What to Consider When Evaluating Stable Value Investments

March 22, 2023

Stable value funds are a unique asset class that are different from fixed-income or equity funds. Generally, stable value funds offer investors lower risks and guaranteed returns. This asset class offers investors some options you may not have considered. Knowing the key benefits and features of stable value products is important when providing a full suite of options to your clients.

When evaluating a stable value fund, some of the many factors you may want to consider are:

  1. Account structure
  2. Termination options
  3. Portability

Account Structure

Two common stable value products offered by insurers to retirement plans are separate and general accounts:

Separately Managed Accounts

ProsCons
  • Multiple investment managers
  • May be portable between recordkeepers
  • No minimum interest rate guarantee
  • Plan-level payout can be less than par

General Account Stable Value Fund

ProsCons
  • Guaranteed fixed interest rate
  • Minimum interest rate floor
  • May be portable between recordkeepers
  • Limited transparency — spread and holdings
  • Potential adjustment to earnings at contract termination

Both general and separate accounts are backed by the financial strength of the insurer, which offers the product and provides the guarantee. Separate accounts provide an additional layer of protection. The underlying assets that support the fund’s performance are set aside from the general account, which better protects investors should an insurer become insolvent. In exchange for this additional protection, insurers often offer a lower crediting rate for the fund in comparison to general account products.

Termination Options

This is an important consideration when evaluating stable value investments. Keep in mind the withdrawal restrictions and possible fees or adjustments, including:

  • Reduced crediting rate
  • Book value payout delays
  • Market value adjustments

If your stable value fund has a market value adjustment, confirm the MVA calculation and check to see if the fund is portable before exiting. If changing recordkeepers, see if the new recordkeeper can absorb the MVA fee. Also, look for a fund that can assist a plan sponsor and reduces the impact of any prior fund's MVA.

Portability

These funds may also be portable, giving your client the option to transfer while avoiding an MVA. Not all stable value funds are portable. It’s important to keep this in mind when selecting a stable value fund, in case portability is needed in the future.

If your client decides to change recordkeepers, be sure to select one who will accommodate the plan’s existing stable value fund.

Why Stable Value Funds?

One of the major benefits of stable value funds is they come backed by insurance companies that are required to be well-capitalized and highly regulated. Clients gain from our experience with the stable value market and a professionally managed stable value portfolio.

Contact us to find out more about stable value funds.

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