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Sarbanes Oxley
Act Section 306
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SEC. 306.
INSIDER TRADES DURING PENSION FUND BLACKOUT
PERIODS.
(a) PROHIBITION OF INSIDER TRADING DURING
PENSION FUND
BLACKOUT PERIODS.—
(1) IN GENERAL.—Except
to the extent otherwise provided
by rule of
the Commission pursuant to paragraph (3), it
shall
be unlawful
for any director or executive officer of an
issuer
of any equity
security (other than an exempted security),
directly or
indirectly, to purchase, sell, or otherwise
acquire
or transfer
any equity security of the issuer (other than
an
exempted
security) during any blackout period with
respect
to such
equity security if such director or officer
acquires such
equity
security in connection with his or her service
or employment
as a director
or executive officer.
(2) REMEDY.—
(A) IN GENERAL.—
Any profit
realized by a director
or executive
officer referred to in paragraph (1) from any
purchase,
sale, or other acquisition or transfer in
violation
of this
subsection shall inure to and be recoverable
by
the issuer,
irrespective of any intention on the part of
such director
or executive officer in entering into the
transaction.
(B) ACTIONS TO
RECOVER PROFITS.—An action to
recover
profits in accordance with this subsection may
be
instituted at
law or in equity in any court of competent
jurisdiction
by the issuer, or by the owner of any security
of the issuer
in the name and in behalf of the issuer
if the issuer
fails or refuses to bring such action within
60 days after
the date of request, or fails diligently to
prosecute the
action thereafter, except that no such suit
shall be
brought more than 2 years after the date on
which such
profit was realized.
(3) RULEMAKING
AUTHORIZED.—The Commission shall,
in
consultation
with the Secretary of Labor, issue rules to
clarify
the
application of this subsection and to prevent
evasion thereof.
Such rules
shall provide for the application of the
requirements
of paragraph
(1) with respect to entities treated as a
single
employer with
respect to an issuer under section 414(b),
(c),
(m), or (o)
of the Internal Revenue Code of 1986 to the
extent
necessary to
clarify the application of such requirements
and
to prevent
evasion thereof. Such rules may also provide
for
appropriate
exceptions from the requirements of this
subsection,
including
exceptions for purchases pursuant to an
automatic
dividend
reinvestment program or purchases or sales
made pursuant
to an advance election.
(4) BLACKOUT PERIOD.—For
purposes of this subsection,
the term
‘‘blackout period’’, with respect to the
equity securities
of any
issuer—
(A) means any
period of more than 3 consecutive business
days during
which the ability of not fewer than 50
percent of
the participants or beneficiaries under all
individual
account plans
maintained by the issuer to purchase,
sell, or
otherwise acquire or transfer an interest in
any
equity of
such issuer held in such an individual account
plan is
temporarily suspended by the issuer or by a
fiduciary
of the plan;
and
(B) does not
include, under regulations which shall
be prescribed
by the Commission—
(i) a
regularly scheduled period in which the
participants
and beneficiaries may not purchase, sell,
or otherwise
acquire or transfer an interest in any
equity of
such issuer, if such period is—
(I)
incorporated into the individual account
plan; and
(II) timely
disclosed to employees before
becoming
participants under the individual
account plan
or as a subsequent amendment to
the plan; or
(ii) any
suspension described in subparagraph (A)
that is
imposed solely in connection with persons
becoming
participants or beneficiaries, or ceasing to
be
participants or beneficiaries, in an
individual
account plan
by reason of a corporate merger, acquisition,
divestiture,
or similar transaction involving the
plan or plan
sponsor.
(5) INDIVIDUAL
ACCOUNT PLAN.—For purposes of this
subsection,
the term
‘‘individual account plan’’ has the meaning
provided in
section 3(34) of the Employee Retirement
Income
Security Act
of 1974 (29 U.S.C. 1002(34), except that such
term shall
not include a one-participant retirement plan
(within
the meaning
of section 101(i)(8)(B) of such Act (29 U.S.C.
1021(i)(8)(B))).
(6) NOTICE TO DIRECTORS, EXECUTIVE OFFICERS,
AND THE
COMMISSION.—In
any case in which a director or executive
officer is
subject to the requirements of this subsection
in
connection
with a blackout period (as defined in
paragraph
(4)) with
respect to any equity securities, the issuer
of such
equity
securities shall timely notify such director
or officer
and the
Securities and Exchange Commission of such
blackout
period.
