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Which companies offer money market accounts -- i.e., FDIC insured -- to 401(k) plans?

Is there a list somewhere on the Web? Or is there a better option for complete safety of cash in a 401(k)? Thanks.

Nov 18, 2012 by Ray from San Francisco, CA in  |  Flag
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Don Level 19

Ray, to be precise, money market accounts are not guaranteed by anyone (although they were briefly guaranteed by the Treasury in 2008-2009). They are investments, like all others subject to some risk.
Within a 401k there are typically a few options that promote safety of principal: money market, short-term bond and stable value funds all offer some protection against capital loss, but each comes with drawbacks.

Money market funds are the most liquid - meaning you can get your money out pretty much any time you want it without much risk of loss. The trade-off is that they are currently yielding around zero, which means you will lose value to inflation over time. Also, these are not 100% safe investments as the financial crisis recently proved, but barring a similar "black swan" event they should be pretty safe.

Short-term bond funds provide a little bit more yield - typically 1-2% for investment grade quality, but they do come with the chance you could lose a little bit of principal should interest rates rise or the credit quality of the portfolio suffer due to a worsening economy. The good news is that these factors tend to work in opposite directions, meaning that short-term bond funds rarely lose more than 2 or 3% in a given year.

Stable value funds are insurance products that typically offer a guaranteed return, these days around 3%. The trade-offs can be significant depending on the insurer and the contract. Some insurers limit your liquidity, meaning once you buy into the fund you are restricted in the timing and manner in which you can get your funds out. Furthermore, the guarantee is only as good as the insurer itself. If you are going for ultimate safety to protect against the low probability black swan event, you may find that the very same event knocked out your insurance company. Indeed, in the financial crisis some insurers required bailouts from the government. There's no guarantee those are forthcoming next time. I would also add that the prolonged low interest rate environment has caused many insurance companies to scale back or bail out of their guaranteed products. Besides making current guarantees less attractive, they raise a concern to me about the insurers own confidence in their ability to meet obligations in the event of another crisis.

Because there is no ultimate safety and returns on guaranteed products are low, you should carefully consider whether any of these alternatives are right for you. Unless you need your retirement savings within a few years, you are likely better off with a diversified portfolio of stocks and bonds (or a target date / asset allocation fund that does the same thing). If you do need some of this money within the next few years, you might consider whether you can meet your needs outside of the plan, where your alternatives are wider and the fees are lower. If you are at least 59 1/2, you might be able to withdraw some of your retirement savings for this purpose. Check with your plan provider or administrator to see if this is possible.

Best of luck, Don

Comment   |  Flag   |  Nov 19, 2012 from Middlebury, VT

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There are no 401k plans that offer FDIC money market options. Your best choice for this is a plan that offers money market options that are backed by the plan providers... Fidelity, Nationwide ect... Good Luck Dan

Comment   |  Flag   |  Nov 18, 2012 from Asbury Park, NJ

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