POST MONEY MARKET FUND REFORM, STABLE VALUE VIEWED AS MORE ATTRACTIVE
However, a Disconnect Exists Between DC Plan Advisor Recommendations and Plan Sponsor Actions
NEW YORK, December 11, 2017
One year after the U.S. Securities and Exchange Commission’s (SEC) money market fund (MMF) reform rules went into effect, there has been meaningful movement away from money market funds as a capital preservation option in defined contribution (DC) plans, with just over half of plan sponsors now offering money market as a capital preservation option (52%), down from 62% in 2015, according to MetLife’s 2017 Stable Value Study, released today. Additionally, there has been growth in stable value funds, with 9% of sponsors adding stable value funds to their plans in the past two years. A full report examining these findings is available at www.metlife.com/stablevaluestudy2017.
Among plan sponsors who are reasonably familiar with MMF reform, a clear majority (83%) feel that stable value is a more attractive capital preservation option for plan participants than money market funds, as do nearly all DC plan advisors surveyed. Even among plan sponsors familiar with the rules whose plans offer only a money market option, a majority (55%) think stable value is a better option. Despite recognizing the attractiveness of stable value, the Study found that just three in ten plan sponsors overall (31%) evaluated their use of money market funds as their plan’s capital preservation option in light of MMF reform. This indicates a continuing need for education about the rule changes and the role stable value funds can play as the capital preservation option within DC plans.
“The new MMF Reform rules highlight that money market funds are not able to take into account the special characteristics of the qualified DC plan participant environment, while stable value funds are designed specifically for qualified plans,” says Tom Schuster, vice president and head of Stable Value and Investment Products with MetLife. “Now is the time for plan sponsors to carefully consider replacing their money market fund with stable value, and they should heed the recommendations of their plan advisors.”
Indeed, advisors yield a great deal of influence in plan sponsors’ selection of capital preservation options, with 73% of sponsors who offer stable value and 67% who offer money market saying their advisors recommended these options to them. However, there is a disconnect between the capital preservation recommendations advisors say they are providing and the actions plan sponsors are taking. According to the findings, 90% of advisors report recommending stable value very often, but 86% say they seldom or never recommend money market funds.
Perceptions of Stable Value’s Performance
Another factor impacting the adoption of stable value may be plan sponsors’ perceptions of its performance. Historically, stable value options have outperformed money market funds, with both higher yields and lower volatility, and have also outperformed inflation. However, just over half of plan sponsors (56%) are aware that stable value returns have outperformed money market returns over the past 15 years, while 84% did not know that stable value returns have exceeded inflation over that same period.
There is some good news regarding the perception of stable value’s performance. Seven in ten plan sponsors (70%) believe that stable value will preserve its rate advantage over money market returns even if interest rates go up, and one-third who would consider eliminating money market in favor of stable value (33%) say they are motivated by stable value’s better rates. For those who include stable value in their DC plans, the leading reason for doing so is because it offers better returns than money market or other capital preservation options (43%).
“Stable value funds are attractive to plan participants – no matter what the market conditions – because they offer safety and stability by preserving principal and accumulated earnings,” notes Warren Howe, national director, Stable Value Markets.
About the Study
The 2017 Stable Value Study is the fourth study that MetLife has commissioned to gain strategic insight into the current marketplace for stable value, a capital preservation option offered in defined contribution (DC) plans. MetLife commissioned Greenwald & Associates and Strategic Insight to conduct the research of plan sponsors, advisors and stable value fund providers between June and August 2017. A total of 241 plan sponsor interviews were completed among plan sponsors who offer a 401(k) 457, or 403(b) plan. Assets under management for plans included in the study ranged from under $5 million to over $1 billion. Each respondent was required to have at least a moderate amount of influence over decisions regarding stable value or related funds for their company’s defined contribution plan(s). Telephone interviews were conducted with 10 DC plan advisors and 19 stable value fund providers.
MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help its individual and institutional customers navigate their changing world. Founded in 1868, MetLife has operations in more than 40 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.