New IRS Rules Ease 401(k) Stock Sales
May 20, 2010
New rules approved Wednesday by the Internal Revenue Service require 401(k) providers to offer participants at least three investment alternatives to company stock, which experts say most plan providers do anyway.
Many publicly owned companies offer employees the option of investing in company stock, often at much lower prices than other investment options, but experts say concentrating too much in one area can be risky, especially if the company has financial troubles.
Employees at Enron and Bear Stearns were hammered when company stock prices cratered, decimating their 401(k) balances. In some cases, corporate policy disallows employees from selling or diversifying out of company stock except at certain times.
The new rules, which take effect immediately and apply to plan years beginning on or after Jan. 1, 2011, require plans to allow company participants to exit out of company stock as quickly and easily as other investments in the plan.
Industry experts think the new rules will have little effect, as most investors tend to make very few changes to their plans even though most plans already allow and encourage investors to diversify.
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