Top 5 stable value questions from participants
The answers to these frequently asked questions may help participants better understand stable value investments.
What are the objectives of a stable value investment?
A stable value investment is a relatively low-risk investment that is only available to retirement plan participants. It typically has an investment objective of capital preservation, liquidity, and yield. Current interest rates on stable value investments are provided by the issuing insurance company. Based on the type of stable investment offered, the interest rate can be set for a specific period, such as six months. Some stable value investments also offer a guaranteed minimum interest rate (GMIR) that guarantees the issuing company will pay a specific interest rate, no matter what the current interest rate environment.
What role can stable value play in a participant’s savings and investment strategy?
Stable value investments can play different roles in savings and investment strategies. They are often most appropriate for retirement plan participants who are seeking current income and capital preservation, have a short- to intermediate-term investment time horizon, are looking for alternatives to similar types of investments such as a money market fund or are looking to balance more aggressive investment options in their portfolios.
What risks should a participant be aware of when investing in stable value?
All investments have some risks, and retirement plan participants should always carefully consider risks before investing. The specific risks of stable value investments depend on the type of stable value investment vehicle offered in the plan. For example, investors should consider risks associated with the investment objective, underlying securities, contract provisions and guarantees, issuing insurance company, and fees of a stable value investment.
Why do stable value options include transfer and withdrawal restrictions?
Insurance companies provide guarantees and other beneficial features as part of a stable value investment vehicle. Unexpected transfers or withdrawals may disrupt the underlying investments, and, therefore, certain limits are put in place. These provide ongoing stability and equity to new and remaining participants, in addition to maintaining the long-term guarantees and other beneficial features.
What are the fees?
Fees for stable value investments can vary, based on the type of stable value investment offered in the retirement plan. Some stable value investments express the fee as an expense ratio; others don’t state an expense ratio, and the interest rate the participant receives is net of fees.