Coming back to a theme that has been at the top of the Securities And Exchange Commissions agenda and the topic of a special roundtable last month, Chairman Arthur Levitt today called form reforms in how fund companies select their boards of directors. He made his remarks at the Investment Company Institute's Mutual Fund Meeting in Palm Desert, California.

Levitt's four proposals are:

Require fund boards to have a majority of independent directors;
Require independent directors to nominate any new independent directors;
Require that outside counsel for directors be independent from management to ensure that directors get objective and accurate information; and
Require that fund shareholders have more specific information on which to judge the independence of their fund directors.

Chairman Levitt said, "These four straightforward proposals form the cornerstone of a major Commission effort to improve mutual fund governance. While these initial measures would be the most significant changes in a generation, this is just the beginning. The Commission will act on these measures immediately and will continue to mine the wealth of suggestions from the roundtable for additional reforms to pursue."

At the same meeting, Matthew Fink, president of the ICI, laid out a wish list for legislation that would help the fund industry. Quoting Justice William O. Douglas, who was Chairman of the SEC from 1937 to 1939, Fink observed that "Common sense... makes good laws." He then laid out four areas ripe for the application of common sense: mutual fund governance, mutual fund disclosure, defined contribution plans, and Individual Retirement Accounts.

Fund companies are the only companies required to have independent directors, Fink pointed out. He also unveiled a new ICI Advisory Group on Best Practices for Fund Directors. Its members consist of Jack Brennan, Chairman of the Board of Governors of the ICI and Chairman and CEO of the Vanguard Group, Dawn Marie Driscoll, an Independent Director at the Scudder Funds, Robert Glauber, an Independent Director at the Dreyfus Funds, Paul Haaga, Executive Vice President of Capital Research and Management Company, Dr. Manuel Johnson, an Independent Director at the Morgan Stanley Dean Witter Family of Funds, and William Lyons, President and COO of American Century Investments.

According to Fink, the Advisory Group will be charged with identifying and evaluating "best practices" associated with the work of mutual fund directors that the group believes should be brought to the attention of every fund board.

In the area of fund disclosure, Fink said that the SEC�s top-to-bottom revision of Form N-1A and adoption of Plain English requirements should serve as models for future simplification and clarity in changes to other required documents.

Addressing defined contribution, Fink called the rules that govern DC plans "needlessly complex and confusing to investors" and added that "these rules to some extent undermine our ability to achieve higher rates of retirement savings." His keynote address four major areas of concern for the mutual fund industry. He addressed defined contribution issues as the third of those areas.

One bright spot in Washington is that pending legislation would permit employees to roll over assets from one type of plan to another when they change jobs, regardless of the types of plans involved, he told attendees. He also praised legislation that would raise the limits on contributions, permit after-tax contributions in some plans, and give small employers tax credits for setting up plans.

Fink stopped short of calling for a single, universal defined contribution plan, pointing out that such a plan may not be desirable. Instead, he called for "more simplicity, uniformity, and availability than currently exists."

The fourth area that he addressed was IRAs. Here, he called for a return to the universal IRA to increase retirement savings. He added his support of legislation introduced by Senate Finance Committee Chairman William Roth that would restore the universal IRA.

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE