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How Stable Is Stable?

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Employers need to keep close tabs on the investment options that they present as low-risk options.

Kent Peterson, director of investment services at Securian Retirement, a unit of Minnesota Mutual Companies Inc., St. Paul, Minn., gives that advice in a commentary on use of stable value investments in 401(k) plans.

A U.S. Department of Labor advisory council recently held a hearing on stable value funds.

One issue discussed was the argument that regulators have unfairly prevented employers from using stable value funds as a default investment option for employees who feel to tell employers how to allocate their assets.

A second concern discussed was a sense that stable value funds, which seek to use conservative instruments such as bonds and insurance contracts to maintain a stable value, may be riskier than employees or some employers recognize.

There are different types of stable value options, and plan sponsors need to understand the characteristics of each, Peterson says.

Employers also need to understand that, when financial markets are facing severe stress, managers of stable value investment options may also be facing significant stress, Peterson says.