A 401(k) blackout period is a hiatus during which plan participants may not make certain changes to their 401(k) accounts. Employers who offer 401(k) plans typically impose blackouts when they need to update or alter aspects of their plans. A blackout period may last anywhere from a few days to several weeks.
A blackout period doesn’t mean that the account is frozen. Employees in a payroll deduction plan can often continue making scheduled contributions to their 401(k) accounts during a blackout period, and assets held in 401(k) accounts remain invested in the market.
What Is a 401(k) Blackout Period?
As noted above, a 401(k) blackout period is a temporary suspension of employees’ ability to access their 401(k) accounts for actions such as withdrawals or portfolio adjustments. Companies use blackout periods to update or change their 401(k) retirement savings plans. Unfortunately, these blackout periods may sometimes be inconvenient for employees.
When Is a 401(k) Blackout Period Necessary?
There are several situations that might call for an employer to implement a 401(k) blackout period. Some common reasons include:
• Changes to the plan. Employers may need to implement a blackout period to allow for changes to their 401(k) plans, such as adding or eliminating investment alternatives or modifying the terms of the plan.
• New management. If an employer’s 401(k) plan is managed by a third party, the employer might decide to change sponsors or financial managers. A blackout period would give the employer time to transfer the assets and records.
• Mergers and acquisitions. Acquisition of a new firm or a merger with another company could require a blackout period while the two companies integrate their 401(k) plans.
• Issues with compliance. If an employer finds that the terms of their 401(k) plan violate federal laws, they may need to impose a blackout period while they conduct audits and bring the plan into compliance.
How Long Can a 401(k) Blackout Period Last?
A 401(k) blackout period can last for a few days or for a few weeks, but the typical duration is 10 days. The length often depends on the reason for the blackout and how much time it will take to implement the scheduled fixes. There is no legal maximum blackout period for 401(k) plans.
Will I Be Given a 401(k) Blackout Notice?
Employers are required to notify employees in advance of a blackout period. For blackout periods expected to last more than three days, employers must give at least 30 days’ (and not more than 60 days’) notice, according to the federal Employee Benefits Security Administration (EBSA). If the period’s beginning or ending date changes, employers are expected to provide an updated blackout notice as soon as reasonably possible.
Employers must provide this notice in writing, either by mail or email. The notice should include the reason for the blackout.
What Should I Do Before the Blackout Starts?
If a 401(k) blackout period is approaching, there are some steps you can take to prepare. Here are a few things to consider doing before the blackout starts:
• Review the account. Once you get your blackout notice, take some time to review your 401(k) plan, including your current contributions, investment options, and overall balance. This overview can help you zero in on anything that may need correction before the blackout begins.
• Make any appropriate changes. If you need to fine-tune how you’re investing in your 401(k), such as by adjusting contribution amounts or reallocating investments, try to do so before the blackout period. This will help ensure that your changes take effect as soon as possible.
• Communicate with your employer. For questions about the blackout period or requests for additional information, your employer is likely to be the best resource. They should be able to provide more details and address account-related concerns.
Starting Out With a New 401(k)
People starting a new job that offers a 401(k) plan have some decisions to make. Plan details to consider before committing to a new 401(k) account may include:
• Contribution limits. The Internal Revenue Service (IRS) sets limits on annual 401(k) contributions. In 2023, the contribution limit is $22,500 for those under age 50 and $30,000 for those 50 and older. If you want to max out your 401(k), knowing these limits can help you schedule your contributions appropriately.
• Investment options. Most 401(k) plans offer a range of investment vehicles, including mutual funds, exchange-traded funds (ETFs), and individual stocks. As you’re preparing for retirement, researching various asset types will help you see which ones align with your investment goals and risk tolerance.
• Fees. Some 401(k) plans charge fees for services such as plan administration or investment management. Understanding how the plan’s fees may impact your overall returns is crucial.
• Employer match. Many employers offer a matching contribution to employee 401(k) accounts. This means that the employer will kick in an additional percentage to augment an employee’s contributions. An employer match is a way of boosting your retirement savings, which may lead to bigger investment gains over time.
The Takeaway
Employees with 401(k) retirement accounts occasionally experience blackout periods. People may not access or alter their accounts during these breaks, which occur when employers and 401(k) plan sponsors need time to update or retool their retirement benefit plan. Blackout periods typically last for a few days or weeks. By law, participants must be notified at least 30 days ahead of a scheduled blackout period. This enables them to make any desired investment changes beforehand.
One convenient way of investing for retirement is through SoFi individual retirement accounts. You can open an online IRA account from your phone and start saving right away. If you have questions, SoFi has a team of professional advisors available to help.
FAQ
What is a retirement-fund blackout period?
A 401(k) blackout period is a multi-day pause during which the employer or the plan administrator typically update or maintain the plan. During this time, employees can’t alter their 401(k) retirement accounts. Making withdrawals or changing asset allocations may be prohibited. Though a blackout period is temporary, it can last several weeks or more.
Can you contribute to your 401(k) during the blackout period?
This depends on the specific terms of the employer’s 401(k) plan and the blackout period. Some plans may allow employees to keep setting aside money in their 401(k) accounts during a blackout; others may not. Your employer or plan administrator will have information on your plan’s rules for contributions.
How do I get my 401(k) out of the blackout period?
In most cases, there is nothing you can do to avoid or shorten your 401(k) blackout period. A blackout period generally comes to an end once the employer or plan administrator has completed the necessary plan updates. If you have additional questions about the duration of the blackout period or how to access your account again, your employer should be able to answer them.
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