STABLE VALUE INCREASINGLY RECOGNIZED AS A MORE ATTRACTIVE CAPITAL PRESERVATION OPTION FOR DEFINED CONTRIBUTION PLANS
MetLife’s Third Stable Value Study Finds 77% of Large Plan Sponsors Added Stable Value Recently Because It Offers Better Returns
NEW YORK, December 08, 2015
A vast majority (82%) of defined contribution (DC) plan sponsors who are familiar with the U.S. Securities & Exchange Commission’s (SEC) amendments to the rules governing money market funds (MMF) feel that stable value is a more attractive capital preservation option for plan participants, according to MetLife’s 2015 Stable Value Study, released today. Additionally, most stable value fund providers and advisors – interviewed for the study and familiar with MMF reforms – predict that the use of money market funds in defined contribution plans will decline over the next few years. A full report examining these findings is available at www.metlife.com/stablevaluestudy2015.
The leading reason that plan sponsors give for offering stable value is to provide a capital preservation option (65%); guaranteed rate of return (50%); and, better returns compared to money market and other capital preservation options (49%). Among plans with more than 100 participants that added stable value in the past two years, 77% offer stable value because it offers better returns than money market and other capital preservation options, up significantly from 38% in the MetLife 2013 Stable Value Study.1
However, despite recognizing stable value as a more attractive capital preservation option, the Study found that there is a need for better communication about the strong performance of stable value – only 17% of plan sponsors and 23% of plan advisors realize that stable value returns have exceed inflation over the past 25 years.
“Stable value has a 40-year track record of performing exceptionally well – no matter what the market conditions,” Thomas Schuster, vice president and head of Stable Value and Investment Products with MetLife. “Educating plan sponsors and participants about the advantages of stable value will not only help move plan assets to stable value, but will also help retain assets in qualified retirement plans, offering participants enhanced retirement income security.”
When it comes to stable value’s performance against money market funds, the Study found that almost half of sponsors (47%) are unaware that stable value returns have outperformed money market returns: 22% believe that stable value and money market returns have been about equal and 21% don’t know how the returns compare. Additionally, 4% actually believe that money market funds have performed better than stable value over this time period.
“Two rounds of reforms have reduced money market’s expected returns and made them less customer friendly,” said Warren Howe, national director, Stable Value Markets, MetLife. “The reforms have also highlighted the fact that money market funds are designed for general retail use. In contrast, stable value funds, which are designed specifically for employer-sponsored plans, are uniquely structured to maximize returns while preserving principal.”
In addition to these reforms, recent litigation will also likely affect plan sponsors’ decisions about which capital preservation products to make available to DC plan participants. So far, six months after a $62 million class action settlement, followed by a recent U.S. Supreme Court ruling in Tibble v. Edison, 20% of plan sponsors are considering alternatives to money market, according to the Study. Schuster believes others may follow suit, stating, “Plans that continue to offer money market and not stable value are potentially exposing themselves to enhanced litigation risk.”
About the Study
To conduct the research, MetLife engaged Greenwald & Associates and Asset International, Inc., publishers of PLANSPONSOR and PLANADVISER magazines. Three separate studies were conducted – an online survey of 205 plan sponsors conducted in June 2015, as well as in-depth phone interviews with 20 stable value fund providers and nine advisors during July 14 to August 28, 2015. Assets under management for plans included in the study ranged from under $10 million to $2.5 billion or more.
MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the largest life insurance companies in the world. Founded in 1868, MetLife is a global provider of life insurance, annuities, employee benefits and asset management. Serving approximately 100 million customers, MetLife has operations in nearly 50 countries and holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.
1The 2013 version of this study did not include plan sponsors with fewer than 100 plan participants, so all comparisons from the 2015 study made to that year’s study are based only on responses from plan sponsors with 100 or more participants.