* Report touts success of SEC's 2010 fund reforms* Also finds funds withstood 2011 eurozone crisis* Warns against SEC imposing new reforms on industry* SEC, FSOC mull possible actions on money fund reforms* FSOC slated to meet in closed session ThursdayBy Sarah N. LynchWASHINGTON, Oct 16 Money market fund regulations adopted by U.S. securities regulators in 2010 reduced risks in the $2.5 trillion industry, according to a report sponsored by the U.S. Chamber of Commerce that questions the need for further reforms. The report, drafted by three finance and economics professors, concludes that the Securities and Exchange Commission's 2010 rules have left money market funds more liquid and better able to withstand a wave of customer withdrawals. The report says the industry weathered the economic turmoil in Europe in 2011 despite an uptick in redemptions and did not pose any systemic risk to the marketplace."Given the remarkable stability of the industry in the summer of 2011 during the eurozone crisis and uncertainty about whether the U.S. would raise its debt ceiling, we question whether there is sufficient evidence to support additional reform," says the report by David Blackwell and Kenneth Troske from the University of Kentucky, and Drew Winters of Texas Tech University.
The 2010 reforms tightened credit quality standards, shortened weighted average maturities, imposed a liquidity requirement on money market funds and increased disclosure of fund holdings. The report is the latest effort by the Chamber of Commerce to fend off efforts by SEC Chairman Mary Schapiro and the Financial Stability Oversight Council, or FSOC, to impose another round of rules on the money market fund industry. The chamber released the report just two days before the FSOC is slated to meet behind closed doors, where the topic of money market funds is expected to be discussed. Last month, Treasury Secretary Timothy Geithner said the FSOC will begin considering new reforms after Schapiro failed to attract the three SEC votes she needed to advance her own plan.
Schapiro has argued that more regulations are needed to prevent another run like the one seen in the 2008 financial crisis, when the Reserve Primary Fund "broke the buck," meaning its net asset value fell below $1 per share. She had hoped to put out a proposal for public comment with two key components. One would have called for new capital buffers and redemption restrictions in a time of chaos. The other explored moving to a floating net asset value. Banking regulators are supportive of her efforts. In a report on Monday, a group of researchers at the Federal Reserve Bank of New York argued for new rules, saying funds could delay full redemptions from all customers at all times to encourage investors to look closely at a fund's risk before putting in money. But the money market fund industry worries that new rules would drive money out of their funds and into bank accounts at a time of very low interest rates. Opposition to the reforms has also been mounted by many companies and local-government agencies that rely on money funds to buy their short-term debt instruments. Three SEC commissioners - Democrat Luis Aguilar and Republicans Daniel Gallagher and Troy Paredes - have also expressed skepticism and have said they want first to study the effects of the 2010 reforms before proceeding with new rules.
The SEC's economists are currently conducting the study requested by the three commissioners, and results could come in a few weeks, according to one person familiar with the matter. Despite his resistance to Schapiro's original proposal, Gallagher has said he hopes the agency will consider a fresh package of reforms. He has also said he would be open to considering a floating net asset value coupled with allowing fund boards to impose liquidity "gates."Any move to a floating net asset value is likely to be strongly opposed by the industry."If the fund value of money funds is undermined, investors are likely to move their money to products that increase risk in the financial system," said Fidelity's Money Markets President Nancy Prior at a U.S. Chamber event on Tuesday convened to examine the report's findings."A greater concentration in banks... will increase financial pressure on the Federal Deposit Insurance Corp. and the American taxpayer."Geithner has said the FSOC will likely weigh a package of money market reforms at its November meeting. Eventually, he hopes to present those suggestions to the SEC for consideration. Under the Dodd-Frank financial oversight law of 2010, the SEC would need to adopt the FSOC's suggestions, or reject them in writing within 90 days. The Chamber has previously said it prefers to leave money market fund matters to the SEC, and not to the FSOC.
