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Mutual Funds: SEC Should Modify Proposed Regulations to Address Some Pension Plan Concerns

GAO-04-799 Published: Jul 09, 2004. Publicly Released: Aug 09, 2004.
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Mutual fund investments represent more than 20 percent of Americans' pension plan assets. Since late 2003, two abusive trading practices in mutual funds have come to light. Late trading allowed some investors to illegally place orders for funds after the close of trading. Market timing allowed some investors to take advantage of temporary disparities between the value of a fund and the value of its underlying assets despite stated policies against such trading. The Securities and Exchange Commission (SEC) has proposed regulations intended to stop late trading and reduce market timing. We were asked to (1) report on what is known about how these practices have affected the value of retirement savings of pension plan participants, (2) describe the actions taken by SEC and the Department of Labor (DOL) to address these practices, and (3) explain how plan participants may be affected by SEC's proposed regulations.

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Recommendations for Executive Action

Agency Affected Recommendation Status
United States Securities and Exchange Commission Given the significant role that mutual funds play in retirement savings, the SEC Commissioners should adopt certain modifications or alternatives to the proposed regulations that are currently under consideration in order to prevent defined contribution plan participants from being more adversely affected than other investors.
Closed – Implemented
This recommendation was closed pursuant to SEC's issuance of a final rule on redemption fees. By making the implementation of redemption fees voluntary, rather than mandatory as initially proposed, the final rule adequately addressed GAO's concern that participants in defined contribution plans could be more adversely affected by mandatory redemption fees than other investors.

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Brokerage industryEmployee retirement plansFunds managementMutual fundsRegulatory agenciesPensionsSecurities regulationInvestmentsStocks (securities)Abusive practices