Should You Include Stable Value Funds in Your Employer-Sponsored Retirement Plan?

05/31/2022 Written by: Jenny Boudreau

Employer-sponsored defined contribution (DC) plans, such as 401(k)s, are a tax-advantaged way for employees to save for retirement. These plans are funded with employee contributions, employer contributions, or both. Over the past 30 years, assets in employer-sponsored DC plans have grown significantly. According to The Investment Company Institute and the Department of Labor, Americans held $11.0 trillion in employer-based defined contribution plans on December 31, 2021. Of this, $7.7 trillion was in 401(k) plans.

When designing a 401(k) plan, employers select a combination of features and the investment options available. Plan sponsors are required to offer investment choices that include diversified funds from a range of asset classes and a low-risk capital preservation option. Many plan sponsors choose Stable Value Funds to fulfill the low-risk capital preservation requirement.

Predominantly available in tax-qualified plans, Stable Value refers to a relatively low-risk asset class that focuses on capital preservation and liquidity while providing steady, positive returns to plan participants.

With stock markets characterized by increased volatility, investors have been looking for more protection and predictable returns while hoping to maintain a reasonable level of growth. Plan sponsors are also concerned about the impact of market volatility on employees at or nearing retirement. While it depends on individual needs, Stable Value Funds can play an important role as retirement nears.

Since 2008, Stable Value Funds have garnered more attention due to their relatively attractive risk/return profile. Offered in approximately 75% of all defined contribution plans, Stable Value Funds represent about 10% of DC plan assets, according to the Stable Value Investment Association.

The defined contribution landscape continues to evolve, increasing the level of due diligence required on investments within the plans. Stable Value Funds can be difficult to review and analyze because they vary in structure, complexity, and available features.

Quantitative data, such as performance, duration, and fund size are useful for comparative purposes. However, Stable Value Funds require more scrutiny. When performing due diligence on Stable Value Funds, consider the following qualitative factors:

  • Participation policies
  • Contract type and issuer
  • Asset sector allocation
  • Liquidity policies
  • Credit policy
  • Withdrawal provisions
  • Fee detail
  • Transfer restrictions

Keep in mind that fund selection is not always clear – good terms in one factor may require the concession of terms in another. Prioritize the factors most important for your plan while not giving up more than you want in other factors.

Employer-sponsored retirement plans can often offer less expensive investment options and unique advantages to their plan participants – including Stable Value Funds, which are attractive to risk-averse employees and retired employees in the de-accumulation phase.

There’s no one-size-fits-all when choosing Stable Value Funds for your retirement plan. Because the structure, cost, and management need to be considered, it’s important to work with an advisor experienced in retirement plans and the investment world. AssuredPartners Investment Advisors can help. Contact us for more information.

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