How Long Can a 401k Blackout Period Last?

A 401(k) plan gives retirement savers greater control over their retirement savings. You can contribute to your 401(k) account, borrow from your 401(k), or even take a distribution from your account. You can also modify your asset allocation at any time. However, when the employer issues a blackout period, you won’t be allowed to make any changes to your account.

 A 401(k) blackout period lasts for about 10 days, but it can be shorter or longer depending on the reasons for the blackout. Typically, there is no legal limit on how long a blackout period can last. The black-out period can last several days, weeks, or even months if the plan is undergoing a major change. Plan participants are not allowed to borrow against their retirement savings, take a distribution, or even change asset allocation during the blackout period.

What is a blackout period?

A blackout period is a period when a 401(k) plan prevents retirement savers from modifying or making changes to their retirement accounts. This means you cannot take a distribution, request a 401(k) loan, or adjust investment options. However, the employer will continue deducting contributions from your paycheck and accepting 401(k) loan payments. Typically, there is no definite duration when a blackout period is supposed to last; it can last several days, weeks, or even months, but with mandatory prior notice.

How long does a blackout period last?

Generally, a 401(k) blackout period can last 10 days, but it can be extended to several weeks or months when the employer is making major changes to the plan. The is no legal requirement on how long a blackout can last, but if it is expected to last more than three days, the plan must provide a written notice to employees.

Federal Mandated Notices for Blackout Period

The federal government requires employers to issue a written notice to participants if the blackout period will last for three days or more. Each participant in the 401(k) plan must receive the written notice at least 30 days before the blackout period.

The requirement to issue written notices before a blackout period started after the collapse of Enron in 2001. At the time, Enron was considered one of the most successful companies in the US, and most of its employees had their 401(k) money invested in the company’s stock.

However, when the share price plummeted, employees tried to sell the shares only to find out that the company has enforced a 401(k) blackout without notice. The blackout was enforced as Enroll switched plan administrators, hence denying plan participants from accessing their retirement money.

Reasons for Blackouts

Generally, blackouts occur when the employer makes major changes to the 401(k) plan. Some of these changes may include:

Changing plan administrators

When the employer is moving the plan assets and records from one plan administrator to another, they can enforce a blackout period to ensure these assets are accounted for and reconciled. The accounts are frozen temporarily during the transition period to avoid confusion and loss of data.

Merger/Acquisition

If the company is acquired, or your employer acquires another company, the new management may want to merge both retirement plans or terminate one retirement plan. Before making any changes, the employer will freeze the 401(k) plan and announce a blackout period to allow onboarding of new employees, and clean up the participant records.

Modifying investment options

If the available investment options are being changed or modified, the plan must value all accounts and liquidate retirement assets so that the proceeds can be reinvested in the new investment options. Such changes will require the plan to freeze all accounts temporarily for several days or weeks.

What information is contained in blackout notices?

When the employer sends a blackout notice to plan participants, the notice must state the starting date and end date of the blackout period, the reason for the blackout, and the account options that will be restricted.

Other information contained in a blackout notice include:

• Investment options that will be unavailable during the blackout period.
• Rights available to participants during the period when the plan will be temporarily unavailable.
• Contact information of the plan administrator
• If prior notice was not given, the blackout notice should explain why the advance notice was not given.

Who should receive the blackout notice?

The employer should send a blackout notice to all plan participants with a 401(k) balance to notify them of the impending change. The employer should also alert eligible employees without a balance but may want to start contributing, so that they are aware of the blackout period and how it affects them.

Plan participants who are no longer employed by the plan sponsor must also be informed about the blackout period to allow them decide what to do with the plan. If you are in this category, you can contact the plan administrator immediately to rollover to an IRA or request a distribution before the blackout period starts.