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The Pension Protection Act of 2006 (PPA) provides participants the legal right to diversify employer stock investments based on whether such investments come from employee or employer contributions.

In employer stock investments funded through employee contributions (for example, elective deferrals or rollover contributions), plan sponsors must grant participants the right to diversify out of employer stock. This applies to existing account balances as well as new contributions as of January 1, 2007.

The right to diversify must be offered: (1) on the same terms and conditions applicable to other investment elections; (2) no less than quarterly; and (3) with at least three alternative investment options, each with different risk and return characteristics.