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King: Let Stable Value In

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The U.S. Department of Labor should let retirement plans use stable value products as qualified default investment alternatives, an insurer executive says.

James King Jr., a vice president in the stable value markets group at a unit of Prudential Financial Inc., Newark, N.J., spoke up for stable value funds today at a hearing organized by the ERISA Advisory Council, an arm of the Labor Department.

A stable value fund is a fund that seeks to offer a relatively high fixed rate of return by investing in guaranteed investment contracts, bonds wrapped in insurance wrappers, and other products that have generally had a low risk of default.

A QDIA is a fund that a 401(k) plan administrator can use to hold the plan assets of participants who fail to tell plan administrators how they want the assets allocated.

In 2007, when the QDIA program was developed, the stock market was doing well, and many investment experts and others argued that the funds used for QDIAs should offer variable returns linked at least partly to the performance of the stock market, to give plan participants a chance to share in stock market gains.

Today, “the collapse of the financial markets highlights the need for investment options that both protect and grow principal,” King testified at the advisory council, according to a written version of his remarks.

Most variable funds lost money in 2008, but every stable-value fund produced a positive return for the year, King reported.


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