Securities and Exchange Commission proposals to prevent mutual fund managers from engaging in market timing – the after-hours trades for self-gain that brought scandal to the industry – may end up hurting the investors SEC is trying to protect, employers and retirement plan experts say.
SEC is considering new rules that would require fund trades to cease much earlier in the day to accommodate a "hard-and-fast" 4 p.m. trade cut-off. Although many groups applaud SEC for its quick action to introduce reforms, they believe such a rule would put retirement plan participants at a disadvantage.
Plan sponsors would have to "close trading early in order to have enough time to process [trade] requests," explains American Benefits Council President James Klein. "Essentially, this would reduce to a second-class status the millions of American workers and retirees currently participating in defined contribution retirement plans." A poll of ABC members finds that plan costs would likely increase if such a plan is approved, and 75% of respondents would pass expenses through as higher fees for plan participants.
A letter to SEC from the Profit Sharing/401(k) Council of America and more than 100 associations, service providers and employers essentially concurs with ABC, adding "the proposed change does not prevent continued illegal activity by some mutual funds. Any remedy should balance the interests of these investors and the ongoing viability of 401(k) and similar plans."

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