401(k) Plan with Employer Securities: diversification notice required?

[Guest Troy S.]

Plan is a 401(k), that allows employees to choose an Employer Stock fund in addition to 12 other broadly diversified mutual funds. Plan has never restricted participants from investing in the Er Stock fund, either incoming or outgoing. Client decided that no er stock diversification notice, pursuant to IRS Notice 2006-107 needed to be sent in early 2007 (by 2/1/07) since there was no change to the "open door" policy on er stock investment.

My first take on this, would be that the client should have sent the notice out to all current participants anyway to be safe. After going back and re-reading 2006-107 (http://www.irs.gov/irb/2006-51_IRB/ar09.html), though, I am a little unclear as to whether this would apply or not in the situation described above. Seems like it only describes needing to send the notice to affected participants, which for this plan would be none, since no easing of restrictions was needed in this case?

Thoughts?

[Guest Troy S.]

Still fishing for some thoughts on this. Thanks for any help!

[Kevin C]

We have a client in the same situation and after reading Notice 2006-107, we felt that they were required to send the notice.

Notice 2006-107 says that the diversification notice must be given to "applicable individuals". It defines the term as persons who are entitled to receive diversification rights. I don't see anything in 2006-107 that gives you an exemption from the notice in your situation.