American Airlines Issues Frequent Trading Restrictions on 401(k)

The Fort Worth Star-Telegram reports that, while company managers and union officials understand that the company’s pension plan problems are causing employees to focus more on their 401(k) and try to time the market to increase their investment, they say it creates costs all participants must shoulder. Fees for frequent trading imposed by some of the fund’s in which the 401(k) is invested are allocated to all participants in those funds.

American’s restrictions follow the lead these funds have made in restrictions and fees. American Beacon and Dodge & Cox have added restrictions to frequent trading in some of their funds. The restrictions include prohibitions on moving money in and out of certain individual funds within a 90-day period, and some funds now have to pay a 2%t fee on money that is transferred out of the fund within 180 days, the Star-Telegram reports.

Employees are upset about the restrictions. Paul Berger who publishes an online newsletter giving advice on investing 401(k) monies to employees of American and Southwest Airlines said, “It’s the business of the individual how he wants to invest.” He argues that these restrictions limit choices for participants.

But Dale Rogers, a corporate pension consultant who runs The Rogers Cos. in Fort Worth, said employees who want to act as day traders should open an account with a brokerage and leave their retirement plan alone, according to the Star-Telegram. “It’s just not appropriate for retirement plans,” he said. “It’s not the best way to build long-term wealth.”

Major fund managers, such as Vanguard Group, have issued restrictions and assessed fees trying to slow down frequent trading (See Vanguard to Impose Limit on Frequency of Trades ) since the mutual fund scandal sparked by New York Attorney General Eliot Spitzer’s and the Securities and Exchange Commission’s investigation in 2003. And, third party administrators such as recordkeepers have been looking into alternative options for investing as a result (See Recordkeepers React to Expenses Associated With SEC Redemption Fee Rules ).