an issuer designates the 
administrator as the person to be furnished notice of a blackout 
period, the issuer shall be deemed to have been furnished notice on the 
same date as notice is furnished to affected participants and 
beneficiaries, thereby relieving the administrator of the obligation to 
notify itself of a blackout period.


7. Definitions Sec.  2520.101-3(d)


a. ``Blackout Period''
    Paragraph (d)(1) of Sec.  2520.101-3 defines the term ``blackout 
period.'' The interim final rule adopted the definition set forth in 
ERISA section 101(i)(7). The Department received a number of comments 
on the interim final regulation requesting clarification of specific 
exclusions from the ``blackout period'' definition, as well as 
clarification that certain suspensions, limitations or restrictions 
imposed on an individual participant's account do not constitute a 
blackout period as contemplated by the statute or regulation.


``Regularly Scheduled'' Exclusion


    One commenter requested a clarification that the provisions of 
paragraph (d)(1)(ii)(B), relating to ``a regularly scheduled 
suspension, limitation or restriction,'' not only applies to those that 
are plan changes, but also to preexisting plan features. Another 
commenter requested clarification that ``a regularly scheduled 
suspension, limitation, or restriction'' may, for purposes of the 
exclusion, be contained in and disclosed via enrollment forms, 
investment policies and other documents pursuant to which the plan is 
established or operated.
    First, the Department does not believe that Congress, in enacting 
ERISA section 101(i)(7), intended to include preexisting regularly 
scheduled suspensions, limitations, or restrictions in the definition 
of the blackout period to the extent such suspensions, limitations, or 
restrictions are disclosed to participants and beneficiaries. In this 
regard, the Department notes that section 101(i)(7)(A) of ERISA and 
paragraph (d)(1)(i) of the regulation, in defining ``blackout period,'' 
references ``any period for which any ability of participants or 
beneficiaries under the plan, which is otherwise available under the 
terms of such plan, to direct or diversify assets * * *.'' (Emphasis 
supplied). The Department reads the clause ``which is otherwise 
available under the terms of such plan'' as referring to preexisting 
regularly scheduled suspensions, limitations or restrictions. The 
Department also notes that the ``blackout period'' definition contained 
in SOA section 306(a)(4), to be administered by the Securities and 
Exchange Commission, generally provides that a blackout period does not 
include ``a regularly scheduled period,'' if such period is 
incorporated into the plan and timely disclosed to employees. 
Nonetheless, in an effort to clarify this issue and more closely align 
the exclusion in ERISA section 101(i)(7)(B)(ii) with SOA section 
306(a),


[[Page 3721]]


the Department has amended paragraph (d)(1)(ii)(B) of the 
regulation.\1\
---------------------------------------------------------------------------


    \1\ Section 101(i)(5) of ERISA, as added by SOA section 306(b), 
provides that the Secretary may establish by regulation additional 
exceptions to the requirements of subsection (i) of section 101 (the 
blackout notice requirements) which the Secretary determines are in 
the interest of participants and beneficiaries. The Department finds 
the amendment to paragraph (d)(1)(ii)(B) of the regulation to be in 
the interest of participants and beneficiaries.
---------------------------------------------------------------------------


    As amended, paragraph (d)(1)(ii)(B) excludes from the definition of 
blackout period a suspension, limitation or restriction ``which is a 
regularly scheduled suspension, limitation, or restriction under the 
plan (or change thereto), provided that such suspension, limitation or 
restriction (or change) has been disclosed to affected plan 
participants and beneficiaries through the summary plan description, a 
summary of material modifications, materials describing specific 
investment alternatives under the plan and limits thereon or any 
changes thereto, participation or enrollment forms, or any other 
documents and instruments pursuant to which the plan is established or 
operated that have been furnished to such participants and 
beneficiaries.'' This amendment also serves to clarify that ``regularly 
scheduled suspensions, limitations and restrictions'' may be set forth 
in and disclosed to participants and beneficiaries in a variety of 
documents.
    The amendment to paragraph (d)(1)(ii)(B), by reference to 
``materials describing specific investment alternatives under the plan 
and limits thereon,'' also is intended to make clear that restrictions 
on investments or delays in payment or transfers applicable to 
particular investments are encompassed within the exclusion to the 
extent disclosed to affected participants and beneficiaries. Similarly, 
limits on the ability of participants and beneficiaries to give 
investment instruction (such as limits on the ability of participants 
to trade daily) would be covered by the exclusion as a ``regularly 
scheduled suspension, limitation or restriction'' to the extent 
disclosed to affected participants and beneficiaries.
    A number of commenters requested clarification that quarterly 
freezes on trading involving employer stock, timed to coincide with 
earnings reports and intended to prevent insider trading, whether fixed 
dates or determined on a quarter-by-quarter basis, do not constitute 
blackout periods within the meaning of the regulation when plan 
materials disclose the dates or explain how the dates will be 
determined. It is the view of the Department that such restrictions on 
trading employer securities would be ``regularly scheduled'' to the 
extent the event (i.e., release of the company's quarterly earnings 
report) and the restriction (freeze on trading employer securities) and 
the period of the restriction are described in plan materials and 
disclosed to the plan's affected participants and beneficiaries.


QDRO Exclusion


    A number of commenters also expressed concern that the language of 
paragraph (d)(1)(ii)(C), relating to suspensions, limitations, or 
restrictions as a result of a qualified domestic relations order 
(QDRO), did not take into account the obligations of a plan 
administrator to impose certain restrictions on the account of a 
participant during the pendency of a determination as to whether a 
domestic relations order is qualified. Given the specific obligations 
imposed on plan administrators pursuant to ERISA section 206(d)(3)(H), 
the Department does not believe that Congress, in drafting section 
ERISA 101(i)(7)(B)(iii), intended to limit the subject exclusion only 
to those restrictions arising after a determination that a domestic 
relations order is qualified. Accordingly, the Department has amended 
paragraph (d)(1)(ii)(C) to clarify the application of the exclusion to 
restrictions imposed during the pendency of a QDRO determination. As 
amended, paragraph (d)(1)(ii)(C) excludes a suspension, limitation or 
restriction ``which occurs by reason of a qualified domestic relations 
order or by reason of a pending determination (by the plan 
administrator, by a court of competent jurisdiction or otherwise) 
whether a domestic relations order filed (or reasonably anticipated to 
be filed) with the plan is a qualified order within the meaning of 
section 206(d)(3)(B)(i) of ERISA.'' \2\
---------------------------------------------------------------------------


