Participants Still Putting Money in Stable Value

Research by Rocaton indicates that despite credit market conditions that have created challenges for many stable value funds and for the stable value industry in general, the funds have remained a popular choice for defined contribution (DC) plan participants.

According to a Rocaton white paper, its survey of a group of 18 stable value commingled funds that provided data as of December 31, 2008, and March 31, 2009, found the average stable value fund received $490 million of net positive cash flow in 2008 and $81.8 million for the first quarter 2009.

Rocaton said stable value funds may still be a good option for DC plan participants, as its research revealed that as of March 31, 2009, the average market-to-book value ratio reported improved slightly to 94.9%, compared to 94.2% as of year-end 2008. Rocaton said it expects these ratios to improve by the end of the second quarter, given the narrowing of credit spreads during the second quarter of 2009 to date.

In addition, the average crediting rate has declined from 3.6% to 2.9%, which still compares favorably to the average yield of 0.51% for institutional prime money market funds as of March 31, 2009.

The white paper explains the mechanics of stable value funds, how they have been affected by the recent credit crisis, and what plan sponsors should watch for in the future. It can be requested from Rocaton here.