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Thursday, May 20, 2010

The IRS Tweaks Rules For a Non-Mutual Fund 401k Investment Option

News summary by MFWire's editors

Fundsters not interested in the intricacies of the 401(k) marketplace can probably skip today's "Fund Track" column. The Internal Revenue Service issued new regulations Wednesday that make it easier for employees to sell their own company's stock in their 401(k)s (and other defined contribution plans). The Wall Street Journal's Daisy Maxey covered the regs today.

The new rules say that 401(k) plans that offer company stock or employee stock-ownership plans must allow plan participants, alternate payees and beneficiaries to sell the company stock and reinvest the assets in at least three alternative options. Given that mutual funds hold about half the assets in 401(k) plans, fundsters may see some of the money participants allocate away from company stock flow to mutual funds.

The regulations enforce part of the Pension Protection Act of 2006, which had a similar clause.

The hope is to avoid catastrophes like Enron, when employees with large amounts of company stock in their 401(k) plans saw their wealth deteriorate along with the company (and thus with their job security).

In the article, the WSJ spoke with senior defined-contribution consultant Robyn Credico and Jan Jacobson, director of retirement policy at the American Benefits Council

Edited by: Daniel Tovrov

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