As we move further into 2017, there’s is a bit of uncertainty driving 401k client decisions about options in their plan.
As a 401k plan advisor, this uncertainty provides an opportunity. For sponsors with employees demanding more conservative investment vehicles, a guaranteed insurance stable value fund could be the ideal fit, as it potentially provides plan participants with safety of principal, liquidity and a stable rate of return.
Here are six frequently asked 401k stable value questions:
1). How does a guaranteed insurance stable value fund work?
While this is the most basic of questions, many 401k plan sponsors may be new to this investment option and need a tutorial. Make your explanation simple: a guaranteed insurance stable value fund is an investment option available through qualified and nonqualified defined contribution plans, like a 401k, 403b or defined benefit plan. When added to a defined contribution plan, it is designed to provide a plan participant with guaranteed return of principal and accumulated interest, and promises that the crediting rate will never fall below a certain minimum.
What this means is that when a plan participant invests in a guaranteed insurance stable value fund, the crediting rate is locked into place, typically every quarter — or at least semiannually. This assured crediting rating is beneficial for plan participants who are risk-adverse but want to invest or who will want to dip into their investments in the upcoming years.
2). What are the main benefits that plan consultants should highlight when speaking with plan sponsors?
It’s important for consultants to highlight that an insurance company’s guaranteed insurance stable value fund can provide safety, liquidity and yield when discussing defined contribution investment options. For clients that have employees looking for stable investment options as part of their retirement planning, guaranteed insurance stable value funds can serve as a more conservative product offering to help protect plan participants’ savings.
3). What is “guaranteed” with a guaranteed fund?
Another selling point to emphasize with plan participants is that guaranteed insurance stable value funds ensure an investor’s account balance, which consists of principal plus accrued interest. A plan participant’s balance increases each day through the current guaranteed interest crediting rate. The balance can also increase with any contributions they make, but will decrease with any withdrawals.
4). Why would a client choose a stable value fund over a money market fund?
For plan sponsors who are debating between the two investment options, explain that guaranteed insurance stable value funds offer plan participants the liquidity and principal-protection features of money market products, with higher yields that are comparable with intermediate-term bonds. One key difference at the participant level is the existence of some form of “principal guarantee,” a safety net in the form of an insurance guarantee.
5). How common are these funds?
If plan sponsors are struggling to consider adding the product to their defined contribution plan, they may appreciate knowing these funds are offered in almost half of all defined contribution plans in the United States. In fact, stable value investments make up more than $779 billion of assets under management as of December 2015, according to the Stable Value Investment Association (SVIA).1
6). What makes a guaranteed insurance stable value fund unique?
The protection from interest rate ebbs and flows is a unique feature all guaranteed insurance stable value funds offer, regardless of the invested asset performance.
Being prepared for these questions and providing supporting statistics that demonstrate your industry knowledge and level of preparedness can help build trust and confidence with your clients. And with retirement readiness an increasingly important concern among plan sponsors, highlighting guaranteed insurance stable value funds as a safer investment offering could be of interest at your next sales meetings.
Jim Roche has been in the retirement industry for over 20 years. Prior to joining The Standard, Jim was the senior stable value analyst for Westminster Consulting in Rochester, New York. Before that he served as vice president of institutional stable value sales for Prudential. For more information on guaranteed insurance stable value funds, contact Jim at jroche@standard.com or 732.815.2116.
1 SVIA Investment & Policy Survey for 2016, Stable Value Investment Association, 2016, http://www.stablevalue.org/news/article/investment-survey-2015.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
