February 19, 2004
BB 04—19

In this issue:

  • DOL Releases Guidance on Fiduciary Duty, Mutual Fund Probe
  • IASB Standard Requires Stock Option Expensing
  • Status Reports, Presentations Now Available on Council Web Site

DOL Releases Guidance on Fiduciary Duty, Mutual Fund Probe

On February 17, Assistant Secretary of Labor Ann Combs issued a statement discussing the ongoing investigation of possible trading restriction and redemption fee responses to market timing and its impact on ERISA Section 404(c) protection. The statement also provides guidance to plan fiduciaries on the steps that should be taken to protect plan participants and beneficiaries in connection with reported late trading and market-timing abuses.

Combs indicated that (1) offering mutual funds that impose reasonable redemption fees, and (2) reasonable plan or investment fund limits on the number of times a participant can move in or out of a particular investment within a particular period do not, in and of themselves, eliminate the protections of Section 404(c). Combs emphasized, however, that trading restrictions should be reflected in the plan. Otherwise, not only could the plan have issues with Section 404(c), but such restrictions could constitute imposition of a "blackout period" requiring advance notice to participants and beneficiaries. In general, if the requirements of Section 404(c) are met, fiduciaries can be relieved from potential liability for the results of investment decisions made by plan participants and beneficiaries.

Regarding fiduciary responsibilities caused by the mutual fund probe, Ms. Combs indicated that if specific funds have been identified as under investigation, fiduciaries should consider:

  • The nature of the alleged abuses;

  • The potential economic impact of those abuses on the plan's investments;

  • The steps taken by the fund to limit future potential abuses; and

  • Any remedial action taken or contemplated.

If the fiduciary does not have access to this information, Combs suggested the fiduciary consider contacting the fund directly to obtain specific information. Ultimately, fiduciaries may need to determine whether to participate in lawsuits and settlements, weighing the costs against the likelihood and amount of potential recoveries. Even if mutual funds and pooled investment funds have not been identified as under investigation, DOL's guidance indicates that fiduciaries still need to consider whether they have sufficient information to determine that the funds have procedures and safeguards in place to limit their vulnerability to abuse. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

IASB Standard Requires Stock Option Expensing

On February 19, the International Accounting Standards Board (IASB) issued its final standard requiring the expensing of all employee stock options. The International Financial Reporting Standard 2 Share-based Payment (IFRS 2) will now be considered by the European Union, the EU Commission and the EU Member States. As reported in the February 12 Benefits Byte, the Financial Accounting Standards Board (FASB) is expected to follow suit by publishing a draft rule in March, with an expected effective date of January 1, 2005. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

Status Reports, Presentations Now Available on Council Web Site

The Council recently released its comprehensive status reports on Retirement Policy, Health Policy and Legal Affairs. These documents, which detail the significant developments in benefits policy since September 2003, are now available on the Council Web site:

For these items, you will need to enter your members-only username (which is your e-mail address) and the password ("security") — both typed in lower-case letters. If you have any trouble accessing these documents or to register your username with the system, contact Jason Hammersla, Council communications associate, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.