How to Evaluate Stable Value Funds: 4 Tips for Plan Sponsors and Advisors | MetLife Retirement & Income Solutions

MetLife Retirement & Income Solutions

How to Evaluate Stable Value Funds: 4 Tips for Plan Sponsors and Advisors

Jul 28, 2023

Stable value funds can be ideal for plan sponsors or plan advisors who need a capital preservation option in the defined contribution (DC) plan line-up since it is the only capital preservation option designed specifically for qualified retirement plans.

Let’s look at the fundamentals of a stable value fund, as well as four criteria plan sponsors and advisors should evaluate to ensure the fund they select is the right fit for their plan.

What’s a stable value fund?

Stable value funds are capital preservation vehicles that invest in a diversified mix of conservative fixed-income investments — primarily high-quality bonds with strong credit ratings. This allows the funds to deliver steady and predictable returns in all market cycles.

According to MetLife Stable Value Sales Director Matt Curtin, the role of a stable value fund within a  DC plan is two-fold:

  1. Protect against financial market volatility, such as stock market swoons and resulting losses, and
  2. Deliver consistent returns.

“A stable value fund provides a guaranteed return to the plan participant regardless of the market conditions they’re investing in,” says Curtin.

When does stable value make sense for a defined contribution plan?

Stable value funds provide safety and security to a DC plan no matter the age of the plan participants. Because plan sponsors and advisors need to provide a wide range of options to accommodate participants’ life stages, risk tolerances, and time horizons — including those nearing or in retirement — stable value funds can be a steadying addition to a DC plan line-up.

8 in 10 plan sponsors say stable value was recommended by their advisor. Of those advisors, 90% cite performance as a top reason why.

“Stable value can offer some stability for those who don’t want to be exposed to market risk, and also want a secure retirement,” says Curtin.

Stable value funds use an insurance “wrapper” that helps protect against losses. Wrap providers like MetLife smooth the volatility of the underlying bond portfolios through the issuance of an insurance contract (wrap), which allows the funds to use the book value (or contract value) of their underlying holdings and maintain a stable share price even if the market value of the bond holdings declines.

Stable value is widely offered by plan sponsors and has historically delivered higher returns than money market funds, both nominally and in terms of real returns. From 2012 to 2022, stable value returned a nominal 1.99% annualized, while money markets returned 0.50% annualized. Over the same period, stable value’s real returns were –0.31% annualized compared to money market’s –1.75% annualized.

A bar chart totaling 100% shows a breakdown of the options offered as follows: 49% Stable Value, 33% both Stable Value and MMf's, 15% money market funds, and 3% other capital preservation options. Net MMF's are 48%.

Four things to consider when evaluating a stable value fund

As you are considering which stable value solutions and providers belong in your or your client’s defined contribution plan, there are four main criteria you will want to examine:

  1. Performance
  2. Historical net crediting rates
  3. Historical market-to-book ratios
  4. Expenses and features

MetLife’s stable value solutions

When evaluating stable value funds, it’s prudent to look for an industry leader that has a proven track record on both the financial and administrative sides of the business.

“You want to look at a company’s history in the asset class,” says Curtin. “Is it a core competency or just a hobby — just another fund they’re looking to add to their lineup?”

MetLife, which has a 45-year history in stable value funds, offers creative and tailored solutions backed by extensive knowledge and experience. Its Stable Value Study is the industry’s go-to source for the latest insights and trends about this popular capital preservation option. 

If you’re a plan sponsor or advisor looking for fresh insights about stable value funds or in search of a new provider, reach out to a stable value fund expert at MetLife today.

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