The Department of Labor
's Employee Benefits Security Administration
has issued a document offering guidance on how the proceeds of certain settlements between the SEC
and mutual fund companies are to be distributed.
The guidance relates to settlements paid by companies accused of inappropriate late trading or market timing that are to be distributed to employee benefit plans adversely affected by the alleged trading activities. Details are found in Field Assistance Bulletin (FAB) 2006-01
The bulletin states that settlements will not be considered plan assets under ERISA until payments are actually received by relevant plan fiduciaries. It also explains the methods by which fiduciaries may distribute the proceeds to plans and participants once they have the money in hand.
The fiduciary is required to choose "a methodology where the proceeds of the settlement would be allocated, where possible, to the affected participants in relation to the impact the market timing and late trading activities may have had on the particular account," the document states. It elaborates, "In deciding on an allocation method, the plan fiduciary may properly weigh the competing interests of various participants or classes of plan participants (e.g., affected versus current participants) and the effects of the allocation method on those participants," provided the method ultimately chosen is "reasonable, fair and objective."
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