Blackout Notice - pooled account

A plan has a trustee-directed profit sharing brokerage account and individually directed 401(k) accounts at a recordkeeper.  They allow for hardship withdrawals and immediate distributions upon termination of employment.  They are transferring the pooled PS into the individually directed accounts.  Do they need a blackout notice to make employees aware of period of time that they cannot take a distribution from pooled funds?  Or are pooled accounts entirely exempt from blackout notice requirements?  Thank you!

A “blackout period”, as the rule defines it, refers not only to an inability to direct investment but also to a temporary inability to obtain a distribution or a loan.

29 C.F.R. § 2520.101-3(d)(1)(i) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-A/section-2520.101-3#p-2520.101-3(d)(1)(i).

Thanks, Peter.  It also specifically says with respect to "an individual account plan". The money is coming from pooled accounts and going to individual accounts so the feedback I have received is that it is not necessary.  Do you disagree?

The term "individual account plan" as defined in ERISA § 3(34) means any defined contribution plan.

ERISA § 101(i)(7)(A) defines blackout period:

Quote

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 3 consecutive business days.

The ability of participants to direct or diversify assets is not being affected, since those rights don't exist with respect to the sub-accounts being transferred.

If the ability of participants or beneficiaries to obtain loans or distributions may be suspended, limited, or restricted for more than 3 consecutive business days, then you have a blackout period under this definition.

How long is this transfer expected to take? And how long does that compare with your normal timeline for processing distributions and loans from the pooled account? For example, if the transfer is expected to take 4 business days, and the plan only promises to participants that loans and distributions will be processed within 10 business days of receipt, might it be possible that the transfer will not actually affect any participant's ability to receive a loan or distribution on a timely basis?

But a better question is, why wouldn't you want to provide the notice? It's better to play it safe, given the applicable penalties. Plus, I imagine the sponsor would want the participants to know where their money is going.

Individual-account plan is ERISA’s defined term for what the Internal Revenue Code calls a defined-contribution plan.

ERISA § 3 divides employee-benefit plans into two kinds: pension plans and welfare plans. See ERISA § 3(1)-(3).

(Other ERISA provisions set a group health plan as a kind of welfare plan.)

A pension plan, as ERISA (rather than the Internal Revenue Code) defines it, is a plan that “(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond[.]” ERISA § 3(2)(A).

Of pension plans, there are two kinds: a defined-benefit plan [§ 3(35)], or an individual-account plan [§ 3(34)].

ERISA § 3(34): “The term ‘individual account plan’ or ‘defined contribution plan’ means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant’s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant’s account.”

ERISA § 3, unofficially compiled as 29 U.S.C. § 1002 http://uscode.house.gov/view.xhtml?req=(title:29%20section:1002%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1002)&f=treesort&edition=prelim&num=0&jumpTo=true.

The blackout rule uses “individual account plan” in the sense ERISA § 3(34) provides.

That includes a whole defined-contribution plan’s subaccounts for nonelective contributions, matching contributions, elective-deferral contributions, and rollover contributions.

Thanks you both.  We are happy to provide a notice and will do so, but we can get this transfer process started rather quickly and were unsure if we needed to comply with the 30 day advance notice requirement for the blackout.  It sounds like we DO since distributions could potentially be held up.  I now understand that the "individual account plan" does not relate at all to participant vs. trustee-direction. Key point.  Thanks!

Distribution timing in the plan document is as soon as administratively feasible.  It could easily take 10-14 days normally, but if a request comes in a week before liquidation and the transfer takes a week or two to get where it is going and be allocated, then it is likely that a distribution would take longer than it would if the transfer was not happening, therefore, my conclusion is to do the blackout notice and then schedule the transfer to occur with the allowable timeframe, which will be at least 30 days after notice is provided.  All 5 participants are actively employed and there is almost 0% chance of someone requesting a withdrawal, but that is not relevant.