News Reports Speak of 2008-Style Money Market Fund Guarantee Program

The U.S. Treasury Department is reportedly asking Congress to approve a temporary, taxpayer backed guarantee of money market funds as part of the federal government’s coronavirus stimulus plan.

Media outlets, including Bloomberg, cite “documents obtained” that detail the program, which will have to be formally approved by Congress. Bloomberg reports that the proposal was sent to lawmakers “early Wednesday,” and that the Treasury spells out plans “to temporarily permit use of its exchange stabilization fund to guarantee money markets.”

The documents reportedly show that the Treasury has proposed terminating this authority “when President Donald Trump ends the national emergency declaration he announced Friday.”

This development, which has not yet been independently verified by PLANSPONSOR, immediately calls to mind the Great Recession period, which similarly saw the Treasury establish a money market guarantee program. In that time of universal financial and economic hardship, the program proved to be an important policy response.

Separate from the new challenges emerging from the coronavirus outbreak, money market funds have been losing favor in the employer-sponsored defined contribution (DC) retirement plan industry. In addition to challenges presented by the interest rate environment experienced in the past decade, the loss of favor is mainly tied to the U.S. Securities and Exchange Commission (SEC)’s overhaul of its money market fund rules back in 2014.

Those changes required providers to establish a floating net asset value (NAV) for institutional prime money market funds, which in turn allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets. The rule updates also provided nongovernment retail money market fund boards with new tools, known as liquidity fees and redemption gates, to address potential runs on fund assets.