PLANADVISER - September/October 2018 - 7

Stable Value
Are Your Clients' Plans
Offering the Right Capital
Preservation Option?
S
table value funds are popular as a
conservative investment option in
defined contribution (DC) retirement
savings plans-all the more so
since
regulations
impacting
money
market funds took effect in 2016. To
learn more about stable value's enduring
appeal-and why it makes sense in
today's investment climate-PLANADVISER
spoke recently with Tom Schuster,
senior vice president and head of Stable
Value
and
Investment
Products
at
MetLife, a leading stable value provider,
and Warren Howe, MetLife's national
director for Stable Value Markets.
PLANADVISER: If your plan sponsor
clients are offering a money market
fund as
their
capital preservation
option, is this a good time to suggest
they replace it with a stable value
fund? If so, why?
Tom Schuster: It made sense before
the money market rules went into effect,
and it makes even more sense now. For
starters, stable value has decisively
outperformed other capital preservation
options. Our client data show that for
the 10-year period ending December 31,
2017, for example, stable value outperformed
inflation by more than one
percentage point per year, while money
market funds lagged by 120 basis points.
So, on an absolute basis, stable value
outperformed money market funds by
about 230 basis points per year. This is
achievable because stable value is only
available in tax qualified plans, and can
use the tax and plan provisions available
in those plans to go out a little longer on
the yield curve.
PA: Apart from returns, how do stable
value funds compare to other capital
preservation options?
Warren Howe: Stable value has consistently
outperformed other short-term
fixed income options, not only with
higher returns but also with lower volatility-all
while providing equivalent
levels of liquidity. It has always provided
the funds required for participant transactions.
Stable value also has a lower
correlation to the returns of other asset
classes offered in DC plans, which makes
it a better diversifier. Finally, stable value
has a 40-year track record of preserving
principal and providing a reasonable
return on investment, no matter the
market conditions. I think one of the
most important aspects of stable value
is that
it performs as designed in all
market conditions so it's there for participants
when they need it.
PA: Don't many advisers already
recommend stable value for those
very reasons?
Schuster: Advisers do indeed recommend
stable value-often. But there's
a disconnect between what they recommend
and what plan sponsors are
doing. MetLife's 2017 Stable Value Study
found that 73 percent of sponsors who
offer stable value, and 67 percent who
offer money market, said their advisers
recommended those options to them.
However, 90 percent of advisers report
recommending stable value very often,
while 86 percent say they seldom or
never recommend money market funds.
This indicates money market funds
are seldom or never recommended,
according to advisers, yet are perceived
by plan sponsors to be strongly recommended
by those same advisers.
It
is
important that advisers communicate the
advantages of stable value, supported
by compelling data, and make sure their
clients understand it.
SPONSORED SECTION
Tom Schuster
Warren Howe
PA: What's the key message that
needs to be delivered?
Schuster: Advisers-and all of us in the
retirement industry-need to encourage
greater appreciation of stable value's
risk and return profile. Fifty-six percent
of the plan sponsors we surveyed were
aware that stable value returns outperformed
money market returns over the
past 15 years, but 84 percent did not
know that stable value returns exceeded
inflation over that same period.
PA: Target-date funds (TDFs) are
capturing the bulk of the new money
going into DC plans. Is there a role for
stable value there?
Howe: Absolutely. We see growing
interest
in using stable value as
the
fixed-income component in TDFs in lieu
of money market or short-term bond
funds, not only because stable value
offers higher returns but also because
it's less volatile. Plugging in stable
value should allow target-date funds
to increase their allocations to equities,
which have higher expected returns. This
should benefit participants. It's worth
noting, by the way, that stable value can
work in either a custom or off-the-shelf
TDF structure.
PA: Do you see the asset class growing?
Schuster: With approximately $735
billion in assets, it's clear stable value has
earned the trust of plan participants. We
believe it has a long and bright future,
because it offers benefits that participants
value. n
PLANADVISER - September/October 2018

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