Mutual Fund Trading Abuses and ERISA's Fiduciary Responsibilities


The recent disclosures of wide-spread trading abuses in the mutual fund industry, involving practices such as market timing, late trading, excessive trading, and self-investing, as well as new rules regarding the practices recently proposed by the Securities and Exchange Commission, have raised questions regarding what actions, if any, fiduciaries of retirement plans, like 401(k) plans, should consider taking with respect to the mutual funds available for participant-directed investments under those plans. The fiduciary concerns range from what actions to take with plan mutual funds that are being charged with, or are under investigation for trading abuses and how those abuses may affect the plan's investment policy, to what, if any, action should be taken with those mutual funds where there is no evidence of abusive trading practices.  While this is a new and changing area of concern, where developments should be monitored closely, there are several initial steps plan fiduciaries should consider.

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