New Money-Market Fund Rules: What You Need to Know

In an effort to strengthen investor protections during extreme markets, the Securities & Exchange Commission (SEC) has approved amendments to Rule 2a-7 that govern money market funds, making several structural and operational reforms scheduled to take effect on October, 14 2016.

What are money market funds?
Money market funds are an open-ended mutual fund that invest in short-term debt securities such as US Treasury bills.

What changes are coming to money market funds?
To help provide greater protection for investors, the SEC has made rule changes that require all money market mutual funds to be designated as one of three fund types - 'government,' 'institutional,' or 'retail.' U.S. Treasury and government money market funds (referred to collectively as “government funds”) are exempt from structural changes under the new rules and can continue to operate in much the same fashion as before.

What do these changes mean to me?
Non-government money market funds (prime or general purpose and municipal funds) are treated differently under the new rules. Any prime or municipal money market fund categorized as institutional must utilize a floating NAV. If weekly liquidity for non-government money market funds falls below regulatory limits, then these funds are subject to potential redemption fees, or to temporary “gates” that could interrupt the processing of common retirement transactions such as withdrawals, contributions, exchanges, and loans. Institutional or Retail Money Market funds may drop below the traditional $1 NAV, or net asset value, during times of volatility. Money market funds designated as Government type may experience lower returns because at least 99.5% of assets are invested in cash, government securities, and/or repurchase agreements that fully collateralized with government securities.

I'm a plan sponsor, what action do I need to take with regard to my Money Market account balances?
If you are a plan sponsor, you need to document your review process as part of your due diligence. Plan’s fiduciaries are responsible for the selection of the plan’s investment options including whether to offer a money market fund and which type. Is a money market an appropriate investment option? What type is best for our participants? Have you considered other options, such as Stable Value?

What if I have a Money Market account as part of my current investment plan?
A money market account isn’t intended to be a long-term retirement strategy source for building wealth, but rather for short-term holding while you develop your long-term retirement strategy.
If you have a personal money market account, you aren't required to take any action, but the changes present an opportunity to take a fresh look at your investments to make sure you stay on track with your retirement strategy.

  • Adjusting how you allocate your current investments and future contributions
  • Modifying your portfolio mix by transferring money between accounts
  • In this low interest rate environment, many money markets are crediting zero or even negative rates after fees. Buyer beware and know your other options

If you have any further questions or want to learn more about money markets or retirement plans, don't hesitate to contact us.