Though the Pension Protection Act of 2006 (PPA) permits a phased-in approach with respect to employer contributions, this approach may be difficult for plan sponsors to administer.
In order to inform participants of their right to diversify, the PPA requires that participants receive a written notice of their right to diversify out of employer stock at least 30 days before the first date the participant is eligible to diversify.
The written notice does not create an exception for plan sponsors who already provide participants diversification rights. The PPA probably requires that even if a plan already permits immediate diversification out of employer stock investments at any time that would be permissible under the PPA, it still must still send a notice to all participants regarding their right to diversify away from employer stock.
The notice must be written in a manner understood by the average plan participant and explain the diversification rights, along with the importance of diversifying the investment of retirement account assets. Electronic delivery of the notice is permitted.
For plan sponsors with calendar plan years beginning on or after January 1, 2007, the written notice must be distributed by December 1, 2006.
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