Mr. Quinn said officials there don't face the problem of market-timing trades because they permit participants to buy and sell investments only twice a month. Nonetheless, executives have been asking the plan's investment providers to detail policies they have in place to curb such trades, and the impact such trades have had on their investment returns.
A survey of large retirement plan sponsors last spring by Hewitt Associates, the Lincolnshire, Ill., employee benefits consulting firm, highlights that market timing was not in the spotlight until recently. Only 7% of the 487 plans surveyed had any kind of trading limits; 2% limited the number of trades participants could make within a week or semiweekly; and another 3% limited trades during a month.
Of the 344 plans with international funds, only 9% imposed time restrictions on trades and 2% imposed fees.
Employers also are taking note of a federal district court decision earlier this year that upheld the right of employers to impose such curbs on retirement plan investors without fear of violating federal pension law.
In Straus vs. Prudential Employee Savings Plan, the U.S. District Court for the Eastern District of New York dismissed the suit by participants aiming to stop the company and its retirement plan from blocking single rapid trades of more than $75,000 that aimed to arbitrage the impact of news events in one part of the world on share prices in other markets.
Jim Gorman, a spokesman for Prudential Insurance Co. of America, declined to comment.
The court's decision is significant because it confirms that employers may impose reasonable restrictions on trading by participants, without worrying about violating the Employee Retirement Income Security Act, said Andrew Oringer, partner in the New York law firm Clifford Chance US LLP.
Although New York's Mr. Spitzer has led the charge, Mr. Galvin grabbed headlines last week with his looming action again Putnam and his continued investigations of other large mutual fund groups, including Fidelity Investments, Franklin Resources and Morgan Stanley.
"Our contention is that when you give somebody a prospectus encouraging them to invest, you've made a contractual commitment. If you breach that commitment, then you've committed fraud," Mr. Galvin said in an interview.
A prospectus for the Putnam International Capital Opportunities Fund clearly states that short-term trading is disruptive, and it imposes a 1% fee on movements within 90 days to discourage such trades. Moreover, the prospectus also says that Putnam may ban the trading privileges of investors or reject rapid-fire trades.
Joseph Gregorio, trustee for the Boilermakers Local 5 plan, declined to comment. Segal Advisors, the investment consultant to that and the electrical industry plan, also declined to comment.
Meanwhile, the Securities and Exchange Commission is expected to propose rules in a few weeks that would require mutual fund companies to explicitly state their policies and procedures to curb market-timing trades by investors in their funds. The SEC will not require mutual funds to have policies aimed at curbing market timing, but it will require those that do to specify the circumstances under which they would reject trades that aim to game the system by anticipating market reactions to events in different time zones.
"Currently, funds have a lot of wiggle room" to determine which trades they may permit and which they may reject, said Doug Scheidt, associate director in the office of the chief counsel in the SEC's division of investment management.