    \2\ Pursuant to the Department's authority under section 
101(i)(5) of ERISA, the Department finds the amendment to paragraph 
(d)(1)(ii)(C) to be in the interest of plan participants and 
beneficiaries.
---------------------------------------------------------------------------


Individual Participant Actions


    Commenters generally requested clarification that the term 
``blackout period'' is not intended to include account restrictions 
triggered by individual participant actions. Examples of such actions 
include: Receipt of a tax levy, a dispute over a deceased participant's 
account among putative beneficiaries, failure of a participant to 
obtain a PIN number, or allegations that the participant committed a 
fiduciary breach or crime involving the plan. It is the view of the 
Department that Congress did not intend to encompass within the meaning 
of ``blackout period'' restrictions on investment direction, plan loans 
and plan distributions imposed solely in response to an action 
involving an individual participant and affecting only the account of 
that participant, such as those actions identified in the preceding 
sentence. Rather, the blackout notice requirements are intended to 
ensure that plan participants and beneficiaries are afforded advance 
notice of plan-imposed restrictions on their rights in order that they 
may take appropriate steps in anticipation of the restriction. In the 
case of actions involving individual participants, the Department 
agrees with commenters that the affected participant or beneficiary 
typically will already have notice of any restriction and reasons for 
such restriction. In response to these comments, the Department has 
amended the definition of blackout period at paragraph (d)(2) of the 
regulation to clarify that suspensions, limitations and restrictions 
precipitated by a participant's action or the action of a third-party 
with respect to an individual participant's account are excluded from 
the definition of ``blackout period.'' Specifically, new paragraph 
(d)(2)(D) excludes from definition of blackout periods, a suspension, 
limitation and restriction that ``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 participant.\3\
---------------------------------------------------------------------------


    \3\ Section 101(i)(5) of ERISA, as added by SOA section 306(b), 
provides that the Secretary may establish by regulation additional 
exceptions to the requirements of subsection (i) of section 101 (the 
blackout notice requirements) which the Secretary determines are in 
the interest of participants and beneficiaries. The Department finds 
this amendment to paragraph (d)(2) of the regulation to be in the 
interest of participants and beneficiaries.
---------------------------------------------------------------------------


Permanent Restrictions


    Commenters, noting that the definition of ``blackout period'' 
refers to rights that are ``temporarily suspended, limited or 
restricted,'' requested clarification that permanent elimination of 
certain rights would not constitute a ``blackout period.'' Examples 
cited by the commenters included: Permanent restriction on new 
contributions to an investment option, replacement of one investment 
option with another of a similar type, and termination of the plan. The 
Department agrees that the blackout notice requirements were not


[[Page 3722]]


intended to apply to rights that are eliminated, as opposed to 
temporarily suspended, limited or restricted. Accordingly, a permanent 
restriction on new contributions to an investment option, replacement 
of one investment option with another, a plan termination and similar 
types of permanent restrictions would not in and of themselves be 
events that give rise to a blackout notice obligation under the 
regulation. However, if, in connection with implementing a permanent 
restriction, some rights would be temporarily suspended, limited or 
restricted, the blackout notice requirements would apply to such 
temporary restriction. For example, in replacing investment option A 
with investment option B, the plan permanently restricts new 
contributions to option A and during the transfer of funds from option 
A to option B temporarily suspends participant direction of the funds 
transferred to option B for 5 days during which transfers and accounts 
will be reconciled. In this situation, the restriction on new 
contributions to option A would not constitute a blackout period, but 
the 5 day temporary restriction on the direction of funds in option B 
would constitute a blackout period with respect to which notice must be 
provided under the regulation. On the other hand, if there was no 
restriction on the direction of funds in option B or if the restriction 
was for 3 or fewer consecutive business days, there would be no 
blackout period with regard to such funds under the regulation.
    One commenter requested a clarification that a blackout period does 
not occur solely because of the bankruptcy of an employer and the 
appointment of a bankruptcy trustee or as a result of abandonment of a 
plan by the plan sponsor. Such actions would, in the view of the 
Department, result in a blackout period only if the rights of 
participants and beneficiaries to direct investments, obtain a loan or 
obtain a distribution are temporarily suspended, limited or restricted 
within the meaning of the regulation. In the event there is a blackout 
period in connection with such actions, notice would have to be 
provided by the plan administrator or the party assuming the 
responsibilities of the plan administrator.
    One commenter requested clarification that the definition of 
``blackout period'' does not extend to suspensions, limitations or 
restrictions of services (such as investment education, investment 
advice, retirement counseling, financial planning) that may facilitate 
the exercise of a participant's and beneficiary's right to diversify 
their assets, obtain a loan or obtain a distribution. It is the view of 
the Department that to the extent such services are not required in 
order for a participant or beneficiary to exercise his or her right to 
direct investments, obtain a loan or obtain a distribution, the 
suspension, limitation or restriction of such services would not give 
rise to a blackout period within the meaning of the regulation.
b. ``One-Participant Retirement Plan''
    As with the interim final rule, the final rule adopts the statutory 
definition of ``one-participant retirement plan'' set forth in section 
101(i)(8)(B) of ERISA, as amended by section 306(b)(1) of the SOA. One 
commenter suggested the definition of ``one-participant retirement 
plan'' be amended to apply the definition in 29 CFR Sec.  2510.3-
3(c)(1) and (2) for purposes of the blackout notice requirements. The 
Department has not adopted this suggestion and retained the statutory 
definition ``one-participant retirement plan'' without change.
c. ``Issuer''
    Like the interim final rule, paragraph (d)(4) of the final rule 
defines the term ``issuer'' for purposes of the blackout notice 
provisions. Consistent with the provisions of section 2(a)(7) of the 
SOA, issuer means an issuer as defined in section 3 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c),\4\ the securities of which are 
registered under section 12 of the Securities Exchange Act of 1934, or 
that is required to file reports under section 15(d) of the Securities 
Exchange Act of 1934, or files or has filed a registration statement 
that has not yet become effective under the Securities Act of 1933 (15 
U.S.C. 77a et seq.), and that it has not withdrawn.
---------------------------------------------------------------------------


