This article was authored by Bruce L. Ashton of Drinker Biddle & Reath LLP. Bruce and Larry H. Goldbrum of Reliance Trust will be discussing this topic in depth during a webinar on September 29, 2015 at 12:00 p.m. Eastern Time.
The SEC’s modifications to the money market fund rules won’t become effective for approximately a year, but plan fiduciaries should already be considering what to do about them. Almost certainly, they’ll need to make changes in their plan’s investments, and they should also be talking to their service providers about how to deal with the changes. In the context of investments, though, the question is, what changes?
As a reminder, the SEC modifications will mandate a floating NAV for money market funds, and permissive or mandatory redemption fees and gates, except in the case of government funds (basically limited to U.S. Treasury securities) and “retail” funds. Both will be exempted from the floating NAV requirement, but only government funds will also be freed from the redemption fee and gate requirements (though they can impose them if their boards chose to do so). As others have pointed out, these modifications either mean trading return for stability (since U.S. Treasury securities generally have a lower return than other debt instruments) or running liquidity risk (retail funds with a potentially higher return will be subject to the fees and gates). This sounds like a set of bad choices.
Read, "Changes in the Money Market Fund Rules: The Fiduciary Response."