April 4, 2003 (PLANSPONSOR.com) - A US District
Court judge has upheld a decision by the Prudential Employee
Savings Plan to develop a written policy restricting frequent
"market timing" trades in excess of $75,000.
>The court agreed that the plan's Administrative
Committee did not violate ERISA when it implemented the
restrictions - a moved based on concerns that the frequent
large purchases and sales by a few participants would
disrupt the overall management of the investment funds to
the detriment of other plan participants, according to an
EBIA Weekly report.
>Particularly, the court noted that the Savings
Plan's Summary Plan Description (SPD) stated, "in certain
situations there may be limitations regarding transfers."
The plan document further provided that the Administrative
Committee "may decline to implement investment instructions
where it deems appropriate."
>Prior to the Administrative Committee's actions,
some participants had developed a trading strategy
involving regular transfers of large amounts of money into
and out of plan investment funds several times per month.
With the handing down of the restrictions, these
participants sued, seeking a preliminary injunction to stop
the plan and its fiduciaries from enforcing the policies
restricting frequent trading and to grant the participants
the right to trade unlimited amounts freely.
>The participants claimed that the trading
restrictions violated their rights under ERISA Section 510,
which provides that it is unlawful to discriminate against
a participant for exercising any right to which the
participant is entitled under the provisions of a plan.
>The court dismissed the suit, finding that, contrary
to the participants' claim that they were entitled under
the plan to unlimited trading, the language in the plan and
the SPD reserved the plan's right to restrict trading.
>In this case, the committee's actions were not plan
amendments but rather were rule modifications made under
authority granted by the plan. The court further found
that, even if retroactivity principles applied to this type
of modification, the actions did not deprive the
participants of a right to which they were entitled. In
this circumstance, the participants did not have a right to
trade in unlimited amounts, and therefore retroactive
modification of the trading rules would be permissible.
The case is Straus v. Prudential Employee Savings
Plan, 2003 U.S. Dist. LEXIS 4852 (E.D.N.Y.2003).