New York, NY 10036
February 6, 2003
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: Comment on Proposed Rule: Amendments to Rules Governing Pricing of Mutual Fund Shares; File No. S7-27-03
Dear Mr. Katz:
As an employer that sponsors qualified retirement plans for our employees, we are writing to express our concern about the impact on 401(k) plan participants of the proposed "hard 4 p.m. Eastern Time (ET) close" contained in Release No. IC-26288 (proposed amendment to rules governing pricing of mutual fund shares), for reasons outlined below.
1. 401(k) plans utilizing third party recordkeepers or administrators and offering mutual funds as investment options in their plans are likely to be forced to impose a trading deadline for participants of the prior day to meet a mutual fund's hard 4 p.m. ET deadline. The proposed rule will therefore result in delayed trading for 401(k) plan participants and negatively impact them compared to other mutual fund investors.
Some have argued that the trading delays for retirement plan participants caused by the hard 4 p.m. close do not significantly disadvantage these participants because of their long-term investment horizon. However, all investors perform strategic asset reallocation periodically and those investors justifiably expect the same ability to trade whether invested in a mutual fund via a retirement plan or a direct investment. The length of one's investment time horizon is not a valid reason to disadvantage that investor.
2. The rule could provide an unfair competitive advantage to mutual fund companies who offer "bundled" 401(k) plan recordkeeping and investment services.
Mutual fund companies who offer both 401(k) plan recordkeeping and investment services are likely to integrate their recordkeeping and mutual fund accounting systems in order to offer plan sponsors a "bundled" 401(k) plan product where no early transaction deadline would be necessary. This would give them a competitive advantage over third-party recordkeepers and administrators who will be forced to impose an early deadline for all participant trading activity. It could also allow them to impose higher fees on plans and their sponsors and indirectly limit a plan sponsor's ability to exercise its fiduciary responsibilities to select investment options external to the mutual fund family. These issues may be of concern to the Department of Labor.
3. Implementation of the rule will necessitate a restructuring of the way 401(k) plan recordkeeping is managed. This will be costly and time-consuming. These adverse consequences are unnecessary and can be avoided while addressing the late-trading issues. Technology exists today that time stamps trades placed with all sophisticated third-party recordkeepers and administrators. These systems, which could be subjected to outside audit, could be utilized to provide the protections that investors and the SEC are seeking.
Viacom urges you to consider using technological solutions that would address the legitimate concerns surrounding late trading without relegating 401(k) plan participants to second-class investor status.
J. Kenneth Hill
Vice President, Assistant Treasurer