Redemption fees for 401(k) plans similar to retail fees

[Guest murad_s_shah]

Has anyone experienced any large mutual fund houses (one of the leading ones) imposing a fee on funds held in 401(k) plans - exactly like they would for the retail customers?

[Guest LVanSteeter]

It depends on what you mean by fees. I have seen many plans where there is an annual maintenance fee, perhaps a loan set-up fee and short term redemption fees if the individual mutual fund charges those. However, short term fees are only imposed upon participants who exchange out of the fund prior to the specified period.

Can you give more details?

[Kirk Maldonado]

There was at least one prior message thread that discussed this topic.

[Guest murad_s_shah]

The situation I am referring to is this: This mutual fund house is requiring its "fund" only clients to have the plan participants (administered by the other recordkeepers) to pay a fee to the fund for shares that are not held for the minimum time period before the "frequent trading" fees kick-in. For example, if a participant has bought into one of these funds on day 1, and trades out of that fund on anytime prior to day 90 (for instance), the recordkeeper has to transfer the fee (say 0.5%) to the fund family and transfer the residual 99.5% to the receiving fund for that participant interfund transfer.

Apparently, this is the disincentive for such participants from market timing. However, in my 15+ years in the 401(k) industry, I have not come across such a scenario.

[RCK]

I think that it is a new concept, facilitated by the recent SEC actions.

But if the fund is only seeing net transfer instructions from the plan as a whole, how does it determine the appropriate "fee"?

RCK

[Demosthenes]

Welcome to a Brave New World!

Redemption fees for short term trades have always been a part of the mutual fund world. Only recently have the fund companies (as result of the SEC's scrutiny) begun to pay much attention to short term trading and to the letter of the law as laid out in the prospectus.

Unless you're doing FBO accounting (individual accounts for individual participants), the fund companies have been able to turn a blind eye to the practice. After all, the plan is placing omnibus trades, how can the fund company know which individuals are involved?

The big hook here is that many TPA firms accept sub-TA fees from the fund companies. It's what the fund pays you so that they don't have to maintain all those individual accounts for each participant in the plan. Remember that sub-TA stands for subordinate transfer agency.

Sub-TA means a lot more than an additional revenue stream. Take a close look at your sub-TA agreements, I think you'll find that you are supposed to act in the Transfer Agency's stead. Acting as the sub-TA, if a participant is market timing and you the TPA don't put a stop to it, you the TPA may be held responsible when the SEC comes calling.

I know a lot of people are not going to be happy with this interpretation because of the added costs, responsibility, liability, that comes with it, but the reality is that it is coming. The continuous jolts to the financial markets caused by a widespread breakdown in regulation, governance, and corporate ethics is going to force the SEC and the Attorney General's of the various states to take action. Some of that action is going to smack this industry around as well.

[Guest murad_s_shah]

Thanks for the reply. I understand the interpretation and the contents of the reply vis-a-vis the Sub-TA arrangement.

My question goes a little deeper.

Does anyone know of "large" mutual fund house(s) being able to provide services under their 401(k) recordkeeping product as available under their retail product - as it relates to aging trades, and thus being able to charge fees for non-aged shares traded?