Blackout required

[thepensionmaven]

I recently took over a plan for 2023.  Each participant has his own account, which the trustee directs (?) with MS

I convinced him the participants should be directing their own investments, the accounts will remain at MS.

Is there a blackout period, or will a notice to each participant that, effective x date, they can have the option to direct the account.

[Luke Bailey]

thepensionmaven it's going to depend on whether there is a disruption to a participant's ability to take a distribution or loan while the change is going on behind the scenes. In this case, which seems fairly unique, determining whether there is any such disruption may require some exercise of judgement.

[Peter Gulia]

Here’s the rule:

The term “blackout period” means, in connection with an individual account plan, any period for which any ability of participants or beneficiaries under the plan, which is otherwise available under the terms of such plan, to direct or diversify assets credited to their accounts, to obtain loans from the plan, or to obtain distributions from the plan is temporarily suspended, limited, or restricted, if such suspension, limitation, or restriction is for any period of more than three consecutive business days.

29 C.F.R. § 2520.101-3(d)(1)(i) https://www.ecfr.gov/current/title-29/part-2520/section-2520.101-3#p-2520.101-3(d)(1)(i).

As Luke Bailey points out:

Even if there is no disruption to an individual’s power to direct investment (because the plan does not provide such a power until after the recordkeeping change is completed), a blackout might result if there is a practical inability to get a loan or distribution.

[Bird]

I think the answer might depend upon how the plan was written, and whether the change is to bring things into line with the way the plan was written, or it is an actual plan document change. Or not...somehow I doubt that on a practical level anyone's ability to get a loan or distribution is really affected. I can say that I have never done a blackout notice when going from pooled (which this effectively is) to self-directed. 

[Bill Presson]

This is quite different. It's not really pooled because everyone has their own account. Just out of curiosity, I would be interested to know if the trustee is actually managing the accounts differently for each participant based on age or other criteria. It's closer to them all having an outside manager and effective X date, they're on their own. I would be shocked if a blackout notice is needed, though some kind of notice would be wise.

[BG5150]

@thepensionmaven:  did the plan doc say the accounts are supposed to be participant-directed?  Of did you advise your client they should amend the plan to be participant-directed?

[thepensionmaven]

Plan adoption agreement calls for individual accounts and the wording is "the participants MAY direct their own investments.  All are individual accounts, I mentioned to client and investment manager (who first brought this up) that each  participant should br directing their own investments.

Who knows what has gone in the past, perhaps they elected default investments.  Since the accounts will remain as is, where they  are, I do not believe any blackout is necessary.

[David Schultz]

On 10/25/2023 at 11:19 AM, thepensionmaven said:

I convinced him the participants should be directing their own investments

Why in Heaven's Name would you do that?  Because participants are good investors or the costs go down?

[thepensionmaven]

And who is going to direct the participant accounts, certainly not the trustee.  The broker is meeting with each participant to determine their risk tolerance; and if they can't decide the plan will be amended for a QDIA.

What's the problem here?

 

[BG5150]

On 10/27/2023 at 11:55 AM, thepensionmaven said:

perhaps they elected default investments

Was the default investment communicated to the employees