Sponsors, Providers Show Concern Over Trading Deadlines

December 4, 2003 (PLANSPONSOR.com) - More than eight out of 10 (82%) plan sponsors believe plan participants will be adversely affected if mutual funds are forced to accept a "hard and fast" 4 p.m. deadline of daily trade orders.

The level of concern about adopting such a guideline was echoed throughout the industry as 76% of plan providers agreed retirement participants’ plans would be negatively impacted. Yet the highest levels of concern were reserved for the impact on plan administration as both plan sponsors and providers weighed in strong agreement to the potential for an unfavorable impact on the way plans are run – 85% and 88% agreeing on an impact, respectively, according to the American Benefits Council’s member survey.

High levels of concern were registered across the administration gamut between sponsors and providers. An identical 84% of both groups either agreed of strongly agreed that different parties such as broker/dealers, third party recordkeepers and bundled plans all having different cut-off times to meet a “hard and fast” deadline would put retirement plans at a disadvantage compared to other investors. Likewise, 82% of the 51 responding providers and 85% of the 54 responding sponsors said trades taking more than one day to process would render daily valuation “misleading,” and 84% of providers and 74% of sponsors think administrators will face more expense and complicated reconciliation issues, thus driving up plan costs.

Plan sponsors also show concern for an increase in fees being charged to participants with a “hard and fast” deadline. Forty-four percent of respondents agreed that participants may be slapped with a fee increase and 33% strongly agreed, compared with only 7% disagreeing and 2% strongly disagreeing.

Similar responses were noted among the provider community. Of the respondents, 38% strongly agreed that participants could see an increase in the fees charged to them, and 36% agreed, compared with only 8% disagreeing and 18% that had no opinion.

Even with the concern for participant trading, plan sponsors do not feel participants could be stuck in funds with risk levels not appropriate for them. Overall, only 19% of sponsor respondents agreed with the potential for an impact in the appropriateness of investments, compared with 28% who disagreed. Disagreement was also noted among providers (34%) as only 26% said they agreed and 12% strongly agreeing.

Other Solutions

Overwhelmingly sponsors and providers both prefer a more hands-off approach. More than half of all sponsors (54.7%) and providers (66%) said their preferred method of dealing with the current market timing situation would be for clarification in all plan disclosure documents that “market timing by participants is discouraged and will be curbed if the administrator determines it has been excessive in individual cases.”

With more than one option available for them, 51.1% of providers also were onboard with trading time limits placed on individual participants after being identified as possible market timers, compared with 34% of plan sponsors selecting this option. On the other end, only 21.3% of providers and 34% of sponsors were behind a mandatory 2% redemption fee on fund shares redeemed within five days of their purchase.

Even with other ideas on the table, both providers and sponsors noted concern of the potential impact such moves would have on plan sponsor fiduciary liability. Sixty-four percent of providers and 70% of sponsors were concerned with the fiduciary liability impact on placing limits on individual participants identified as possible market timers.