If a participant receives a lump sum distribution that includes employer securities and rolls the distribution over to an IRA, I assume they loss the ability to withdraw the securities from the IRA at a later time and postpone any tax on the net unrealized appreciation. Is my understanding correct? If not, can anyone give me a citation for some authoratative guidance.

Thanks in advance for any help you can give.

You are correct. The rule on unrealized appreciation applies only to distrbutions from the employer's plan. 402(e)(4)