Trust Updates Archive

Mutual Fund Abuses—Labor Department Issues Guidance on Fiduciary Duties

(Feb. 18, 2004, CHICAGO, IL)--Although investors could not have anticipated the current problems with late trading and market timing, plan fiduciaries nonetheless now face the difficult task of assessing the impact of these problems on their plans, says the U.S. Department of Labor. To assist plan officials, the agency has issued a new guidance on the duties of employee benefit plan fiduciaries "in light of alleged abuses involving mutual funds."

The guidance addresses the obligations of fiduciaries to review their mutual fund and pooled investment fund investments and provides examples of steps that fiduciaries can take to address market-timing concerns so as not to lose the protections of ERISA section 404 (c). Questions have been raised as to whether reasonable plan or investment fund limits on the number of times a participant can move in and out of a particular investment within a particular period would, in and of itself, affect the availability of relief under section 404(c).

In cases where specific funds are under investigation, says Ann Combs, Assistant Secretary of Labor, "fiduciaries should consider the nature of the alleged abuses, the potential economic impact of those abuses on the plan’s investments, the steps taken by the fund to limit the potential for such abuses in the future, and any remedial action taken or contemplated to make investors whole."

If funds have not or will  not provide such information, then, Combs says, "fiduciaries of plans invested in such funds may ultimately have to decide whether to participate in settlements or lawsuits."  In doing so, he adds, "they will need to weigh the costs to the plan against the likelihood and amount of potential recoveries." (See TRN Feb. 2004, Settlements in Litigation.)

The guidance is expected to be available on the DOL's website ( later today.

The DOL announced yesterday that it is conducting reviews of mutual funds, similar pooled investment funds, and service providers to such funds to determine whether there have been any violations of ERISA.

-- Copyright ©2004 A.M. Publishing, Inc., Trust Regulatory News

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