Departure planning

Your 10b5-1 plan does not end when your employment does.

Most executives assume that leaving a company terminates their 10b5-1 plan. It does not — at least not automatically. A properly adopted plan continues executing scheduled trades after your last day unless you or the company explicitly terminates it. But a plan that was designed for your life as an active officer often does not fit cleanly into your life as a former one. Rule 144 obligations linger. Section 16 reporting obligations have their own cutoff logic. And if you carry material nonpublic information out the door, the plan's affirmative defense only covers trades inside the plan, not impulsive ones made after you've cleared your desk.

This guide covers how to think about a 10b5-1 plan across three departure scenarios — planned retirement, voluntary resignation, and involuntary termination — and what to set up before your last day.

Does the plan keep running after you leave?

Whether a plan continues after departure depends on the plan document itself. Three common provisions:

• No employment condition. The plan executes until all shares are sold, the plan duration expires, or you explicitly terminate it. Most institutional-broker plan templates work this way. The plan runs regardless of your employment status.
• Termination-on-departure clause. Some issuers require plan documents to include a provision terminating the plan automatically on the last day of employment. If your company's counsel drafted the plan, check whether this clause is present.
• Company-controlled termination right. Some plans grant the issuer or its counsel the unilateral right to terminate the plan at any time. In a managed transition (planned executive succession), the company may choose to exercise this right on or near your last day.

Read your plan document before you resign. If it does not have a termination-on-departure provision, the plan will continue executing under its original instructions. That may be exactly what you want — or it may create Rule 144 and Section 16 complications that require active management.

The Rule 144 affiliate shadow period

When you resign or retire from a director or executive officer role, you stop being an affiliate — eventually. But "affiliate" under Rule 144 is not a light switch. It is a facts-and-circumstances determination based on whether you still have "control" over the issuer's management or policies. For most departing officers, control ceases on the last day of employment. For directors who retain board seats but give up executive roles, the analysis is different.

Even when control has clearly ended, practitioners generally advise a former affiliate to continue complying with Rule 144 for at least 90 days after departure — by analogy to the Rule 144(k) non-affiliate holding-period standard — or until the issuer files its next periodic report (Form 10-K or 10-Q), whichever is later.¹ During this shadow period:

• The volume limitation (1% of shares outstanding or average weekly trading volume) still applies.
• Manner-of-sale requirements still apply.
• Form 144 concurrent filing is still required if you sell more than 5,000 shares or $50,000 in a three-month period.

A 10b5-1 plan adopted while you were an affiliate was designed with those conditions in mind. If the plan is still executing during the shadow period, the Rule 144 conditions it was built around remain in effect. The compliance work does not stop because your badge no longer opens the door.

After the shadow period, if you are clearly no longer an affiliate, the volume cap and manner restrictions fall away. You become a former affiliate selling non-restricted control securities, and you may sell freely — subject to any remaining holding period for restricted securities.

Section 16 reporting: where your obligations end

Section 16 reporting obligations are tied to your status as an officer or director at the time of a transaction, not to whether you are still employed at the time you file.

Reporting transactions that happened before your last day

Any transaction that occurred while you were still an officer or director must be reported on Form 4 within two business days of the transaction — even if the transaction date was the day before your last day.² Employment ending does not extend this deadline. If a plan trade executes on your last day of employment, you still owe a Form 4 within two business days.

Transactions after your last day

Once you are no longer an officer or director, you are no longer a Section 16 reporting person. Plan trades that execute after your departure do not require Form 4 reporting — unless you still hold more than 10% of a registered class, which would independently trigger Section 16 obligations.

The exit box and optional final Form 4

You may — but are not required to — file a Form 4 checking the "exit box" solely to indicate your departure from the reporting class.³ Many companies request that departing officers file this to create a clean record of when Section 16 obligations ended. It is optional; skipping it does not create a violation.

Section 16(b) short-swing profit liability after departure

Section 16(b) requires disgorgement of profits from any purchase and sale (or sale and purchase) of issuer securities within a six-month window, for transactions that occurred while you were a Section 16 reporting person. This matching liability survives your departure. If you sold shares under a 10b5-1 plan in May and purchased shares (through an ESPP, option exercise, or open-market purchase) the prior December — and both occurred while you were an officer — the Section 16(b) matching rules apply regardless of when you resigned. The six-month lookback window does not reset on your last day.

MNPI you carry out the door

The 10b5-1 affirmative defense is established at plan adoption. If you adopted the plan in good faith, without MNPI, the defense covers trades that execute under the plan — including trades that execute after you have resigned. The plan does not require you to be MNPI-free at every execution date; it requires that you were MNPI-free when you adopted it.

