FIS Relius
Update on Notice of Right to Divest Publicly Traded Employer Securities 11/30/2006
Email This Link

Many of the provisions in the Pension Protection Act of 2006 (PPA) relate to the rights of participants, including notices and statements that plans must provide to participants. One of these changes, relating to divestment of publicly traded employer securities is found in PPA Sections 507 and 901. These provisions are effective for plan years beginning after 2006.

Section 901 gives certain participants a right to divest (i.e., reinvest) any publicly traded employer securities held in a non-ESOP plan on their behalf. Section 507 requires the plan administrator to notify participants of their divestment rights. This notice must be provided no later than 30 days before the first date on which a participant is first eligible to exercise the divestment right.

A literal interpretation of this notice requirement would mean that administrators must provide the notice by December 2, 2006 for calendar year plans permitting daily trading (on the basis that the right to divest occurs on January 1, 2007). However, the IRS just released Notice 2006-107 indicating that under a DOL interpretation of Section 507, plans with plan years beginning on or after January 1, 2007 and prior to February 1, 2007 will not be required to provide notices prior to January 1, 2007.

The IRS Notice also includes a model participant notice and provides other guidance and transitional rules with respect to the new divestment requirement. The model notice may be obtained from our Other Resources Web page.

We have also nearly completed a package of other PPA related notices and forms, and will notify you once that package is available.