Short-Term Redemption Fees Burden 401(k) Plans

Abstract

Some mutual fund companies are imposing short-term redemption fees that are curtailing investment activity in 401(k) plans. Although average 401(k) plan balances are low and participants as investors in these plans are generally are in it for the long term, the short-term redemption fees are affecting the ways employers as plan sponsors manage their plans. The fees don’t come in response to any activity that was taking place at the 401(k) participant level but rather were established to curtail questionable trading activities conducted by large-scale investors. Whereas the vast majority of the damage caused by the inappropriate or illegal mutual fund trading was caused by hedge funds or large professionally managed asset pools, imposing restrictions to curtail these investors is impacting trading at the participant level in 401(k) plans.