Blackout notice

[Guest jim williams]

We have a 401K client who decided to eliminate the individual self-directed accounts and transfer the proceeds to a single pooled account. My question addresses the blackout notice requirement. Are we required to provide the 30-day advance notice even though the participants will no longer be directing their investments after the transfer? Also, regarding plan loans & distributions, the document states that these requests are to be processed within a reasonable time. My interpretation is that processing these requests after a 2-week blackout period is reasonable.

Even though the blackout notice may not be required, I'm inclined to issue it anyway to give the participants the opportunity to change there investments prior to the transfer if they desire.

[R. Butler]

I would be inclined to provide the Blackout Notice because since participants are not going to be able to get a loan or distribution during that time.

I don't see an issue with a 2 week blackout on loans & distributions as being unreasonable; particularly if you give participants the 30 day advance notice.

[E as in ERISA]

I'd think of it in terms of the broader 404 fiduciary responsibilities to provide disclosures as opposed to just the 101 blackout notice. Including 404© requirements to disclose limits on transfers, etc. So I'd agree with you that it would be a good idea to give notice. You might try for closer to 90 days so that employees have a longer period of time over which to decide when to liquidate their current investments and avoid market fluctuations.

[Guest Pensions in Paradise]

I'm not clear what you are trying to tell the participants. You stated that the self-directed accounts will be eliminated and transferred to a pooled account. Why would you want to give participants the opportunity to change their investments before the transfer, because you're just going to turn around and liquidate all of the investments anyway to place the funds in a pooled account. Or am I missing something?

I would just issue a notice saying that the plan sponsor has decided to eliminate the participants' ability to self-direct their accounts, and as of XYZ date the participants' accounts will be liquidated and transferred into a pooled account which will be invested by the plan's trustee.

[R. Butler]

I'm not clear what you are trying to tell the participants.  You stated that the self-directed accounts will be eliminated and transferred to a pooled account.  Why would you want to give participants the opportunity to change their investments before the transfer, because you're just going to turn around and liquidate all of the investments anyway to place the funds in a pooled account.  Or am I missing something?

I would just issue a notice saying that the plan sponsor has decided to eliminate the participants' ability to self-direct their accounts, and as of XYZ date the participants' accounts will be liquidated and transferred into a pooled account which will be invested by the plan's trustee.

Isn't a blackout notice required "..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 rule does state that "... types of permanent restrictions would not in and of themselves be events that give rise to a blackout notice obligation under the regulation.". However, in the very next sentence it states "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." Since from the facts presented distributions & loans are only being temproarily suspended, how do you get around providing the notice?

[WDIK]

Are distributions and loans being suspended?

I interpreted the original post

Also, regarding plan loans & distributions, the document states that these requests are to be processed within a reasonable time. My interpretation is that processing these requests after a 2-week blackout period is reasonable.

to mean that all loans and distributions would still be processed within the allowable plan timeframe.

[R. Butler]

I took the post to assume that loans & distributions were being temporarily suspended. If 2 weeks was the normal delay for distribution & loan processing, the 2nd question in the initial post doesn't make sense.

[WDIK]

I don't mean to seem obtuse, but I only see one question in the initial post.

[R. Butler]

I guess he doesn't phrase it as a question, but he seems to be inquiring about the reasonableness of a 2 week delay in distributions & loans. If the 2 weeks was the normal delay there would be no need to mention it.

[WDIK]

I think I understand where you are coming from.

So the question seems to be, "Does a two-week period for processing a loan/distribution satisfy the 'reasonable time' clause of the document, or does it create a blackout period for which a notice is required?"

[R. Butler]

I don't know. I might be reading something into the facts that aren't there. Perhaps Mr. Williams could clarify.

I intepret it as there being 2 unrelated issues --

1. The issue not directly ask is about the reasonableness of a 2 week wait. Its really a separate issue from the blackout notice, but if 2 weeks was already the norm he wouldn't need to mention reasonableness; that would have been addressed a long time ago.

2. Is a blackout notice needed? The blackout notice must be provided if the right "...to direct or diversify investments, obtain a loan or obtain a distribution under the plan may be temporarily suspended..." . Because I'm guessing the 2 weeks for distribs & loans is a delay, I would be inclined to provide the notice.