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Making Retirement Income Security Work

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Stable Value Investment Association Chairman James King is proud to be part of the stable value industry. “It is an important asset class, and it’s part of the fabric of defined contribution plans,” he said as he welcomed his industry colleagues to the SVIA’s 2014 Spring Seminar in April. “We should be proud of being stewards of stable value, and of bringing it to retirement plans in the American workplace.”

King, also managing director and senior client portfolio manager in the Stable Value Markets Group at Prudential Financial, isn’t alone in having good feelings about the industry in which he works and the products it delivers. Last year, the SVIA polled 29 firms that have been providing stable value products consistently since 2007. By year-end 2013 those firms had $702 billion in stable value assets under management, representing about 12 percent of the total assets in defined-contribution retirement savings plans. That was up from just over $459 billion at year-end 2007.

That’s solid growth, and it demonstrates that retirement plan participants see a lot of value in stable value funds. But King is encouraging his industry colleagues to deliver even more for plan participants, in part by looking for creative ways to grow the industry. A good start, he suggested, would be to find ways to include stable value funds more frequently in target-date funds. Target-date funds are one of the fastest-growing investment options in defined contribution plans, but most are structured as mutual funds. Stable value is not available in mutual funds, however, stable value funds can be incorporated into customized target-date funds that are structured as collective investment trusts. Many larger plans already operate custom target-date funds with a stable value component.

“Using stable value in place of, or as part of, the fixed-income component of target-date funds can make a positive contribution to the performance of those funds and their Sharpe ratios,” King said.

King also encouraged his colleagues to take note of the growing trend among plan sponsors to reenroll their employees into their defined contribution plans, typically slotting employees into the plan’s default investment option unless they opt to allocate their money differently. In most cases, that default investment option is not a stable value fund but a target-date fund. “Stable value is too good and essential an asset class to allow this. As an industry, we need to have simple and available solutions that include stable value in these asset-mixed investment vehicles for plan sponsors to offer. And, these solutions must permit participants to continue to rely upon stable value for its diversification benefits, principal preservation and positive, conservative returns.” King said.