A:

A Blackout Period is a period of at least three consecutive business days, but not more than 60 days during which the majority of employees at a particular company are not allowed to make alterations to their retirement or investment plans. A blackout period usually occurs when major changes are being made to a plan.

For example, the process of replacing a pension plan’s fund manager may require a blackout period to allow for necessary restructuring to take place.

What Are the Rules?

The Securities and Exchange Commission (SEC) has set rules to ensure that employees are not at a disadvantage during a blackout period. The SEC prohibits any director or executive officer of an issuer of any equity security from purchasing, selling or otherwise acquiring or transferring securities during a pension plan blackout period.

In addition, the SEC has established rules requiring the issuer to notify the director or executive officer when imposing a blackout period.

The purpose of these rules is to prevent insider trading that could otherwise occur during the period when changes are being made. Insider trading is illegal when material information about a company has not been made public and has been traded on. This is because the information gives those having this knowledge an unfair advantage.

However, the financial security of employees who are unable to make changes during a blackout period may be jeopardized. Therefore, SEC regulations stipulate that employees must receive advance warning about the occurrence of blackout periods.

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