401(k) Plan Sponsors would be Wise to Examine their Money Market Fund Options

The SEC voted on July 23, 2014 to require floating net asset values (NAV) for prime money market funds. This ruling will also allow some fund managers to charge penalties for withdrawals as well as delaying withdrawals of funds during times of fiscal stress. These new rules take effect October 14, 2016.

Such rules could have serious consequences for an employer’s 401k plan.  While we do not utilize money market funds (MMFs) as an “investment option” in plans managed by Foster & Wood, money market funds are commonly used as a parking mechanism as an employee nears retirement prior to rollover to the newly retired person’s IRA.

Imagine a scenario where a long term employee is about to retire and is told that their $400,000 in lifetime savings will be subject to a withdrawal penalty of $8,000?

Employers should begin the process of investigating suitable alternatives to many of the MMFs currently available in 401k plans. Please consider us as a resource.

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