Plan Sponsors Continue Use of Stable Value, but Lack Understanding

Throughout the turbulent economic environment of the last several years, stable value has continued to offer a safe haven for defined contribution plan participants, according to the MetLife Stable Value Study: A Survey of Plan Sponsors and Stable Value Fund Providers.

The study, conducted in partnership with Mathew Greenwald & Associates and fielded by Asset International, found an estimated 27% of 401(k) assets were allocated to stable value funds at the end of 2009. Despite stable value’s use by plan participants, one-third of plan sponsors (35%) report being unfamiliar with at least some of the particular mechanics of how stable value works.

In addition to the 35% of sponsors that reported being unfamiliar with which events are considered “employer initiated” by their book value guarantee providers, fewer than half of sponsors that were familiar with these events indicated that they know which of them could lead to a payment at market value, other than plan termination. It also appears that the connection between wrap contract provisions and other plan features, such as the investment strategy selected and other funds offered to participants, may not be widely viewed on an integrated basis, MetLife said in a press release. 

Nine in 10 plan sponsors (94%) view the credit rating of the book value guarantee provider as the most important provision—six in 10 (61%) feel it is “extremely important,” and 32% said it is “very important.” Fee levels rank next in importance (82%), but a significantly lower proportion (38%) believe fee levels are “extremely important.”  

Both termination provisions and changes in investment strategy due to market versus book value dislocation are ranked next in importance, with 77% of plan sponsors rating both of these provisions as important. About six in 10 rate the events which are defined as employer-initiated and having control over the changes to the investment guidelines as important (61% and 59%, respectively).

Among plan sponsors who offer stable value as an investment option in their DC plans, half (50%) indicate they have a traditional GIC, 44% percent of plans indicate they have a synthetic GIC, and one-third of plans (34%) have a separate account GIC. The largest plans (10,000 or more participants) are more likely than small plans (100 to 1,000 participants) to have a synthetic GIC (56% vs. 30%), as well as a separate account GIC (52% vs. 20%). 

The study also found only half of stable value fund providers surveyed consider themselves fiduciaries to the plan.  

In addition, despite reports over the past year, the study found that wrap providers exiting the market are not as widespread as thought. Among all plan sponsors who have a separate account or synthetic guaranteed interest contract (GIC), approximately one in four (24%) reported that they have replaced a book value guarantee provider within the past 12 months because a provider exited the business.

MetLife commissioned the study during November through December 2009. The quantitative research was composed of 145 online interviews with plan sponsors of all sizes with at least 100 participants in a 401(k) plan, a 457 plan, or both plan types that included a stable value option, who had significant influence over decisions regarding stable value or related funds. The qualitative research involved a series of in-depth telephone interviews with 13 stable value fund providers and several consultants actively involved in advising plan sponsors on stable value.  

The study can be downloaded at