Guest Spotlight Peter Semler – Money Market Reform

December 1, 2016

 Unfortunately, Money Market Reform does not pertain to improving rates.

The SEC announced new money market rules in July 2014 which became effective October 14, 2016.  These changes are in response to the events of September 2008, when the bankruptcy of Lehman Brothers forced the Reserve Primary Fund, the oldest money market fund, to “break the buck” by pricing its shares at 97 cents.  Plan sponsors who offer a money market investment as their capital preservation option should use these reforms as a good reason to review their choices, and perhaps consider alternatives.

In short, the reforms require all Money Market funds to implement either mandatory or optional liquidity fees and redemption gates, when conditions exist in which the fund’s weekly liquid assets fall below certain thresholds.

The SEC modifications will mandate a floating NAV for money market funds, and permissive or mandatory redemption fees and gates, except in the case of government funds (basically limited to U.S. Treasury securities) and “retail” funds.  Both will be exempted from the floating NAV requirement, but only government funds will also be freed from the redemption fee and gate requirements (though they can impose them if their boards chose to do so).

Plan Sponsors who offer a money market option may have recently noticed that their fund changed or merged from a Prime fund into to a Government or Treasury Money Market Fund in response to these reforms.  Plan sponsors should take time to evaluate their capital preservation option to determine the effects, if any, of these changes on their current option(s).  Other options worth considering are Stable Value funds, Ultra-short bond funds or Hybrid solutions for larger plans.

In the wake of the new SEC regulations, Plan Sponsors may need to disclose to participants whether they will continue with or modify an existing money market fund option, and also provide the rational for their decision.  Plan Sponsors should also be prepared to explain any modifications to the investment lineup, and detail any changes in the money market fund options including information on government and prime MMFs, floating NAV, redemption fees and gates.

We hope that conditions never exist in which liquidity gates or fees would apply, but unexpected events occur all the time.  Murphy says that this will be the time when most participants will want to withdrawal funds from this account.


Peter Semler is a Defined Contribution plan consultant, assisting plans and investments committees in navigating fiduciary regulations and helping plans get retirement ready participants.

Peter Semler, AIF®, QPFC
Troutman and Associates
650 E. Devon Avenue, Suite 125
Itasca, IL 60143
630-634-7800 – phone
630-634-7801 – fax


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