    \4\ Section 3 of the Securities Exchange Act of 1934 defines the 
term ``issuer'' to mean any person who issues or proposes to issue 
any security; except that with respect to certificates of deposit 
for securities, voting-trust certificates, or collateral-trust 
certificates, or with respect to certificates of interest or shares 
in an unincorporated investment trust not having a board of 
directors or of the fixed, restricted management, or unit type, the 
term ``issuer'' means the person or persons performing the acts and 
assuming the duties of depositor or manager pursuant to the 
provisions of the trust or other agreement or instrument under which 
such securities are issued; and except that with respect to 
equipment-trust certificates or like securities, the term ``issuer'' 
means the person by whom the equipment or property is, or is to be, 
used.
---------------------------------------------------------------------------


d. Miscellaneous
    In response to requests from two commenters, the Department 
provides the following clarifications. First, references to plan 
administrator and administrator in the regulation mean the 
``administrator'' as defined in section 3(16)(A) of ERISA. Second, the 
term ``affected participant'' as used in the regulation means 
participants and beneficiaries whose rights under the plan are affected 
by the suspension, limitation, or restriction of their right to direct 
or diversity assets, obtain a loan or obtain a distribution. Employees 
who are eligible but who have not elected to participate in the plan 
would not be ``affected participants'' within the meaning of the 
regulation.


8. Model Notice Sec.  2520.101-3(e)


    Paragraph (e) of Sec.  2520.101-3 provides a model notice to 
facilitate compliance with the blackout notice requirements by plan 
administrators. Use of the model is not mandatory. However, like the 
interim final rule, the final rule provides that use of the advisory 
statement set forth at paragraph 4 of the model notice will be deemed 
to satisfy the notice content requirements of paragraph (b)(1)(iv) of 
the rule pertaining to advising participants and beneficiaries about 
the importance of reviewing their plan investments in anticipation of 
their inability to direct or diversify their investments during the 
blackout period. The final rule, like the interim final rule, also 
provides that use of the general statement set forth in paragraph 5 of 
the model notice will be deemed to satisfy the requirement of paragraph 
(b)(1)(v)(A) that the notice contain a general statement that Federal 
law requires furnishing of blackout notices in advance of the blackout 
period.
    This model is intended to deal solely with the content requirements 
prescribed in paragraph (b)(1) and not other matters with respect to 
which disclosure may be required, such as changes in investment 
options.
    As discussed earlier, the model notice has been revised to 
accommodate changes in the final rule. Paragraph 3 of the model 
(relating to length of the blackout period) has been changed to reflect 
alternative approaches to describing the length of the blackout period 
and paragraph 4 (encouraging participants and beneficiaries to review 
their investments in anticipation of the blackout period) has been 
modified to make clear that the last two sentences of the paragraph 
(relating to investments in individual securities) apply only to plans 
that offer investments in individual securities. Paragraph 6 of the 
model also was modified to make clear that individual persons are not 
required to be named as contacts for information about blackout 
periods.


[[Page 3723]]


    One commenter suggested that paragraph 4 of the model not be 
required when notice is furnished as soon as reasonably possible under 
the circumstances, but after the date on which affected participants 
and beneficiaries can take action in anticipation of the blackout 
period. The Department agrees that including paragraph 4 of the model 
in a notice furnished after the date on which participants and 
beneficiaries can effectuate changes in anticipation of the blackout 
period will be of no value to participants and beneficiaries and, 
accordingly, may be deleted.
    One commenter suggested that the model advise participants of the 
tax consequences relating to net unrealized appreciation of employer 
securities upon distribution from a plan. The Department believes that, 
while such information may be useful to participant, the information 
goes beyond the scope of the intended blackout notice. The Department 
notes, however, that there is nothing in the regulation which precludes 
the furnishing information with the blackout period notice that may be 
helpful to plan participants and beneficiaries.


9. Effective Date Sec.  2520.101-3(f)


    Paragraph (f) of Sec.  2520.101-3 sets forth the effective date of 
the final rule. Like the interim final rule, paragraph (f) provides 
that the rule is effective on January 26, 2003, the effective date of 
the SOA section 306 amendments to ERISA. Paragraph (f) provides that 
the notice requirements shall apply to blackout periods commencing on 
or after January 26, 2003, and that, for blackout periods beginning 
between January 26, 2003 and February 25, 2003, plan administrators 
shall furnish notice as soon as reasonably possible. This provision is 
intended to ensure that a statutorily required notice be provided with 
respect to blackout periods which commence before February 26, 2003. In 
no event, however, is a blackout notice required to be furnished under 
the regulation prior to the January 26 effective date. Pursuant to 
section 553(c) of the Administrative Procedure Act, the Department 
finds good cause for this rule to be effective less than 30 days after 
publication. The Department believes that having the rule effective on 
the effective date of the underlying statutory provisions will avoid 
confusion for plan administrators. Moreover, the limited extent of the 
differences between the instant rule and the interim rules will 
minimize any difficulties in complying with the rule by the effective 
date.


C. Regulatory Impact Analysis


Summary


    The costs associated with this final rule arise primarily from the 
statutory requirement to prepare and distribute advance notices of the 
imposition of blackout periods. The aggregate costs for plans required 
to provide this notice are estimated to be $13.9 million per year. The 
benefits afforded participants and beneficiaries and plan 
administrators by the statute and final rule cannot be quantified, but 
are expected to be substantial. These requirements will ensure that 
notices are always provided, are timely, and have appropriate content. 
Economic benefits will accrue to participants or beneficiaries as a 
result of their enhanced ability to exercise control over their 
retirement plan assets with adequate information to inform their 
decisions. The assurance of receiving advance notice of events that may 
be critical to participant decisionmaking will increase confidence in 
the security of retirement assets and promote plan participation. The 
statute and this guidance will also assist plan administrators in their 
efforts to fulfill their obligations to participants and beneficiaries.


