5500 Schedule H - Money Market Mutual Funds

[Guest mpark2]

I am preparing a 5500 for a large plan.

Is a Money Market Fund held at a mutual fund company considered interest bearing cash or is it reported as a mutual fund?

[Guest mpark2]

THANK YOU

[Guest 5500]

First - the classification issue is really not a big deal.

I assume you are talking about money market mutual funds that usually maintain a unit value of $1 per share. We treat these as mutual funds, if that is what they truly are. I agree these funds seem more like interest bearing cash accounts, but in my conversations with the DOL I was told the issue depends on whether they are a registered investment company or not. If they are, they are treated as such, even when they maintain the $1 unit value.

In my experience, most of these funds available through the brokers are actually mutual funds, not savings accounts.

I'm sure in practice they are often classified as interest bearing cash, but technically, I agree with the position given me by the DOL.

I'm certainly open to hear support for the savings account treatment though, as that is how most trustees look at them.

[Lori Friedman]

How should money market earnings and balances be reported on Schedule H? This very simple question seems to have a complicated answer.

A money market investment can be a money market account, which is interest-bearing cash, or a money market fund, which is a special type of mutual fund that invests in highly-liquid, low-risk, short-term investments (U.S. Treasury bills, bank notes, commercial paper, repurchase agreements, bankers' acceptances, etc.).

The distinction seems to be relevant only for taxable investors; interest from a money market account and dividends from a money market fund are segregated and taxed under very different rules. In contrast, a tax-exempt organization is specifically instructed to report money market fund dividends as interest income and lump its money market fund balances with interest-bearing cash on Form 990.

mpark2's question concerns money market funds (not money market accounts). The instructions for Form 5500 suggest that the two types of money market investments should be distinguished and reported separately. Schedule H, Line 1c(1) reports "all assets that earn interest in a financial institution...such as...money market accounts [emphasis added]. I've never found any language that suggests that money market funds should be treated as anything other than mutual funds.

In practice, however, how many Form 5500's actually split hairs over a plan's money market investments? Most of Form 5500's that I've seen simply follow the audit report's lead and classify all money market assets as cash equivalents.

[jquazza]

I disagree, I've always considered them interest bearing cash. For what it's worth, the 5500 Preparer's Manual agrees with me.

[Harwood]

"The 5500 Filing Guide" on the line for registered investment companies: "With the exception of money market mutual funds reported under line 1c(1), the preparer enters all amounts invested in mutual funds."

[Lori Friedman]

Take a look at the Form 5500 instructions. Schedule H, Line 1c(1) reports "assets that earn interest in a financial institution account such as...money market accounts" [emphasis added]. The instructions for Schedule H, Line 2b(1)(A) say to "enter interest earned on interest-bearing cash, such as...money market accounts [emphasis added]. There's no mention of a registered invesment company's money market mutual funds.

As I mentioned above, however, money market investments -- both cash and mutual fund -- are treated as cash/cash equivalents for financial statement purposes. I don't think I've ever seen a Form 5500 that segregates the 2 types of investments and reports them separately on Schedule H.