With all of the recent mutual fund scandals and investigations, the legal and benefits community have been very focused on the ERISA fiduciary implications for plan sponsors and plan fiduciaries, with law firms and benefits consulting firms getting into the act by writing article after article on the subject. (Many of the articles are listed in the links section over in the right-hand column, including one here at Benefitsblog: “Plan Fiduciaries: Navigating the Rough Waters of the Mutual Fund Investigations.”) That being said, I have often wondered from time to time why we have not heard from one government agency that would seem to have a great deal to say about all of this–that is, the Department of Labor. And yes, we do have the remarks of Assistant Secretary Ann L. Combs Before the Annual Conference of The National Defined Contribution Council, which many of those who have written on the subject have referred to. However, I was glad to see that last week the Investment Company Institute issued a letter to the Department of Labor requesting “guidance from the Department of Labor that will help retirement plan sponsors and fiduciaries protect plan participants from any negative impacts of market timing activity.” The letter highlights some of the legal issues under ERISA which plan sponsors and plan fiduciaries are struggling with and asks the DOL to issue guidance with respect to these issues:
- that nothing in ERISA prohibits plan fiduciaries from restricting the activities of participants who engage in market timing of plan investment alternatives;
- that a plan sponsor should take into account and, under ordinary circumstances, be entitled to rely upon a determination made by an investment vehicle (or its manager) that certain trading activity is harmful to the interests of other shareholders (and, therefore, other plan participants);
- that it is consistent with ERISA’s fiduciary rules for a plan sponsor to take reasonable steps to facilitate the application of any restrictions imposed at the fund level to plan participants; and
- that section 404(c) relief will continue to be available for plan fiduciaries who select an investment option that imposes measures to restrict market timing and apply such restrictions to individual participants.
It is interesting to note this portion of the letter:
“[W]e understand that some plan sponsors confronted with concerns about the trading activity of one or more plan participants have suggested that ERISA prevents them from restricting market timing. This position is inconsistent with a recent federal district court ruling (dismissing an ERISA claim by participants challenging a plan’s terms and practice that restricted excessive trading in plan accounts) and, we submit, the clear dictates of ERISA to act solely in the interest of plan participants. To eliminate any confusion regarding ERISA’s dictate, we urge a strong statement by the Department affirming that ERISA contains no prohibition on restrictions imposed by plan fiduciaries to deter market timing in their retirement plans.
The ICI is likely referring to this case, Straus v. Prudential Employee Savings Plan, 253 F. Supp 438 (E.D.N.Y. 2003), which was highlighted here in a previous post: “An Unsuccessful ERISA Legal Challenge to Market-Timing Restrictions.”
The ICI asks that any guidance issued by the DOL be “prospective in scope, and that plan fiduciaries be given a reasonable period of time to implement.”