US - Two government reports released yesterday found employers offering 401(k) plans have little understanding of securities lending activities within their defined contribution plans.
At a senate hearing on securities lending in retirement plans, the Special Committee on Aging revealed results from an investigation into the use of sec lending that found many employers did not know if their plans engaged in securities lending.
Those employers that did know, often knew the benefits of this practice, but not the risks, senator Herb Kohl, chairman of the Special Committee on Aging said.
The Committee interviewed the employers offering the 30 largest 401(k) plans in the country with combined assets of over $330bn. Over a third of those surveyed had experienced withdrawal restrictions in at least one plan with sec lending in place, though those plans were only offered by two managers. The Committee did not name the managers.
Meanwhile, a report by the Government Accountability Office found that participants themselves are not always aware securities lending is taking place in their funds.
Acting director of the GAO's education, workforce, and income security programme Charles Jeszeck said at the hearing current disclosure to participants are not transparent.
He said: "Participants may be unaware that their 401(k) plan's investments are utilizing securities lending with cash collateral reinvestment. Information regarding securities lending with cash collateral reinvestment is generally buried deeply within the pages of investment option documents that participants receive."
Kohl said to remedy the shortfall in disclosures surrounding sec lending in 401(k) plans, employers need to increase their knowledge of this activity and familiarise themselves with the risks. He also said participants should be given easy to understand information.
Kohl called on the Department of Labor to issue guidance to employers on securities lending practices and said companies "in the business of securities lending" should report their practices to the Securities and Exchange Commission.
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