MMF Reform and ERISA Plans
Bloomberg BNA published "What ERISA Plans Should Know About Money Market Reform". The piece, written by law firm Drinker, Biddle & Reath, says, "Most U.S. money market funds will begin restructuring their operations beginning in 2014 and throughout 2015 and 2016 as a result of the SEC's adoption of wide ranging changes to the rules regulating these funds. Since many plan participants invest in money market funds, ERISA plan sponsors, recordkeepers and investment consultants and other advisers will need to plan for operational, contractual, disclosure and other changes in connection with these new rules." It continues, "It is widely expected that the SEC's new money market rules will result in many changes in fund offerings. For example: Money market funds that currently have both institutional and natural persons as holders may spin off the institutional holders into separate floating NAV funds; Some institutional funds may decide to liquidate or merge with other funds; Some advisers may begin offering new money fund-"like" products that only hold short term securities (60 days or less maturity) and therefore value fund holdings at amortized cost; and Some prime money market funds may change their investment strategies to operate as a government money market fund in order to steer clear of the floating NAV and liquidity fee and gate rules (discussed below)." Regarding the effect on ERISA plans, "The SEC provided examples of how funds could satisfy the natural person definition with intermediaries, including through: contractual arrangements, periodic certifications and representations or other verification methods. Accordingly, ERISA service providers who hold fund shares in omnibus accounts may expect to be contacted by retail money market funds to provide these certifications or representations and/or to enter into new agreements with funds for this purpose. ERISA plan sponsors and investment consultants and advisers will also need to be alert to potential changes to existing money market funds currently offered in plans to which they provide services and/ or new fund offerings that may be appealing to and/or better serve the best interests of participants." On fees and gates it adds, "The liquidity fee and gate requirements will usually only be triggered in times of extreme market stress. But they are features that many ERISA participants and ERISA service providers will not find appealing. For that reason, there may be more demand from participants for government money market funds, which may, but are not required to, comply with the fee and gate rules. It is not expected that government money market funds will opt to become subject to these fee and gate rules. The liquidity fee and redemption gate rules will require recordkeepers to make technical changes in their operations. These operational changes could be expensive and time consuming to implement especially for smaller plans."
