Unique 401(k) Plan Fund Provides Advantages Over Traditional Money Market Funds

Cooperative employees, like many investors, often favor more conservative investment options the closer they get to (and during) retirement. Preserving capital often becomes more important than asset growth. This can also be true for younger investors during periods of significant market volatility like those we are experiencing today. For many investors in the NRECA 401(k) Pension Plan, the Money Market Fund was the conservative investment vehicle of choice for many years, despite the fact that on a net-of-fees basis that fund rarely produced a positive return that actually beat the rate of inflation.

In recognition of this growing need among our members, the NRECA 401(k) Plan made an important and unique change to the previous Money Market Fund in December 2017. Replacing the Money Market Fund with the Stable Income Fund would maintain the same capital preservation characteristics and liquidity (transfer) flexibility as the Money Market Fund, while offering investors the opportunity to consistently earn better returns over time. This Stable Income Fund is unique to the NRECA 401(k) Plan and has been very well-received by participants, growing from roughly $660 million at launch to over $1 billion today. 

One of the true advantages of this new strategy is being realized during the current market environment, when most traditional money market funds are on their way to yielding 0% after fees due to the sharp drop in interest rates. Investors in the Stable Income Fund have been receiving a crediting rate of over 1.7% annualized after fees through most of first quarter 2020.  Even with the most recent drop in interest rates, that yield is expected to only dip slightly to around 1.5% in second quarter of this year. These yields, which are significantly above the yields available in traditional money market funds, are currently providing participants in the NRECA 401(k) Plan with more than $10 million in additional potential annual income than they might otherwise accumulate at the same level of investment risk.

NRECA is unable to provide investment advice to co-ops or their employees. This article is intended to provide information on the Stable Income Fund. Participants should carefully consider their overall investment strategy as well as factors unique to their personal circumstances before deciding to invest in the fund or other options in the plan. Members of NRECA’s Personal Investment & Retirement Consulting team are available to assist participants in developing an asset allocation strategy. Members of this team can be reached via phone at 866.673.2299, option 6, Monday through Friday 7:30 am to 4 pm, Central time, or via email at pirc@nreca.coop.