SURVEY SAYS: Readers Weigh In On Fund Trading Actions

At that time every respondent said they would at least consider taking action (the results are HERE , if you’ve forgotten).   Believe it or not, it’s been two months – the list of tainted and allegedly tainted funds has grown – and, as any consistent NewsDash reader can attest, plan sponsors (and providers) have been taking action.  

And, at least according to the respondents to this week’s survey, there IS a lot of activity going on.   In fact, more than 16% of this week’s respondents have already terminated fund managers or dropped funds, roughly 6% are already in the process of looking for a replacement, and nearly 13% say they have taken, or are considering taking, that step.   Several noted decisions that had been made, but not communicated, such as the reader who shared, “As a plan sponsor, we have done (a) (dropped/fired a fund).   Please make sure I remain anonymous as this will not be communicated to participants until the end of the week.”  He goes on to note, “I will add the whole situation fully supports the cliché, be careful not to jump from the frying pan into the fire.”

Only 10% have done nothing to date (generally because the funds implicated to date are not part of their programs) – but after that, since most respondents have taken multiple actions, the math gets a little tough.   As a percentage of actions taken, more than one in five ( 22% ) have notified or are in the process of communicating with participants.   Nearly 17% have been asking questions, and 14% have sought the advice of legal counsel.   Typical of the breadth of activity was this reader: “Two of the funds that we offer employees have been mentioned in relation to market timing.   We have done several things – talked to our 401(k) vendor, our 401(k) consulting firm, and our ERISA attorney, and we prepared a Q&A document for our HR folks at various locations.”

Some moves had been taken ahead of the worst of the revelations, including the reader who noted, “They say timing is everything.   We replaced two of our managers (who are now in the news) as of9/30/03for other reasons.   For a third fund we are looking for a replacement in case we have to move quickly.”

Plan sponsors wondering about what to do could find plenty of good advice from readers who have already “been there, done that.”   Following are some excerpts:

“We had one fund in our 401(k) plan at one of the suspect fund companies and we have decided to freeze the fund effective 12/1 and offer another similar fund.   We are not forcing participants to move from the fund, but are making them aware of the situation and allowing them to make the choice.”

“(we are) …giving participants a non-Putnam alternative in each investment style, (we know this gives us the additional problem of too many investment choices but have decided this is a problem we will handle separately very soon).”

“We met with our vendor this week.   As a result we are taking the ‘wait till all the facts are in’ approach. We have (d) sought our counsel’s advice, (e) are putting out a very brief memo to participants this week just to let them know we are staying on top of things, and are in the process of picking some additional funds outside our vendor’s fund family to offer participants if we feel it becomes necessary.”  

“…we were advised by our recordkeeper/trustee that participants in our plan were making excessive trades in funds offered through its affiliated fund manager.   We discussed and ultimately decided to impose a 15 day trading restriction on all international funds offered in the plan (if you buy into fund, can’t sell for 15 days and vice versa).

“…we have two funds from a fund family that’s been named in one of the complaints.   We consulted our investment policy for monitoring funds, discussed with fund managers, consulted with counsel (inside and outside), discussed our options, and decided to freeze new investments into those funds pending further information as the investigations continued.   One reason for freeze rather than dumping fund is we don’t want to force people into other funds that could themselves be implicated in this spreading investigation.”

And some were in the process of moving – only to find that the revelations were gumming up the works, such as the reader who said , “…it has also thrown a bit of a sticky wicket into our search for 5 new funds, which commenced before the scandals broke.    Instead of an October 1 rollout we’re looking at January 1 or possibly even April 1 because of our need to ask lots more questions and the uncertainty of what the SEC will do as far as redemption fees, among other things.”

  “I work at a mutual fund company, not a plan sponsor. Part of my job is to respond to the types of requests you mention.   And, believe me, we are getting the requests!! We are primarily seeing requests for information from consulting firms but are also getting them from investment advisors and plan sponsors. In some cases, these requests ask for extremely detailed information.   So, from my view, we’re seeing aLOTof (c) and some of (f) as some outfits are considering our funds as possible replacements.”

“We have notified our recordkeeping clients that we will continue to monitor the fund scandal, and that they should also.   We are strongly considering dropping theAlliancefamily of funds from our product offerings, and for the moment, we will not recommend them to any new clients.   We do not have any fund offerings in any other families that have been identified to date.”

But this week’s Editor’s Choice speaks for a number of readers, when they said, “We have done a, c, d, e, and f – – and I’m exhausted!”

