The U.S. Securities and Exchange Commission recently adopted amendments to the rules that govern money market mutual funds. Two of the four changes to money market funds will probably require plan sponsors’ attention. Here’s what 401(k) plan sponsors need to know:

  1. Floating net asset values. Prime money market funds (those money market funds managed by mutual fund families) will be required to allow their NAVs to fluctuate based on the underlying value of the investments in the fund. Previously, all money market fund NAVs remained constant at a $1 per share.

What you should do:

  • Since it is likely that your 401(k) plan uses a prime money market fund, you will need to explain this change to plan participants. Most are under the impression that they can't lose any money in your money market fund. In other words, participants tend to believe these funds are like savings accounts. That may no longer be true.
  • Ask your investment adviser to investigate the underlying credit quality of the investments in the money market fund you use. If it is weak, you may wish to consider changing your money market fund. 

2.   Redemption fees and liquidation windows. A money market fund’s manager may decide to impose redemption fees or bar redemptions for certain periods of time in order to better manage the portfolio.
What you should do:

  • Plan participants have experienced redemption fees before on other mutual funds. However, these fees have never been applied to money market funds. Since this is another way that participants could experience loss of principal, you will need to communicate that to them. 
  • Ask your recordkeeper to program their systems to display these fees and/or restrictions on their website.

Please note that these changes will not be implemented until the fall of 2016, so nothing is changing right now. It is also important to keep in mind that government money market funds are not subject to any of these changes. So if you wish to continue to offer a traditional money market fund, that isn’t subject to loss of principal, you can still do so.
Talk to your investment adviser soon to develop your plan’s money market fund strategy. 

Robert C. Lawton 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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