Under the plan's policy, managers including American Century Investments, Kansas City, Mo., and T. Rowe Price Associates, Baltimore, have requested that individuals who exceed trading guidelines be prohibited from making future investments in the funds for up to 90 days.
Beginning Sept. 30, The Vanguard Group Inc., Malvern, Pa., will ban investors from buying shares of a Vanguard fund by phone or online within 60 days of selling shares in the same fund. Fidelity Investments, Boston, set up guidelines effective last December that allow two roundtrip transactions for every fund within 90 days, and a total of four per year
Other plans have worked with their managers to enforced similar guidelines.
Ben Ysursa, chairman of the Idaho Deferred Compensation Committee, Boise, said the $200 million plan did have a few participants engage in excessive trading and "responded as the entire industry responded, to curb the behavior."
"Initially, we saw frequent trades in international funds, then it extended to domestic funds, so we got our record keeper and managers involved," Mr. Ysursa said.
In February, the Public Employee Retirement System of Idaho, which includes the deferred compensation plan, sent letters to participants who were investing in Mellon International and Brandes International funds. The letter said that starting in August, the system would limit the number of trades in the two funds to two trades per fund in a 90-day period, Mr. Ysursa said. However, payroll deferrals, rollovers and scheduled periodic distributions are exempt from the limitation.
William F. Quinn, president of American Beacon Advisors, Forth Worth, Texas, which oversees the $12.6 billion in American Airlines Inc.'s retirement assets, said American's $5.7 billion 401(k) has seen excessive trading by a small number of participants.
American Airlines created trading guidelines in August, announcing it would lock participants out of a fund for 90 days after a trade, Mr. Quinn said.
While most plan sponsors tend to work with their investment managers, some establish guidelines with help from their consultants.
Robyn Credico, consultant with Watson Wyatt Worldwide, Washington, said managers are the driving force behind excessive trading guidelines and the majority of plan sponsors are being "reactive to their vendors." She added that Watson Wyatt and other consultants could assist plan sponsors in setting up restrictions, but the majority of sponsors respond to vendor suggestions, not consultants.
The Ohio Public Employees Deferred Compensation Plan, Columbus, is one plan that opted to work with its consultant.
The Ohio plan allows participants to make 15 exchanges per year free of charge, said Keith Overly, executive director. A $25 fee is charged for each additional exchange to discourage excessive trading, he said.
The $5.8 billion plan worked closely with its consultant, Ennis Knupp & Associates, Chicago, to establish its policy. "We didn't universally go out and advise managers of our internal policies," he said.
"We did not do any preliminary work with our managers," he said. "Our policy has been really effective," he added, noting that if the problem continued, the plan then might have sought out its investment managers' help. Fidelity Investments, AIM Investments and Vanguard Group provide some of the plan's investment options.