401(k) Blackout Period Definition

A blackout period is an amount of time during which a 401(k) plan goes dark or is turned off for all practical purposes. Participants in the 401(k) plan temporarily lose access to their accounts. Participants cannot view balances, make any changes or request any distributions during this period.

Blackout periods happen for a variety of reasons, but most often it is because of significant changes being made in the 401(k) plan. This can be a change in the third-party administrator that manages the accounts, a change in investment options, or a merger or acquisition affecting some participants.

Think what happens when you move. You unplug all your appliances and pack up everything; then you move it over and set it all up in the new place. The same thing essentially happens when a 401(k) plan has major changes. Trading stops, all the funds and accounts are then settled (which takes a few days), the plan is turned off and then moved to the new funds or administrator and invested in the new fund lineup.

Blackouts have taken place for a long time. But, the rules governing them now came about because of the Enron scandal and the implementation of the Sarbanes-Oxley Act of 2002 (SOX). Per the act, plan administrators must give at least 30 days and up to 60 days notice of any blackout period. The notice must be in writing and in plain English that the average plan participant can understand. The notice must explain the reason for the blackout; the expected start and end dates; what (if anything) participants can and need to do before, during or after the blackout, and contact details if someone want more information. Exceptions to the 30-day requirement are permitted in the case of unforeseeable events.

If you receive a blackout notice for your 401(k), look at the reason for it. If the blackout is a to move accounts from one administrator to another, e.g. from Vanguard to Fidelity, you may access the 401(k) via a new Web site or need a new password afterwards. If it is because the funds you are invested in are changing, you may need to pick new ones. Many times, investments are mapped to similar funds in the new lineup. For example, monies in one old global mutual fund are moved to a new global fund. Sometimes, though, monies are moved into a money market or holding account until the participant moves them into the new funds. Lastly, if you were planning to make changes to your 401(k), such as change your contribution amount, you need to decide whether to make those changes before or after the blackout period.