Data & Research December 8, 2015

What's Important to Clients When Selecting Stable Value Funds

Creditworthiness of the provider and fees topped the list.

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There has been some movement toward adding stable value to 401(k) plans in the past few years, especially among sponsors of smaller plans, according to the MetLife 2015 Stable Value Study.

Today, among defined contribution (DC) plan sponsors who offer stable value, 88% report that they have been offering stable value for more than two years, while 12% have recently added stable value to their DC plan lineups. Those offering 401(k) plans were more likely to have added stable value in the past two years than plan sponsors offering 403(b) plans (14% vs. 4%). Of the 12% who added stable value in the past two years, 43% have less than $10 million in total plan assets.

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Among those plan sponsors who offer stable value, very few (3%) are intending to make any changes to their stable value offering.

When deciding which stable value solution to select, nearly all plan sponsors (96%) identify the creditworthiness of the stable value contract issuer as highly important, including 57% who say it is extremely important. When plan sponsors who rated more than one of the considerations as extremely important were asked, in a follow-up question, to identify the most important factor, creditworthiness was selected by a clear majority (62%). However, there is a disconnect between this plan sponsor ranking and the financial strength ratings of stable value contract issuers.

Next in importance for plan sponsors when selecting a stable value solution are fee levels (93% rate this extremely or very important); among plans with more than 100 participants, this rises to 95%, up from 87% in 2013. The rate that is credited to the plan participants is also important to most plan sponsors (91%), while three-quarters of plan sponsors (76%) think the investment management choices available are highly important.

Of the five considerations tested, plan sponsors assign the lowest priority to the type of stable value fund offered (e.g. pooled vs. not pooled), with only half (51%) saying this is important, and only one in ten (11%) saying that it is an extremely important consideration when deciding on a stable value product.

COMING UP: Stable value fund use in target-date funds

Of five types of plan-related information, plan sponsors are most likely to say they monitor the performance of asset managers quarterly or more often (47%). The frequency of monitoring other types of information quarterly or more often includes an equal percentage (41%) of plan sponsors who monitor the credited rate and the portfolio holdings; 39% monitor the market-to-book-value ratio; and, 32% monitor the credit ratings of wrap providers with this level of frequency.

Close to one in four plan sponsors (23%) report they would be inclined to use stable value as the default investment in their plans if it were approved as a QDIA, most often stating that stable value is a good option for employees or that employees are comfortable with it (26%); this rises to 38% among those that offer stable value and money market. For the plans with 100 or more participants, the share reporting this reason is higher than in 2013 (27% vs. 7%), and while not a statistically significant difference, it suggests a greater comfort level with stable value among participants.

In the study, 73% of plan sponsors with auto-enrollment in their DC plans use target-date funds as their default investment. About one-quarter of plan sponsors (24%) offer a custom target-date fund for their plan, while another 11% are currently considering offering a custom target-date fund.

The study found 51% of those who have a custom target-date fund in place include stable value in that offering. Among those considering adding a custom target-date fund, two-thirds (65%) are likely to include stable value as an allocation in that option. Half of stable value fund providers (50%) offer their plan sponsor-clients a custom-date fund, with 60% saying it typically includes stable value. One-third of advisers (33%) say they sometimes recommend that their plan sponsor clients include a custom target-date fund in their investment menus; when they do, 80% recommend including a stable value allocation in their custom target date funds.

MetLife engaged Greenwald & Associates and Asset International, Inc., publishers of PLANSPONSOR and PLANADVISER magazines, to conduct three separate studies—an online survey of 205 plan sponsors conducted in June 2015, as well as in-depth phone interviews with 20 stable value fund providers and nine advisers during July 14 to August 28. A report of study findings is available at www.metlife.com/stablevaluestudy2015.