WASHINGTON -- Investment advisers and mutual fund companies can expect greater scrutiny of their practices from securities regulators in the coming year.
The Securities and Exchange Commission is requesting an 8%, or $26 million, increase in its budget from fiscal 1998, to $341.09 million. The securities watchdog is asking for about 37 additional staffers, including 20 to prevent and suppress fraud, and 10 for the supervision and regulation of securities markets.
In particular, because of the rapid growth in the mutual fund industry, the agency is asking for 10 new people to help in investment management regulation. The agency also expects an increase in its workload because of substantial revisions to mutual fund prospectuses. In addition, the agency anticipates adopting a rule that would give mutual funds the option of filing "fund profiles" or summary disclosures. As a result, it expects an increase in the number of filings by mutual funds that will need to be reviewed.
What's more, the SEC's investment management division also conducts routine periodic inspections of 1,310 investment advisers with $4.2 trillion in assets under management, and 237 mutual fund companies with $1 trillion under management that it oversees. The agency also plans to conduct two "sweep" inspections targeted at industry practices of concern.
The agency also is asking for more money to help it supervise and regulate securities markets because of the explosion in capital markets and the boom in the volume of securities traded. Just last year, for example, the New York Stock Exchange traded a record 1.2 billion shares in a day, and volume on the Nasdaq market reached 1.37 billion shares on the same day.
The agency also is planning to re-evaluate its regulation of the securities markets, particularly its oversight of alternative trading systems and stock exchanges.
In addition, the agency will continue projects involving investor protection, the oversight of securities firms, and monitoring year 2000 conversion and testing of securities markets.
Labor seeks more money
The Department of Labor's $38.1 billion budget for fiscal 1999 is aimed at helping Labor Secretary Alexis M. Herman ensure American workers have "reliable pensions," she said earlier this month. The agency is asking for an additional $5 million to support the implementation of a new computer system to accept the annual returns filed by pension plans. In fiscal 1997 and 1998, Congress provided a total of $9 million to develop the new system.
The new system, which will begin accepting a streamlined Form 5500 in mid-2000, will save the federal government $57 million over the five-year life cycle of the system.
However, the Labor Department's Pension and Welfare Benefits Administration intends to discuss ways the Internal Revenue Service and the Pension Benefit Guaranty Corp. can share the costs of implementing the new system.
The Labor Department's budget also includes $1.6 million to enhance retirement security by more vigorous investigations of individuals who manipulate pension fund assets, especially 401(k) plan assets, for their own benefit. The pension office of the Labor Department also intends to focus investigations on 401(k) retirement plans, which have grown exponentially in recent years. Such plans now cover 25 million people, up from 7.5 million in 1984, and have assets of $750 billion, up from $92 billion in 1984.
"In recent years, PWBA has seen a significant growth in the number of complaints concerning misuse of 401(k) plan funds," according to the agency's budget documents.
The Labor Department's pension office also intends to investigate allegations of fraud and misconduct among small plans and employers, particularly the failure to properly administer employee contributions.
Moreover, the agency is also planning to undertake a special enforcement project to ensure the retirement savings of American workers are not being eaten up by high investment management and administration fees for 401(k) plans.
Meanwhile, the PBGC estimates its total budget will grow to $1.15 billion in fiscal 1999, a $127.5 million increase from the $1.02 billion budgeted for fiscal 1998. The bulk of that increase will go toward increased benefit payments to participants in its single employer program -- to $977.4 million, from $869 million. The pension insurance agency also anticipates its expenses for providing financial assistance to insolvent multiemployer plans will more than double to $14.2 million in fiscal 1999, from $6 million in fiscal 1998.