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Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-01-2004, 03:11 PM   #1
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Why Do 401k MM Pay Higher Than Normal MMs?

I am curious why 401k Fixed Income Funds pay much higher than regular MM funds. Vanguards Admiral MM pays about 1.19%. My wifes 401k MM fund with Putnam pays 0.32% per month! That is 3.84% I am complaining because the fund I am being forced out of one because of my 401k that is being closed by a new company is paying almost 4.2% PA and I cannot find another MM any where near close to it. Man it is annoying.

SWR
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Re: Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-01-2004, 03:45 PM   #2
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Re: Why Do 401k MM Pay Higher Than Normal MMs?

Apples and oranges. "Stable value funds" are not money markets. I forget exactly how they work, but they basically give up some upside in exchange for maintaining a relatively fixed NAV. Something involving insurance companies, I think.

You can find them in the open market, but I think most are limited to institutional investors ($1M min).
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Re: Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-01-2004, 07:10 PM   #3
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Re: Why Do 401k MM Pay Higher Than Normal MMs?

Stable value funds look like very high yield money market funds because the underlying investments are really based on longer term bonds (with higher yields) but are guaranteed (usually by an insurer) to have a stable NAV. The insurer can afford to charge very little for the guarantee in most cases because plan participants typically do not actually use the stable value fund as a money market, but rather tend to park money there for years at a time.
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Re: Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-02-2004, 06:05 AM   #4
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Re: Why Do 401k MM Pay Higher Than Normal MMs?

Where can I find one these stable value funds, for an IRA?

SWR
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Re: Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-02-2004, 06:23 AM   #5
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Re: Why Do 401k MM Pay Higher Than Normal MMs?

I think that you will have a tough time finding one. My understanding is that they were starting to be offered outside of 401k plans, but that the regulators took a dim view of this. Really, they aren't all that much different from a high yielding CD with low early withdrawal penalties.
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Re: Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-02-2004, 07:28 AM   #6
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Re: Why Do 401k MM Pay Higher Than Normal MMs?

Quote:
Where can I find one these stable value funds, for an IRA?
Google is your friend.

DBPIX, NMIRX, PBCPX, OCPNX, VPIPX
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Re: Why Do 401k MM Pay Higher Than Normal MMs?
Old 09-02-2004, 08:15 AM   #7
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Re: Why Do 401k MM Pay Higher Than Normal MMs?

The only one of those listed that is significantly better than a money market fund is DBPIX and it is closed to new investors. But they are the right idea.

Thanks

SWR
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