Newsflash - Pension Protection Act of 2006

On August 17, 2006, President George W. Bush signed the Pension Protection Act of 2006 (PPA) into law. In addition to strengthening traditional defined benefit pension plans through new funding and reporting requirements, the PPA amends many rules relating to defined contribution plans, including ESOPs.

One of the most important changes the PPA will have on ESOPs relate to new diversification rules. The new rules apply to ESOPs of publicly traded companies that are integrated or combined with 401(k) plans. If the employer’s securities are not publicly traded or the ESOP is a standalone plan, the diversification rules will not apply. For ESOPs not subject to the new diversification rules, current diversification rules will continue to apply.

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