New I.R.S. rules clarify when participants can sell company stock in 401(k) plans

New I.R.S. rules clarify when participants can sell company stock in 401(k) plans


Dow Jones Newswires reports that the Internal Revenue Service has released rules clarifying when participants in 401(k) plans can sell company stock held in their accounts. 

The rules implement a provision in the Pension Protection Act of 2006 that requires 401(k) plans to allow participants to sell company stock that has been contributed as a “matching contribution.”

Congress enacted this provision to protect participants in 401(k) plans from losses similar to those that occurred when participants in Enron’s 401(k) plan were unable to sell their shares of company stock after the value of the company’s stock began to plummet. Because they could not sell their Enron stock, many participants in Enron’s 401(k) plan suffered enormous losses. (For more on the Enron situation read our blog entry, “A 401(k) lesson learned.”)

Under the new rules, participants who have worked for a company for at least three years will now be able to sell company stock at least every three months. The rules also require 401(k) plans to have at least three alternate investment options. The new I.R.S. rules took effect on May 19, 2010 and apply to plan years that begin on or after January 1, 2011.

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