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November 30, 2006 at 12:30 PM
The Internal Revenue Service has issued guidance for defined contribution retirement plans that will be subject to the new Pension Protection Act investment diversification rules.
Section 401(a)(35) of the Internal Revenue Code, a new code section created by the PPA, will require retirement plans that offer publicly traded employer securities to offer plan participants a choice of at least 3 other investment options.
The other investment options all have to be materially different from one another, IRS officials write in IRS Notice 2006-107.
The new law does not apply to Employee Stock Ownership Plans that are funded entirely by the employer, but it does apply to ESOPs funded partly by employee contributions, officials write.
In addition, the IRS will treat non-public employer securities in a plan as if they were publicly traded if any employer corporation or any member of a corporation’s “controlled group” has issued publicly traded securities, officials write.
