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ARTICLE · 08 JUNE 2010

Final Regulations Regarding Diversification Requirements for Defined Contribution Plans Holding Employer Securities

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The Internal Revenue Service recently issued final regulations under Section 401(a)(35) of the Internal Revenue Code of 1986, as amended (the Code), regarding the diversification of investment opportunities required for defined contribution plans holding publicly traded employer securities (other than stand-alone ESOPS or one participant retirement plans).

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The Internal Revenue Service recently issued final regulations under Section 401(a)(35) of the Internal Revenue Code of 1986, as amended (the Code), regarding the diversification of investment opportunities required for defined contribution plans holding publicly traded employer securities (other than stand-alone ESOPS or one participant retirement plans). With the finalization of these regulations, employers need to review their plan provisions and procedures carefully to ensure compliance.

Code Section 401(a)(35) was added by the Pension Protection Act of 2006. In 2006, the IRS issued Notice 2006-107 (the Notice), which provided transitional guidance and relief regarding the diversification requirements. In 2008, the IRS issued proposed regulations on the diversification requirements and has now issued final regulations with various modifications. 

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