The impacts of market volatility on retirees and near-retirees assets continues to be a concern for plan sponsors, but there are solutions ahead, finds new data today from MetLife.
According to its Stable Value Study, 69% of employers are worried about the effects of market volatility for those with 10 years to go until retirement, while 61% reported concerns about the market’s impacts on retirees.
To mitigate these concerns, MetLife encourages employers to consider stable value funds, an option that offers low risk and stability and which is generally used during periods of recession or intense market volatility.
“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.”
According to MetLife, 82% of defined contribution (DC) plan sponsors offer stable value funds, with 87% having offered the fund for over a year and 66% providing it to participants for at least three years.
Advisors have generally recommended the funds to plan sponsor clients, with 84% of employers crediting their advisor for introducing them to the option. Eight in ten advisors say they recommend stable value funds because of its history in performing higher returns than other capital preservation options, and almost all advisors and plan sponsors (95% and 92%, respectively) describe stable value funds as a “safe haven” for participants during volatile market environments.
Plan sponsors who offer custom target-date funds (TDFs) can also take advantage of stable-like components that also offer security to participants. MetLife’s survey presented an example to plan sponsors, where “the TDF provider delivers comparable returns, net of fees, while reducing volatility by approximately 40% for certain vintages.” Research found that 95% of plan sponsors would be interested in this option, with 97% of advisors also expressing interest. A second option, in which the TDF provider generates net returns four times more than the cost associated with delivering those incremental returns while keeping volatility constant (60 basis points enhanced net returns for a cost of 15 basis points), garnered the interest of 94% and 95% of advisors.
“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.”
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