The Markets March 31, 2009

Mutual Fund Flows Backtrack in February

The combined assets of the nation's mutual funds decreased by $372.1 billion, or 4%, to $9.036 trillion in February, according to the Investment Company Institute (ICI).
Reported by

Long-term funds—stock, bond, and hybrid funds—had a net outflow of $12.13 billion in February, verse an inflow of $25.02 billion in January (see “Sales not Enough to Counter Mutual Fund Losses’).

Stock funds posted an outflow of $25.03 billion in February, compared to an inflow of $8.92 billion in January. Among stock funds, world equity funds (U.S. funds that invest primarily overseas) posted an outflow of $10.76 billion in February, while funds that invest primarily in the U.S. had an outflow of $14.27 billion, ICI data showed.

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Money market funds, which have been popular during the market turmoil of the past year and saw an inflow of $59.47 billion in January, had an outflow of $6.44 billion in February. Funds offered primarily to institutions had an outflow of $1.11 billion, and funds offered primarily to individuals had an outflow of $5.33 billion.

The investor’s choice for the month was bond funds, with an inflow of $17.15 billion. Taxable bond funds had an inflow of $12.82 billion, while municipal bond funds had an inflow of $4.34 billion.

Hybrid funds posted an outflow of $4.25 billion in February.

The ICI data is here.

The Markets March 31, 2009

Pa. Schools Find 403(b) TPAs Unable to Keep up with Demand

Lancaster County (Pennsylvania) school districts are scrambling to track employees' 403(b) retirement contributions after a company hired to administer the funds failed to deposit some of the money in a timely manner.
Reported by

The Lancaster Intelligencer Journal reported that school officials are not accusing the company, Gatekeeper Administration and Consulting, of intentional wrongdoing and said they are not aware of any misappropriation of funds. The officials said Gatekeeper, which has contracts with 13 county districts, has delayed depositing employee contributions in designated 403(b) retirement accounts for days or weeks at a time because it cannot keep up with demand for its services.

A teacher, who notified the school district of the problem, said he recently checked on his account and found that only one of his five contributions had been deposited. “The (stock) market was at its lowest in January and February, so that was a great time to buy,” he said, according to the Intelligencer Journal. “Now it’s up 14%, and I’ve lost out on those gains.”

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The district has stopped sending employee contributions to Gatekeeper and now sends them directly to individual retirement accounts, as have most of the 12 other county districts that contracted with Gatekeeper.

Not an Isolated Case

Flip Steinour, Lancaster-Lebanon Intermediate Unit 13 human resources director, pointed out that Gatekeeper is not the only third-party administrator having problems. “I have contacted my colleagues across the state, and most of them said it’s going horribly,” he said in the news report.

Steinour said demand for the services of TPAs is outstripping their ability to deliver as a result of new 403(b) regulations in effect January 1.

“There’s probably less than 10 of these companies in the U.S., and you’ve got every school district in the United States needing their services,” Steinour said. “They’re having growth pains, there’s no question.”

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