Money Market Reform Means More Stable Value, But …

A disconnect exists between advisor recommendations and plan sponsor actions

Where has the time gone? One year after the SEC’s money market fund reform rules went into effect, there has been “meaningful movement away from money market funds as a capital preservation option” in 401k and other DC plans, with just over half of plan sponsors now offering money market as a capital preservation option.

That’s down from 62 percent in 2015, according to MetLife’s 2017 Stable Value Study. Additionally, there has been almost 10 percent growth in stable value funds, with sponsors adding stable value funds to their plans in the past two years.

Among plan sponsors who are reasonably familiar with the reform, a clear majority (83 percent) feel that stable value is a more attractive capital preservation option for plan participants than money market funds, as do nearly all DC plan advisors surveyed.

Even among plan sponsors whose plans offer only a money market option, just over half think stable value is a better option.

However, despite recognizing the attractiveness of stable value, the study found that just three in ten plan sponsors overall evaluated their use of money market funds as their plan’s capital preservation option in light of MMF reform.

This indicates a continuing need for education about the rule changes and the role stable value funds can play as the capital preservation option within DC plans.

“The new MMF Reform rules highlight that money market funds are not able to take into account the special characteristics of the qualified DC plan participant environment, while stable value funds are designed specifically for qualified plans,” Tom Schuster, vice president and head of Stable Value and Investment Products with MetLife, said in a statement. “Now is the time for plan sponsors to carefully consider replacing their money market fund with stable value, and they should heed the recommendations of their plan advisors.”

Indeed, advisors wield a great deal of influence in plan sponsors’ selection of capital preservation options, with 73 percent of sponsors who offer stable value and 67 percent who offer money market saying their advisors recommended these options to them.

Yet there is the aforementioned disconnect between the capital preservation recommendations advisors say they are providing and the actions plan sponsors are taking.

According to the findings, 90 percent of advisors report recommending stable value very often, but 86 percent say they seldom or never recommend money market funds.

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