Recently BlackRock, the largest asset manager in the world, announced that it would follow Fidelity and Federated in making changes to its money market fund offerings. These changes are in response to Securities and Exchange Commission (SEC) reform rules announced during the summer of 2014.

The new SEC reform rules will permit floating NAVs, redemption fees and liquidation windows in prime money market funds.

  • Floating NAVs. Most 401(k) plan participants would probably not expect the net asset value of the money market fund they invest in to fluctuate. However, soon it will become possible to lose money in a prime money market fund. As a result, prime money market funds won't be quite the safe haven investments they have been in the past.
  • Redemption fees. Although any mutual fund may impose redemption fees, it has never occurred previously in money market funds. In order to allow prime money market fund managers to better manage their portfolios in panic situations, the SEC rules allow the imposition of redemption fees.
  • Liquidation windows. To provide prime money market fund managers with another tool to manage redemptions during a period of crisis, the new money market reform rules allow mutual fund families to impose liquidation restrictions on prime money market fund balances. In other words, during a period of high liquidation requests, a prime money market fund would have the right to withhold redemption requests for a period of time.

What plan sponsors should do

Although these changes are not effective until October 2016, plan sponsors should begin working with their 401(k) plan investment advisers to:

  • Get rid of any prime money market fund. It would appear that it does not make sense for any 401(k) plan to continue to offer a prime money market fund after October 2016. It is estimated that one-third to one-half of all 401(k) plans currently offer one.
  • Review your safe haven options. Government money market funds are exempt from these new changes and, as a result, will probably be used in many 401(k) plans. However, their yields are even lower than nongovernment money market funds. Stable value and guaranteed income funds guard against loss of principal but may have redemption fees and liquidation window restrictions.
  • Communicate to participants. There is no question that almost every participant in your plan, at one time or another, will be invested in the safest investment option. Plan participants may value their money market or stable value option more than any other fund in your plan. It is likely that you will see a high level of plan participant interest in these changes.

It is not too soon to begin talking with your investment adviser to develop your plan's money market fund strategy.
Robert C. Lawton, AIF, CRPS is President of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at or 414.828.4015.

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