The final bill, which was approved 423-3 in the House and 99-0 in the Senate, includes two pension provisions that were included in the Pension Security Act (H.R. 3762) passed by the House earlier this year in the wake of the Enron debacle. Both are focused on activities in and around the so-called “blackout” period when participants are unable to make changes to their retirement plan balances.
The least problematic of the two deals is a specified notice to plan participants of an impending blackout. The second would bar corporate officers and directors from trading in publicly-traded employer securities acquired in connection with their employment during any defined contribution plan blackout period, if the blacked-out plan holds employer securities
The law defines a blackout as a period of more than 3 consecutive business days during which more than half of the participants in the plan are unable to direct or diversify assets credited to their retirement accounts, or is unable to access them through withdrawal or loan.
The law specifically exempts from that definition any such restriction that results from a qualified domestic relations order (QDRO), application of securities laws, or other plan limitations previously disclosed to participants (such as a quarterly-only transfer provision). In addition, limitations or restrictions arising in connection with a merger or acquisition are not considered a blackout under the law.
During those blackouts, directors and executive officers would be barred from buying or selling any stock in the company that he or she acquired in connection with his or her service or employment as a director or executive officer. Any profits realized from such transactions would be recoverable by the issuer of the security.
Plan administrators would now be required to provide participants and beneficiaries affected by a blackout period with at least 30 days advance notice (single participant plans are exempt from this requirement). That notice must be in writing, however electronic “or other form” is acceptable if it is “reasonably accessible” to the recipient.
The notice would have to include:
- the reasons for the blackout period
- an identification of the investments and/or other rights affected
- the expected beginning date and duration of the blackout
- a statement reminding the participant/beneficiary that they should evaluate their current choices in view of the upcoming blackout (and their inability to make changes)
The notice would also include “such other matters as the Secretary may require by regulation.”
There are limited exceptions to the 30-day requirement, largely if doing so is impossible due to circumstances beyond the reasonable control of the plan administrator, or if postponing the blackout would constitute a violation of section 404(a)(1) – and in either case, a plan fiduciary would be required to make such a reasonable determination in writing.
If there is a change in the anticipated length of the blackout, the plan administrator would, of course, have to notify participants/beneficiaries of the change as soon as reasonably practicable. The notice would have to speak to any material changes in the items outlined in the first notice and, to the extent the plan holds employer securities, the plan administrator would have to also provide the blackout notice to the issuer of the securities.
The Department of Labor could assess up to a $100 per
day penalty for each failure to comply with the
requirements of this provision, which would be effective
180 days after the day of enactment.
In addition, the certain criminal penalties under ERISA Section 501 have been expanded under the law.
Or access a handy “custom” linked version at http://benefitslink.com/laws/hr3673.shtml
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