During times of market volatility, stable value
has protected benefit plan sponsors from
market downturns, earning the trust of defined
contribution (DC) plan participants aiming to
preserve the value of their retirement savings
accounts. MetLife executives Tom Schuster,
vice president and head of Stable Value, and
Warren Howe, national sales director, Stable
Value Markets, talked to PLANSPONSOR about
how plan sponsors can better understand stable
value, and what the future holds for this capital
preservation investment option.
PLANSPONSOR: What is stable value, and why should plan
sponsors become familiar with it?
Tom Schuster: Most plan sponsors want to provide a capital
preservation option within their DC plan. Stable value is the
capital preservation option designed specifically for and only
available in tax-qualified plans, such as DC plans. Currently
available in about half of DC plans, stable value offers plan
participants the greatest total return consistent with protection of principal. Because stable value takes advantage of limitations on withdrawals imposed by plan design and penalties
on early withdrawals imposed by tax law, it can safely invest
for greater return than an option such as money market funds.
In fact, stable value returns have outpaced inflation while
money market returns haven’t.
PS: What are the different ways a plan can offer stable
Schuster: Large DC plans usually retain a stable value manager to manage their plan’s stable value option individually,
since they are large enough to have a customized solution.
Small and intermediate plans generally offer stable value by
participating in a pooled fund, which gives small plans econ-
omies of scale they could not get on their own. Pooled funds
differ significantly in exit provisions, and there are important
trade-offs between exit provisions and expected yield that
plan sponsors should understand. Most pooled funds allow
a plan to exit at contract value with 12 months’ notice. This
makes it easy for a plan to move from one stable value fund
Warren Howe: Individual plan sponsors, or their managers,
and pooled fund sponsors, must consider the different types
of stable value contracts available. Pooled funds and individually-managed plans generally use one of three types of
stable value contracts: general account guaranteed interest
contracts (GICs), separate account GICs, or synthetic GICs.
The general account GIC is backed by an insurer’s general
account, but the rate does not vary with the investment experience of the general account or with the withdrawal experience of the stable value option. In stable value language, this
contract is “non-participating.”
Both investment experience and stable value option withdrawal experience affect the rate participants receive in separate account and synthetic GICs. These two types of contracts
are “participating.” The difference between them is that an
insurer owns the assets in a separate account GIC, while the
plan owns the assets in a synthetic GIC.
Schuster: There’s a fourth offering from MetLife called a non-participating separate account GIC, which combines the features of the traditional GIC that Warren mentioned with the
additional backing of a separate account.
PS: Considering all of those options, what should plan
sponsors keep in mind when offering stable value within
their plan investment lineup?
Howe: First and foremost, when they’re considering stable
value, plan sponsors need to decide what type of solution
is right for their plan participants. Is it a pooled fund or an