P&I: Will DC Plans Leave Prime MMFs?
Pensions & Investments posted an article earlier this week entitled, "DC plans expected to exit prime money market funds." It explains, "Consultants expect many defined contribution plans to move away from prime money market funds in the face of a looming October deadline for new SEC regulations that might create complications for sponsors. They say the key issue for DC plans is the Securities and Exchange Commission rule requiring providers of prime money market funds to create redemption gates -- or limits -- on withdrawals by participants and to establish fees on withdrawals to prevent a run on the funds. "It would be hard to explain to participants why they can't access their money" if a redemption gate were imposed, said Philip Suess, a Chicago-based partner at investment consulting firm Mercer LLC. "Sponsors have to determine their ability to live with redemption gates." Among Mercer's DC clients, "it was very quiet" after the SEC issued its rules in July 2014 until the fourth quarter of 2015, he said. "We've now reached the point where sponsors are paying attention. They are realizing that it takes time to implement changes." Among Mercer's DC clients that have made a decision, "a lot" have moved to government money market funds, which won't be affected by the new rules, he said. "We haven't seen a lot of interest in ultrashort bond funds or stable value," said Mr. Suess, adding that a client staying with a prime money market account "is the exception." It continues, "The fees and gates are too complicated for participants," said Martha Tejera, president of Tejera & Associates, a DC investment and plan-design consulting firm in Seattle. "Prime money market funds will disappear from 401(k) plans." But the piece adds, "In a survey of 70 DC sponsors offering some form of money market fund, Callan Associates Inc. found that 58.7% of plan executives were still unsure about what they would do. The survey said 17.4% of plan executives won't change anything because they don't offer a prime money market fund, while 13% said the SEC rules affecting prime money market funds are acceptable. Also, 6.5% said they would switch to a stable value option from a prime money market fund, and 4.3% would move to a government money market fund from the prime money market fund. (These responses are part of a broader survey that Callan will publish later this month.)" In other DC plan news, Pimco released a report, "Money Market Reform and DC Plans: Time is Almost Up." It says, "Sponsors of defined contribution (DC) plans have less than a year to prepare for sweeping reforms that will make money market funds (MMFs) a far less attractive option for plan participants. Plan sponsors using these popular options should assess how the SEC reforms, along with evolving technical factors and macroeconomic forces, are likely to affect different types of MMFs."
