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<nobr>Feb 6, 2004</nobr>
ERIC Warns SEC Mutual Fund Trading Regulations Would Discriminate Against 401(k) Participants
For Immediate Release:
Washington, DC, February 6, 2004 – The ERISA Industry Committee (ERIC) today warned the SEC that its proposed regulations that address late trading practices of mutual fund shares would discriminate against employees who save through 401(k) and other participant-directed retirement plans. The proposal would also create a regulatory environment that favors plans administered by mutual fund families discouraging employees from diversifying their investment portfolio over a range of different mutual funds.
“While we commend the SEC for promptly addressing the late-trading abuses uncovered in the mutual fund industry, the proposed regulations treat employees enrolled in a company retirement savings plan as second-class investors,” said Mark Ugoretz, president of the ERISA Industry Committee. “The proposal would deprive plan participants of the ability to buy or sell mutual funds at the closing price on the day they submit their purchase and redemption orders. In the end, the proposal fails to restore investor confidence in the equity and soundness of mutual funds.”
Under the SEC proposed rules, an order to purchase or redeem mutual fund shares will receive the current day’s price only if the fund or designated transfer agent receives the order by the close time of 4:00 p.m. Eastern Time. Currently, plan administrators can receive orders up until 4:00 p.m., and subsequently process and aggregate the transactions and provide the mutual fund manager with aggregate instructions after the 4:00 p.m. deadline.
In comments to the SEC, ERIC notes that while individual investors will be able to buy and sell mutual fund shares right up until the 4:00 p.m. deadline, plan participants will be forced to give their buy or sell orders to company’s plan administrators much earlier in the day or even the prior day in order to have their transactions executed at the 4:00 p.m. close – particularly if they live furthest from the Eastern Standard time zone.
“On any given day, plan administrators might have to review and process thousands of requests to make changes to mutual fund investments, often involving many administrative steps before the order is even submitted to the mutual fund company,” exclaimed Ugoretz. “If all of this is required to occur before 4:00 p.m., plan administrators will have no choice but to mandate a much earlier time for participants to submit their transactions. This puts plan participants at a disadvantage with individual investors, discouraging employees from participating in retirement plans and depressing the retirement system.”
Ugoretz went on to say that “the proposed regulations also favors bundled retirement plan services offered by mutual fund families, which will be able to offer same-day pricing for transactions involving their own funds, over independently-administered plans that offer diverse investment options, but would be unable to offer same-day pricing under the proposed amendments.”
ERIC has recommended that the SEC allow a retirement plan to submit orders to designated transfer agents after the deadline for orders if the plan’s administrator has adopted adequate precautions to protect against late trading. As proposed by ERIC, these would include:
a) secure time-stamping of orders
b) an annual audit of the plan administrator’s controls on late trading; and
c) an annual certification that policies and procedures are maintained by the plan’s administrator to prevent late trades and that no late trades were effected during the period under audit.
To arrange an interview with Mark Ugoretz or Janice Gregory, Senior Vice President, Retirement Security, please contact Doug Baj at (202) 789-1400 or dbaj@eric.org.
A copy of ERIC's comments to the SEC can be found on ERIC OnLine at www.eric.org.
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The ERISA Industry Committee (ERIC) is a non-profit association committed to the advancement of employee retirement, health, and welfare benefit plans of America's largest employers and represents exclusively the employee benefits interests of major employers. ERIC's members provide comprehensive retirement, health care coverage and other economic security benefits directly to some 25 million active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.
Websites:
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Click here to view ERIC's comments
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