By Randy Myers
- Greg Anselmi, Vice President, Client Management, Transamerica Stable Value Solutions, Inc.
- Douglas Barry, Executive Vice President and Senior Relationship Manager, Stable Value Strategies, Standish Mellon
- LeAnn Bickel, Head, Stable Value Contract Administration, Invesco Advisers, Inc.
Moderator: Bradie Barr, President, Transamerica Stable Value Solutions, Inc.
Re-enrolling participants in defined contribution retirement savings plans isn’t particularly advantageous for stable value funds. However, stable value industry leaders at the 2017 SVIA Spring Seminar made it clear the industry’s top priority is to help participants achieve their retirement goals, and said it is important for stable value providers to accommodate plans that choose to re-enroll participants.
Only a very small minority of retirement plans undertake re-enrollments in any given year. Through re-enrollment, sponsors can help participants redirect their retirement savings into age-appropriate investment strategies, often using target-date funds or some other Qualified Default Investment Alternative (QDIA).
Drawing on data made available by The Vanguard Group, Bradie Barr, President of Transamerica Stable Value Solutions, walked her audience through what happened to one stable value fund when a plan administered by Vanguard went through a re-enrollment. Forty-two percent of the plan’s participants were invested in its stable value option on September 30, 2014, prior to re- enrollment. At that time, stable value accounted for 15 percent of total plan assets. On June 30, 2016, six months after the re-enrollment was completed, only 2 percent of participants were invested in stable value, and stable value accounted for just 2 percent of total plan assets. One year following re- enrollment, stable value use had rebounded a bit. At that point, 4 percent of plan participants were invested in the stable value option, which now accounted for 3 percent of plan assets.
LeAnn Bickel, head of Stable Value Contract Administration for stable value manager Invesco Advisors Inc., described one of four cases they have experienced since 2014. Bickel said the client had begun talking about the idea a year or so after the 2008 financial crisis, when the market value of its stable value fund was below book value. Because the fund’s contract terms would have made it difficult to cover withdrawals at book value at that time, the plan postponed the move until 2014. Bickel said that prior to the re-enrollment, about 29 percent of the assets in that plan were in its stable value fund; after re-enrollment that figure dropped to 7 percent. Now, three years later, it is up to about 10.5 percent. Still, Bickel said, “This is all about helping participants achieve their retirement goals, and it is in our best interest as a stable value manager and as an industry to help plan sponsors, and ultimately plan participants, achieve their objectives.”
Greg Anselmi, Vice President, Client Management for Transamerica—the sole stable value wrap issuer on the panel—said his firm had been involved with nine re-enrollments since 2012, although only five had a direct impact on Transamerica’s wrap contracts, and some excluded stable value from the process. Re- enrollment activity has since died down, he said, noting that “over the last two years we might have had one smaller re-enrollment”. Where it has been involved in re-enrollments, Anselmi said, the managers of the stable value funds all took the same approach to managing the transition, increasing their fund’s cash buffer to fund re-enrollment-related withdrawals. “We saw as much as 75 percent taken out of our contracts,” he said, “but overall it was a very positive experience with the managers. They included us early in the process, and we had a lot of time to work together to figure out a solution.”
For any stable value managers who may have to work through re- enrollments in the future, the panel offered several pieces of advice. First, they said, stable value managers should position their portfolios in advance of re-enrollment to minimize the long- term impact on their fund’s crediting rate. They should assist plan sponsors and record-keepers with participant communication materials, and work with record-keepers during the investment election period to ensure cash levels in the fund are sufficient, but not higher than necessary. They also should work with plan committees to model and explain the stable value issues associated with re-enrollment. Finally, the panel said, stable value managers should actively engage their wrap issuers in the process to facilitate a smooth transition.