Court Upholds Plan Provision Limiting “Market Timing” Trades

An article at Plansponsor.com discusses a 401(k) plan’s ability to limit frequent trading practices of participants who are engaging in “market timing” techniques. Certain participants under the Prudential Employee Savings Plan had developed a strategy of moving large sums of money in and out of investment funds several times a month. When the Administrative Committee took action to restrict such transfers, the participants sued. Both the Plan and the Summary Plan Description contained language stating that “in certain situations there may be limitations regarding transfers.” Also, the Administrative Committee was given discretion to decline to implement investment instructions “where appropriate.” The case provides some helpful examples of plan language which could be used to provide such restrictions.