Changing recordkeeper, trustee, and investment house.

[Guest Bill55]

We recently consolidated two 401(k) Plans into one Plan. Previously we had separate recordkeepers, trustees, and investment houses. Now we have one company fulfilling all three roles. We also implemented a blackout period (no plan transactions are permitted). Many former plan participants have complained because they have not been able to withdraw their funds. Any comments would be appreciated.

[Guest]

Whenever a plan is converted to a new recordkeeper, new trustee, and new investment provider, a blackout period is typically invoked. This is a very common practice and there are several factors that can affect the length of the blackout period, such as the types of old investments involved, the "condition" of the records, and loans.

A blackout period typically can last from 8-12 weeks, but I've seen longer periods...up to several months.

The new recordkeeper should make available to you a timeline indicating the length they perceive the conversion will take, plus the length of the blackout period.

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Carol J. Ringwald

Senior Consultant

Shawmut Consulting Assoc.

[MWeddell]

Well, I doubt we'll tell you anything you don't already know, but here goes ...

Be honest and up front with the participants. Set expectations for the black out period long enough that your provider is likely to beat the deadline. Hold weekly conference calls with your new provider and keep in touch with outgoing providers so if things go off track, you discover it quickly. Consider that if your complaints come only from former employees, you must be doing something right.

[Guest mo]

Although I realize it isn't always possible, I try to get a mailer out a month or so before the blackout period begins so that participants have the opportunity to request distributions, make transfers, take loans etc. The mailer just says that there will be a blackout period beginning ___ and that it may last ___ to ___ weeks, so they should complete any transactions they are contemplating before that.

[k man]

Are you aware of any legal authority concerning the reasonableness of blackout periods?

[Guest]

Changing the service providers is a fiduciary decision, and is subject to the usual fiduciary standard--prudent person dealing with a similar enterprise. In the past, fairly long blackout periods have been common. Of late, however, transitions can be accomplished with shorter blackout periods. For example, it was reported that MassMutual did a transition for Kaiser Aerospace with just a one-weekend blackout--probably invisible to the participants. If service providers can do transitions with only brief blackout periods, the standard for fiduciary duty will probably creep upward and it is probably wise to make the blackout period a prominent feature of any RFP or contract. I don't have any blackout period cases right at hand, but you might be interested in Board of Trustees of Local 295/Local 851-IBT Employer Pension Fund v. Callan Assocs Inc., 22 EBC 1439, 1998 WL 289697 (SDNY 1998), which involved a liquidation to cash as part of a transition. The court found that there was no breach of fiduciary duty, because at the time the liquidation and transition took place (1995), it was acceptable in the investment community to do it that way. Hope this helps.

[Guest JAREL]

It is also important to consider what will happen when the blackout period ends, in particular, will the expected volume of change requests be accommodated. I have heard of one suit made by plan participants because the lines were so jammed up when the blackout period was over, it took several days for some participants to get through (of course during that time, the market "corrected").