Excess Diversification

[Guest TAS17]

Under Notice 88-53, Q & A 11, employer securities in excess of the minimum amount required under Section 401(a)(28) cannot be diversified to the extent the securities may not be distributed under Section 409(d). However, I frequently see ESOP documents drafted to allow "excess" diversification, e.g. 100% divesification at age 55, even though Section 409(d) provides that the securities must be held in the participant's account 84 months from the date of allocation to the account.

The only explanation I have been able to develop is that Section 409(d) may only apply to the old TRASOPS and PAYSOPS and not to ESOPS. Does anyone else have an explanation for the apparent disregard of Section 409(d)?

[Guest hapa123]

Section 409(d) only applies to "tax credit employee stock ownership plans," as defined under Section 409(a). If your plan is an "employee stock ownership plan" under Section 4975(e)(7) of the Code, don't worry about Section 409(d) and the 84-month rule.

[This message has been edited by hapa123 (edited 08-26-1999).]