(The Center Square) — A business group is urging members of New York’s congressional delegation to oppose new federal regulations they say could hurt small businesses that offer retirement plans and erode the savings of employees’ pensions.
In a letter to the delegation, the Business Council of the State of New York said rule changes proposed by the Securities and Exchange Commission pertaining to open-end mutual funds regarding liquidity risk management programs and swing pricing would mean higher costs and lower returns for New Yorkers’ retirement savings.
Specifically, the proposed SEC regulations unveiled in November would mandate the use of “swing pricing” by open-end funds and implement a “hard close” requirement for these funds, which the business group said would “radically alter the landscape for liquidity risk management.”
“Employer-sponsored retirement plan participants would lose access to beneficial investment strategies and face a reduction in returns on their mutual fund holdings,” Paul Zuber, the group’s executive vice president, wrote to lawmakers. “The proposed changes also have the potential to eliminate the leveraged loan market that provides significant funding to U.S. companies.”
The business group cited a recent report from the U.S. Chamber of Commerce suggesting that changes to mutual funds under the SEC proposal “would have significant negative impacts on retirement plan participants,” with open-end mutual funds representing 61.7% of all 401(k) plan assets and 81.3% of other private defined contribution plan assets.
The chamber’s analysis estimates an erosion of $53,342 of retirement savings for the average American over 26 years, based solely on the impact of mandatory swing pricing with a hard close.
Members of Congress have been raising concerns about the impact of the proposed changes. In March, the Republican-controlled House Financial Services Subcommittee on Capital Markets sent SEC Chairman Gary Gensler a letter saying the hard close rule proposal would disadvantage retirement savers.
“This proposal is problematic and will negatively impact millions of American, working families, including teachers, police officers, firefighters, and others, who use mutual fathers to save and invest for their futures,” the lawmakers wrote.
Under swing pricing, fund managers adjust the net asset value of shares during times of net redemptions or net purchases so that additional costs are passed on to the transacting investors without diluting the remaining shareholders.
By making it more costly to redeem shares, the SEC argues swing pricing will prevent mutual funds from a liquidity crisis because investors will be disincentivized from withdrawing.
But business groups argue that implementing swing pricing and a hard close would be “technically challenging and costly” for mutual fund managers and intermediaries.
“Not only would the SEC’s proposal disadvantage retirement plan participants over more sophisticated institutional investors, the rulemaking under consideration would also create new costs and hurdles for employers that offer or want to offer secure retirement packages to their employees,” Zuber wrote in the letter to lawmakers.
He said the SEC’s proposals “run contrary to Congress’ goals and the agency’s own mission to protect investors and maintain fair and efficient markets.”
