More than half of U.S. companies are dumping retirement plan investment options — or are considering doing so — as a result of the mutual fund scandal.
Nearly one-quarter of chief financial officers say they jettisoned mutual funds implicated in the probe from their 401(k) plans and 29% are considering changes, according to a survey.
Though retirement plans occasionally swap investment options because of poor performance and other issues, the amount of swapping represents a ”sea change,” says Colleen Sayther, president of trade group Financial Executives International, which conducted the survey with Duke University.
As the list of companies implicated in trading abuses has expanded to include Janus Capital, Putnam Investments, Invesco, Strong and others, retirement plan changes have picked up steam.
<B> * </B>Electric Energy, based in Joppa, Ill., eliminated the Janus Worldwide fund from its two 401(k) plans on Dec. 1. Several factors, including a change in the portfolio manager, prompted the move. ”Obviously, the investigation didn’t help,” says Amy McGinness, an employee benefits specialist.
<B> * </B>Standard Insurance, a Portland, Ore., retirement plan manager, said it dropped Janus funds from its retirement plan investment options as of Dec. 19, in part, because of the probe.
<B> * </B>DaimlerChrysler ditched Putnam Vista and Putnam Voyager funds because of the allegations, spokesman Michael Aberlich says.
Many companies don’t publicize plan changes. About 60% of plans administered by Hewitt Associates have replaced an investment option in the wake of the investigations, estimates Winfield Evens, an investment consultant. And Mark Davis, a retirement plan consultant in Thousand Oaks, Calif., says about 20% of his clients made a change.
There is no way to measure the impact of 401(k) plan switches on fund assets. But the scandal has taken a toll. In November, six scandal-tainted fund companies — Alliance Capital, Bank of America, Janus, Pilgrim Baxter, Putnam and Strong — lost $21 billion more than they gained, fund tracker Lipper says.
The fund probe has mushroomed since New York Attorney General Eliot Spitzer in September settled charges with hedge fund Canary Capital Partners that it engaged in trading irregularities with four fund firms.
Civil fraud charges are pending against Invesco, Prudential Securities and the founders of Pilgrim Baxter, the investment adviser for PBHG funds. Putnam, which replaced its CEO in November, faces charges from Massachusetts regulators but has reached a partial settlement with the SEC.
