WSJ on MMFs in 401k Plans
The Wall Street Journal published, "Retirement Plans Take Different Tack on Money Funds." It says, "People saving for retirement in workplace 401(k) plans may soon see changes to the lowest-risk choices on their investment menus. The adjustments -- which have occurred already at some plans but are under consideration at many more, consultants said -- are in response to new rules for money-market mutual funds that will take effect in October. "Prime" money funds that buy both corporate and government debt will be required to charge redemption fees if they are swamped by withdrawals amid market turmoil. They also will be required to set up procedures to suspend redemptions in some cases. As a result, many 401(k) plans are looking at shifting to money funds that buy only government debt, which aren't required to have redemption fees or set up "gates" to block withdrawals. "Plan sponsors do not want to be exposed to a situation where plan participants can't get their money, regardless of how remote that possibility is," said Philip Suess, a partner at investment consulting firm Mercer LLC in Chicago. Some other plans are considering replacing money funds altogether with other low-risk alternatives, principally with "stable-value" funds, which are diversified portfolios of highly rated bonds. Whatever plan sponsors decide, "I would expect a fair amount of change," said Lynn Dudley, a senior vice president at the American Benefits Council.... About 47% of defined-contribution retirement plans offered money funds or other cash equivalents in 2014, according to the latest data available from the Plan Sponsor Council of America." The piece continues, "Government-debt-only money funds will have the option to impose redemption fees or put up gates. But many asset managers said they won't do that, making those funds more attractive to many plan sponsors, said Peter Crane of Crane Data LLC, which tracks the money-fund industry.... From Nov. 1 through the end of February, 61 prime money funds with $272 billion in assets converted to government-debt funds or declared that they would do so, according to Crane Data.... Lockton Retirement Services in Kansas City, Mo., is helping 401(k) plans move away from prime money funds, and the majority are choosing stable value, said Samuel Henson, the firm's director of compliance services. Of the 1,200 retirement plans Lockton works with, 44% offer a money fund, 55% offer stable value and just 1% offer both.... An index of stable-value funds compiled by researcher Hueler Cos. returned an average 3% a year over the 10 years through February. Still, there are environments in which savers might be sorry to be in a stable-value fund rather than a money fund. When interest rates rise, the yield on stable-value funds generally lags behind that of money-market funds."
