Mutual Fund Market Timing: ERISA Considerations for 401(k)Plan Sponsors and Fiduciaries

Abstract

The Securities and Exchange Commission and a number of state attorneys general have filed actions alleging a number of mutual fund trading improprieties, including permitting the "market timing" of funds by select shareholders in contradiction of fund rules. 401(k) plan sponsors and fiduciaries are struggling to deal with these allegations at two levels. First, if a mutual fund in which a plan is invested is named, this affects the fiduciary's ongoing responsibility to monitor the plan's investments. Second, fiduciaries and plan sponsors may find themselves involved in the market-timing turmoil if it is discovered that their own plan participants are engaging in markettiming behavior. This article outlines some of the steps ERISA fiduciaries may want to take to establish procedural prudence in light of recent mutual fund developments and discusses some of the issues raised when participants are found to have engaged in market-timing behavior within their 401(k) plans.