Shedding Some Light on Blackouts
One of the most misunderstood aspects of the Enron savings plan debacle was the participant activity blackout associated with its (in hindsight) ill-timed switch in recordkeepers. Actually, the process of making that change had been in the works for months but, when it finally occurred, some participants claimed to have been caught unawares—forced to sit idly by and watch the value of their retirement savings erode.
These stories made for compelling Congressional and media focus—and resulted in headlines that spoke of "lockdowns" imposed on participants, as though the retirement plan switch had been deliberately timed to separate participants from their accounts.
However, most plan sponsors work hard to help participants know that a change is coming, and to help them prepare for the change. In fact, in these days of daily valuation and 24/7 access to account balances, it would be difficult to avoid saying something about the change. Frequently voice response numbers and web site addresses are changed. Additionally, provider changes are rarely made without weeks, if not months, of planning on the part of the plan sponsor.
Still, although the process of converting participant records routinely takes participant accounts offline for various periods of time, plan sponsors have never had a mandate—or guidance—on how long a blackout should be, or what information, if any, should be made available to participants about those periods. Common sense, buttressed by the advice of the provider community, offered some help. In reality, plan sponsors were left to their own conclusions and, in the wake of Enron, could rightly be concerned that even reasonable disclosures might bring subsequent participant litigation.
In January, the Department of Labor's Pension and Welfare Benefits Administration (PWBA), in keeping with the mandates of the Sarbanes-Oxley Act, issued new regulations on the blackout process. Armed with those guidelines, plan sponsors now know what they should—and what they must—tell participants about those temporary absences from interaction with their accounts.
This month's Know How is designed as a tool to lay the groundwork for the "official" blackout communications, or it could support those communications by helping explain the whys and hows of a blackout process.
At the same time, we all know that participant inertia "rules," so we also try to take advantage of this "movement" to stir some participant action in considering their current investment choices, as well as their current rate of savings.
We hope you find it useful and, as always, look forward to your feedback.
— Nevin Adams