Stable value products are designed to provide principal protection as well as returns over the long term consistent with short to intermediate term bonds for plan participants. Stable value products invest in fixed income investments and purchase insurance to wrap the investments. That insurance allows for contract value accounting and a stable net asset value (NAV).
Stable value products are benefit responsive meaning participants withdraw their original deposit amount plus accrued interest, which is called contract value at any time. When participant withdrawals occur as a result of a plan sponsor-initiated event such as re-enrollments, manager changes, divestures, and terminations, they may not be covered by the stable value contract. These events are subject to certain exit provisions, which are outlined in the contract.
Exit provisions are stipulated in the contract between the stable value contract issuer and plan. Exit provisions generally require the plan sponsor to wait a stated period before receiving the full benefit responsive value (principal plus accumulated interest). If a plan sponsor does not wish to wait, the sponsor may be able to redeem stable value assets immediately at current market value, which may be less than the benefit responsiveness of the stable value product and may result in plan participants not having their principal preserved, which is a core investment objective of stable value.
See also Put Option.