Our 401(k) plan includes a discretionary match, made at the end of the year in company stock. Not surprisingly, participants cannot diversify out of that fund until they are 55 and 100% vested (5 years of service). But the part that I find odd is that the diversification rules apply even after termination of employment.

I don't have any reason to think this is not legal, but my question is whether this is unusual, common or somewhere in between.

RCK

Do you mean that the participant has the right to diversify in the event they separated from service and chose to defer their distribution?

If yes, then this provision is somewhat similar to what is provided for statutory ESOPs. Though an ESOP is permitted to require 10 years of participation.

As such, I would say that the feature is unusual, but applying the privilege to diversify to both active and former participants would be fairly common.

Not much help, sorry.