WSJ on MMFs in 401k's
The Wall Street Journal posted an article, "Rule Changes on Money-Market Funds: What Investors Need to Know." It says, "If you have cash parked in a money-market mutual fund in a 401(k) or similar plan, you may want to start preparing for sweeping changes on the horizon.... The changes could affect millions of Americans, including those who invest on average 4% of their assets in money-market mutual funds in a 401(k) or similar plan." It continues, "The good news: The floating-NAV rule excludes government and retail money-market funds, which can still offer a stable NAV, says Samuel Henson, a vice president at Lockton Retirement Services in Kansas City, Mo.... Experts say many plan sponsors may decide to replace the money funds in their plans rather than try to educate people on the new rules. "It will be hard to explain that sometimes you can and sometimes you can't have your money," Mr. Henson says. "It's going to be hard to explain that sometimes there will be a fee and sometimes there won't be." Likely money-fund replacements include stable-value funds, guaranteed investment contracts, short-duration bonds and certificates of deposit, experts say.... If an employer decides to remove money-market funds from its retirement plan, participants will have to decide how best to invest the assets they once allocated to cash and cash equivalents. But if an employer decides to keep the money funds in its 401(k) lineup, plan participants need to ask themselves a few questions: How much extreme market turmoil might there be? The SEC money-market changes, says Mr. Henson, are a response to the 2008 financial crisis, when heavy investor withdrawals threatened the price stability of these funds. That could certainly happen again. "Money-market funds are often viewed as a safe haven, even more so in times of stress, so it's important for participants to realize there does exist a chance that they may temporarily be unable to access their money," says James Veneruso, a vice president with Callan Associates in Chicago. Which is better -- the possibility of paying a penalty for withdrawing funds or a lower yield? "While government money-market funds are largely exempt from liquidity gates and redemption fees, they may offer a lower yield than a retail fund," says Mr. Veneruso. "The decision investors should weigh is whether or not any extra yield on a retail fund is worth the potential headache that could come in the form of liquidity gates and or redemption fees." It adds, "What funds are best for long-term investment goals? Money-market funds are designed for capital preservation and short-term liquidity needs, says Josh Cohen, head of institutional defined contribution at Russell Investments. "Given that, should a long-term investor, such as a 401(k) plan participant, have any meaningful allocation to this low-returning asset class? If it's there for participants who want to avoid the markets for certain periods, is there evidence that participants can time that [strategy] correctly?"
