As macroeconomic uncertainty continues, the impact of market volatility is a key consideration for today’s workforce and retirees as they manage their retirement savings. Plan sponsors recognize this and share their concern as MetLife’s Stable Value Study, launched today, finds 69% of plan sponsors are concerned about the impact of market volatility on those within 10 years of retirement and 61% are concerned about the impact on retirees. Stable Value funds are a capital preservation option designed specifically for, and available only within, qualified defined contribution (DC) plans and offer safety and stability for both plan participants and retirees.

“Stable Value has a nearly 50-year history as a capital preservation option in DC plans and provides protection against market volatility in uncertain environments,” says Tom Schuster, senior vice president and head of Stable Value and Investment Products with MetLife. “This is essential for those participants near or at retirement looking for earnings stability and liquidity, along with a guarantee of principal and interest.”

Stable Value: A DC Plan Mainstay

Stable Value remains a popular capital preservation option among plans sponsors, with 82% of DC plan sponsors currently offering these funds. The Study found that the large majority of plan sponsors (87%) have offered stable value for more than a year, and 66% have offered this solution for at least three years.

Eighty-four percent of plan sponsors say stable value was recommended by their DC plan’s investment or financial advisor. Eight in 10 advisors (76%) say the top reason for recommending stable value is that it historically offers better returns than money market or other capital preservation options.

“Plan sponsors and advisors recognize and appreciate stable value’s long-term historical performance across all market cycles,” says Schuster. “Because of this compelling track record, stable value remains a popular choice and its outlook is strong.”

According to the Study, a majority of plan sponsors and advisors (83% and 84%, respectively) view stable value as a good capital preservation option for their plans because of its long-term historical performance versus money market funds. An overwhelming majority of plan sponsors, 95%, and advisors, 92%, say stable value funds are valuable to participants seeking a safe haven, especially those who are interested in maintaining their principal.

Stable Value and Target Date Funds

As target date funds (TDFs) remain popular within DC plans, a critical consideration is whether participant savings in these funds are adequately protected from market volatility. The Study found that more than a third of plan sponsors, 37%, are considering adopting strategies to manage volatility but only 12% of plan sponsors to date have implemented these strategies, which may range from the diversification of asset classes to the addition of investment options.

“The good news is that there are new solutions available in the market that apply the volatility smoothing principles of stable value to TDFs,” says Warren Howe, national director, Stable Value Markets. “These solutions allow plan sponsors to optimize the risk/return profile of their TDFs by either lowering volatility while maintaining returns or enhancing returns while maintaining volatility.”

When presented with an example of the first approach—the TDF provider delivers comparable returns, net of fees, while reducing volatility by approximately 40% for certain vintages—the Study found that 95% of plan sponsors would be interested in this option, with 97% of advisors expressing interest. Plan sponsors and advisors were also presented with a second option—the TDF provider generates net returns four times more than the cost associated with delivering those incremental returns while keeping volatility constant (e.g., 60 basis points enhanced net returns for a cost of 15 basis points). The Study found 94% of plan sponsors would be interested in this option while 95% of advisors are interested.

“Plan sponsors can apply these strategies to custom TDFs to reduce the fund’s volatility, particularly for participants who are near or in retirement,” says Howe. “By doing so, they can create better retirement outcomes.”

About the Study

MetLife commissioned Greenwald Research to conduct surveys of plan sponsors and advisors between February 26 and March 21, 2024. A total of 238 interviews were completed among plan sponsors who offer a 401(k), 457 or 403(b) plan. Assets under management for plans included in the study ranged from under $10 million to over $1 billion. Each respondent had to work for a company that offers a DC plan with TDFs or target risk options, offer a capital preservation option, and have at least a moderate amount of influence over decisions regarding stable value or related funds for their company’s DC plan(s). Online surveys were also completed by 50 DC plan advisors who have worked as a plan advisor for at least three years and have clients with DC plans that currently offer capital preservation options. To read the full report, visit http://metlife.com/svstudy2024.

About MetLife

MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help individual and institutional customers build a more confident future. Founded in 1868, MetLife has operations in more than 40 markets globally and holds leading positions in the United States, Asia, Latin America, Europe and the Middle East. For more information, visit www.metlife.com.

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