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Compliance Corner
January 24, 2003/Updated November 11,2014

DOL Amends “Blackout Period” Regulations
In the Federal Register of January 24, 2003, the Department of Labor published new final regulations regarding the advance notice requirement for blackouts of participant-directed defined contribution plans, pursuant to the Sarbanes-Oxley Act of 2002 (“SOA”). The DOL had earlier issued interim final regulations. Please refer to the Compliance Corner article of November 26, 2002, for a summary of the earlier regulations.

The new regulations are issued in two parts; one part covers the requirement to furnish the blackout period notice, and the other part relates to the penalty procedures for failure to furnish a timely notice. In both cases, the changes to the earlier interim final regulations present only minor differences for most affected plans.

Notice of Blackout Period. The DOL retained nearly all of the substantive requirements from the earlier regulations regarding the notice itself, the timing for furnishing it and the limited exceptions for unexpected events that excuse the normal timing requirement. As before, the regulations require that an advance notice of the blackout generally be furnished at least thirty days before the blackout is effective, but not more than sixty days beforehand.

In one useful concession, however, the DOL has provided an alternative to specifying the precise beginning and ending dates that were required in the earlier regulations. Now, it is permissible for the notice to describe the blackout period by reference to the calendar week that the blackout is expected to begin (or end). For example, the notice could provide that “the blackout period is expected to begin during the week of April 6, 2003, and end during the week of April 20, 2003”. (Under the regulations, any reference describing a week must use a Sunday as the commencement day of that week.) During such weeks, information as to whether the blackout period has begun or ended must be readily available to the participants free of charge, such as through a toll-free telephone number or website. DOL offers this alternative in recognition of the fact that it is often difficult to project the specific beginning and ending dates thirty or more days in advance of a blackout period, and that the burden of having to provide updated notices would be significant.

DOL’s regulations require that the blackout notice contain the name, address and telephone number of a person who can answer questions during the blackout period. The new final regulations clarify that the notice is not required to identify a specific individual, but can instead identify “a sufficiently specific source”, such as the benefits department, the human resources department, etc.

For publicly-held employers that provide employer securities in the plan, the blackout notice must also be furnished to the issuer of the securities. The new final regulations have been modified to cover the most common occurrence where the issuer and the employer/plan administrator is the same party, and the company would have an obligation to notify itself of the blackout. The new regulations simply permit the issuer to designate the plan administrator to receive the blackout notice on its behalf “thereby relieving the administrator of the obligation to notify itself of a blackout period.”

The new final regulations contain an updated model blackout period notice, reflecting the improvements of these latest regulations.

Penalty Provisions. The SOA contains some fairly harsh penalty provisions for a plan that fails to provide a timely notice of a blackout period. Under the law, the DOL is authorized to assess a civil penalty of up to $100 per day, per affected participant. The law and the regulations require that the DOL first provide the plan with a written notice of intent to assess a penalty, and provide the plan with an opportunity to request that the penalty be waived or reduced, if there are mitigating circumstances. Importantly, the rules provide that a plan that fails to respond to a notice of intent to assess a penalty will be deemed to have admitted the facts alleged in the DOL’s notice, and to have waived its right to appear and contest the penalty assessment. Although some observers believe that the SOA’s procedural requirements for appeals and abatement of penalty assessments are unduly strict, the DOL determined not to soften the requirements from its earlier regulations. According to DOL, the process still permits DOL to take into account all the relevant facts and circumstances is setting the penalty amount, so there is an inherent safeguard for compliance failures attributed to inadvertent or innocent mistakes.

For a copy of the new regulations pertaining to the revised blackout period notice, click here: For a copy of the amendments to the penalty regulations, click here:

If you have any questions regarding these new regulations, please do not hesitate to contact your NRS account manager.

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