Blackout Rules Ride With Accounting Reforms

July 30, 2002 ( - Along with those corporate accounting reforms, President Bush has today signed into law some new provisions regarding plan blackout periods.

Blackouts, those periods when 401(k) plan participants are unable to access or direct their accounts for extended periods of time, have been a major concern of legislators in the wake of the Enron debacle. 

The new law incorporates two key provisions from the Pension Security Act (H.R. 3762) passed by the House in April (see Pension Protection Passes House ). 

New Rules

The first of the new provisions will bar company insiders from selling their own stock during blackout periods when workers can’t make changes to their 401(k)s.  During the Enron hearings (see A Change in Plans: The Enron Conversion ), workers and legislators alike expressed concern that company executives continued to exercise stock options and sell stock during periods when employees with company stock investments in their 401(k) were blocked from doing so (those same executives were blocked from trading in their 401(k) accounts at that time). 

Additionally, the new law will require pension plan administrators to notify workers 30 days before the start of any blackout period affecting their pensions.  In the Enron case, workers apparently had been given notice of the pending move to a new recordkeeper and told that they would be unable to direct their accounts during a 3-week period associated with the transfer and reconcilement of those records.  However, some participants apparently didn’t receive – or didn’t appreciate – the implications of those notices.  More significantly, under current law, there is no requirement to provide such notice to participants, and no guidelines for those employers who choose to do so.

The new provisions not only establish the requirement to provide such notice, and the parameters for ensuring that the notice effectively communicates the impact of the change, they also provide penalties for failing to do so (see Accounting Reform Reaches Blackout Practices ).

Senate Summons

Following signing of the bill, House Education & the Workforce Committee Chairman John Boehner (R-Ohio) and Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-Texas) echoed their call for the Senate to act on a comprehensive pension protection bill which, in the bill passed by the House last April, would:

  • broaden diversification requirements for company stock investments,
  • expand the ability of workers to hold employers liable for abuses,
  • and allow fund managers to offer investment advice to participants for a fee (see Advice Approaches Separate Senate, House ).

The Senate, which currently has at least two major bills to consider, is expected to pick up the issue in September.