SPARK Calls for Retirement Plan Exceptions in Proposed SEC Rules

November 2, 2010 ( - The SPARK Institute has sent comments to the U.S. Securities and Exchange Commission regarding the potential impact on retirement plan intermediaries of the proposed new rule regarding mutual fund distribution fees and confirmations.

In its comment letter, the Institute urged the SEC to modify the Proposed Rule to specifically allow mutual funds to charge up to 75 basis points under Rule 12b-2 on classes of shares that are restricted to investment by retirement plans only, provided that the amount charged under the share class or paid to a service provider under 12b-2 for sales and distribution services does not exceed 25 basis points, and provided further that if the share class charges more than 25 basis points under 12b-2, the fund either (1) discloses that the sales and distribution services portion of the 12b-2 fee does not exceed 25 basis points or (2) provides a specific breakdown between the sales and non-sales portions of the 12b-2 fee.  

The Institute also urged the SEC to allow the Department of Labor fee disclosure rules to take precedent over the proposed statements and purchase confirmation provisions as they might otherwise apply to retirement plan investments in mutual funds.  “We requested that the SEC include a comprehensive exemption to the statement and confirmation provisions in the Proposed Rule with respect to retirement plan investments,” said Larry H. Goldbrum, General Counsel, in a press release.  

Goldbrum noted that SPARK supports the SEC’s objectives of increasing transparency of mutual fund sales charges, helping investors avoid paying disproportionate sales charges in certain share classes, and helping investors make more informed choices when selecting funds that impose sales charges, but is “concerned that the approach taken in the Proposed Rule will impose significant burdens and costs on retirement plan intermediaries who provide important services; will adversely impact plan sponsors and participants; and will have unintended consequences that run counter to the SEC’s objectives.”  

According to Goldbrum, the organization’s members that are major retirement plan recordkeepers do not intend to upgrade their systems to comply with the lot tracking and share conversion requirements under the SEC’s Proposed Rule regarding mutual fund distribution fees. Goldbrum said they believe that the complexity, potential difficulty, and costs associated with complying with the rule have been underestimated and are far too significant to undertake.  

In order to provide adequate time for the affected mutual funds and retirement plan intermediaries to comply with the Proposed Rule if it is finalized in its current form, the Institute asked the SEC to consider a compliance date of 30 months after the effective date. In addition, the letter urged the SEC to postpone the effective date of the Proposed Rule until such time that it either determines that it does not anticipate proposing other rules that may impact revenue sharing payments made by fund advisers or until it is in a position to propose any of such rules together with the proposed 12b-1 rule changes.  

The comment letter is at  

The SEC put out its proposed rules replacing existing provisions, including Rule 12b-1, that allow mutual funds to use their assets to compensate securities professionals who sell shares of the fund (see SEC Proposes Rules on 12b-1 Fees).  

Avi Nachmany, Director of Research, and Executive Vice President of Strategic Insight (SI), an Asset International company, said a key issue in coming months is whether the Securities and Exchange Commission (SEC) exempts small defined contribution plans from its proposed rule about moving assets with 12b-1 fees higher than 25 basis points to a share class without an ongoing sales commission (see Small DC Plans May Need 12b-2 Exemption).