Stable Value Delivers In Difficult Times

Stable value funds are uniquely available in employer-sponsored retirement programs and are one of the reasons why saving in a 401(k) is so attractive. According to PSCA’s 51st Annual Survey of Profit Sharing and 401(k) Plans, 56.4 percent of plans have a stable value fund in their fund lineup. Importantly, 75.7 percent of companies with 5,000 or more participants offer stable value funds. The larger the company, the more likely it is to offer a stable value fund in its plan. Also, stable value funds are among the most popular investment options in defined contribution plans. According to Hewitt Associates, at the end of 2008 approximately 32 percent of 401(k) assets at large companies were invested in a stable value fund. For perspective, approximately half of active 401(k) participants are employed by companies with 5,000 or more participants.
In these difficult economic times, stable value funds have performed extremely well. They have met their principle guarantee commitment and have exceeded the return expectation when compared to money market funds.  While there has been some concern about the market-to-book gap, the positive cash flow into these funds and the relative short duration of their underlying investments is closing the gap.

There also has been concern about wrap capacity. Wrap fees are now higher which is encouraging new players and wrap capacity is increasing. Of course, the increased cost of obtaining the stable value guarantee will reduce net return. However, plan sponsors, assisted by an expert consulting community, still find that their participants benefit from the unique aspects of this investment and no plan that I know of has dropped the stable value fund from their plan.

David