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:
- Protect against financial market volatility, such as stock market swoons and resulting losses, and
- 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.