IRS Issues Regulations on Diversification Requirements for Defined Contribution Plans

Retirement jar filled with moneyThe Internal Revenue Service (IRS) has published in the Federal Register final regulations (pdf) relating to diversification requirements for certain defined contribution plans holding publicly traded employer securities. According to the IRS, these regulations “will affect administrators of, employers maintaining, participants in, and beneficiaries of defined contribution plans that are invested in employer securities."  Specifically, the regulations implement section 401(a)(35) of the Internal Revenue Code, which was added by section 901 of the Pension Protection Act of 2006 (P.L. 109-280). This section requires certain defined contribution plans to provide participants, alternate payees and beneficiaries the right to divest employer securities held in their pension plan accounts and to direct the reinvestment of these amounts among at least three alternative investment options. The final regulations include a summary of comments it received from the proposed regulations issued in January 2008, and an explanation of revisions the agency deems most significant. These final regulations apply for plan years beginning on or after January 1, 2011, and are effective as of May 19, 2010.

Photo credit:  Kirby Hamilton

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