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 should be held in securities that would take more than seven days to convert to cash. The comment period for the proposed rule ended in January, but no date has been set for a final approval.
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