Stable Value: A multipurpose investment option for retirement plans

The aging of America’s workforce, along with the investing preferences of the generally risk-averse millennials, is bringing Stable Value to the forefront as the safe1 asset class of choice for many defined contribution plans. In fact, Stable Value assets have more than tripled since 2000.2 The following provides a concise overview of Stable Value, including what it is, how it works and its key differentiators.

The Stable Value advantage

Simply put, Stable Value offers a combination of low volatility, intermediate bond-like investment returns and book-value redemption guarantees that is just not available in other retirement plan investment options. 

Stable Value funds can be a core investment in defined contribution employee benefit plans, serving as the conservative foundation of a diversified investment portfolio. The asset class exhibits low correlation to other asset classes and can increase diversification and reduce volatility within a retirement portfolio, making Stable Value appropriate for conservative investors and those seeking attractive, risk-adjusted returns as part of an overall asset allocation strategy.

Stable Value managers generally invest in broadly diversified, high-quality fixed income securities of an intermediate duration to support interest credited to participants. This crediting rate is typically declared in advance, fixed for a period of time and guaranteed not to fall below a set minimum. The combination of intermediate duration fixed income securities and the guarantee provides the opportunity for positive, competitive performance regardless of market volatility.

The State of Stable Value

Throughout the years, Stable Value has delivered on its guarantees and continues to prove its ability to perform as designed in an array of market conditions. Its growing role in the defined contribution marketplace reflects an increased understanding among plan sponsors and intermediaries of its strong value proposition. 

In the DC market today:

  • More than $821 billion is invested in Stable Value funds3
  • Approximately 165,000 plans now offer Stable Value products3
  • More than 55% of all U.S. defined contribution plans offer Stable Value products4
  • Stable Value products represent 23.7% of all DC assets in 401(k) plans4

There are opportunities for Stable Value to expand its reach within defined contribution plans, for example in asset allocation vehicles such as target-date and target-risk funds. Indeed, as the benefits of Stable Valuee are increasingly recognized, the industry is even looking to other markets like Voluntary Employee Benefits Associations (VEBAs) and 529 college savings accounts.

What is Stable Value?

Stable Value is an investment product designed for safety of principal, liquidity5 and steady, competitive rates of return. It provides these features generally by combining an investment in high-quality, intermediate-term fixed income securities with an insurance contract that guarantees the return of principal and accrued earnings for benefit-responsive transactions.

Stable Value at a Glance

  • Provides guaranteed return of both principal and accrued earnings
  • Earnings delivered through a crediting rate that is typically declared in advance, fixed for a period of time and guaranteed not to fall below a minimum
  • Portfolio risk managed through broadly diversified, high-quality securities
  • Daily liquidity for benefit-responsive transactions at book value (principal plus accrued earnings)
  • Protection against market volatility
  • High degree of predictable near- and medium-term returns and a reasonable likelihood of delivering returns that outpace inflation

Prudential: A leader in Stable Value

Prudential’s diverse suite of Stable Value solutions comprises general account, separate account, synthetic GIC and traditional GIC products, with solutions available on multiple platforms serving a diversity of needs. The flexibility and diversity of our offerings enables us to provide products for multiple plan types and markets, including 401(k), 403(b), 457 and nonqualified, while our client base includes corporate, tax-exempt, Taft-Hartley and nonqualified plans of all sizes.

Prudential is recognized as a Stable Value thought leader and innovator, demonstrated through white papers and conference presence as well as product developments such as our recent entrance into the bank-owned life insurance (BOLI) and 529 markets. Defined contribution and defined benefit plans that choose Prudential’s Stable Value products are investing with a company at the forefront of the industry, whose $122 billion6 in Stable Value assets represents an estimated 20% share7 of the Stable Value market.

Through our extensive asset management experience, we deliver strong credit analysis capabilities and a depth of quantitative and risk management expertise. Bringing more than 40 years of Stable Value knowledge and a consultative, client-oriented approach to the development of unique Stable Value investment solutions, Prudential provides guarantees that are backed by the well-diversified, fixed income portfolios of highly rated Prudential Financial companies.

Prudential Financial’s key strength in Stable Value

Stable Value assets as of 12/31/2016—$122 billion
Market Share7—20%
  • Pioneer and a leading provider in the Stable Value market with over 40 years’ experience
  • Ranked 1st in Stable Value assets8
  • Delivers custom solutions using a consultative, client-oriented approach
  • Prudential Financial is one of the leaders in the asset management business with strong credit analysis, quantitative and risk-management capabilities
  • Provides guarantees through highly rated Prudential Insurance companies

 

1Dr. David Babbel and Dr. Miguel A. Herce, “Stable Value Funds: Performance to Date,” The Wharton School, January 2011. Additional summarization provided by Babbel and Herce, February 2011, Stable Value Investment Association, Annual Investment Policy Surveys: 2008-2014.

2Stable Value Investment Association’s Annual Investment Policy Surveys, 2000-2015. A “safe” investment option is one that contains certain safeguards and protections that are not present in other investments. No inference should be drawn that a “safe” investment is free of risk.

3Stable Value Industry Association Quarterly Characteristics Survey Covering Stable Value Assets as of 4Q16.

4Stable Value Investment Association, 20th Annual Investment Policy Survey Covering Stable Value Assets as of year-end 2015.

5Stable Value investments may have liquidity restrictions.

6As of 12/31/2016.

7Estimated market share using market size as reported by LIMRA International, Stable Value and Funding Agreement Product Survey 1Q2Q’2016.

8P&I Money Manager Survey, May 2016. Data as of 12/31/2015.

For informational or educational purposes only. This material is not intended as advice or recommendation about investing or managing your retirement savings. By sharing it, Prudential Retirement is not acting as your fiduciary as defined by the Department of Labor’s Fiduciary rule or otherwise. If you need investment advice, please consult with a qualified professional. 

Insurance products are issued by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or The Prudential Insurance Company of America (PICA), Newark, NJ. Both are Prudential Financial companies. Each company is solely responsible for its financial condition and contractual obligations.

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