Plan Sponsors Are Aware of Mutual Fund Scandal

Most plan sponsors (38%) report the level of awareness about the mutual fund scandal to be “knowledgeable” with 28% say they are “very knowledgeable” about the situation. The impact appears be limited though, as 52.8% of those canvassed do not have a mutual fund touched by the scandal in their plans. Of the 18.7% who do, 47.8% have only one fund, 46% have two to three funds, and 6.2% have four or more, according to a survey of 374 plan sponsors by the Blue Prairie Group and 401khelpcenter.com.

For those that do have a mutual fund embroiled in the scandal, the high level of knowledge about the situation may, in turn, translate into calm nerves, as plan sponsors seem reluctant to make “spur of the moment changes. Most of the plan sponsors (85.5%) have not removed any funds from their plan as a result of the scandal. However, many have taken some action:

• 25.3% have put one or more funds on a “watch” list
• 25.3% have convened their investment committees to review all the funds in their portfolio
• 22.8% have requested a review of funds by their investment providers
• 2.1% have frozen assets in any suspected funds and have offered plan participants alternative investments.

For those that have not been touched by the scandal, when asked what actions they would take if the fund company of one of their current funds were formally investigated:

• 39.1% would place the fund on “watch” status
• 29.1% would convene their investment committee
• 16.9% would remove the fund offering from their plan.

“Plan sponsors are clearly concerned by the current mutual fund scandal and are monitoring the situation closely. Some have convened special ad hoc investment meetings while others have placed certain of their funds on a ‘watch’ list for close monitoring,” said Matt Gnabasik, Managing Director of Blue Prairie Group, in the news release. “The scandal only reinforces the need to have formal procedures in place for the ongoing monitoring of investment options within a company’s [Employee Retirement Income Security Act] ERISA retirement plan.”

Plan sponsors were more likely to take stronger actions if the fund company of one of their current funds was actually indicted. More than half (51.6%) would remove the fund from their plan.

Participants are a different story altogether. Nearly half (45%) of those polled have received no questions from their employees about the mutual fund scandal and 40.1% of plan sponsors indicated that they had received questions from fewer than 10 employees. Sensing a lack of concern, and not wanting to raise alarm among the masses, more than half (53%) of plan sponsors have not communicated with their employees about the scandal.

The online opinion was conducted between December 4 and December 30, 2003. A summary of the survey’s findings is available at http://www.401khelpcenter.com/401k/mutual_fund_scandal_survey.html .