Benefits and Costs


    The SOA amendments to ERISA and this implementing guidance will 
have several important benefits. First, while commenters on the interim 
final rule confirm that many plan administrators currently provide 
disclosures similar to those required by the statute and interim final 
rule, these new requirements will ensure that appropriate information 
is provided in a consistent and timely manner.
    This advance knowledge will have economic value and increase 
confidence in the security of retirement savings. Timely notice and an 
understanding of the reasons for and expected duration of a blackout 
period will benefit participants and beneficiaries economically by 
offering them ample opportunity to assess their current investment 
decisions, and to adjust their exposure to loss if they wish to do so, 
to the extent possible within the existing options available under the 
plan. Advance notice of blackout periods cannot eliminate fluctuations 
of market value during a period when existing investment instructions 
cannot be modified. However, notice will allow affected participants 
and beneficiaries to maximize their exercise of control as they deem 
appropriate in their individual circumstances.
    Assurance of the opportunity to exercise control with adequate 
knowledge, in advance of events that will affect their ability to 
exercise control, will increase participant and beneficiary confidence 
that the plan is being operated appropriately. Participants frequently 
express concern when significant changes are made to plan options, or 
when rights previously available are temporarily limited. Assuring that 
they will have knowledge of the timing and reasons for such changes 
should serve to promote confidence in the security of retirement 
savings and support continued growth in participation in the retirement 
plans offered by plan sponsors.
    Second, guidance on the statutory notice requirement will benefit 
plan sponsors and administrators by clarifying the manner in which they 
may discharge their obligation to ensure that participants and 
beneficiaries have access to information necessary to make informed and 
meaningful investment decisions. Blackout periods occur for a variety 
of reasons. Their occurrence and timing are often, but not always, 
within the control of the plan administrator. The most common reasons 
for imposition of a blackout period include changes in investment 
alternatives or recordkeepers, and corporate mergers, acquisitions, and 
spin-offs that impact the pension coverage of groups of participants. 
Plan administrators will wish to ensure that proper accounting and 
record transfer is accomplished as timely and accurately as possible, 
while at the same time advising participants about important matters 
affecting their rights under the plan.
    The value of these benefits cannot be specifically quantified. 
However, the conclusion that advance notice of blackout periods 
produces economic benefits is consistent with mainstream economic 
theory and corroborated by evidence. For example, theory posits that 
financial market prices respond quickly to new information. Delays in 
executing trades have been shown to be costly. Advance notice of a 
blackout in trading enables affected participants to adjust their 
positions to manage their exposure to such costs. The benefits are 
expected to outweigh the costs of the statute and the final rule.
    Administrators of about 85,150 affected plans are estimated to 
incur costs of approximately $13.9 million each year to prepare and 
distribute blackout notices to 12 million covered participants. This 
total consists of about $8 million per year for 295,000 small plans (an 
average of about $110 per plan), and $5.8 million per year for 45,000 
large plans (an average of about $510 per plan). These costs are 
primarily attributable to the effect of the


[[Page 3724]]


statutory provisions, and would in fact be estimated to be greater in 
the absence of a model notice due to higher notice drafting time. 
Because plans commonly provide advance notice of blackout periods 
voluntarily, much of this cost is inherent in normal business practice, 
and the incremental cost attributable to the advance notice requirement 
will be less than total estimated here. Because the costs of the 
statute arise from notice provisions, the data and methodology used in 
developing these estimates are fully described in the Paperwork 
Reduction Act section of this statement of regulatory impact.
    Although the Department requested input from the public concerning 
the assumptions used in developing these estimates, the likely 
frequency of blackout periods, the sources of variability in the costs 
and benefits of providing notices, and any potential differential 
impacts on small plans, it received a limited number of comments 
addressing economic impact. As noted earlier in this preamble, several 
commenters indicated that the interim final rule's requirement for the 
disclosure of specific beginning and ending dates in the blackout 
notice, and a corresponding frequency of the requirement for subsequent 
notices arising from the inability to predict specific dates, would add 
to the burden of the blackout notice requirement. The Department has 
made certain modifications in the final rule to address these concerns. 
A comment was also received with respect to the Department's 
assumptions with respect to the use of electronic methods of 
communication. This comment is addressed in the Paperwork Reduction Act 
statement below.


Executive Order 12866


    Under Executive Order 12866 (58 FR 51735), the Department must 
determine whether a regulatory action is ``significant'' and therefore 
subject to review by the Office of Management and Budget (OMB). Section 
3(f) of the Executive Order defines a ``significant regulatory action'' 
as an action that is likely to result in a rule (1) having an annual 
effect on the economy of $100 million or more, or adversely and 
materially affecting a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
``economically significant''); (2) creating serious inconsistency or 
otherwise interfering with an action taken or planned by another 
agency; (3) materially altering the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raising novel legal or policy issues arising 
out of legal mandates, the President's priorities, or the principles 
set forth in the Executive Order. It has been determined that this 
final rule is significant within the meaning of section 3(f)(4) of the 
Executive Order. OMB has, therefore, reviewed the final rule pursuant 
to the Executive Order.


Paperwork Reduction Act


    At the time of publication of the interim final rule, the 
Department of Labor submitted the information collection request (ICR) 
included in the interim final rule to OMB for review and clearance in 
accordance with the emergency review procedures of the Paperwork 
Reduction Act of 1995 (PRA 95). OMB subsequently approved the 
information collection using emergency clearance procedures on December 
5, 2002. This emergency clearance will expire on April 30, 2003. As a 
consequence, the information collection included in this final rule is 
being submitted at this time for continuing approval. The burden 
estimates are unchanged, and terms of the final rule that constitute 
collections of information are not substantively or materially changed. 
A copy of the ICR with applicable supporting statement may be obtained 
by calling the Department of Labor, Ms. Marlene Howze, at (202) 693-
4158, or by e-mail to Howze-Marlene@dol.gov.
    Comments and questions about the ICR should be submitted to the 
Office of Management and Budget, Office of Information and Regulatory 
Affairs, ATTN: Desk Officer for the Pension and Welfare Benefits 
Administration, Room 10235, 725 17th Street, NW., Washington, DC 20503 
((202) 395-7316). Comments should be submitted to OMB by February 24, 
2003 to ensure their consideration.
    The Department and OMB are particularly interested in comments 
that:
    [sbull] Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    [sbull] Evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
    [sbull] Enhance the quality, utility, and clarity of the 
information to be collected; and
    [sbull] Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.


Information Collection Provisions


    The information collection provisions of this final rule are found 
in paragraphs (a), (b)(2)(ii)(A) and (B), (b)(2)(iv), (b)(4), and 
(c)(1). A model notice is provided in paragraph (e) to facilitate 
compliance and moderate the burden associated with supplying notices to 
participants and beneficiaries as described in the final rule. Use of 
the model notice is not mandatory, and the addition of other relevant 
information to the advance notice should not be viewed as restricted by 
the model. Modifications described earlier in this preamble to 
paragraphs (b)(1)(iii)(A) and (B) allowing the use under specific 
circumstances of a limited range of beginning and ending dates rather 
than specific dates should serve to allow for greater flexibility and 
limit the number of follow-up notices required pursuant to paragraph 
(b)(4). New paragraph (c)(3) clarifies that where an issuer designates 
the plan administrator as the person to receive notice under paragraphs 
(c)(1), the plan administrator need not supply this notice separately 
to itself. This modification may eliminate the need for duplicate 
notification under some circumstances. Neither of these changes is 
considered to constitute a substantive or material change to the 
existing approved information collection.