The risk is different from the plan risk. If you resign while possessing material nonpublic information about a pending merger, earnings restatement, or regulatory action — and you then make trades outside the plan after leaving — those trades are not protected by the plan's affirmative defense. The MNPI obligation under Rule 10b-5 follows you out the door. The plan protects plan trades. It does not protect impulsive trades you make in the weeks after departure while you still know things the market does not.

The practical implication: if you resign while a material transaction is pending and unpublic, defer any outside-plan selling until the information is publicly disclosed.

The good-faith condition and departure

SEC Release 33-11138 requires that plans be entered into and operated in good faith — not as a mechanism to evade insider-trading restrictions.⁴ A genuine retirement, career change, or involuntary layoff does not implicate the good-faith condition. Adopting a plan specifically to front-run an anticipated resignation and immediate post-departure sell-off — especially if the timing suggests the plan was adopted with the departure already planned and not disclosed — is the kind of circumstance regulators scrutinize.

For most executives, this is a non-issue. Plans adopted months before a retirement, with a normal institutional review and cooling-off period, are not subject to good-faith challenge simply because they keep executing after the executive leaves.

Three departure scenarios

Planned retirement

This is the most favorable scenario. If you know 18–24 months out that you plan to retire, you have time to:

• Adopt a plan during a current open window, clearing the cooling-off period well before your retirement date.
• Structure the sell cadence to complete most or all of the planned diversification while you are still an active officer — simplifying the Rule 144 shadow period analysis.
• Coordinate tax-year timing: plan the last scheduled sale before or after retirement to manage income stacking with final W-2 compensation, deferred-comp distributions, and pension/SERP payments that often accelerate at retirement.
• Decide whether to terminate the plan on or before your last day, or allow it to continue — and brief your broker and counsel on which path you are taking.

Voluntary resignation

Shorter timeline, same legal framework. Key issues unique to resignation:

• Pre-resignation MNPI check. If your decision to resign was influenced by what you know — for example, you are leaving ahead of an anticipated bad quarter — that MNPI consideration is relevant to any trades, inside or outside the plan, made in the weeks around departure.
• Plan termination decision. If you are resigning and the plan would continue into the shadow period, decide whether that creates compliance burden you prefer to eliminate. A clean termination before your last day avoids broker complexity, though it forgoes any remaining planned sales.
• Deferred compensation and severance timing. Payments from deferred compensation plans or severance may constitute ordinary income in the year of departure. A plan that continues selling stock in that same year may compound income unexpectedly.

Involuntary termination (layoff or termination for cause)

The plan-document analysis matters most here. If the plan includes a company-controlled termination right or an employment condition, the company may terminate the plan immediately. This is not necessarily adverse — a terminated plan that executed several tranches still carries the affirmative defense for those completed trades.

If terminated for cause, the good-faith condition of the plan may be scrutinized if there is any allegation that trades were made while the executive possessed MNPI that contributed to the cause determination. In these situations, securities counsel should be involved early.

What to set up before your last day

Pre-departure planning produces better outcomes than reactive cleanup. A financial advisor familiar with executive equity can help coordinate the following before you leave:

• Audit the plan document. Confirm termination provisions, any company termination rights, and whether a Rule 144-compliance review is built into the broker's workflow for post-departure executions.
• Model the shadow-period Rule 144 headroom. If the plan will continue executing after departure, project the remaining trades against the volume limit to confirm none will be blocked during the shadow period.
• Confirm Section 16 cutoff date. Identify any Form 4 obligations outstanding or pending at departure and ensure timely filing. Coordinate with company counsel on whether they will file on your behalf after you leave, or whether you need to make alternative arrangements.
• Identify any MNPI you hold at departure. Work with securities counsel to assess whether any known material nonpublic information affects your ability to trade outside the plan in the period immediately after leaving.
• Review tax-year timing. A departing executive often receives accelerated vesting, deferred-comp distributions, and severance all in the same year. The sale schedule from a continuing plan may need to be calibrated against total income for that year.
• Decide on plan termination. If the plan was designed around your active-employment compensation structure and the plan's purpose has been substantially accomplished, terminating it cleanly before departure can simplify the post-departure administration burden.

For the underlying plan structure and compliance framework, see the 10b5-1 plan rules overview, cooling-off period guide, Rule 144 coordination, and Section 16 and Form 4 reporting. For plan modification and termination mechanics, see the plan modification and termination guide.