Transitional Guidance Issued on Employer Stock Diversification Requirements

Enacted earlier this year, the Pension Protection Act of 2006 ("PPA") adds new diversification requirements for eligible defined contribution plans (such as 401(k) plans and ESOPs that hold employee contributions) that hold publicly traded employer stock. Generally, and effective with respect to plan years beginning after December 31, 2006, the new rules require such plans to give participants the right to divest and diversify any portions of their accounts invested in employer stock and reinvest those amounts in certain diversified investments. The new rules also require that such plans provide participants with a notice of their diversification rights and the importance of diversifying investments. Notice 2006-107, which was issued November 30, 2006, provides transitional guidance and model language regarding the diversification and notice requirements.

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For additional information about Notice 2006-107, the diversification and notice requirements, and how it impacts your business, please contact Craig C. Burke or your Ice Miller benefits attorney.