retirement savings, and a shocking number give exactly the same answer: "What retirement savings?"The potential consequences are scary not only for them - the nation's growing ranks of entrepreneurs, freelancers, consultants and contractors - but also for the United States as a whole. With more and more people without regular jobs and the benefits that come with them, the nation faces a retirement time bomb. New data from TD Ameritrade Holding Corp reveals the worrisome state of the retirement savings of independent workers. The brokerage company's Self-Employment and Retirement Survey found that 28 percent of the self-employed were not saving anything at all, and another 40 percent were only saving occasionally, when they said they were able. At the same time, the ranks of U.S. freelancers, contractors and temp workers are growing every year - to an estimated 40 percent of the workforce by 2020, according to a study by software company Intuit, and up from 30 percent in 2006, according to the Government Accountability Office."This is going to be a huge problem," says Jonathan Medows, a Manhattan certified public accountant who specializes in helping freelancers with their finances. "They are already struggling to pay their bills, and then there are all the additional costs like overhead, like quarterly estimated taxes, like medical care. And cash flow can be so inconsistent that it is very challenging to budget."Until a few years ago, saving was not on the agenda of New York City disc jockey Herbert Holler (real name Ken Hyman). Early in his career, he says, "I was single, living on the Lower East Side, going out every night and living day-to-day."But now Hyman is 37, with a wife and a young daughter. Despite intermittent paychecks, lack of company-sponsored 401(k) plans and matching contributions - plus additional cost burdens like health insurance - he and his wife are maxing out their annual Roth individual retirement account (IRA) contributions."Freelancers have to find a way to save," Hyman says, "or we're all going to be in a lot of trouble."
SAVE MORE Even though the U.S. retirement system has not really been designed for them, freelancers must take responsibility and drastically up their retirement saving using the investment vehicles most appropriate for them. If you are that rare freelancer with a big profit margin at the end of each month, then a Simplified Employee Pension Individual Retirement Account (SEP-IRA) is a golden tool, advises Denise Kiernan, co-author of "The Money Book for Freelancers, Part-Timers, and the Self-Employed."
The self-employed can set up this version of a traditional IRA themselves. You will reduce your taxable income for your efforts, and the contribution limits are much higher than for traditional IRAs - 20 percent of income, or $52,000 (whichever is less) in 2014. Consult IRS Publication 560 for more details. If money is tight, a traditional IRA or a Roth IRA will probably give you enough room to save, and might be easier if you already have accounts set up. Each currently offers annual contribution limits of $5,500 (plus an extra $1,000 for people over 50). The choice becomes whether you want to get a tax break now, with a traditional IRA, or have tax-free earnings with a Roth. You cannot fully fund both at the same time; CPA Medows suggests using a Roth whenever possible. CONTRIBUTE DIFFERENTLY
But with freelance cash so inherently erratic, how can you contribute enough retirement money?Brooklyn magician Evan Paquette is a fan of personal-finance expert Ramit Sethi's "envelope" system of apportioning percentages of whatever money comes in to different goals, like basic expenses, entertainment, or retirement saving. Most financial institutions allow you to set up an automatic withdrawal into a retirement account, or they can send you a digital reminder to make a contribution each month or at certain times of the year."That way, whether you're making $100 a month or $10,000 a month, money is still getting put towards the retirement goal," says Paquette, 30, who uses a SEP-IRA to house his retirement assets. "Even if it's only $5, at least it's something."Retirement experts are looking for ways to make this automation easier for non-workplace savers. One idea before Congress now is an "automatic IRA" that citizens would have to opt out of, rather than figure out for themselves. This has worked well in the United Kingdom, says Shlomo Benartzi, a professor at the UCLA Anderson School of Management and chief behavioral economist for Allianz Global Investors. California has passed such legislation at the state level, although it has not yet taken effect. Whatever happens to help freelancers start saving, Benartzi says time is of the essence. Since only roughly a third of all Americans are contributing to 401(k)s right now, society has to get freelancers on board, or the retirement-savings system will become even more broken than it already is."We don't have to wait to see a retirement-savings crisis develop," he says. "We already have one."