401(k) Reforms Take Effect; Feds Increase Access to Rulemaking

By John Scorza and Paula Cruickshank, CCH Washington Staff Writers

Pension reforms, first sought in the wake of last year's national stock market and investing scandals, have emerged from the federal regulatory rulemaking process and are beginning to take effect. Moreover, the government has announced additional procedures making it easier for the public to be part of this rulemaking process on all future regulatory issues.

Starting this week, businesses sponsoring 401(k) plans will be required to give its workers/participants 30 days' advance notice before the beginning of a blackout period, when the ability of participants to direct investments and take out loans is suspended. The new final rules, which were announced by the Labor Department's Pension and Welfare Benefits Administration, are effective for blackout periods occurring on or after January 26, 2003.

The final regulations require plan administrators to provide notices that explain the reasons for the blackout, detail the participants' rights that will be suspended, and include the start and end dates of the period. The notice must include a statement urging participants to evaluate their current investments in view of the blackout period. When a blackout period affects a plan that includes employer stock as an investment option, the plan must notify corporate insiders that they cannot trade employer stock or exercise options during the blackout period.

According to Labor Secretary Elaine L. Chao, "Workers will now be assured of the opportunity to effectively manage their retirement accounts in advance of a blackout and they will no longer be forced to stand by as corporate executives bail out of company stock while rank-and-file workers' accounts are frozen."

The final rules differ from the interim final rules announced late last year. Specifically, according to the department, the final rules allow flexibility for plan administrators in describing the start and end dates of upcoming blackouts; clarify situations that are not blackout periods; and contain a special rule for issuers of company stock who are also plan administrators.

Failure or refusal to provide the required notice could result in civil penalties of up to $100 per day, per participant. The civil penalties were established in a separate set of final rules approved by the department.

Blackout periods are not uncommon. They typically occur when employers change plan recordkeepers, change benefits or add participants due to mergers.

The new rules, published in the January 24 Federal Register, implement the provisions of the Sarbanes-Oxley Act. Congress approved that legislation last year in the wake of Enron and other corporate scandals. Chao urged the new Congress to allow greater diversification of employer stock, require quarterly benefit statements and provide workers with access to investment advice.

More Access to Rulemaking Process

The Bush administration on January 23 launched a new government web site, www.regulations.gov, which enables the public to search, view and comment on proposed federal regulations electronically. Regulations.gov is "an important first step in making it easier and cheaper for citizens to provide quality input in the rulemaking process," said Linda Fisher, deputy administrator of the Environmental Protection Agency, at a press briefing on the new web site.

Federal documents that are open for comment and published in the Federal Register are accessible on the new web site. Users can search for a document by agency name or keyword. At least 433 documents, ready for comment by the public, are listed on the site as of January 27. Users can view the proposed rules and submit comments using an electronic form.

Regulations.gov is part of the administration's E-Rulemaking initiative. The E-rulemaking initiative aims to create a "government-wide, centralized docket system for all federal agencies that will allow the public to access and search all publicly available regulatory material," according to details released at the briefing.

Posted January 27, 2003.