Thanks to everyone who participated in our survey!

"We had one fund in our 401(k) plan at one of the suspect fund companies and we have decided to freeze the fund effective 12/1 and offer another similar fund.   We are not forcing participants to move from the fund, but are making them aware of the situation and allowing them to make the choice."

We've reviewed all of our funds in the 401k plan and taken action to replace one. We've also replaced the same manager on our DB side.

I have used these events to push my clients out of recalcitrance. I have always been negative on the management style of Janus, Strong and a number of other companies. I have also been tracking Putnam funds' performance down, down, down. I have gone to all of my clients acquired with Janus funds in place who were reluctant to fire them for performance (poor and declining) and to those with funds at Putnam and/or plans at Putnam and have gotten their approval to fire the Janus funds and Putnam funds and change plan service platforms from Putnam. In some sense this was a good "wake-up call".

Similarly, for new prospects who are in annuity-based plan platforms with a number of Janus offerings it is a great opportunity to point out the weakness of these limited access "closed architecture" platforms based more on revenue sharing than on fund performance.

We have done b, c, d, e and f for our own plan and participants.   In addition, we have notified our recordkeeping clients that we will continue to monitor the fund scandal, and that they should also.   We are strongly considering dropping the Alliance family of funds from our product offerings, and for the moment, we will not recommend them to any new clients.   We do not have any fund offerings in any other families that have been identified to date.

g. Prior to the announcement we had begun preparations to take the plan out to bid. Our fund manager was subpoenaed but I guess many were.

We have found a replacement -- waiting for committee within a week.

None of our 401(k) options have been implicated to date, so (g) -- no action has been taken by our plan administrator.

In my personal investments, I bailed on my Janus fund after I read the initial complaint.   The fund was above water, making the decision easy.

I have a 529 with Putnam and I'm a bit worried about that--particularly with so much money being pulling out by the institutional investors.   The downside of 529 plans is the difficulty in changing investment managers once you have signed on--I'd have to open a new 529 with another provider then do a roll over.   I'm not sure I want to do that yet, but I'm thinking about it.

None of the funds in our main menu have been implicated.   We've confirmed that our independent investment consultant is keeping an eye on the issues, and, as an ERISA attorney representing a substantial number of 401(k) plan sponsors as well as looking out for our own plan, I am keeping a close watch on the situation as it continues to develop.

We've (b), (c), (d), (e), and (h)

On market timing, we were advised by our recordkeeper/trustee that participants in our plan were making excessive trades in funds offered through its affiliated fund manager.   We discussed and ultimately decided to impose a 15 day trading restriction on all international funds offered in the plan (if you buy into fund, can't sell for 15 days and vice versa).

On investigations, we have two funds from a fund family that's been named in one of the complaints.   We consulted our investment policy for monitoring funds, discussed with fund managers, consulted with counsel (inside and outside), discussed our options, and decided to freeze new investments into those funds pending further information as the investigations continued.   One reason for freeze rather than dumping fund is we don't want to force people into other funds that could themselves be implicated in this spreading investigation.

Two of the funds that we offer employees have been mentioned in relation to market timing.   We have done several things - talked to our 401(k) vendor, our 401(k) consulting firm, and our ERISA attorney, and we prepared a Q&A document for our HR folks at various locations.

As background, we switched 401(k) vendors on 1/1/03, after an exhaustive 6+ month process.    We still feel very comfortable with our vendor.   We have an IPS, and we evaluate our funds each quarter, comparing them to a scorecard of several criteria.   So far, our funds are performing well, and none have failed criteria that would put them on our watch list.

We continue to stay abreast of the situation, and will probably convene the full 401(k) Committee for our 4th quarter review process.

We've (a) and (e) [replaced our Putnam and Strong funds and notified participants re same].

They say timing is everything.   We replaced two of our managers (who are now in the news) as of 9/30/03 for other reasons.   For a third fund we are looking for a replacement in case we have to move quickly.

Fortunately, our small company 401(k) is in pretty good shape so we have no plans to make any immediate fund changes.   However, some of my personal retirement investments were with Putnam, and I have been advised to get out...which I have done.

Not sure where I am going with these dollars, yet....we're still looking around.   For now, they are in a money-market acct.

It's all just soooo sad!   We have all been lead to believe that as Americans we are the best, most competent, caring, honest, conscientious people in the world....I guess we all have to wake up and accept the fact that the honeymoon is over.   We've got to look out for #1 ALL THE TIME!!   It's just getting to be so darn hard to TRUST anybody anymore!