Comments


    As noted, the Department received comments concerning the 
difficulty of including specific beginning and ending dates in the 
notice pursuant to paragraphs (b)(1)(iii), and the applicability of the 
notice requirement of paragraph (c) when an issuer designates the plan 
administrator as the party to receive notices of blackout periods 
affecting securities of the issuer. The Department has addressed these 
and other issues raised by commenters with modifications previously 
described in this preamble. In addition, one commenter expressed the 
view that the Department's estimates were understated to the extent 
that they incorporated the use of electronic media for distribution of 
the notices. The commenter further stated that the use of electronic 
technology for communicating with participants and


[[Page 3725]]


beneficiaries is generally not viable due to the absence of computer 
capability in certain industries. While the Department did not describe 
its methodology for incorporating electronic disclosure assumptions in 
detail in the interim final rule, the methodology does take a variety 
of factors into account, including the distribution of plan sponsors 
and participants across industries, data related to access to computers 
in different industries, survey data on the use of electronic 
communication methods by plan sponsors and administrators, and comments 
received in response to the Department's Notice of Proposed Rulemaking 
on Use of Electronic Communication and Recordkeeping Technologies by 
Employee Pension and Welfare Benefit Plans (64 FR 4506, January 28, 
1999; finalized April 9, 2002, 67 FR 17264).
    Specifically, in order to develop estimates of distribution 
expenses saved through the use of electronic communication 
technologies, the Department utilized a Census Bureau household survey 
published in 2001 on computer use \5\ and a separate 1999 Census Bureau 
household survey \6\ on pension and health benefit plan participation. 
Analysis of this information indicates that approximately 21 percent of 
participants have appropriate access to electronic media at their 
workplaces, and another 38 percent have such access at home. The 
pension and health coverage rates were then applied to the computer use 
rates industry-by-industry to account for the likelihood that computer 
use is greater among plan participants and especially among large plan 
participants, because such participants are concentrated in certain 
industries (e.g., the financial services industry).
---------------------------------------------------------------------------


    \5\ ``Home Computers and Internet Use in the United States: 
August 2000,'' U.S. Census Bureau Current Population Reports 
(September 2001).
    \6\ Contingent Work Supplement to the February, 1999 Current 
Population Survey, U.S. Census Bureau.
---------------------------------------------------------------------------


    The Department then looked at each disclosure required under Title 
I of ERISA to evaluate the extent to which plan administrators might 
consider electronic distribution appropriate. For purposes of the 
required notices of blackout periods, it was assumed that in most cases 
where plan administrators and participants had consistent access to 
computers, these notices would be distributed electronically. This is 
because it is believed that plan administrators will consider the 
information time sensitive, because electronic distribution is cost 
effective, and because the investment companies that provide 
administrative services for many individual account plans commonly 
communicate with customers in an electronic format.
    While the description of the use of electronic technologies in the 
preamble to the interim final rule may have been read to suggest that 
most or all blackout notices were expected to be delivered 
electronically, the delivery of the majority of notices is in fact 
still estimated to occur by first class mail. About 38 percent of such 
notices are expected to be delivered electronically. While the 
Department agrees with the commenter that many plans will derive no 
benefit from electronic distribution, it has carefully considered its 
approach to estimating distribution savings for plans situated to make 
use of electronic technologies, and continues to believe that the 
approach supports reasonable estimates.
    Accordingly, it has not modified its previous assumptions 
concerning the likely methods of delivery for notices of blackout 
periods.


Burden Estimates


    In order to estimate the potential costs of the notice provisions 
of section 101(i) of ERISA and this final rule, the Department 
tabulated the number of participant-directed individual account plans 
and the number of participants, inactive participants and beneficiaries 
who have not taken distributions, in those plans using the plans' Form 
5500 filings for 1998, the most recent year currently available. The 
Department then projected these counts forward, producing estimates of 
295,000 small and 45,000 large participant-directed individual account 
plans in 2002 (totaling 341,000). Participant counts were also 
projected, resulting in estimates of 7.4 million small plan 
participants and 40.4 large plan participants (totaling 47.8 million) 
in 2002 that would potentially be affected by blackout notices. A more 
detailed explanation of the methods and data used in these projections, 
as well as assumptions underlying the proportion of these plans and 
participants expected to be affected each year may be found in the 
preamble to the interim final rules.
    Based on available data, the Department assumes that 25% percent of 
potentially affected plans will impose a blackout period in any given 
year. The resulting numbers of plans and participants assumed to be 
affected by the notice provisions annually are 85,150 and about 12 
million, respectively.
    The availability of a model notice as provided in paragraph (e) 
will lessen the time otherwise required to draft a required notice. In 
developing burden estimates, the Department has allowed one-half hour 
for drafting of the elements of the form by the plan administrator, and 
one hour for legal review of the drafted notice, the latter expense to 
be incurred as a payment of fees for outside services. This accounts 
for the burden of preparing the notice, which is estimated at 42,600 
hours, and $6.4 million. No additional preparation time is accounted 
for to draft the notice required to be provided to an issuer of 
employer securities under paragraph (c), because this final rule 
requires the content and timing of that notice to be the same as the 
notice prepared for the purpose of paragraph (b)(1). The burden of this 
notice would be driven by the number of plans rather than participants, 
and the notice would be required in far more limited circumstances than 
the notice to participants under paragraph (b)(1), as it pertains only 
to the issuer's securities affected by the blackout period in the plan. 
In addition, based on the addition of paragraph (c)(3), when the issuer 
designates the plan administrator as the party to receive of blackout 
periods involving securities of the issuer, the plan administrator is 
not required to provide this notice separately to itself. This 
modification should serve to reduce the number of these notices because 
the issuer and plan administrator are in some instances the same 
entity; however, the magnitude of the reduction cannot be estimated. 
Because only a small segment of participant directed individual account 
plans holds employer securities that would be subject to the 
requirements of paragraph (c), the cost of delivering such notices is 
estimated to be negligible.
    The estimated burden for distribution of blackout notices takes 
several factors into account, including an assumed number of 
participants affected annually, the number of the notices that will be 
distributed electronically, and on paper, and the differential costs of 
electronic and paper distribution methods. The estimates of the rate of 
use of electronic distribution methods are consistent with those used 
in determining the savings associated with the Department's Final Rules 
Relating to Use of Electronic Communication and Recordkeeping 
Technologies by Employee Pension and Welfare Benefit Plans (67 FR 
17264, April 9, 2002). Those participants not calculated to receive 
notice electronically are


