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Money Market Fund Reform Could Adversely Impact Retirement Savings Plans

In a joint comment letter recently filed with the SEC, a dozen organizations highlighted the issues that money market fund reform could pose to retirement savings plans.  The letter notes that money market funds are used by many defined contribution and defined benefit plans to meet liquidity needs, to diversify investments, and to ease retirement plan administration.  If the reforms currently under consideration by the SEC are put into place, the organizations argue that serious consequences could occur, including:

  • ERISA Complications: If a redemption holdback is required, it is not clear that an ERISA fiduciary under current regulations could allow the plan's assets to be invested in money market funds.
  • Recordkeeping and Administration Complications: Floating the NAV or imposing redemption restrictions would require significant operational changes and challenges for 401(k) plans.
  • Limited Alternatives: There are few alternatives for low-cost cash management if money market funds become less desirable, if not unusable instruments, for retirement plans.

Last week, SEC Chairman Schapiro announced that the SEC would not take a vote on submitting a money market fund proposal to the public for comment.  However, in her statement, she called on other policymakers to take action in this area.