Which investments used for retirement plans have withdrawal restrictions or exit charges?

[Peter Gulia]

This question is about investments used for individual-account (defined-contribution) retirement plans.

Leaving aside stable-value accounts and trusts, employer securities, and investments treated as nonqualifying assets for whether a plan’s financial statements need an independent audit:

Are there investments that impose a delay or other restriction on a redemption or withdrawal?

Or impose an exit charge?

[Paul I]

Early withdrawal penalties on GICs, early redemption fees on mutual funds, and all flavors of contingent deferred sales charges, redemption fees and back-end loads come to mind.

If your note about non-qualifying assets was meant to exclude responses about investments that would be non-qualifying assets unless they can be treated as qualifying assets under certain circumstances, then I agree that almost all such assets cannot be valued timely and do cause delays.

[CuseFan]

2 hours ago, Paul I said:

early redemption fees on mutual funds, and all flavors of contingent deferred sales charges, redemption fees and back-end loads

Agree, but would hope in the modern world that those are non-existent or few and far between.

[Peter Gulia]

Paul I and CuseFan, thank you.

Are there still retirement plans that select investments with contingent deferred sales charges?

Why would an ERISA-governed plan’s fiduciary select such an investment?

[Artie M]

This may not be what you are asking for but plan can also have restrictions due to "day trading" or too many "roundtrips" (buy and sell in the same trading day) within a specified period.  Trading funds in and out of a 401(k) every day does not violate the Code. However, plan administrators can place rules that can restrict the frequency of in-plan trades.  Some fund sponsors frown on the practice. For example, excessive trading in and out of funds in a commission-free account without paying any sales loads on the funds may cause the sponsor or fund to absorb the cost of the frequent trading.   Many have a rule like three roundtrips in the same fund within any rolling 90-day period or 10 roundtrips in the same fund within any 365-day period would be considered frequent trading and will result in the enforcement of the excessive trading policy causing the employee not to be able to trade that fund for a while.  Some sponsors simply don't like it because they don't want their employees trading all day and not working.    Not a charge but you asked about restrictions.

[Paul I]

Peter, I can only say never underestimate the persuasiveness of investment salespersons.

[CuseFan]

On 6/30/2025 at 1:24 PM, Peter Gulia said:

Are there still retirement plans that select investments with contingent deferred sales charges?

I don't know, I would expect not in any participant directed 401(k). Maybe still in the 403(b) insurance company and TIA-CREF world. I'm not involved enough in either to offer any hard evidence. I would think, if still prevalent to any significant degree, that the occurrence would be in DB plans, where assets can be placed in certain investments without the need or expectation that they will be liquidated for many years so that redemption fees/deferred sales charges et al either go away or are dwarfed by the extra return (I assume) that such long term investments generate. I remember seeing these investments in many a pension plan termination in the mid/late 80's when corporate raider plan terminations were the rage before excise taxes were implemented (yes, I'm old!).

[Peter Gulia]

When I began in 1984, sales charges—whether front-end or back-end (or a combination of them)—were the norm, and a no-load share or contract was unusual. It was almost unknown for any participant-directed retirement plan.

[QDROphile]

“Peter, I can only say never underestimate the persuasiveness of investment salespersons.”

Or the duplicity.

[CuseFan]

22 hours ago, Peter Gulia said:

When I began in 1984

Ditto!

Coincidently, 41 years ago today I started. DB pensions were prevalent, ERISA still fresh, TEFRA/DEFRA/REA started a new flurry of legislation, 401(k)'s were new, cash balance plans were on the verge of being invented (by Kwasha Lipton in 1985), participant investment direction and daily valuations were science fiction, no load/low fee investments were a wish, profit sharing allocations were done on "personal" computers with 8 or 9 inch floppy disks that took ages to boot up sounding louder than my car starting, and reports typed by a secretary on an IBM Selectric (oh, and the dirty looks you got if you found a mistake that had to be retyped/corrected).

Like every other aspect of life, technology has transformed the retirement industry and it has been a wild ride. It will be interesting to see what the next 40+ years bring, watching most from the sidelines of course, for how many ever years I'm granted.

And belated Happy Barry Bonilla Day and an early Happy Independence Day to everyone!