Sarbanes Oxley Act Section 306

 

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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