In Notice 2011-19 (the “Notice”), the Internal Revenue Service (the “IRS”) provides guidance as to when the securities of an employer are “readily tradable on an established securities market” or “readily tradable on an established market” for purposes of the Internal Revenue Code (the “Code”). The following Code sections and Treasury regulations pertaining to employee benefits use or refer to one of those phrases: section 401(a)(22), section 401(a)(28)(C), section 409(h)(1)(B), section 409(l) and section 1042(c)(1)(A); Treas. Reg. Sec. 1.401(a)(35)-1(f)(5).
Under the Notice, the terms “readily tradable on an established securities market” and “readily tradable on an established market”, with respect to employer securities, mean employer securities that are readily tradable on an established securities market under Treas. Reg. Sec. 1.401(a)(35)-1(f)(5). Under that regulation, a security is so tradable if it is traded:
–on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934(prong 1); or
–on a foreign national securities exchange that is officially recognized, sanctioned or supervised by a governmental authority, if the security is deemed by the Security Exchange Commission (the “SEC”) as having a ready market under SEC Rule 15c3-1(such as a security included on the FTSE Group All-World Index) (prong 2).
The Notice is generally effective for plan years beginning after 2011. However, it does not apply until plan years beginning after 2012 when, as of March 14, 2011, the employer (and each of its controlled group member) has no common stock traded as described in prong 1, but has common stock traded as described in prong 2.