CNBC on MMFs, Stable Value
Last week, CNBC posted an article, "That 'safe' retirement investment is about to change." It reads, "Changes may be coming to one of your retirement plan's safer investment options.... [N]ew, more restrictive rules on money-market funds will be taking effect in October, paving the way for changes to 401(k) plan investment menus. "We have used money-market reform as a gateway to re-engage retirement plans on cash equivalents and what's appropriate in a low rate environment," said Aaron Pottichen, a plan consultant at CLS Partners Retirement Services. "More of them have opted to replace money-market funds with stable value." He's not alone. "More often than not, employers are switching over," said Shannon Main, managing director and retirement plan advisor at Penniall & Associates. "Some record keepers are changing their money-market funds to either a government fund or they're no longer supporting them," she said.... At the same time, money-market funds are plagued with paltry returns amid today's low interest rates." The article continues, "The changes to money-market funds stems from new rules issued by the Securities and Exchange Commission. The regulations, which will take full effect in October, require fund managers in periods of extreme volatility to temporarily bar investors from making withdrawals. Another change: the funds' value can now float, whereas before they generally maintained a fixed $1 per share value. These requirements will apply to institutional money-market funds, which would include the investments generally available in 401(k) plans. It will not apply to funds held by individual investors. Some employers aren't fans of the effect the changes will have on their plan's money-market funds. As a result, they are seeking alternatives by opting for government money-market funds, FDIC-insured bank deposit accounts and stable value funds. "Institutional funds aren't required to maintain the $1 per share NAV [net asset value]," said Stein Olavsrud, portfolio manager with FBB Capital Partners. "That's significant. A client could potentially lose money." CNBC adds, "Stable-value funds aren't mutual funds. Rather, they are a blend of insurance and bonds. The insurance provides principal protection and a minimum guaranteed rate of interest.... The median rate on stable-value funds was 1.93 percent in the first quarter of 2016, according Callan's data, compared with the 0.023 percent average yield for money-market funds. There's a trade-off for stable value's money market beating yields. Investors are dependent on the credit quality of the underlying bond portfolio and the company providing the insurance. If the insurer fails, you may have to get in line with other creditors for your payout, said Gregory Kasten, founder and CEO of Unified Trust Company."
