Putnam Confirms Receipt of SEC Questionnaire

July 6, 2004 (PLANSPONSOR.com) - Putnam Investments confirmed it received a request for information from the Securities and Exchange Commission (SEC) in the agency's investigation into directed brokerage arrangements in company sponsored retirement plans.

Laura McNamara, spokeswoman for Putnam Investments, confirmed receipt of the questionnaire to Dow Jones.   The firm said it is cooperating with the SEC’s investigation into alleged revenue-sharing arrangements in defined contribution plans.

Putnam’s admission comes following a McHenry Consulting client alert  detailing a new sweep examination underway by SEC targeting “industry compensation practices in the distribution of defined contribution retirement plan products and services.”  Included in the alert was a list of 25 questions sent to mutual fund companies by the SEC over the past several weeks – questions that, according to McHenry, “delve deeply into the who, what, why, how and “how much” of retirement product compensation.” 

Specifically enumerated in the request letter sent to fund companies are the SEC’s intention to examine “the reimbursements, rebates, subsidies and other payments that mutual funds and their advisors make as part of their participation in defined contribution plans.”  Additionally, according to text from the SEC letter included in the McHenry alert, “The examination will also review how DC Plan Payments are disclosed and whether Funds that directly or indirectly make larger DC Plan Payments receive different positioning in DC plans than those who pay less”   (See  SEC Probes DC Revenue Sharing ).

In fact, one of the twenty-five questions bluntly says, “State whether increased direct or indirect DC Plan Payments result in initial selection for, or different placement in, a sponsor’s retirement plan.”  The practice of “revenue sharing” involves fund companies making cash payments to brokers and other intermediaries for distributing mutual funds.  Through these revenue sharing agreements, the intermediaries serve as a marketing and distribution channel for the mutual fund company.