Plan Sponsors Curb Market Timing in Their Plans

August 3, 2004 ( - Plan sponsors are doing more to control market-timing activity in their 401(k) plans.

More than two-thirds (69%) of large retirement plan sponsors have taken action to control market timing in their 401(k) plans.   The techniques are apparently working, as 85% said their rules are very or somewhat effective at curbing market timing and/or excessive trading, according to a survey conducted by the Committee on Investment of Employee Benefit Assets (CIEBA), a committee of the Association for Financial Professionals.  

Among the techniques used by plan sponsors:

  • 31% – limited the number of trades
  • 25% – require mandatory holding periods
  • 23% – levy redemption fees
  • 17% – impose lock-out periods
  • 15% – issue warning notices
  • 12% – use fair value pricing.

One-quarter of the plan sponsors polled instituted their rules or procedures within the last year, one-third (33%) six months ago, 8% three months ago, and 30% more than one year ago.   For those that have yet to act, 14% said they plan to institute rules or procedures to address market timing or excessive trading in the near future

“As fiduciaries, CIEBA members have the responsibility to ensure that participants in our plans are protected.   This survey clearly demonstrates that sponsors of large plans have taken the issue of market timing in defined contribution plans very seriously,” said Gary Glynn, CIEBA Chairman and President of U.S. Steel and Carnegie Pension Fund.   “In fact, almost one-third (30%) established rules or procedures to control market timing or excessive trading more than a year ago, before the media had focused on this issue.”

Fifty-one CIEBA members responded to the survey on market timing, conducted in May of this year.   Total market value of the survey respondents’ U.S. defined contribution plans was $192.5 billion.