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ARTICLE · 17 FEBRUARY 2016

SEC Proposal On Mutual Fund Liquidity Could Impact Pension Plans' Investments: Experts

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Experts say proposed SEC regulations that would require mutual funds to have a minimum cash cushion and liquidity risk management programs in place could have a broad impact on retirement plans.

United StatesFinance and Banking
Ann Kalodis
Ann Kalodis
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Experts say proposed SEC regulations that would require mutual funds to have a minimum cash cushion and liquidity risk management programs in place could have a broad impact on retirement plans. A reduction in mutual funds' illiquid holdings stemming from the proposed rule could lead to lower overall returns for those funds, which could lead some DC plans to drop mutual funds as investment options and replace them with separate accounts or commingled funds. The proposal could also lead to a drop in the overall value of illiquid securities, affecting DB plan investments. The SEC proposal would require mutual funds to be allowed to charge fees to investors who pull their money on days of elevated withdrawals, set up a portfolio-tailored liquidity risk management program for open-end funds and permit funds in some instances to use "swing pricing," among others. The SEC also proposed to strengthen and clarify an existing guideline that no more than 15% of a fund's assets

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