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Labor Department Issues Rules On Disclosure Of Pension Plan “Blackout Periods”
Archived News Release — Caution: Information may be out of date.
WASHINGTON—The U.S. Labor Department’s Pension and Welfare Benefits Administration will publish interim final rules on Monday (Oct. 21, 2002) implementing a new federal law requiring 401(k)-type plans to give participants 30-day advance notice of “blackout periods” affecting their rights to direct investments, take loans or obtain distributions. The interim final rules contain model notice language to assist plan sponsors in carrying out this new obligation.
Blackout periods typically occur when plans change record keepers or investment options, or add participants due to a corporate merger or acquisition.
“President Bush’s retirement security proposals to protect American workers called for advance notice of blackout periods and restrictions on corporate insiders from trading their own stock when workers are frozen. These rules are the first regulatory action to implement components of the President's retirement security plan,” said Secretary of Labor Elaine L. Chao. “Workers will now be empowered to take control of their retirement assets and make informed decisions to manage their retirement accounts in advance of a blackout.
“Congress needs to take the next steps to pass legislation to give workers the right to diversify their accounts and better information including access to professional investment advice,” Chao said.
On July 30 President Bush signed the Sarbanes-Oxley Act of 2002 giving the Labor Department authority to promulgate interim final rules and a model notice implementing the blackout notice provisions. The Act requires that participants and beneficiaries be given a 30-day advance notice of a blackout period. When a blackout period affects a plan that includes employer stock as an investment option, the plan must also notify the corporate issuer of the employer stock so that corporate insiders are aware that they may not trade employer securities or exercise options during the blackout. Under the interim rules, administrators of plans with individual accounts must provide blackout notices that contain, among other things:
- The reasons for the blackout period,
- A description of the rights that will be suspended during the blackout period,
- The start and end dates of the blackout period,
- and A statement advising participants to evaluate their current investments based on their inability to direct or diversify assets during the blackout period.
A second set of rules issued by the Department provides for civil penalties of up to $100 per day per participant for plan administrators who fail or refuse to comply with the notice requirement. The interim final rules, to be published in the Oct. 21 Federal Register, are effective Jan. 26, 2003.
The rules may be viewed at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2002_register&docid=02-26522-filed and http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2002_register&docid=02-26523-filed.
Attached: Fact Sheet—President Takes Action to Protect Pensions and Retirement Security for All Americans
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President Takes Action to Protect Pensions and Retirement Security for All Americans
President Bush believes that economic freedom is essential to individual success and prosperity. The President’s economic agenda invests in individuals by creating jobs, expanding opportunities to save and invest, providing a good education, and helping each American own part of the American dream.
- An important component of the President’s economic security agenda is providing American workers and retirees new tools to protect their pensions, investments, and retirement security.
- In his radio address, the President will announce the implementation of rules that require workers to receive a 30-day notification before any “blackout” restrictions are placed on their 401(k) plans.
- On October 21, 2002, the Department of Labor will issue regulations implementing the new notice provisions, providing important protections to workers and retirees with investments in 401(k) plans. The regulations provide both interim-final rules and a model notice to assist plans in carrying out their responsibilities. Under the new rules:
- Workers will receive notice 30 days before any restrictions are placed on their ability to direct investments, take loans, or obtain distributions from their 401(k) plans.
- Companies with employer stock in their 401(k) plan will receive the same notice so corporate insiders will know they cannot sell stock in the company or exercise stock options when the workers in the 401(k) plan are restricted from doing so.
- The notice to employees must include the reasons for the blackout period; its beginning and ending date; and, if the ability to direct investments is suspended, a statement that participants should evaluate their current investments in light of their inability to direct or diversify assets during the blackout period.
- Failure or refusal to provide the required notice will result in a civil penalty.
- The rule will be effective on the earliest possible date under the statute, January 26, 2003 (180 days after enactment of the Sarbanes-Oxley legislation).
The Securities and Exchange Commission is also working on a new rule scheduled to take effect early next year that will bar corporate executives from trading their stock when their rank and file workers are prevented from selling theirs.
The President has proposed other important, commonsense proposals to help protect the retirement savings of American workers:
- Allowing workers to diversify their investments in employer stock after three years.
- Providing workers quarterly benefit statements that explain the value of diversified investments.
- Giving workers better access to much-needed investment advice from professional advisers acting in the workers' best interest.
These remaining provisions passed the House of Representatives on April 11, 2002. Unfortunately, the Senate has failed to act on these important initiatives.
To learn more about the President’s comprehensive economic security and corporate accountability agenda please visit www.whitehouse.gov.
Archived News Release — Caution: Information may be out of date.