IRS Defines “Readily Tradable” Employer Securities

The IRS notice discusses when securities of the employer are “readily tradable on an established securities market” or “readily tradable on an established market” for purposes of certain provisions of the Internal Revenue Code relating to employer securities held by certain qualified retirement plans.

Notice 2011-19 says the terms each mean employer securities that are readily tradable on an established securities market within the meaning of §1.401(a)(35)-1(f)(5) for purposes of the following provisions:  (1) §401(a)(22); (2) §401(a)(28)(C); (3) §409(h)(1)(B); (4) §409(l);  and (5) § 1042(c)(1)(A).  

According to the notice, under §1.401(a)(35)-1(f)(5), a security is readily tradable on an established securities market if the security is traded on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f).  The regulations also treat a security as readily tradable on an established securities market if the security is traded on a foreign national securities exchange that is officially recognized, sanctioned, or supervised by a governmental authority and where the security is deemed by the Securities and Exchange Commission (SEC) as having a ready market under SEC Rule 15c3-1 (17 CFR 240.15c3-1).  Under the current SEC rules, a security that is included on the FTSE Group (FTSE) All-World Index is deemed to have a ready market.  

The notice is effective for plan years beginning on or after January 1, 2012, with an exception.  

The notice also describes the provisions of the IRC for which the definition applies.