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401k blackout period

From time to time an employer will have to make structural changes to their 401(k) plan. When that happens, they might need to freeze changes to the plan overall. This is called a “blackout period.” During black periods a 401(k) plan participant cannot make changes to their account. This means that they can’t change investments or move money around until the blackout period ends. Though blackout periods are generally on the short side, they can be very inconvenient, so it’s worth knowing how they work.

For help with retirement planning, consider working with a financial advisor.

What Is a Blackout Period?

A blackout period is a window of time in which 401(k) plan participants cannot access their retirement plan or make changes to it. The terms of a blackout period can differ depending on the specific circumstances. Generally, however, blackout periods restrict actions such as:

  • Change contribution rates;
  • Change withdrawal rates (if their plan is making regular payments);
  • Change or otherwise direct investments;
  • Take loans or early distributions;
  • Make transfers or otherwise change retirement plan management.

A blackout period does not mean that your account has been frozen. Your money remains invested, and any fixed transactions will continue at their regular rate. If you were making contributions, then your employer will continue to withhold contributions at the same rate. If you were making a fixed rate of withdrawals, those withdrawals will continue unchanged. You cannot change your balance of portfolio assets, but those assets will continue to move with the market.

This also does not mean that your account cannot be changed during a blackout period. It only means that 401(k) participants cannot make changes. Your employer or your plan sponsor can make changes to the 401(k) plan during this window. A 401(k) plan sponsor is the firm that manages the plan’s investment portfolio itself.

Duration and Notice

401k blackout period

A typical blackout period lasts for two weeks (10 business days). While there is no statutory maximum or minimum, most blackout periods last between three and 30 days. In some rare cases this can last for several months or more.

If a blackout period will last for more than three days the employer is required to notify all plan participants of the upcoming blackout, its specific restrictions and its duration. The employer must send out this notice at least 30 calendar days before the blackout period will begin. This notice must go to all employees both current and prior so long as they hold an active account in the 401(k) plan and allows plan participants to make any changes they need in advance of a blackout period.

What Causes A Blackout Period

Employers or plan sponsors declare a blackout period when the plan is undergoing a major change. The purpose of the blackout period is to ensure stability during this period. Common changes that can cause a blackout period include:

  • Making a significant shift in the investments or asset composition of the 401(k) plan;
  • Changing sponsors or financial managers of the plan;
  • Making a significant change to the plan participant makeup, such as adding or removing a large number of people from the plan;
  • Mergers, splits and acquisitions;
  • Audits, tax management or investigations of possible impropriety.

Entering a blackout period ensures that a 401(k) plan’s records remain consistent and intact during a major change. It prevents plan managers from having to keep up with asset balances and financial changes in real time while trying to manage taxes and other third party declarations.

For example, when significantly changing asset balances a 401(k) plan may have to liquidate and reinvest its portfolios. Or during a sponsor transition, a firm must provide the incoming sponsor with precise information about the 401(k) plan’s balances and investment assets. All of this is much more difficult, if at all possible, if the plan is subject to unpredictable changes.

The Bottom Line

401k blackout period

A 401(k) blackout period is a window during which plan participants cannot make any changes to their contributions, withdrawals or investments. An employer needs to give at least 30 days’ notice of any blackout period lasting more than three days, and it is generally set in response to a major change in the underlying plan.

Retirement Planning Tips

  • Will you have enough to retire? The best way to make sure that this isn’t a stressful question is to start asking it early and often, and we can help you answer it.
  • A financial advisor can help you navigate any retirement questions you have. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo Credit: © iStock.com/solidcolours, © iStock.com/Vadzim Kushniarou, © iStock.com/PeopleImages

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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