As you may recall, the Pension Protection Act of 2006 (the "PPA") contained requirements related to the diversification of employer stock in defined contribution plans which became effective in 2007. Specifically, the PPA provisions require that a defined contribution plan (other than certain employee stock ownership plans) must allow participants with at least three years of service to diversify out of publicly-traded employer securities (which can include securities traded on a stock exchange outside the United States) in their accounts and reinvest those amounts in other investments. Employees may immediately diversify amounts attributable to their own contributions. The PPA provisions also generally do not allow a plan to impose restrictions with respect to employer stock that are not imposed on the investment of other plan assets. The proposed regulations clarify these rules and explain several exceptions. Notably, a plan may impose restrictions on the divestiture of employer stock even if a similar restriction is NOT imposed on a stable value fund. This means that a plan could permit more frequent transfers into a stable value fund than the employer stock fund. A plan may also impose restrictions that are required to comply with securities laws and may limit the amount invested in employer stock by individual participants once the percentage in the account reaches 10%. The proposed regulations are proposed to be effective for plan years beginning on or after January 1, 2009 but may be relied upon now. Employers may want to comply immediately, as some provisions are more favorable than transition relief available through 2008. See Prop. Reg. Section 1.401(a)(35)-1.