President Bush recently signed into law the Sarbanes-Oxley Act of 2002. The Act attempts to improve the accuracy and reliability of corporate disclosures in light of the recent scandals affecting a number of high profile companies. Most of the new rules in the Act apply only to public companies or companies in the process of registering to become public. However, the Act contains broad notice requirements applicable to virtually all ERISA "individual account plans" in the event the plan undergoes a "blackout period." While these notice requirements are not scheduled to be effective until January 26, 2003, employers may need to comply with these notice requirements, at least in good faith, prior to this effective date in order to minimize their liability under general ERISA prudency standards.

The following is a brief summary of the ERISA retirement plan blackout notice rules.

1. WHAT DOES THE ACT REQUIRE?

The Act requires that all individual account plans provide a notice in advance of any blackout period to participants and beneficiaries who are affected by the blackout period.

2. WHAT IS A BLACKOUT PERIOD?

A blackout period is any period for which the participants’ or beneficiaries’ ability, which is otherwise available under the terms of the plan, to - direct or diversify assets credited to their accounts, obtain loans, or obtain distributions is temporarily suspended, limited or restricted for any period of more than three consecutive business days.

Note that if any one of the above features of the plan is restricted for more than three consecutive business days, a "blackout period" exists.

3. ARE THERE SUSPENSIONS OR RESTRICTIONS THAT ARE NOT BLACKOUT PERIODS?

Yes. A blackout period does not include a suspension, limitation or restriction -

• which occurs by reason of the application of the securities laws (as defined in Section 3(a)(47) of the Securities Exchange Act of 1934),
• which is a change to the plan that provides for a regularly scheduled suspension, limitation or restriction which is disclosed to participants or beneficiaries through any summary of material modifications, any materials describing specific investment alternatives under the plan, or any changes thereto, or
• which applies to a participant, alternate payee or any other beneficiary under a qualified domestic relations order.

4. WHAT IS AN INDIVIDUAL ACCOUNT PLAN?

An individual account plan is a plan, fund or program which provides retirement income to employees, or results in deferral of income by employees for periods extending to the termination of employment or beyond, and which provides for an individual account for each participant and for benefits based solely upon the value of such participant’s account. This would include any defined contribution plan such as a profit sharing, stock bonus, ESOP, 401(k), thrift, money purchase pension or other plan under which the participant derives the benefit from the value of his or her account. It would not include any defined benefit pension plan.

Certain individual account plans that cover only the employer (and the employer’s spouse) where the employer owns the entire business or cover only partners (and their spouses) in a business partnership (including partners in an S corporation) are excepted from the notice requirements.

5. WHEN IS THE NOTICE REQUIRED TO BE GIVEN?

The notice must be furnished to all participants and beneficiaries under the plan to whom the blackout period applies at least 30 days in advance of the blackout.

Limited exceptions apply in the event a deferral of the blackout period would violate ERISA fiduciary rules or if the blackout period applies in connection with a business merger, acquisition, divestiture or similar transaction involving the plan.

The notice must be in writing, except that the notice can be in electronic or other form to the extent such form is reasonably accessible to the participants and beneficiaries.

An additional notice is required if, following the furnishing of the first notice, there is a change in the beginning date or length of the blackout period. The additional notice must be provided to affected participants and beneficiaries as soon as reasonably practicable.

6. WHAT INFORMATION MUST BE INCLUDED IN THE NOTICE?

The notice must be written in a manner calculated to be understood by the average plan participant and must include -

• the reasons for the blackout period,
• an identification of the investments and other rights affected,
• the expected beginning date and length of the blackout period,
• in the case of investments affected, a statement that participants or beneficiaries should evaluate the appropriateness of their current investment decisions in light of their inability to direct or diversify assets credited to their accounts during the blackout period, and
• such other matters as may be set forth in forthcoming regulations.

7. WHAT IF THERE IS EMPLOYER STOCK IN THE PLAN?

All individual account plans, regardless of whether they invest in employer stock, must provide notice of an upcoming blackout period. However, if a plan permits investment in employer stock, and the stock will be subject to the blackout period, the plan administrator must also timely notify the issuer of the employer stock about the upcoming blackout period.

8. WILL A MODEL NOTICE BE ISSUED?

Yes. The law requires the Department of Labor to issue a model notice which will satisfy the content requirements set forth above. This model notice is required to be issued by January 1, 2003.

9. WHAT PENALTIES CAN APPLY?

The Department of Labor can access a civil penalty against the plan administrator of up to $100 per day from the date of the plan administrator’s failure or refusal to provide notice to participants and beneficiaries. Each violation with respect to any single participant shall be treated as a separate violation. For example, if ten participants fail to receive the appropriate notice, the Department of Labor can assess a penalty of $1,000 (10 x $100) per day from the date of such failure.

In addition, the new law increases the criminal sanctions for willful violations of the reporting and disclosure rules under ERISA. Individuals convicted can now be f ined up to $100,000 (increased from $5,000) or imprisoned for not more than ten years (increased from one year). The maximum fine for corporate violators is $500,000 (increased from $100,000). These increases are effective July 30, 2002.

10. ARE THERE OTHER RULES IN THE ACT THAT MAY AFFECT THE ADMINISTRATION OF EMPLOYEE BENEFIT PLANS MAINTAINED BY PUBLIC COMPANIES?

Yes. Beginning January 26, 2003, insiders of public companies will be prohibited from trading in equity securities they acquire in connection with their service as insiders during certain blackout periods.

Also, effective immediately, public companies are prohibited from directly or indirectly extending or maintaining credit in the form of a personal loan to or for any director or executive officer of the company. It is likely that these loan restrictions may impact certain employee benefit programs such as split-dollar arrangements. Public companies should immediately review their benefit and compensation arrangements with these individuals and make adjustments accordingly.

The Firm has prepared a separate summary of these and other provisions of the Sarbanes-Oxley Act. That summary includes further details on these rules. If you would like a copy of that summary, please contact any attorney of the Firm.