Interest Is Aligned On Features That Can Reduce Volatility And Enhance Returns
When plan sponsors were asked about their level of concern regarding the ability of DC plan participants to mitigate the impact of market volatility, many expressed concern — particularly for those already retired or approaching retirement.
Although few TDFs today include strategies to reduce volatility with the ability to enhance returns, which are principles of stable value, there appears to be significant interest in features that can do both.
If a TDF provider could generate net returns four times more than the cost associated with delivering those incremental returns while keeping volatility constant, 89% of plan sponsors and 97% of advisors would be interested in this feature. There is also significant interest—86% of plan sponsors and 94% of plan advisors—in a feature that could maintain comparable returns, net of fees, while reducing volatility by approximately 40%.
Stable value will continue to be a mainstay of DC plans. And, as the DC plan marketplace has moved to more of a set-it-and-forget-it approach with TDFs, so too has the ability for the longstanding volatility smoothing principles of stable value to be applied in creative ways for those TDFs. This approach enables TDF providers to optimize the risk/return profile of their TDFs for the benefit of plan participants. Whether stable value is used as standalone DC plan capital preservation option or as a tool to manage volatility in target date funds, one thing is certain: DC plan participants will be well positioned to achieve retirement income security.