In her piece What's not on 401(k) statements, Kathleen Pender takes a look at new rules governing advertising and performance reporting for 401(k)s and mutual funds. According to the piece, "Under the National Association of Securities Dealers rule, any time a mutual fund shows any type of performance data, it also must show three things: standardized performance results that follow Securities and Exchange Commission requirements; the maximum sales charges applicable to that fund; and its annual operating expenses, known as the expense ratio. The expense ratio cannot reflect any fee waivers or reimbursements."
It's not clear what effect the rule will have on 401(k) reporting, but it seems like it should apply there too, where disclosures are traditionally all even more obfuscatory than they are in the mutual fund industry. I'm hoping that companies will be required to disclose this information for 401(k)s too, but I wonder how much good it will do. Most employees don't look at or understand their 401(k) statements.
I would like to see the NASD and/or the SEC put together a booklet to be included with 401(k) statements explaining how to read/understand/evaluate their investments.
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Reader Comments (Page 1 of 1)
5-16-2007 @ 12:11PM
Jim Bigham said...
Zac,
Overall a good piece by Ms. Pender. However, this NASD rule will be meaningless for the millions of 401(k) participants in non-registered group variable annuities. Oh, these look like, smell like, and are certainly pitched as mutual funds(the links on the participant websites even take you to home page of the retail fund, like Fidelity.com), but that's not what they are.
Participants own units of a separate account of an insurance contract. And since these are sold only to retirement plans (i.e. sophisticated investors) there is no requirement for a prospectus and since it's insurance it's of course regulated by the states, NOT the NASD or SEC.
Not saying it's a bad rule; more disclosure is a good thing. And by the way, those expense ratios are fiction because they DO NOT include all the fund expenses like brokerage commissions, which can be as much as the management fees.
Regards,
Jim Bigham