New SEC Regulations
The U.S. Securities and Exchange Commission (SEC) issued new regulations for prime money market funds that take effect no later than October 2016. Prime money market funds are mutual funds that invest in CDs, commercial paper and corporate notes. Government and U.S. Treasury money market funds invest in low-risk government securities like U.S. Treasury Bills and are not subject to the new regulations.
The new regulations are intended to protect investors by limiting massive fund withdrawals, which occurred during the 2008 financial crisis and affected the liquidity and stability of prime money market funds. Under the new regulations, a prime money market fund may impose a 2 percent fee on withdrawals if the fund’s weekly liquid assets fall below 30 percent of its holdings, and allows funds to impose a gate to stop all transactions for 10 days. The gate would stop transfers, cash withdrawals, loans, portfolio rebalancing, and deposits of payroll deductions for the duration of the gate.
Vanguard Prime Money Market Removed from the U-M Plan
Because of concern over the potential risks of fees and gates that could be imposed on investors with assets in prime money market funds, the University of Michigan will remove prime money market funds from the U-M Retirement Savings Plan and offer only Government and/or U.S. Treasury money market funds.
The Vanguard Prime Money Market Fund will be replaced by the Vanguard Treasury Money Market through TIAA on August 1, 2016 and through Fidelity on August 4, 2016. Vanguard Treasury Money Market provides capital preservation, full liquidity and a low expense ratio for individuals who want a Vanguard choice.
For U-M Retirement Savings Plan participants who have assets in the Vanguard Prime Money Market Fund, TIAA and Fidelity will automatically transfer the assets to the Vanguard Treasury Money Market. No action is required by plan participants.
All other money market funds in the U-M plan are not prime money market and are not affected by the new SEC regulations.
There are other available funds in the U-M Retirement Savings plan, like TIAA Stable Value, that provide a higher return than all other money market funds and provides capital preservation and full liquidity. TIAA Traditional in the 403(b) SRA and 457(b) plans also offer a higher return than all other money market funds and provides capital preservation and full liquidity.