New MetLife Study: Majority of Plan Sponsors Concerned about the Impact of Market Volatility on Near-Retirees and Retirees
“Stable Value has a nearly 50-year history as a capital preservation option in DC plans and provides protection against market volatility in uncertain environments,” says
Stable Value: A DC Plan Mainstay
Stable Value remains a popular capital preservation option among plans sponsors, with 82% of DC plan sponsors currently offering these funds. The Study found that the large majority of plan sponsors (87%) have offered stable value for more than a year, and 66% have offered this solution for at least three years.
Eighty-four percent of plan sponsors say stable value was recommended by their DC plan’s investment or financial advisor. Eight in 10 advisors (76%) say the top reason for recommending stable value is that it historically offers better returns than money market or other capital preservation options.
“Plan sponsors and advisors recognize and appreciate stable value’s long-term historical performance across all market cycles,” says Schuster. “Because of this compelling track record, stable value remains a popular choice and its outlook is strong.”
According to the Study, a majority of plan sponsors and advisors (83% and 84%, respectively) view stable value as a good capital preservation option for their plans because of its long-term historical performance versus money market funds. An overwhelming majority of plan sponsors, 95%, and advisors, 92%, say stable value funds are valuable to participants seeking a safe haven, especially those who are interested in maintaining their principal.
Stable Value and Target Date Funds
As target date funds (TDFs) remain popular within DC plans, a critical consideration is whether participant savings in these funds are adequately protected from market volatility. The Study found that more than a third of plan sponsors, 37%, are considering adopting strategies to manage volatility but only 12% of plan sponsors to date have implemented these strategies, which may range from the diversification of asset classes to the addition of investment options.
“The good news is that there are new solutions available in the market that apply the volatility smoothing principles of stable value to TDFs,” says
When presented with an example of the first approach—the TDF provider delivers comparable returns, net of fees, while reducing volatility by approximately 40% for certain vintages—the Study found that 95% of plan sponsors would be interested in this option, with 97% of advisors expressing interest. Plan sponsors and advisors were also presented with a second option—the TDF provider generates net returns four times more than the cost associated with delivering those incremental returns while keeping volatility constant (e.g., 60 basis points enhanced net returns for a cost of 15 basis points). The Study found 94% of plan sponsors would be interested in this option while 95% of advisors are interested.
“Plan sponsors can apply these strategies to custom TDFs to reduce the fund’s volatility, particularly for participants who are near or in retirement,” says Howe. “By doing so, they can create better retirement outcomes.”
About the Study
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jmahaney@metlife.com
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