Revenue Code of 1986 (as in effect on the date 
of the enactment of this subsection). 
‘‘(F) ELECTIONS.—Elections under this 
subsection may be made not less frequently 
than quarterly. 
‘‘(6) EXCEPTION WHERE THERE IS NO READILY 
TRADABLE STOCK.—This subsection shall not apply 
if there is no class of stock issued by the employer 
(or by a corporation which is an affiliate of the em-
ployer (as defined in section 407(d)(7))) that is 
readily tradable on an established securities market 
(or in such other circumstances as may be deter-
mined jointly by the Secretary of Labor and the Sec-
retary of the Treasury in regulations). 
‘‘(7) TRANSITION RULE.—
‘‘(A) IN GENERAL.—In the case of any in-
dividual account plan which, on the first day of 
the first plan year to which this subsection ap-
plies, holds employer securities of any class that 
were acquired before such date and on which 
there is a restriction on diversification otherwise 
precluded by this subsection, this subsection 
shall apply to such securities of such class held 
in any plan year only with respect to the num-
ber of such securities equal to the applicable
percentage of the total number of such securi-
ties of such class held on such date. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), the applicable 
percentage shall be as follows:
‘‘Plan years for which provisions 
are effective: 
Applicable percentage: 
1st plan year .....................................................................
20 percent 
2nd plan year ....................................................................
40 percent 
3rd plan year .....................................................................
60 percent 
4th plan year .....................................................................
80 percent 
5th plan year or thereafter ...............................................
100 percent. 
‘‘(C) ELECTIVE DEFERRALS TREATED AS 
SEPARATE
PLAN
NOT
INDIVIDUAL
ACCOUNT 
PLAN.—For purposes of subparagraph (A), the 
applicable percentage shall be 100 percent with 
respect to—
‘‘(i) employee contributions to a plan 
under which any portion attributable to 
elective deferrals is treated as a separate 
plan under section 407(b)(2) as of the date 
of the enactment of this paragraph, and 
‘‘(ii) such elective deferrals. 
‘‘(D) COORDINATION
WITH
PRIOR
ELEC-
TIONS.—In any case in which a divestiture of 
investment in employer securities of any class 
held by an employee stock ownership plan prior
to the effective date of this subsection was un-
dertaken pursuant to other applicable Federal
law prior to such date, the applicable percent-
age (as determined without regard to this sub-
paragraph) in connection with such securities 
shall be reduced to the extent necessary to ac-
count for the amount to which such election ap-
plied. 
‘‘(8) REGULATIONS.—The Secretary of the 
Treasury shall prescribe regulations under this sub-
section in consultation with the Secretary of 
Labor.’’. 
(b) AMENDMENTS
TO
THE INTERNAL REVENUE 
CODE OF 1986.—
(1) IN GENERAL.—Section 401(a) of the Inter-
nal Revenue Code of 1986 (relating to requirements 
for qualification) is amended by inserting after para-
graph (34) the following new paragraph: 
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR 
DEFINED
CONTRIBUTION
PLANS
THAT
HOLD
EM-
PLOYER SECURITIES.—
‘‘(A) IN GENERAL.—An applicable defined 
contribution plan shall meet the requirements 
of subparagraphs (B) and (C).
‘‘(B) EMPLOYEE
CONTRIBUTIONS
AND 
ELECTIVE DEFERRALS INVESTED IN EMPLOYER 
SECURITIES.—In the case of the portion of the 
account attributable to employee contributions 
and elective deferrals which is invested in em-
ployer securities, a plan meets the requirements 
of this subparagraph if each applicable indi-
vidual in such plan may elect to direct the plan 
to divest any such securities in the individual’s 
account and to reinvest an equivalent amount 
in other investment options which meet the re-
quirements of subparagraph (D). 
‘‘(C) 
EMPLOYER
CONTRIBUTIONS
IN-
VESTED IN EMPLOYER SECURITIES.—
‘‘(i) IN GENERAL.—In the case of the 
portion of the account attributable to em-
ployer contributions (other than elective 
deferrals to which subparagraph (B) ap-
plies) which is invested in employer securi-
ties, a plan meets the requirements of this 
subparagraph if, under the plan—
‘‘(I) each applicable individual 
with a benefit based on 3 years of 
service may elect to direct the plan to 
divest any such securities in the indi-
vidual’s account and to reinvest an 
equivalent amount in other investment 
options which meet the requirements 
of subparagraph (D), or 
‘‘(II) with respect to any em-
ployer security allocated to an applica-
ble individual’s account during any 
plan year, such applicable individual 
may elect to direct the plan to divest 
such employer security after a date 
which is not later than 3 years after 
the end of such plan year and to rein-
vest an equivalent amount in other in-
vestment options which meet the re-
quirements of subparagraph (D). 
‘‘(ii) APPLICABLE
INDIVIDUAL
WITH 
BENEFIT
BASED
ON
YEARS
OF
SERV-
ICE.—For purposes of clause (i), an appli-
cable individual has a benefit based on 3 
years of service if such individual would be 
an applicable individual if only participants 
in the plan who have completed at least 3 
years of service (as determined under sec-
tion 411(a)) were referred to in subpara-
graph (E)(ii)(I).