[[Page 3726]]


assumed to receive the notice on paper. Paper distribution is estimated 
to require one minute per notice for copying and mailing, plus $0.40 
for paper and postage. No time or direct cost is attributed to 
electronic distribution methods other than the time required to prepare 
the notice, because it is assumed that notices are drafted in 
electronic form, plan administrators use existing infrastructure to 
communicate electronically, and the cost of electronic transmission is 
negligible. Paper notice distribution is estimated to require 123,500 
hours, and cost about $3 million annually.
    The Department considers that this distribution burden estimate is 
conservatively high due to the fact that many plans already provide 
advance notices in the event of the imposition of a blackout period, 
that most blackout periods arise from changes in investment providers 
or recordkeepers, and that this advance notice either is or will be 
included with other informational materials that would ordinarily be 
supplied to participants or beneficiaries to implement that change. 
Commenters were generally in agreement with these assumptions.
    No additional burden is included for the requirements for written 
documentation that is to be dated and signed under paragraphs 
(b)(2)(ii)(A) and (B) and (b)(2)(iv). It is assumed that written 
documentation is normally maintained in the circumstances described, 
and that the burden of adding a signature or providing a limited number 
of copies upon request would be negligible.
    Further, no additional burden is estimated for subsequent notices 
required due to changes described in paragraph (b)(4). The Department 
has no basis for an estimate of the frequency of changes in the length 
of blackout periods. Further, the Department believes that, although a 
cost is incurred to do so, plan administrators typically inform 
participants of changes in the duration of a blackout period as part of 
their reasonable and customary business practices. It is acknowledged 
that the content and timing might be modified based on the provisions 
of the SOA and this final rule, however. As noted earlier, the 
modification of the interim final rule provision describing the nature 
of the information to be included on blackout period beginning and 
ending dates should serve to minimize the number of subsequent notices 
and their attendant costs by clarifying for plan administrators the 
extent to which their usual practices conform to the provisions of the 
final rule.
    The current estimates of annual respondents, responses, and hour 
and cost burdens are shown below.
    Type of Review: Extension of a currently approved collection.
    Agency: Department of Labor, Pension and Welfare Benefits 
Administration.
    Title: Notice of Blackout Period under ERISA.
    OMB Number: 1210-0122.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Respondents: 85,150.
    Frequency of Response: On occasion.
    Responses: 11,956,000.
    Estimated Total Burden Hours: 166,129.
    Total Annual Cost (Operating and Maintenance): $ 9,351,400.
    OMB will consider comments submitted in response to this request in 
its review of the request for an extension of the emergency approval of 
the ICR; these comments will also become a matter of public record.


Regulatory Flexibility Act


    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA), 
imposes certain requirements with respect to federal rules that are 
subject to the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. For purposes of its analyses under the RFA, PWBA continues to 
consider a small entity to be an employee benefit plan with fewer than 
100 participants. The basis of this definition is found in section 
104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe 
simplified annual reporting for pension plans that cover fewer than 100 
participants. Because this guidance is issued as a final rule pursuant 
to the authority and deadlines prescribed in section 306(b)(2) of the 
SOA, RFA does not apply, and regulatory flexibility analysis is not 
required.
    The terms of the statute pertaining to the required notices to plan 
participants and beneficiaries in the event of a blackout do not vary 
relative to plan size. This final rule addresses the statutory 
provisions, which are self-executing and do not afford the Department 
with substantial discretion to exercise regulatory flexibility with 
respect to small plans. While a cost is expected to be associated 
primarily with the statutory provisions, the Department believes that 
the final rule imposes no additional cost on small plans. The 
Department nevertheless requested comments concerning any special 
issues facing small plans with respect to blackout notices, and any 
alternatives consistent with the objectives of the statute that may 
serve to facilitate compliance. No comments were received in response.
    As to the potential impact of the final rule on small plans, the 
Department notes that available data suggest that about 341,000 plans, 
or 47 % of all plans are potentially impacted by the enactment of a 
blackout notice requirement, in that they are individual account plans 
that permit any form of individual investment direction.
    The statutory blackout notice requirement will potentially affect a 
significant number of small plans. About 87% of the potentially 
affected plans are small. However, although most affected plans are 
small, the participants in those plans represent only about 16% of the 
47.8 million potentially affected participants. Based on the assumption 
that plans will impose a blackout period once every four years on 
average, about 73,800 small plans and 11,400 large plans will prepare 
and distribute notices annually. The small affected plans represent 
about 10% of all pension plans, while the large affected plans 
represent about 2% of all plans. Affected participants (1.9 million in 
small plans, and 10.1 million in large plans) represent approximately 
2% and 9% of all plan participants, respectively.
    The substance of the required notice is likely to be prepared once 
per plan for each applicable blackout period and distributed to the 
multiple affected participants. The fixed cost of preparing the notice 
is estimated at approximately $100 for both large and small plans. The 
total cost to affected small plans for both preparation and 
distribution is expected to be an average of about $110 per year. The 
comparable annual average cost to large plans of about $510 is 
substantially greater due to the greater numbers of participants in 
these plans, and the costs attendant to distribution of the notices.


Congressional Review Act


    The rules being issued here are subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted to 
Congress and the Comptroller General for review. The rule is not a 
``major rule'' as that term is defined in 5 U.S.C. 804, because it is 
not likely to result in (1) an annual effect on the economy of $100 
million or more; (2) a major increase in costs or prices for consumers, 
individual industries, or federal, State, or local


[[Page 3727]]


government agencies, or geographic regions; or (3) significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic and export markets.


Unfunded Mandates Reform Act


    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this final rule does not 
include any Federal mandate that may result in expenditures by State, 
local, or tribal governments, and does not impose an annual burden 
exceeding $100 million on the private sector.


Federalism Statement


    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This final rule does not have federalism 
implications because it has no substantial direct effect on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA. The requirements 
implemented in this final rule do not alter the fundamental reporting 
and disclosure requirements of the statute with respect to employee 
benefit plans, and as such have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.


List of Subjects in 29 CFR Part 2520


    Employee benefit plans, Employee Retirement Income Security Act, 
Pensions, and Reporting and recordkeeping requirements.


