Black-Out Notices (Conversion plans)

The black-out notice requirement for participant directed plans came as a result of the Sarbanes-Oxley Act of 2002. The law became effective for conversion plans effective January 26, 2003.  This section provides a general overview of the requirement.  Conversions for one participant plans, conversions completed within 3 days and Trustee directed plans do not require black-out notices.  This requirement is meant to protect plan participants from what happened at ENRON and basically requires that Plan Sponsors notify all plan participants 30 days prior to changing providers.  The primary intent of the requirement is to notify affected participants of their restricted plan account access in the black-out time frame.   As a result, we suggest conversion effective dates should be at least 60 days from the date that our clients provide all completed paperwork to our alliance record keeper and Paragon. The previous providers’ time frames must be identified for supplying complete and accurate data to our alliance record keeper and Paragon. The de-conversion time frame varies with each individual provider. In order to set a conversion date, along with black-out begin and end dates, we will draft a letter with wiring instructions requesting present provider’s information as follows:

  1. When will they turn off participant access to their account (can no longer accept contributions, investment changes, distributions or loans)? This date is the blackout begin date.
  2. When will the provider wire the funds?
  3. When will the provider forward files that match the wire amount?
  4. Are there any contract surrender fees or other fees?

Once records are received, our alliance record keeper will need time to reconcile and post records to their system and subsequently issue participant PIN#.  Since every conversion plan is unique, we help set timelines that go into the black-out letter based on the information we are provided. Once we identify the above information, and any other relevant information, we will work with our alliance partner to draft a “ready to send” black-out letter.  Depending on the agreement with our alliance record keeper, the mailing would be handled by the Plan Sponsor or the record keeper.  It is always the responsibility of the Plan Sponsor to ensure that the letter is forwarded to plan participants.

The law provides for a civil penalty up to $100 per day for non-compliance with the black-out notice requirements. The plan Sponsor would be liable for penalties, meaning that the penalty can't be paid with plan assets.