(The Center Square) — Members of the New York and New Jersey congressional delegations are urging federal regulators to reject proposed rules they say would hurt retail investors and erode the retirement savings of tens of millions of Americans.
In a letter to Securities and Exchange Commission Chairman Gary Gensler, a bipartisan group of nearly 40 lawmakers called on regulators to reject changes to open-end mutual fund rules regarding risk management programs. liquidity and swing pricing, arguing that it would lead to higher costs and lower returns for Americans’ retirement savings.
“Mutual funds are the most widely used investment product and are trusted by more than 100 million Americans to save for retirement and invest for their future,” they write. “A wide range of market participants questioned the need for the proposal and expressed concerns about its potential to increase costs, reduce returns and limit choice for millions of investors.”
Lawmakers who signed the letter included Representatives Mike Lawler, R-NY, Andrew Garbarino, R-NY, Claudia Tenney, R-NY, Gregory Meeks, D-NY, Joseph Morelle, D-NY and Democratic Representatives of New Jersey. Josh Gottheimer and Rob Menendez.
The proposed regulations, unveiled in November, would mandate “swing pricing” for open-ended funds and implement a “strict close” requirement for such funds.
In swing pricing, fund managers adjust the net asset value of stocks in times of net redemptions or net purchases so that the additional costs are passed on to investors making the transaction without diluting the remaining shareholders.
By making stock buybacks more expensive, the SEC says swing pricing will prevent mutual funds from a liquidity crunch, as investors will be deterred from exiting.
But lawmakers said the proposed changes would effectively create a “two-tier market” or mutual fund operations “that disadvantage retail investors and retirees.”
“Forcing investors to accept next-day pricing for trades made after their intermediary’s cut-off time would limit investors’ ability to react to changes in the market on any given day,” they wrote. “For investors living west of the Eastern Time Zone, this requirement would be even more unfair.”
The business groups argue that implementing swing pricing and a hard close would be “technically difficult and costly” for mutual fund managers and intermediaries.
“Participants in employer-sponsored retirement plans would lose access to beneficial investment strategies and face reduced returns from their mutual funds,” wrote Paul Zuber, Chairman of the Board of Trustees. New York State Group, the group’s executive vice president, wrote to lawmakers.
“The proposed changes could also eliminate the leveraged loan market that provides significant financing to American businesses,” he added.
A recent report by the U.S. Chamber of Commerce claims that changes to mutual funds under the SEC’s proposal “would have significant adverse impacts on pension plan participants,” mutual funds open-end investment representing 61.7% of all 401(k) plan assets and 81.3% of other private defined contribution plan assets.
The chamber estimates a $53,342 erosion of retirement savings for the average American over 26, based solely on the impact of mandatory swing pricing with a strict closeout rule.