The deadline for implementation of the SEC’s new money market rules is fast approaching. October 14, 2016 is the date that these new regulations will go into effect. You will want to make sure that the cash investment option available in your company’s 401(k) plan is the most appropriate choice based on the new rules.
The genesis of these new rules is rooted in the Financial Crisis of 2008. At that time, one of the largest money market funds, the Primary Reserve Fund, “broke the buck”. This means that its net asset value, or NAV, fell below $1 per share. As a result, many investors rushed to pull their money out of money market funds, thus creating further instability. The SEC began to investigate how to prevent this from happening in the future. The result was new rules that govern how money market funds operate and invest their assets.
Going forward, money market funds will be split into one of three categories: Government, Retail, or Institutional. Only the funds classified as government funds will have a stable NAV of $1 per share, and maintain full liquidity. The retail and institutional funds could have floating NAVs and potential redemption fees or gates during times of market volatility. Many mutual fund providers have already started re-classifying their funds. The government funds will also have to invest 99.5% of their assets in government securities.
This creates a need for plan fiduciaries to evaluate their plan’s cash option to ensure that it remains the most prudent choice for plan participants.
Retirement Plan Industry Update information provided by RPS Retirement Plan Advisors.
