Financial Planning for Retirement
Ruined by SEC Ruling?

The best financial planning for retirement can be ruined by the SEC preventing your withdrawal of your money from money market fund accounts.

Can you believe it? Once the government gets control, they do the craziest things. In the role of protector of the investor, the Securities and Exchange Commission (SEC) in January 2010 passed a rule in a 4 - 1 nearly unanimous vote that the financial institutions that run Money Market Funds do have the authority to suspend redemptions from such funds. Such suspension is supposed to occur only "under extraordinary circumstances". No definition was given for that term.

Most all of us have some money in a Money Market Fund. In accordance with your financial planning for retirement, you may have an IRA or 401(k) and if so, you most certainly do have money in that type of fund. As an investor, you have your money working for you in stocks, bonds and you have some sitting in a Money Market Fund.

Such a fund is usually a "sweep account", one in which money is placed from which it is to be drawn from in order to purchase the stock, stock fund, bond, bond fund or other instruments. When stocks, bonds or funds are sold, the monies received from the sale are placed in your sweep account. Most investment firms do not have a "cash" account available that is separate from a Money Market Fund. The end result is that most of us do have some money that will be affected.

"It is seldom that an American retires from business to enjoy his fortune in comfort. He works because he has always worked, and knows no other way."

~ Thomas Nichols

"Health is my expected heaven."

~ John Keats

As reported by on January 27, 2010, entitled "Suspending Money Market Redemption is Now Legal", the Securities and Exchange Commission (SEC) has voted 4 - 1, to pass a rule that was first proposed on July 8, 2009. That vote allow the suspension of redemptions from Money Market Funds. The financial institutions are supposed to apply this suspension in "extraordinary circumstances".

It is unclear as to how pervasive this suspension would apply during a meltdown. Would all such funds suspend redemption? There may be some that do not suspend, but this vote has given every Money Market Fund the authority to suspend redemptions.


How does this impact a normal investor? It means that an investor may not, repeat not, be able to withdraw their own money when he/she wants to. If you are retired and normally withdraw from your Money Market Fund for living expenses, then you may not be able to do so. Even if you are not considering financial planning for retirement, you will be impacted. If you have all of your money in stocks, then sell part to withdraw the cash, you will not be able to since that cash has to go through the sweep Fund.

The SEC stated "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares". It seems like the hardships that they pushed upon the investors are completely irrelevant to the SEC. It appears that they just want to protect the banking industry so there will not be a run on the money market accounts during a meltdown. It is apparent that the investor comes last.

It is best to stay alert and talk to your investment firm to determine how they intend to handle the ruling by the SEC. Be prepared.

For all of the exciting details, the full discussion and reasoning can be seen as Proposed Rule 22e-3 on Page 32714 of the Federal Register / Vol. 74, No. 129 / Wednesday, July 8, 2009 / Proposed Rules, which can be downloaded here. (Right-click to download this PDF file.) See the highlighted portion on page 28 of the downloaded PDF.


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