    For the reasons set forth in the preamble, amend part 2520 of Title 
29 of the Code of Federal Regulations as follows:


PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE


    1.The authority citation for part 2520 continues to read as 
follows:


    Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and 
1135; Secretary of Labor's Order No. 1-87.


    Sections 2520.102-3, 2520.104b-1 and 2520.104b-3 also issued under 
29 U.S.C. 1003, 1171-73, 1185 and 1191-94; and under sec. 101(g)(4), 
Pub. L. 104-191, 110 Stat. 1936.
    Sections 2520.104b-1 and 2520.107 also issued under sec. 1510, Pub. 
L. 105-34, 111 Stat. 788.
    Section 2520.101-3 also issued under sec. 306(b)(2), Pub. L. 107-
204, 116 Stat. 745.


    2. Revise Sec.  2520.101-3 to read as follows:




Sec.  2520.101-3  Notice of blackout periods under individual account 
plans.


    (a) In general. In accordance with section 101(i) of the Act, the 
administrator of an individual account plan, within the meaning of 
paragraph (d)(2) of this section, shall provide notice of any blackout 
period, within the meaning of paragraph (d)(1) of this section, to all 
participants and beneficiaries whose rights under the plan will be 
temporarily suspended, limited, or restricted by the blackout period 
(the ``affected participants and beneficiaries'') and to issuers of 
employer securities subject to such blackout period in accordance with 
this section.
    (b) Notice to participants and beneficiaries--(1) Content. The 
notice required by paragraph (a) of this section shall be written in a 
manner calculated to be understood by the average plan participant and 
shall include--
    (i) The reasons for the blackout period;
    (ii) A description of the rights otherwise available to 
participants and beneficiaries under the plan that will be temporarily 
suspended, limited or restricted by the blackout period (e.g., right to 
direct or diversify assets in individual accounts, right to obtain 
loans from the plan, right to obtain distributions from the plan), 
including identification of any investments subject to the blackout 
period;
    (iii) The length of the blackout period by reference to:
    (A) The expected beginning date and ending date of the blackout 
period; or
    (B) The calendar week during which the blackout period is expected 
to begin and end, provided that during such weeks information as to 
whether the blackout period has begun or ended is readily available, 
without charge, to affected participants and beneficiaries, such as via 
a toll-free number or access to a specific web site, and the notice 
describes how to access the information;
    (iv) In the case of investments affected, 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 in their accounts during the blackout period (a notice 
that includes the advisory statement contained in paragraph 4. of the 
model notice in paragraph (e)(2) of this section will satisfy this 
requirement);
    (v) In any case in which the notice required by paragraph (a) of 
this section is not furnished at least 30 days in advance of the last 
date on which affected participants and beneficiaries could exercise 
affected rights immediately before the commencement of the blackout 
period, except for a notice furnished pursuant to paragraph 
(b)(2)(ii)(C) of this section:
    (A) A statement that Federal law generally requires that notice be 
furnished to affected participants and beneficiaries at least 30 days 
in advance of the last date on which participants and beneficiaries 
could exercise the affected rights immediately before the commencement 
of a blackout period (a notice that includes the statement contained in 
paragraph 5. of the model notice in paragraph (e)(2) of this section 
will satisfy this requirement), and
    (B) An explanation of the reasons why at least 30 days advance 
notice could not be furnished; and
    (vi) The name, address and telephone number of the plan 
administrator or other contact responsible for answering questions 
about the blackout period.
    (2) Timing. (i) The notice described in paragraph (a) of this 
section shall 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 immediately before the commencement of any 
blackout period.
    (ii) The requirement to give at least 30 days advance notice 
contained in paragraph (b)(2)(i) of this section shall not apply in any 
case in which--
    (A) A deferral of the blackout period in order to comply with 
paragraph (b)(2)(i) of this section would result in a violation of the 
requirements of section 404(a)(1)(A) or (B) of the Act, and a fiduciary 
of the plan reasonably so determines in writing;
    (B) The inability to provide the advance notice of a blackout 
period is due to events that were unforeseeable or


[[Page 3728]]


