The SEC’s modifications to the money market fund rules won’t become effective for approximately a year, but a new paper argues it’s not too soon for plan fiduciaries — and those who advise them — to be giving the matter some thought.
That article by Bruce Ashton of Drinker Biddle and Larry Goldbrum of Reliance Trust notes that plan fiduciaries will almost certainly need to make changes in their plan’s investments, and should already be talking to service providers about how to deal with the changes.
So, what changes? The SEC modifications will mandate a floating net asset value (NAV) for money market funds, and permissive or mandatory redemption fees and gates, except in the case of government funds (which the paper says are basically limited to U.S. Treasury securities) and “retail” funds, which will be exempted from the floating NAV requirement, though only government funds will also be freed from the redemption fee and gate requirements.
The SEC rules on money market funds require plan fiduciaries to consider whether to:
- modify the type of money market funds used in the plan;
- use several different funds; or
- replace the money market funds altogether with another capital preservation product.
Also see: SEC Approves Split Rule on Money Market Funds
Among the alternatives available in the market are:
- cash separate accounts;
- private money market funds (not subject to the SEC rules);
- short term bond funds; and
- stable value funds.
All that said, the new rules are not effective until October 2016, so why should a fiduciary be thinking about this now? Basically it comes down to allowing enough time to gather information and to do a prudent evaluation of the alternatives.