I miss the good old days!

We've done (c) and (d) (after all, we're a law firm....so (d) was a given) but it has also thrown a bit of a sticky wicket into our search for 5 new funds, which commenced before the scandals broke.    Instead of an October 1 rollout we're looking at January 1 or possibly even April 1 because of our need to ask lots more questions and the uncertainty of what the SEC will do as far as redemption fees, among other things.   Our plan has not dumped any funds and we don't have any Putnam or BankOne offerings, but we were planning to roll out a series of managed portfolios which require us to add 5 additional funds.

We're working on a FYI type announcement about the issue to post on our intranet for our plan participants.

So far our investment provider isn't got caught up in this - YET?

In response to Putnam's (our 401K trustee) mutual fund scandal, we have:

• (a) added one or more funds, giving participants a non-Putnam alternative in each investment style, (we know this gives us the additional problem of too many investment choices but have decided this is a problem we will handle separately very soon)
• (b) began asking questions of Putnam and our broker consultant,
• (c) sought the advice of counsel,
• (d) notified participants,
• (e) are considering changing trustees, and
• (f) were and still are just plain angry that investors have been cheated again by people we trusted.

My answer is (a).   We had one fund in our 401(k) plan at one of the suspect fund companies and we have decided to freeze the fund effective 12/1 and offer another similar fund.   We are not forcing participants to move from the fund, but are making them aware of the situation and allowing them to make the choice.

First, I work at a mutual fund company, not a plan sponsor. We have funds placed in numerous plans, and have won several deals this year for both separate account and DC plan work from plan sponsors. Part of my job is to respond to the types of requests you mention.

And, believe me, we are getting the requests!! We are primarily seeing requests for information from consulting firms (Cambridge, Angeles, etc.) but are also getting them from investment advisors and plan sponsors. In some cases, these requests ask for extremely detailed information.

So, from my view, we're seeing a LOT of (c) and some of (f) as some outfits are considering our funds as possible replacements.

In response to the question regarding what we have done since the investment scandals we have:   replaced an International Fund; discussed the issues with our Retirement Committee and Investment Consultant; considered replacing other funds; asked many questions of the new fund manager before selection; communicated what we are doing to our employees.

With regard to this week's question, I do not sponsor a retirement plan per se, but I do participate in my corporation's plan, and I also service accounts for our clients that contain individually managed portfolios, as well as mutual funds.   With respect to our own plan, Corporate Benefits took, at minimum, option (e) and notified participants about a Janus Fund in our plan.   My 9/30 statement contained a cautionary notice alerting participants that Janus is involved in the Spitzer allegations and suggested that participants do their own due diligence research on the investment option.

My clients have been quick to act.   I've seen Strong Capital fired as the manager for 4 separate portfolios (option a) since news broke about Dick Strong on 10/30.

As a plan sponsor, we have done (a).   Please make sure I remain anonymous as this will not be communicated to participants until the end of the week.

I will add the whole situation fully supports the cliché, be careful not to jump from the frying pan into the fire.

We have done a,c,d,e and f and I'm exhausted!

We met with our vendor this week.   As a result we are taking the "wait till all the facts are in" approach. We have (d) sought our counsel's advice, (e) are putting out a very brief memo to participants this week just to let them know we are staying on top of things, and are in the process of picking some additional funds outside our vendor's fund family to offer participants if we feel it becomes necessary.   We currently have 8 funds outside our vendor already, but will line up some more to cover all asset categories. Our vendor is sending us their cash flow weekly and staying in very close communication with us.

I have not found problems with our funds at work yet (Mass Mutual), however, we have removed all of our personal funds from Putnam Investments and are looking for a new area to invest our retirement monies. We just might go with an IRA in the future. I'm tired of the dishonesty, the greed, the underhandedness in big business.

We have (b) considered firing/replacing one or more funds and (h) something else

We currently offer Putnam International Equity fund in our *** portfolio.   Our RIA and Investment Committee are seriously considering replacing Putnam.   But who to replace with?   Once done, will we find out the new international manager has the same problems?

We have also formed a late trading, market timing, and now stale price committee to look at our options.   On the committee sit our investment officer, compliance officer, sales officer, and accounting specialist.

We have done:

C & D & G

We're working on it; but at present, no notification has been sent to employees - other than," yes, we're aware of concerns and it looks like we're okay, but we're doing a due diligence review".