circumstances beyond the reasonable control of the plan administrator, 
and a fiduciary of the plan reasonably so determines in writing; or
    (C) The blackout period applies only to one or more participants or 
beneficiaries solely in connection with their becoming, or ceasing to 
be, participants or beneficiaries of the plan as a result of a merger, 
acquisition, divestiture, or similar transaction involving the plan or 
plan sponsor.
    (iii) In any case in which paragraph (b)(2)(ii) of this section 
applies, the administrator shall furnish the notice described in 
paragraph (a) of this section to all affected participants and 
beneficiaries as soon as reasonably possible under the circumstances, 
unless such notice in advance of the termination of the blackout period 
is impracticable.
    (iv) Determinations under paragraph (b)(2)(ii)(A) and (B) of this 
section must be dated and signed by the fiduciary.
    (3) Form and manner of furnishing notice. The notice required by 
paragraph (a) of this section shall be in writing and furnished to 
affected participants and beneficiaries in any manner consistent with 
the requirements of Sec.  2520.104b-1 of this chapter, including 
paragraph (c) of that section relating to the use of electronic media.
    (4) Changes in length of blackout period. If, following the 
furnishing of a notice pursuant to this section, there is a change in 
the length of the blackout period (specified in such notice pursuant to 
paragraph (b)(1)(iii) of this section), the administrator shall furnish 
all affected participants and beneficiaries an updated notice 
explaining the reasons for the change and identifying all material 
changes in the information contained in the prior notice. Such notice 
shall be furnished to all affected participants and beneficiaries as 
soon as reasonably possible, unless such notice in advance of the 
termination of the blackout period is impracticable.
    (c) Notice to issuer of employer securities. (1) The notice 
required by paragraph (a) of this section shall be furnished to the 
issuer of any employer securities held by the plan and subject to the 
blackout period. Such notice shall contain the information described in 
paragraph (b)(1)(i), (ii), (iii) and (vi) of this section and shall be 
furnished in accordance with the time frames prescribed in paragraph 
(b)(2) of this section. In the event of a change in the length of the 
blackout period specified in such notice, the plan administrator shall 
furnish an updated notice to the issuer in accordance with the 
requirements of paragraph (b)(4) of this section.
    (2) For purposes of this section, notice to the agent for service 
of legal process for the issuer shall constitute notice to the issuer, 
unless the issuer has provided the plan administrator with the name of 
another person for service of notice, in which case the plan 
administrator shall furnish notice to such person. Such notice shall be 
in writing, except that the notice may be in electronic or other form 
to the extent the person to whom notice must be furnished consents to 
receive the notice in such form.
    (3) If the issuer designates the plan administrator as the person 
for service of notice pursuant to paragraph (c)(2) of this section, the 
issuer shall be deemed to have been furnished notice on the same date 
as notice is furnished to affected participants and beneficiaries 
pursuant to paragraph (b) of this section.
    (d) Definitions. For purposes of this section--
    (1) Blackout period--
    (i) General. The term ``blackout period'' means, in connection with 
an individual account plan, any period for which any ability of 
participants or beneficiaries under the plan, which is otherwise 
available under the terms of such 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, if such suspension, limitation, or restriction is for any 
period of more than three consecutive business days.
    (ii) Exclusions. The term ``blackout period'' does not include a 
suspension, limitation, or restriction--
    (A) Which occurs by reason of the application of the securities 
laws (as defined in section 3(a)(47) of the Securities Exchange Act of 
1934);
    (B) Which is a regularly scheduled suspension, limitation, or 
restriction under the plan (or change thereto), provided that such 
suspension, limitation or restriction (or change) has been disclosed to 
affected plan participants and beneficiaries through the summary plan 
description, a summary of material modifications, materials describing 
specific investment alternatives under the plan and limits thereon or 
any changes thereto, participation or enrollment forms, or any other 
documents and instruments pursuant to which the plan is established or 
operated that have been furnished to such participants and 
beneficiaries;
    (C) Which occurs by reason of a qualified domestic relations order 
or by reason of a pending determination (by the plan administrator, by 
a court of competent jurisdiction or otherwise) whether a domestic 
relations order filed (or reasonably anticipated to be filed) with the 
plan is a qualified order within the meaning of section 206(d)(3)(B)(i) 
of the Act; or
    (D) Which 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 
participant.
    (2) Individual account plan. The term ``individual account plan'' 
shall have the meaning provided such term in section 3(34) of the Act, 
except that such term shall not include a ``one-participant retirement 
plan'' within the meaning of paragraph (d)(3) of this section.
    (3) One-participant retirement plan. The term ``one-participant 
retirement plan'' means a one-participant retirement plan as defined in 
section 101(i)(8)(B) of the Act.
    (4) Issuer. The term ``issuer'' means an issuer as defined in 
section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c), the 
securities of which are registered under section 12 of the Securities 
Exchange Act of 1934, or that is required to file reports under section 
15(d) of the Securities Exchange Act of 1934, or files or has filed a 
registration statement that has not yet become effective under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not 
withdrawn.
    (5) Calendar week. For purposes of paragraph (b)(1)(iii)(B), the 
term ``calendar week'' means a seven day period beginning on Sunday and 
ending on Saturday.
    (e) Model notice--(1) General. The model notice set forth in 
paragraph (e)(2) of this section is intended to assist plan 
administrators in discharging their notice obligations under this 
section. Use of the model notice is not mandatory. However, a notice 
that uses the statements provided in paragraphs 4. and 5.(A) of the 
model notice will be deemed to satisfy the notice content requirements 
of paragraph (b)(1)(iv) and (b)(1)(v)(A), respectively, of this 
section. With regard to all other information required by paragraph 
(b)(1) of this section, compliance with the notice content requirements 
will depend on the facts and circumstances pertaining to the particular 
blackout period and plan.
    (2) Form and content of model notice.




[[Page 3729]]






Important Notice Concerning Your Rights


Under The [Enter Name of Individual Account Plan]


    [Enter date of notice]


    1. This notice is to inform you that the [enter name of plan] 
will be [enter reasons for blackout period, as appropriate: changing 
investment options, changing recordkeepers, etc.].
    2. As a result of these changes, you temporarily will be unable 
to [enter as appropriate: direct or diversify investments in your 
individual accounts (if only specific investments are subject to the 
blackout, those investments should be specifically identified), 
obtain a loan from the plan, or obtain a distribution from the 
plan]. This period, during which you will be unable to exercise 
these rights otherwise available under the plan, is called a 
``blackout period.'' Whether or not you are planning retirement in 
the near future, we encourage you to carefully consider how this 
blackout period may affect your retirement planning, as well as your 
overall financial plan.
    3. The blackout period for the plan [enter the following as 
appropriate: is expected to begin on [enter date] and end [enter 
date]/is expected to begin during the week of [enter date] and end 
during the week of [enter date]. During these weeks, you can 
determine whether the blackout period has started or ended by [enter 
instructions for use toll-free number or accessing web site].
    4. [In the case of investments affected by the blackout period, 
add the following: During blackout period you will be unable to 
direct or diversify the assets held in your plan account. For this 
reason, it is very important that you review and consider the 
appropriateness of your current investments in light of your 
inability to direct or diversify those investments during the 
blackout period. For your long-term retirement security, you should 
give careful consideration to the importance of a well-balanced and 
diversified investment portfolio, taking into account all your 
assets, income and investments.] [If the plan permits investments in 
individual securities, add the following: You should be aware that 
there is a risk to holding substantial portions of your assets in 
the securities of any one company, as individual securities tend to 
have wider price swings, up and down, in short periods of time, than 
investments in diversified funds. Stocks that have wide price swings 
might have a large loss during the blackout period, and you would 
not be able to direct the sale of such stocks from your account 
during the blackout period.]
    5. [If timely notice cannot be provided (see paragraph (b)(1)(v) 
of this section) enter: (A) Federal law generally requires that you 
be furnished notice of a blackout period at least 30 days in advance 
of the last date on which you could exercise your affected rights 
immediately before the commencement of any blackout period in order 
to provide you with sufficient time to consider the effect of the 
blackout period on your retirement and financial plans. (B) [Enter 
explanation of reasons for inability to furnish 30 days advance 
notice.]]
    6. If you have any questions concerning this notice, you should 
contact [enter name, address and telephone number of the plan 
administrator or other contact responsible for answering questions 
about the blackout period].


    (f) Effective date. This section shall be effective and shall apply 
to any blackout period commencing on or after January 26, 2003. For the 
period January 26, 2003 to February 25, 2003, plan administrators shall 
furnish notice as soon as reasonably possible.


    Dated: January 16, 2003.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S. 
Department of Labor.
[FR Doc. 03-1430 Filed 1-23-03; 8:45 am]

BILLING CODE 4510-29-P