Although stable value has a long, well established track record of preserving capital, providing liquidity, and generating steady, positive returns, it is important to recognize that all investments have risks, including the potential risk of loss of some or all of an investment.
Any investment option is subject to general investment risk and there is no guarantee that it will achieve its objectives. Investors should always carefully consider the investment objectives, fees, and all of the risks of any investment before investing.
Investing in stable value is subject to many similar risks present when investing in fixed income, including, but not limited to, credit risk, default risk, interest rate risk, issuer risk, liquidity risk, manager risk, market risk, regulatory risk, and tax and accounting risk.
Importantly, there are also some risks that are of particular importance to the stable value asset class. The specific risks you assume as a participant invested in your stable value option will depend upon the type of stable value investment vehicle that your plan sponsor has chosen as appropriate for your retirement plan. However, some risks to consider when investing in stable value include, but are not limited to:
- Cash Flow risk, participant-directed contributions, withdrawals, and net transfers can have an adverse financial impact on the issuer of a stable value investment contract or such contract’s crediting rate.
- Contract risk, the investment contract provider could default, become insolvent, file for bankruptcy protection, or otherwise be deemed by the option’s auditor to no longer be financially responsible
- Manager risk, the chance that poor security selection, a focus on securities in a particular sector, category, or group of companies, a lack of diversification of the underlying investments, or a poor selection of investment contract issuer(s), will cause the fund to fail to perform as otherwise expected.
- Event risk, the chance that an investment contract issuer will pay benefits at a value less than book value because of the occurrence of an event or condition that is outside the plan’s normal operation. Such events and conditions may include (unless approved by contract issuers), but may not be limited to, significant layoffs, sale of a division, plan sponsor insolvency or bankruptcy, unreported changes in a plan’s investment options, communications encouraging an investor to withdraw assets from the option, and, in general, plan changes or plan sponsor actions that may result in reduced contributions or large cash flows out of the option. These may also be known as employer-initiated events or market value events.
- Tax, legal, regulatory, or accounting risk, the chance there could be a change in a law, regulation, or accounting rule applicable to the stable value option or any investment contract.
Importantly, a stable value option may be subject to risks other than those described above. This list is not meant to be exhaustive. Please contact your plan sponsor or plan administrator if you have any questions regarding your particular investment.