Retirement, Pension Groups Critical of SEC Mutual Fund Trading Cutoff Proposal

WASHINGTON – More than 100 trade groups and other retirement plan advocates voiced their concerns with an SEC proposal that would require mutual fund investment requests be submitted to the fund by its closing time, typically 4:00 p.m. The groups are worried the SEC proposal would force sponsors to “cut off investment requests several hours earlier in the day in order to perform the necessary record keeping and compliance duties specific to 401 (k)-type systems before the request can be sent to the mutual fund,” according to a Dec.19 letter to Paul Roye, SEC director of the Division of Investment Management. Any new regulations would require “significant modifications at substantial cost,” the groups said. “This would relegate virtually all 401 (k) plan participants to next day trading status, putting them at a disadvantage relative to other investors,” the trade groups wrote. The groups suggested rather than enforce a “hard close” for order delivery, regulators should focus reform effort on “technological and procedural controls, subject to an independent audit, which can be implemented quickly at reasonable cost that will ensure that after hours trading is impossible.” Any reforms would “greatly disadvantage participants in employer-sponsored plans despite the fact that the problems identified are outside of the defined contribution system. Ultimately, “the proposed change does not prevent continued illegal activity by some mutual funds,” according to the letter. “Any remedy should balance the interests of these investors and the ongoing viability of 401(k) and similar plans that offer the small investor an opportunity to make small, periodic investments at reasonable cost.” More than 70 million individuals participate in 401(k) and similar employer-provided plans of which half of those assets are invested in mutual funds, the groups wrote. Among the comment letter endorsers were the Profit Sharing/40(k) Council of America, American Society of Pension Actuaries (ASPA), Charles Schwab & Co., Inc and the National Association of State Retirement Administrators.