(b) NOTICE REQUIREMENTS TO PARTICIPANTS AND
BENEFICIARIES
UNDER ERISA.—
(1) IN GENERAL.—Section
101 of the Employee Retirement
Income
Security Act of 1974 (29 U.S.C. 1021) is
amended by
redesignating
the second subsection (h) as subsection (j),
and
by inserting
after the first subsection (h) the following
new
subsection:
‘‘(i) NOTICE OF BLACKOUT PERIODS TO
PARTICIPANT OR BENEFICIARY
UNDER INDIVIDUAL ACCOUNT PLAN.—
‘‘(1) DUTIES OF PLAN
ADMINISTRATOR.—In advance of the
commencement
of any blackout period with respect to an
individual
account plan,
the plan administrator shall notify the
plan
participants and beneficiaries who are
affected by such
action in
accordance with this subsection.
‘‘(2) NOTICE REQUIREMENTS.—
‘‘(A) IN GENERAL.—The
notices described in paragraph
(1) shall be
written in a manner calculated to be
understood
by the
average plan participant and shall include—
‘‘(i) the
reasons for the blackout period,
‘‘(ii) an
identification of the investments and other
rights
affected,
‘‘(iii) the
expected beginning date and length of
the blackout
period,
‘‘(iv) in the
case of investments affected, a statement
that the
participant or beneficiary 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
‘‘(v) such
other matters as the Secretary may
require by
regulation.
‘‘(B) NOTICE TO PARTICIPANTS AND
BENEFICIARIES.—
Except as
otherwise provided in this subsection, notices
described in
paragraph (1) shall 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
period.
‘‘(C) EXCEPTION TO 30-DAY NOTICE REQUIREMENT.—
Inany case in
which—
‘‘(i) a
deferral of the blackout period would violate
the
requirements of subparagraph (A) or (B) of
section
404(a)(1),
and a fiduciary of the plan reasonably so
determines in
writing, or
‘‘(ii) the
inability to provide the 30-day advance
notice is due
to events that were unforeseeable or
circumstances
beyond the reasonable control of the
plan
administrator, and a fiduciary of the plan
reasonably
so determines
in writing,
subparagraph
(B) shall not apply, and the notice shall
be furnished
to all participants and beneficiaries under
the plan to
whom the blackout period applies as soon
as reasonably
possible under the circumstances unless such
a notice in
advance of the termination of the blackout
period is
impracticable.
‘‘(D) WRITTEN
NOTICE.—The notice required to be
provided
under this
subsection shall be in writing, except
that such
notice may be in electronic or other form to
the extent
that such form is reasonably accessible to the
recipient.
‘‘(E) NOTICE TO ISSUERS OF EMPLOYER SECURITIES
SUBJECT
TO BLACKOUT PERIOD.—In
the case of any blackout
period in
connection with an individual account plan,
the
plan
administrator shall provide timely notice of
such
H. R. 3763—38
blackout
period to the issuer of any employer
securities
subject to
such blackout period.
‘‘(3) EXCEPTION FOR BLACKOUT PERIODS WITH
LIMITED
APPLICABILITY.—In
any case in which the blackout period
applies only
to 1 or more participants or beneficiaries in
connection
with a
merger, acquisition, divestiture, or similar
transaction
involving the
plan or plan sponsor and occurs solely
in connection
with becoming or ceasing to be a participant
or
beneficiary under the plan by reason of such
merger, acquisition,
divestiture,
or transaction, the requirement of this
subsection
that the
notice be provided to all participants and
beneficiaries
shall be treated as met if the notice required
under
paragraph (1) is provided to such participants
or beneficiaries
to whom the
blackout period applies as soon as reasonably
practicable.
‘‘(4) CHANGES IN
LENGTH OF BLACKOUT PERIOD.—If,
following
the
furnishing of the notice pursuant to this
subsection,
there is a
change in the beginning date or length of the
blackout
period
(specified in such notice pursuant to
paragraph
(2)(A)(iii)),
the administrator shall provide affected
participants
and
beneficiaries notice of the change as soon as
reasonably
practicable.
In relation to the extended blackout period,
such
notice shall
meet the requirements of paragraph (2)(D) and
shall specify
any material change in the matters referred to
in clauses (i)
through (v) of paragraph (2)(A).
‘‘(5) REGULATORY
EXCEPTIONS.—The Secretary may
provide
by regulation
for additional exceptions to the requirements
of this
subsection which the Secretary determines are
in the
interests of
participants and beneficiaries.
‘‘(6) GUIDANCE AND
MODEL NOTICES.—The Secretary shall
issue
guidance and model notices which meet the
requirements
of this
subsection.
