Prudential Calls for Stable Value Funds as QDIAs

July 22, 2009 ( - In testimony before the U.S. Department of Labor's ERISA Advisory Council, James King, Jr., vice president and head of Prudential Retirement's Stable Value Markets Group, urged that stable value products be classified as a qualified default investment alternative (QDIA) in employee retirement plans.

King testified that stable value products minimize risk by investing in high quality securities and pointed out that in 2008, every stable value fund produced a positive return for the year. “The collapse of the financial markets highlights the need for investment options that both protect and grow principal,” King said in his testimony. “Participants must have an investment option that enables them to have retirement security.”

King also noted that stable value products are included in nearly half of 401(k)s or defined contribution retirement plans, according to the 13th Annual SVIA Stable Value Investment & Policy Survey. In addition, recent research by Rocaton shows the funds have remained a popular choice for defined contribution plan participants (see Participants Still Putting Money in Stable Value ).

The testimony also included that stable value providers:

  • Are regulated by a number of government entities, such as the Securities and Exchange Commission and state insurance regulators, which are focused on ensuring stable value products are designed appropriately;
  • Must meet statutory requirements based on regulations to provide for the reserving of capital to meet obligations, distinguishing them from traditional investment products, which do not reserve capital to protect investors from losses; and
  • Align the interests of investors and asset managers because stable value providers have an incentive to invest conservatively with high quality, diversified portfolios.

King suggested there is a need for plan sponsors and investment consultants to access information to evaluate the benefits and risks of stable value products, especially given their unique combination of an insurance guarantee and a fixed income portfolio.

In recent testimony before the Department of Labor and Securities and Exchange Commission, some witnesses suggested stable value funds should be a part of target-date funds, which are QDIAs (see No Restrictions on Investments ).

King’s ERISA Advisory Council testimony is here .