PPA Issue


 The general direction given to those of us in the position of being a guest commentator for a week on this new blog was to “write about something that interests you”. I’m not sure Sarah’s directions would quite encompass my interest in how well the Bears are doing this year and pondering how long this glorious winning streak will last as well as what the post-season will bring—so I will not write about what really is of interest to me—although I’m sure if I did, there would be a lot of interesting comments and other points of view expressed. So let’s look for something else of interest.

Company stock is always fun, so let’s go there.

We seem to be near the end of the “stock drop” litigation explosion, which has given many plan sponsors heartburn, even if they were not involved in litigation. Much has been written and discussed as to what steps should be taken to avoid or minimize potential exposure to the issues and many plan sponsors have made changes to their plans and/or committee structures. But before they can catch their breath, along comes the new kid on the block—the Pension Protection Act of 2006.

The PPA has provisions focused on 401(k) plans which have a company stock option as part of their structure and adds new diversification requirements along with mandated information notices to participants addressing the benefits of diversification of their plan accounts.

Since company stock has had a long history in retirement plans, one would assume plan sponsors will not retreat wholesale from continuing to provide the option, especially since there are financial benefits to making matching contributions in company stock, but will the option stay the same? Will plan sponsors comply and continue the option in their 401(k) plans? Will plan sponsors reconsider continuing the option? Or will the option be continued in a different form—such as moving it to a stand alone ESOP—in order to keep certain restrictions on diversification? If it is moved, will the fact that it was once part of a 401(k) plan have any taint?

A small focus, but seemingly one with a potential for attracting a great deal of interest. What thoughts, dear reader, do you have?