‘‘(7) BLACKOUT
PERIOD.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The
term ‘blackout period’ means,
in connection
with an individual account plan, any period
for which any
ability of participants or beneficiaries under
the plan,
which is otherwise available under the terms
of such plan,
to direct or diversify assets credited to
their
accounts, to
obtain loans from the plan, or to obtain
distributions
from the plan
is temporarily suspended, limited,
or
restricted, if such suspension, limitation, or
restriction
is for any
period of more than 3 consecutive business
days.
‘‘(B) EXCLUSIONS.—The
term ‘blackout period’ does not
include a
suspension, limitation, or restriction—
‘‘(i) 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),
‘‘(ii) which
is a change to the plan which 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
‘‘(iii) which
applies only to 1 or more individuals,
each of whom
is the participant, an alternate payee
(as defined
in section 206(d)(3)(K)), or any other
beneficiary
pursuant to a
qualified domestic relations order
(as defined
in section 206(d)(3)(B)(i)).
‘‘(8) INDIVIDUAL ACCOUNT PLAN.—
‘‘(A) IN GENERAL.—For
purposes of this subsection, the
term
‘individual account plan’ shall have the
meaning provided
such term in
section 3(34), except that such term
shall not
include a one-participant retirement plan.
‘‘(B) ONE-PARTICIPANT
RETIREMENT PLAN.—For purposes
of
subparagraph (A), the term ‘one-participant
retirement
plan’ means a
retirement plan that—
‘‘(i) on the
first day of the plan year—
‘‘(I) covered
only the employer (and the
employer’s
spouse) and the employer owned the
entire
business (whether or not incorporated), or
‘‘(II)
covered only one or more partners (and
their
spouses) in a business partnership (including
partners in
an S or C corporation (as defined in
section
1361(a) of the Internal Revenue Code of
1986)),
‘‘(ii) meets
the minimum coverage requirements
of section
410(b) of the Internal Revenue Code of 1986
(as in effect
on the date of the enactment of this
paragraph)
without being combined with any other
plan of the
business that covers the employees of the
business,
‘‘(iii) does
not provide benefits to anyone except
the employer
(and the employer’s spouse) or the partners
(and their
spouses),
‘‘(iv) does
not cover a business that is a member
of an
affiliated service group, a controlled group
of
corporations,
or a group of businesses under common
control, and
‘‘(v) does
not cover a business that leases
employees.’’.
(2) ISSUANCE OF INITIAL GUIDANCE AND MODEL
NOTICE.—
The Secretary
of Labor shall issue initial guidance and a
model
notice
pursuant to section 101(i)(6) of the Employee
Retirement
Income
Security Act of 1974 (as added by this
subsection)
not later
than January 1, 2003. Not later than 75 days
after
the date of
the enactment of this Act, the Secretary shall
promulgate
interim final rules necessary to carry out the
amendments
made by this subsection.
(3) CIVIL PENALTIES FOR FAILURE TO PROVIDE
NOTICE.—
Section 502
of such Act (29 U.S.C. 1132) is amended—
(A) in
subsection (a)(6), by striking ‘‘(5), or (6)’’
and
inserting
‘‘(5), (6), or (7)’’;
(B) by
redesignating paragraph (7) of subsection (c)
as paragraph
(8); and
(C) by
inserting after paragraph (6) of subsection
(c)
the following
new paragraph:
‘‘(7) The
Secretary may assess a civil penalty against a
plan
administrator
of up to $100 a day from the date of the plan
administrator’s
failure or
refusal to provide notice to participants and
beneficiaries
in accordance with section 101(i). For
purposes of
this
paragraph, each violation with respect to any
single participant
or
beneficiary shall be treated as a separate
violation.’’.
(3) PLAN AMENDMENTS.—If
any amendment made by this
subsection
requires an amendment to any plan, such plan
amendment
shall not be required to be made before the
first
plan year
beginning on or after the effective date of
this section, if—
(A) during
the period after such amendment made
by this
subsection takes effect and before such first
plan
year, the
plan is operated in good faith compliance with
the
requirements of such amendment made by this
subsection, and
(B) such plan
amendment applies retroactively to the
period after
such amendment made by this subsection takes
effect and
before such first plan year.
(c) EFFECTIVE DATE.—The
provisions of this section (including
the
amendments made thereby) shall take effect 180
days after
the date of
the enactment of this Act. Good faith
compliance with
the
requirements of such provisions in advance of
the issuance
of applicable
regulations thereunder shall be treated as
compliance
with such
provisions.
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