Fidelity Short Term Redemption Fees!

[Guest Sehrl]

Just wondering if any TPAs that have Fidelity Funds in the plans they administer have received letters from Fidelity about tracking their short term redemption fees on a per participant basis? Basically they want us as TPA to calculate the short term redemption fee when applicable and forward to them via wire (I assume at our cost) on a weekly basis along with a file that details the fees.

Do you plan to accomodate Fidelity on this, seems like we have no choice?

Can you believe Fidelity will not refund the fee if it is processed in error?

Any thoughts on whether the other fund companies will follow suit on this?

I hope we see a max exodus of qualified retirement funds from Fidelity!

[E as in ERISA]

What does your sub-transfer agreement say? Does it obligate you to provide this additional service for your current fee -- or could you charge additional fees for that service?

[Brian Gallagher]

We will not honor Fidelity's mandate--we have no way to record keep it. We are not accepting any new contributions after 3/31. We are making all the plans either close or replace the funds. Naturally, we are pushing to have them replaced to ensure that the asset class is represented.

[k man]

with regard to this topic, the fees could get pretty eggregious when you add the record keeping fee on top of this. has anyone thought of the possiblity that in the case of small accounts, there may not be any money left for them to take a fee.

[rcline46]

Wake up and smell the smoke folks. This is coming in ALL mutual funds unless ASPA can get them rescinded. It is the 'law of the land' currently. Better get used to it!

[Harwood]

One of my June 30, 2004 account statements had this:

A Message from Fidelity

Plan participants involved in excess trading or market timing of Fidelity mutual funds may be subject to a 3-month suspension of their trading privileges.

This suspension is intended to protect the interests of all shareholders from activities that are disruptive to the fund.

It is important that you understand the terms and conditions of investing in a mutual fund by carefully reading the fund's prospectus.

[Demosthenes]

Agree completely with rcline46, this is the way it will be. It's time to evolve or become extinct (or at least have a big hole in the list of asset classes you offer)

On Sub TA agreements, usually they require that you fulfill the duties of the Transfer Agent, if you have not been monitoring market timing and redemptions, you are already in breach.

As far as replacing the funds, don't be surprised if the new funds have exactly the same requirements. Short term redemption fees, especially in index and international funds, are the norm rather than the exception.

How about pushing the vendor of your recordkeeping system to automate the process? All the software vendors have known about this for 6 months, at least, and should have seen it coming a year ago.

[Demosthenes]

Well, DST and Trac 2000 have weighed in. Where are Sungard, Schwab, Wystar, etc?

DST to Offer Market Timing ID Program

September 15, 2004 (PLANSPONSOR.com) – In anticipation of new regulations regarding market timing following last year’s mutual fund trading scandal, DST Retirement Solutions is now offering an enhanced recordkeeping platform that allows retirement plan providers to define and identify short-term trading activity and assess early redemption fees.

DST is hoping to catch the Security and Exchange Commission (SEC) wave that many expect will require fund companies to charge a 2% redemption fee on rapidly traded investments. By alerting retirement plan providers of possible infractions, the program will save providers from unwanted redemption costs due to a lack of identification of short-term trading, the company said

“We felt it was important to help our client partners stay ahead of the regulations," said Jim Walsh, client service officer for DST Retirement Solutions, in a press release. "We are making it easy for retirement providers to adopt this capability and be nimble in anticipation of coming regulatory and market changes."

[rcline46]

Sunguard's Relius system is supposed to have it in the next release.

Do not know about Omni systems.

[Fredman]

Relius info:

http://www.sungardcorbel.com/News/technica....asp?ID=276&T=P

I know that Sungard is working on an update for Omniplus.

[mbozek]

Does any one know how redemption fees are applied to distributions from a plan, e,g. are they treated as a reduction of the account balance before distribution or is it taken as a reduction of the distribution of the proceeds to the employee so as to be included as part of the distribution on the 1099 even though it is not paid to the employee.

[Belgarath]

What does Fidelity do if you refuse? And I'll admit to being woefully uninformed when it comes to the world of mutual fund investing, but it seems like any tracking of excess trading or market timing should be done by Fidelity, not by a TPA. How would you even know?

[wsp]

Scudder charged the 20% withholding on the distribution NET of fees. So, that's how I showed it on my 1099's. Fees paid prior to distribution.