Stable Value Viewed with Increasing Favor by Plan Sponsors and Consultants

By Randy Myers

In the aftermath of the credit crisis, stable value funds are looking more attractive to many retirement plan sponsors and their consultants.

In the spring of 2011, The Vanguard Group surveyed sponsors of defined contribution plans and consultants who advise them. The primary goal was to gauge how much attitudes have changed over the past three years about target-date funds, one of the newer investment options in retirement savings plans. However, Vanguard also asked survey respondents about their changing views of other investments, including stable value funds. Respondents were asked to score each investment option on a scale of one to five, with five representing the most favorable attitude change and one representing the least favorable change.

Among sponsors who offer target-date funds in their plans, 28 percent said their attitude toward stable value funds has become more favorable over the past three years, with 21 percent giving the asset class a score of four and 7 percent the highest possible score of five. A majority of these respondents—53 percent—gave a neutral response, while just 15 percent gave stable value a rating of two. Just 4 percent assigned it a rating of one.

Results among sponsors who do not offer target-date funds were similar, while results among retirement plan consultants were even better. Among that group, 56 percent said their attitude toward stable value had become more favorable over the past three years. A healthy 19 percent gave stable value a top rating of five, and 37 percent rated it four. Only 2 percent of consultants gave stable value a rating of one.

Vanguard found that perceptions of money market funds fared the worst of all asset classes over the last three years. Among sponsors offering target-date funds, for example, 11 percent gave it the worst rating of one, and another 32 percent gave it a rating of just two.

Dean Hamilton, an investment analyst with Vanguard who spoke at the 2011 SVIA Fall Forum, says the diverging views of stable value funds and money market funds may reflect in part the historically low yields the latter offer right now. He notes that plan sponsors and consultants also may have lingering concerns about the possibility of money market funds “breaking the buck,” a reference to their net asset value falling below $1 after seeing that happen to the Reserve Primary Fund in September 2008.