The following is provided for information purposes, and not meant to be legal advice.
The Pension Protection Act of 2006 (Act) signed by President George Bush on August 17, 2006 impacts defined contribution plans, including employee stock ownership plans (ESOPs).
Public companies with ESOPs under 401(k) plans must allow participants to diversify out of the employer's own stock investment. The diversification requirements may apply immediately.
Fiduciaries of plans who handle plan assets must be bonded for at least $500,000. For plans that hold employer securities, the bond is $1 million. This change is effective for 2007 plan years and after.
The Act may provide relief from excise tax for non-controlling shareholders who sell stock to an ESOP in a transaction that does not satisfy the present prohibited transaction exemption.
The Act has a new prohibited transaction exemption on the acquisition, holding or disposition of any security if the transaction is corrected within a period of generally 14 days after a disqualified person knows that the transaction is a prohibited transaction absent the new exemption.
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