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Investment Advisor Promotes Stable Value Funds for 401(k) Plans

Stable Value investment professionals do not need consultant Stephen Brundage of JPMorgan/American Century Retirement Plan Services to tell them that Stable Value Funds combine the best attributes of both money market funds and bond funds. But it was nice to hear him say that's exactly the message he and his colleagues routinely deliver to plan sponsor clients who rely on his firm to help them design their 401(k) plans.

"We say that a Stable Value fund is a stronger option than a money market fund in 401(k) lineups, and that if they have a money market fund in their plan, they should be thinking about moving to Stable Value," Brundage informs.

To its plan sponsor clients, JPMorgan/American Century provides a graph indicating that from January 1990 to June 2002, Stable Value offered "a better journey and destination than other conservative options." Specifically, the graph indicates that during that time period the typical Stable Value Fund would have grown from $100 in value to about $240, in virtually a straight line. By contrast, the Lehman Intermediate Aggregate bond index would have grown to just a shade more?about $250?but with far more volatility. The typical money market fund, meanwhile, would have grown to only about $185.

For plan sponsors debating the addition of a Stable Value Fund to their investment fund lineup, Brundage says, the biggest issues are:

• Understanding the product's complexity and its risks,

• Worrying about how well participants will understand Stable Value, and

• Wanting to know if they can keep their money market fund and still add a Stable Value Fund.

Fortunately, he says, his firm has had great success in overcoming those concerns, especially with money market returns at historic lows. So far this year, he says, his firm has convinced eleven plan sponsor clients to eliminate money market funds from their defined contribution plans in favor of Stable Value funds. "Right now this is a very easy sell for us," he concludes.

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