By Gina Mitchell
An article, “Fundamental Investment Principles of DC Option Selection Prove Optimality of Stable Value,” by Paul Donahue, a proponent of stable value, was recently published in the Society of Actuaries’ Pension Section News which is “a medium for the timely exchange of ideas and information of interest to pension actuaries.” However, the article should be of interest to all ERISA fiduciaries as well as those interested in stable value.
Besides making the case as to why he believes stable value should be the conservative option in a DC plan, Donahue highlights important considerations in the type of stable value fund used. Specifically, Donahue highlights pooled fund and individually managed account structures by focusing on the importance of contract terms and their potential impact on book value, or, as Donahue describes, “the stable (non-decreasing) net asset value for all transactions permitted by the plan.” His article focuses on three areas that can impact participants’ stable net asset value: employer events, contract termination, and exit provisions for pooled funds. Donahue also discusses considerations in choosing between pooled funds and individually managed accounts.