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Stable Value Funds May Gain Popularity in Retirement Plans

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Stable value funds could see an upswing in plan sponsor and intermediary popularity, according to a white paper from Prudential Retirement.

The white paper, “Expanding the Case for Stable Value,” detailed research on the topic based on survey results from plan sponsors and intermediaries indicating their motivations to adopt stable value and to recommend it as an asset class to others.

According to respondents, the top two factors leading them to incorporate stable value into plan offerings were capital preservation and steady returns, with 54% of sponsors and 75% of intermediaries naming capital preservation as the top reason. Steady returns were chosen as a deciding factor by 54% of sponsors and 70% of intermediaries.

However, that doesn’t mean that respondents were totally enamored of the class.

Fifty-three percent of sponsors and 69% of intermediaries said the cost of stable value funds was a challenge, with their higher cost—or the perception of it—the top reason out of three cited for not choosing to add stable value to the mix.

The other two main reasons cited by non-adopters were the performance of stable value funds relative to equities and other nonfixed-income asset classes, and the notion that they may be difficult for plan participants to understand.

The white paper also hypothesized that another reason could be lack of familiarity: stable value is less well known than other investment options.

Those who recommended stable value to others gave three primary factors for those recommendations: the returns the asset class delivered versus other fixed-income investments; their role in boosting plan participation and deferral rates; and, for the intermediaries, their liquidity for participants.

So why should stable value grow in acceptance?

The paper suggested that, even among non-adopters, the potential for the addition is there; 55% of sponsors plan to offer it in the future, and among intermediaries, 30% of those who recommend stable value to clients are doing so more often today than they did a year ago, and 35% expect this trend to accelerate over the next three years.

In addition, changing regulations for money market funds could make those offerings less attractive; 63% of sponsors offering money market funds and 49% of intermediaries who recommend them said they expect the SEC’s ruling that redemption can be halted or can incur fees will change their allocation to money market funds.

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