Guide to Stable Value for Plan Sponsors and Advisors

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Stable value refers to a relatively low-risk asset class that focuses on capital preservation and liquidity, while providing steady, positive returns to participants within certain types of defined contribution plans. Stable value is available only in tax-qualified retirement savings plans, such as defined contribution plans, as well as in some tuition assistance plans. It is not available in either mutual funds or Individual Retirement Accounts (IRAs).

Stable value investment options are one of the most common capital preservation options in defined contribution plans. They are offered in more than 160,000 plans and according to SVIA’s latest data, participants have invested over $721 billion, which is 12 percent of all defined contribution plan assets.

Stable value focuses on preserving retirement plan participants’ invested capital (or principal) while providing liquidity and steady, positive returns that have consistently bested money market fund returns over their 40 year history. In fact, over a business cycle, most stable value investment options seek to provide returns similar to short to intermediate-maturity bond strategies without the return volatility associated with those strategies.

Stable value investment options may have many different names; capital preservation fund, fixed-interest fund, principal protection fund, guaranteed interest contract (GIC fund), guaranteed fund, stable interest fund, or stable value fund are common stable value names. Yet despite this variation in names, stable value investment options all seek to offer participants the same basic benefits: capital preservation, liquidity, and steady, positive returns that have exceeded those found in money market investments.

Among principal preservation assets—stable value funds, money market funds and short-term bond funds— only stable value delivers contract value, which is equivalent to a participant’s invested balance plus accrued interest. Stable value thus provides capital preservation and consistent, conservative positive returns in a tax-deferred savings vehicle. Stable value is frequently described as providing principal protection and money market liquidity with bond fund-like returns.

Stable value funds remain a popular choice for plan participants within their defined contribution investment options. The Plan Sponsor Council of America’s 57th Annual Survey of Profit Sharing and 401(k) Plans, reflecting 2013 plan experience, found an average asset allocation to stable value among the plans participating in the survey of 7.8 percent. The study, which included both plans offering stable value and plans that did not, showed on Table 75 that stable value was among the four top asset classes to which contributions were made. The survey showed that stable value followed actively managed domestic equity at an average asset allocation of 25.6 percent, target date funds at 16.7 percent, and indexed domestic equity at 10.4 percent. The survey also showed that 59.6 percent of the 613 participating plans offered stable value as a plan option.

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