Commentary: On Wednesday the Fed finally took the first step on the journey to normalizing interest rates by raising the discount rate by 0.25% (25 basis points). Thought long overdue by most economists, this interest rate increase, and the ones that will follow, is likely to have the following effects on your 401(k) plan and participants:
1. Higher money market fund rates. Most money market funds have been paying investors 0.01% or less. Mutual fund companies have been subsidizing these funds for years. Higher interest rates are not only good for the mutual fund families, but will be welcomed by your plan participants who are risk-averse or close to retirement and have invested heavily in these funds.
