PLANADVISER - January/February 2018 - 17

Money Market Funds Losing Favor
Still, a disconnect yawns between adviser recommendations and sponsor actions
ONE year since the U.S. Securities and
Exchange Commission (SEC)'s money
market fund (MMF) reform rules went
into effect, there has been " meaningful
movement away from money market
funds as a capital preservation option
in defined contribution (DC) plans, "
according to MetLife's 2017 Stable
Value Study, reporting that just over
half (52%) of plan sponsors now offer
money market as a capital preservation
option, down from 62% in 2015.
Money market fund reform required
providers to establish a floating net
asset value (NAV) for institutional
prime money market funds, which will
allow the daily share prices of these
funds to fluctuate along with changes
in the market-based value of fund
assets. The rule updates also provide
nongovernment retail money market
fund boards with new tools, known as
liquidity fees and redemption gates, to
address potential runs on fund assets.
MetLife found there has been
growth in stable value funds, with 9%
of sponsors adding them to their plans
in the past two years. Among plan
sponsors that are reasonably familiar
with MMF reform, a clear majority
(83%) feels that stable value is a more
attractive capital preservation option
for plan participants than are money
market funds, as do nearly all DC plan
advisers surveyed. Even among plan
sponsors that are familiar with the
rules and whose plans offer only a
money market option, 55% think stable
value is a better choice.
Despite recognizing the attractiveness
of stable value, the study found
that just under three in 10 plan sponsors
overall
(31%) evaluated their use
of money market funds as their plan's
capital preservation option, in light of
MMF reform. MetLife says 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.
Advisers yield a great deal of influence
in plan sponsors' selection of
capital preservation options, with 67%
of sponsors that offer money market
saying their advisers recommended
this option to them. However, there is a
disconnect between the capital preservation
recommendations advisers say
they are providing and the actions that
plan sponsors are taking. According
to the findings, 90% of advisers report
recommending stable value very often,
but 86% say they seldom or never
recommend money market funds.
Another factor affecting the adoption
of stable value may be plan sponsors'
perceptions of its performance.
Historically, stable value options have
outperformed money market funds,
TALKING POINTS
Taking Responsibility
More than half of Americans (52%) think
individuals will play a larger role in paying
for health insurance and saving for
retirement over the next 10 years.
Source: American Benefits Council
Americans Make Financial Strides
47%
Say they were better
off in 2017 than they
were in 2016
Source: Fidelity Investments
76%
Think they will continue
to improve their
finances in 2018
40%
Reduced their
debt in 2017
with both higher yields and lower
volatility, and have also outperformed
inflation. However,
plan sponsors (56%) are aware that
stable value returns have outperformed
money market returns over the past
15 years, while 84% did not know that
stable value returns have exceeded
inflation over that same period.
Seven in 10 plan sponsors (70%)
believe that stable value will preserve
its rate advantage over money market
returns even if interest rates go up; of
those offering a money market fund,
one-third (33%) say they might be
motivated to change to stable value by
the latter's better crediting rates.
-Rebecca Moore
just over half of
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PLANADVISER - January/February 2018

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