: News Releases

: News Room

: ASPPA asap
QUICK LINKS

: Register for a Conference
: Register for an Exam
: Register for an E&E Webcourse
: Register for an EA Course
: Register for a Webcast
: Register for a CE Quiz
: Order Publications
: Update Your Profile
: Sponsor an Event
: IRS Q&A Online Submission Form
: Advertise
: Exhibit
: Call for Topics Form
: Call for Speakers Form
: Find a Form
 

aspa.org

Press Release

Related Links
: ASPPA Comments
: Pension Alerts

print page
FOR IMMEDIATE RELEASE

CONTACT:
Pecanne Jennings
Chief Marketing Officer
703.516.9300
pjennings@aspa.org

Download the press release as a pdf file

POSSIBLE SEC RULES ON LATE-DAY TRADING COULD THREATEN THE RETIREMENT SECURITY OF 401(K) PARTICIPANTS

November 5, 2003 - (Arlington, VA)--In response to alleged illegal conduct, the Securities and Exchange Commission (SEC) is considering a blanket rule requiring that all trades be received by the mutual fund company by 4:00 p.m. EST in order to get the closing price for the same day. This would have a dramatic impact on the administration of retirement plans since one-third of mutual fund assets are held through retirement accounts. According to Brian H. Graff, Esq., ASPPA’s Executive Director, “The rule would prevent a substantial majority of 401(k) participants from being able to trade on the same day and get the closing price of that day. By treating these 401(k) plan participants as second-class investors, the rule could seriously threaten their retirement security.”

Current SEC rules require that mutual fund trading requests be received by 4:00 p.m. EST in order to get the closing price for that day. The SEC is investigating some individuals who have conspired to mark trades on hedge funds as received by 4:00 p.m. EST, even though they were actually received later. This allowed these individuals to see how overnight markets were performing before submitting the trade. It is important to note that none of the alleged late-day trading involved participants in 401(k) plans, and no evidence exists that such illegal activity is occurring with respect to the administration of retirement plans. Retirement plan recordkeepers and intermediaries employ sophisticated computer systems and procedures to ensure that trades are received by 4:00 p.m. EST. Once received, it can take between 4-6 hours on average to reconcile and batch the trades involving mutual funds for submission directly to the mutual fund company.

Consequently, if the SEC adopts a rule requiring the trade be received by the mutual fund company by 4:00 p.m. EST, the retirement plan recordkeeper will likely be forced to close trading by 401(k) plan participants sometime between 10:00 a.m. and noon. In the case of west coast 401(k) participants, this could mean their right to trade 401(k) plan investments closes at 7:00 a.m. As a practical matter, the rule would force a substantial majority of American 401(k) plan participants into next-day trading status.

Imagine during the demise of Enron that a 401(k) participant invested in a mutual fund with a substantial position in Enron stock. Before the participant has an opportunity to read the morning newspaper, he or she will likely be foreclosed from trading out of the mutual fund that day. The participant will be forced to trade the mutual fund effective as of the next day’s closing price. We have seen that a lot can happen during that extra 24-hour waiting period and 401(k) plan participants should not be unnecessarily put at a disadvantage relative to other mutual fund investors. Additionally, imposing a deadline that a trade must be received by the mutual fund company by 4:00 p.m. EST would not prevent a mutual fund company from conspiring with traders to manipulate the deadline. In fact, some cases of late-day trading currently being investigated by the SEC directly involved a regulated investment company with its own mutual funds.

It is ASPPA’s position that technology is the most efficient and secure way to prevent late-day trading, and it can be used in a manner that will not negatively affect the investment rights of 401(k) participants. Sophisticated software systems used by plan administrators can easily be modified to ensure that there is no possibility of manipulation by either the third-party recordkeeper or the intermediary. Each of these systems date and time stamp every trade allowing independent parties, including the SEC, to simply verify the timeliness of any trades.

Graff adds that, “It is certainly important to prevent illegal conduct like late-day trading. However, it is critical than any proposed solution not punish 36 million innocent American families who own mutual funds through their 401(k) plan.” It is the position of ASPPA’s Government Affairs Committee that this can quickly be accomplished using technology that already exists, and in a way that does not dramatically change the administration of retirement plans.

ASPPA is a national organization of retirement plan professionals dedicated to the preservation and enhancement of the private pension system in the United States. ASPPA offers education and professional credentials for actuaries (FSPA, MSPA), pension consultants (CPC), pension administrators (QPA), 401(k) administrators (QKA), and other benefits professionals (APM). Its 5,200 members provide consulting and administrative support to over half of the private retirement plans in the country.

For more information about ASPPA visit our Web site at www.aspa.org. You can also contact ASPPA’s membership department by calling 703.516.9300 or by faxing an inquiry to 703.516.9308.