One of the key advantages of our trustee partners’ DCIO stable value funds, which are supported by MetLife Stable Value solutions, is that they are structured to maximize the credited rate participants receive. An important feature of the funds that helps achieve this objective is the exit provision. Our funds are structured such that the exiting plan receives the lower of the book (i.e., the contributions made, plus accrued interest, minus previous withdrawals or transfers) or market value. This means that plans remaining in the fund and their participants are never negatively impacted by the book value exit of a plan when book value is above market value.
Plans exiting the fund when market value is below book value can either take the market value immediately or wait until book value and market value are equal. Since plans cannot receive book value unless the book value is at or below the market value, there are no losses to be realized through the crediting rate to remaining plans. Likewise, if plans exit at book value when market value is above book value, that excess market value remains in the fund to the benefit of remaining plans.
Some advisors may mistakenly consider a fund’s lower of book or market exit provision as a defect rather than as an important component for building participant retirement income security -- even when book is above market value. Put provisions provide certainty in terms of the timing of a payout for plans exiting a fund. However, this certainty allows plans to exit at book value even when the book value exceeds the market value of the fund. As a result, in the instance where a plan exits at book value while book exceeds market value, remaining plans in the fund bear the impact of that book value payout through the crediting rate of the fund. Exiting in that environment has a negative impact on the market value of the fund which is then made up through reductions to the credited rate going forward.
While put provisions (typically 12 months) can make it more convenient for plan sponsors to switch options in certain environments, plan sponsors would do well to focus on finding a fund that provides their participants with long-term value while also removing any negative impact associated with plans exiting when book value exceeds market value.
A lesser of market or book value exit provision also has another significant advantage in market. The fact that plans cannot exit at book value when the book exceeds the market value enables our DCIO trust partners to invest in longer duration assets that are expected over time to generate substantially more income for participants than the typically shorter duration assets that funds with 12 month put provisions are able to invest in.
Although some market conditions can erode the expected long-term advantage of the longer duration investments of MetLife’s DCIO partners, a comparison of the returns of our partners’ funds to the long-term averages of stable value funds with 12 month put features shows a significant level of excess crediting rate in our partners’ funds. The historically greater returns that MetLife’s trustee partners’ funds have achieved mean that participants are benefiting from that improved crediting rate experience and achieving a greater level of retirement security. Building long-term retirement income security is the MetLife stable value advantage.