Employers offering securities lending investments as options in 401(k) plans should provide participants with information about the relationship between their investments and securities lending arrangements and alert them to the risks of those investments, according to two reports issued Wednesday.
Also, one of the reports — from the Senate Special Committee on Aging — recommends that participants be warned of potential withdrawal restrictions associated with securities lending arrangements.
The second report, from the Government Accountability Office, recommends that the Department of Labor “provide guidance to plan sponsors as to what would be reasonable levels of fees and reasonable distributions of returns when 401(k) plan assets are utilized” in securities lending.
Some participants in 401(k) plans invested in securities lending cash collateral pools suffered losses to their investments during the 2008-2009 financial crisis, and the investments have come under the scrutiny of policymakers in recent years.
The Aging Committee report notes that many employers with 401(k) plans do not know whether their plans engage in securities lending.
“For those that did, they understand the benefits of these transactions, but many were not aware of the risks involved with securities lending and, in particular, the risks associated with the cash collateral reinvested portion of their service providers’ securities lending programs,” the Aging Committee report states.
The Aging Committee report also recommends requiring companies in the business of securities lending to submit financial reports on their activities to the Securities and Exchange Commission and bank regulators.