By Randy Myers
The sharp rise in interest rates in recent years has presented significant challenges for stable value funds. Higher rates have depressed the market value of stable value investment portfolios, left crediting rates trailing money market yields, and prompted some retirement plan participants to put their money elsewhere. But industry professionals say stable value has performed as designed through the difficult environment, and they see opportunities to strengthen its position in retirement plans and expand into new markets.
Jeff Graham, relationship manager and director of institutional sales at MassMutual, shared data with attendees at the 2026 Stable Value Investment Association Fall Forum showing how much the stable value environment changed from 2020 to year-end 2025. Examining the underwriting databases at MassMutual and Prudential, he found that the average market-to-book ratio for stable value funds (the ratio between the market value of the assets and the book value of the contract) fell below par, and net fund cash flows, including transfers, swung from a positive to a negative. In pooled funds, the average percentage of fund assets in put queues (assets awaiting withdrawal under pooled funds’ advance-notice provisions) increased.
On a more positive note, crediting rates—the rates stable value funds credit to investors—increased on average by more than 100 basis points.
Graham spoke as part of a panel presentation that included Kallan Yee, vice president and stable value strategist at PIMCO; Maria Cimino, vice president of in-force product management at Prudential; and Jennifer Gilmore, head of stable value portfolio management at Invesco.
How rising rates challenged stable value
Sharp increases in short-term interest rates affect stable value funds in two ways. First, they drive down the market value of the intermediate-term bonds held in stable value investment portfolios. Second, they make stable value crediting rates less competitive relative to money market funds, whose shorter duration portfolios track rate changes more quickly.
In the 16 months from March 2022 to July 2023, the Federal Reserve raised its benchmark federal funds rate 11 times, by a total of 5.25 percentage points. That rapid rise in rates increased risks for stable value wrap providers because it affected their entire books of business simultaneously, Cimino said.
With crediting rates lagging prevailing market yields, participants had an incentive to move money elsewhere. “And then the more withdrawals you see, the more your rate gets lagged,” she said.
That dynamic heightened concerns about potential claims against stable value wrap contracts and prompted increased scrutiny from internal risk management teams, senior executives, and regulators.
Cimino emphasized, however, that the decline in portfolio market values reflected an interest rate event rather than deterioration in credit quality. Moreover, the contractual protections built into stable value funds were functioning as intended, allowing wrap providers to withstand what would prove to be an extended period with market values below book values.
She also said the experience of the past several years has reinforced confidence in the industry’s existing risk management practices. The additional scrutiny triggered by the rate environment prompted a thorough reassessment of assumptions and models, which generally proved sound.
Plan sponsors grapple with outflows and lagging yields
Yee said conversations with plan sponsors have increasingly focused on participant withdrawals and the persistent gap between stable value crediting rates and money market yields. Plan sponsors with older or larger inactive participant populations have been particularly concerned about providing competitive returns. Yet predictions on when crediting rates would catch up with money market yields have been pushed out, as the pace of convergence has proven slower and less predictable than anticipated.
Given those developments, PIMCO has increasingly focused discussions on factors within its control, including investment performance and fund structures.
Gilmore said the prolonged period of below-par market values also has complicated the process of dealing with plan events that can lead to withdrawals from stable value accounts, such as plan terminations, recordkeeper changes, or investment lineup changes that eliminate or replace an existing stable value option.
Gilmore said Invesco had experienced a number of plan events within its book of business, and while the financial significance of those events varied considerably, larger and more persistent market-to-book deficits had increased the number of discussions with plan sponsors.
To address those challenges, Invesco has sought earlier information about potential plan events and worked closely with sponsors and wrap issuers to evaluate alternatives. The goal, Gilmore emphasized, is not simply to minimize litigation risk but to secure appropriate outcomes for affected participants.
Lessons from a difficult rate environment
Cimino identified one potential benefit from the challenging rate environment: better information about participant behavior.
The industry now has additional data on how participants respond when crediting rates lag competing investments and market-to-book ratios remain depressed. That experience should help wrap providers refine their assumptions, strengthen risk modeling, and better evaluate future opportunities.
Graham cautioned against assuming that more aggressive investment guidelines would have produced better results during the recent rate cycle. Longer-duration portfolios, for example, have recovered more slowly from the interest-rate shock than shorter-duration portfolios.
Instead, he suggested that the industry focus on better communicating stable value’s strengths and reducing unnecessary complexity.
“I think as an industry we need to try to make it easier, simple, better understanding,” he said.
New avenues for growth
Despite the difficulties of the past few years, the panelists expressed optimism about stable value’s longer-term prospects.
Yee pointed to growing collaboration among managers, consultants, wrap providers, and the SVIA as the industry works to address sponsor concerns and broaden adoption of the asset class. She also emphasized the importance of preparing for future market volatility while maintaining stable value’s traditional investment discipline.
PIMCO is using scenario analysis to evaluate potential market developments and exploring whether adjustments to underlying portfolios could improve results within existing investment guidelines. She emphasized, though, that the objective is not to pursue short-term yield enhancements at the expense of long-term performance.
Graham highlighted target-date funds and retirement income solutions as promising areas for expansion. Citing the 25th edition of Vanguard’s “How America Saves” report, he noted that 96% of plans offer target-date funds, 84% of participants use them, and 83% of total contributions are allocated to them.
Those figures underscore the importance of increasing stable value’s presence within target-date strategies, Graham said. He suggested that wrap issuers could facilitate greater adoption by making contractual terms more accommodating.
Retirement income solutions represent another opportunity, particularly as the retiree population grows and demand increases for investments that offer principal protection and liquidity.
Gilmore urged the industry to think more broadly about where stable value’s fundamental capability to smooth investment gains and losses over time might prove useful. She cited the expansion of stable value into 529 college savings plans and custom target-date funds as examples of innovation that could extend into other markets, potentially including health savings accounts, 403(b) plans, and state-sponsored retirement programs.
HSAs could become particularly attractive, she noted, as more account holders accumulate balances for long-term investment rather than immediate medical expenses, although product and regulatory restrictions currently limit opportunities.
Gilmore also suggested that greater customization could help stable value appeal to plan sponsors with differing risk tolerances. Some sponsors are interested in enhancing yields by expanding permissible underlying investments, while others remain strongly committed to traditional conservative guidelines. That divergence presents opportunities for innovation but also underscores the complexities of designing solutions that satisfy different investors.