Compliance July 13, 2011

DoL Extends Applicability Dates for Fee Disclosure Rules

July 13, 2011 (PLANSPONSOR.com) - The Department of Labor’s (DoL) Employee Benefits Security Administration has issued a final rule that extends the applicability date for fee disclosure.
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The DoL published an interim final regulation under ERISA Section 408(b)(2) on July 16, 2010, requiring covered service providers of retirement plans to disclose comprehensive information about their fees and potential conflicts of interest to ERISA-covered plan fiduciaries. This regulation was to become effective with respect to plan contracts or arrangements for services in existence on or after July 16, 2011.

The new applicability date for the fiduciary-level fee disclosure regulation under Section 408(b)(2) of the Employee Retirement Income Security Act (ERISA) has been bumped three months later than the proposed deadline extension, to April 1, 2012.

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Additionally, the DoL published a final participant-level regulation on Oct. 20, 2010, requiring that employers disclose information about plan and investment costs to workers who direct their own investments in ERISA-covered 401(k) and other individual account retirement plans. This regulation, which applies to plan years beginning on or after November 1, 2011, contained a 60-day transition rule that permitted initial compliance no later than 60 days after the beginning of the first plan year on or after November 1. However, today’s final rule retains a modified version of the 60-day transition rule that works in conjunction with the new effective date of the 408(b)(2) regulation. According to the DoL, this linkage will ensure that the 408(b)(2) regulation becomes effective first and that all plans will be able to take advantage of the transition period following the effective date of the 408(b)(2) regulation. 

“Employers and workers will benefit from the increased transparency provided by these fee disclosure rules,” said EBSA Assistant Secretary Phyllis C. Borzi. “Extending and aligning the applicability dates of these related rules gives plan fiduciaries an appropriate amount of time to get all required fee and investment information from their covered service providers so they can then disclose, by the date required, complete and accurate information about retirement plan and investment costs to their workers.”

Plan sponsors and service providers with questions about applicability dates or the final rule can contact Jeffrey Turner in EBSA at 202-693-8500. Additional information about these regulations is available on EBSA’s website at http://www.dol.gov/ebsa.

Products July 13, 2011

Van Eck Launches Market Vectors CEF Municipal Income ETF

July 13, 2011 (PLANSPONSOR.com) - New York-based asset manager Van Eck Global has announced the release of Market Vectors CEF Municipal Income ETF (XMPT), the first exchange-traded fund (ETF) to specifically focus on closed-end municipal bond funds.
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According to Van Eck, the fund will give investors access to the largest corner of the closed-end fund (CEF) universe in a liquid, transparent way. XMPT is intended to track, before fees and expenses, the performance of the S-Network Municipal Bond Closed-End Fund Index (CEFMX), an index composed of shares of municipal bond closed-end funds listed in the United States that are principally engaged in asset management processes designed to produce federally tax-exempt annual yield.

XMPT carries a gross expense ratio of 1.57% and a net expense ratio of 1.43%, and the expenses (excluding interest expense, offering costs, trading expenses, taxes, extraordinary expenses, and acquired fund fees and expenses) are capped contractually until September 1, 2012, at 0.40%. The fund expects to distribute a monthly dividend that, if properly reported as exempt-interest dividends, may not be subject to regular U.S. federal income tax. As of June 30, 2011, CEFMX had a distribution yield of 6.71%.

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“Investors and their advisers have long been attracted to tax-exempt closed-end funds which can offer attractive yields and, in some cases, sell at a discount to the underlying value of the portfolio assets,” said Jan van Eck, Principal at Van Eck Global. “XMPT’s index is well-diversified by credit, strategy, and manager, focusing on higher quality assets, and designed to take advantage of closed-end funds’ tendency to trade at a discount.”

The Network Municipal Bond Closed-End Fund Index had 88 constituents as of June 30, 2011, divided amongst four main sectors:

  • leveraged municipal fixed-income CEFs (84.4 %),
  • unleveraged municipal fixed-income CEFs (8.85%),
  • leveraged high-yield municipal fixed-income CEFs (3.83%),
  • unleveraged high-yield municipal fixed-income CEFs (2.92%).

Van Eck claims the index methodology assigns a greater weight to closed-end funds trading at discounts.

XMPT is Van Eck’s 35th Market Vectors ETF and is the ninth fund to join its family of fixed-income ETFs, which span municipal, international, and corporate bond categories:

  • LatAm Aggregate Bond ETF (BONO),
  • Emerging Markets Local Currency Bond ETF (EMLC),
  • High-Yield Municipal Index ETF (HYD),
  • Intermediate Municipal Index ETF (ITM),
  • Long Municipal Index ETF (MLN),
  • Pre-Refunded Municipal Index ETF (PRB),
  • Short Municipal Index ETF (SMB),
  • Market Vectors Investment Grade Floating Rate ETF (FLTR).

Van Eck also noted that funds of bond funds, such as XMPT, being able to pass through tax-exempt income from their holdings is a relatively new development, only becoming law as of December 22, 2010.

 

-Sara Kelly 

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