Stable Value Could Replace Money Market in DC Plans

Money market fund reforms are leading plan sponsors to consider alternatives to those investments, MetLife finds.

The vast majority (82%) of defined contribution (DC) plan sponsors who are familiar with the U.S. Securities and Exchange Commission’s (SEC) amendments to the rules governing money market funds (MMFs) feel that stable value is a more attractive capital preservation option for plan participants, according to MetLife’s 2015 Stable Value Study.

Additionally, most stable value fund providers and advisers—interviewed for the study and familiar with MMF reforms—predict that the use of money market funds in DC plans will decline over the next few years.

The leading reason plan sponsors give for offering stable value is to provide a capital preservation option (65%); guaranteed rate of return (50%); and, better returns compared to money market and other capital preservation options (49%). Among plans with more than 100 participants that added stable value in the past two years, 77% offer stable value because it offers better returns than money market and other capital preservation options, up significantly from 38% in the MetLife 2013 Stable Value Study.

However, despite recognizing stable value as a more attractive capital preservation option, the study found there is a need for better communication about the strong performance of stable value—only 17% of plan sponsors and 23% of plan advisers realize that stable value returns have exceed inflation over the past 25 years.

“Stable value has a 40-year track record of performing exceptionally well—no matter what the market conditions,” says Thomas Schuster, vice president and head of stable value and investment products with MetLife. “Educating plan sponsors and participants about the advantages of stable value will not only help move plan assets to stable value, but will also help retain assets in qualified retirement plans, offering participants enhanced retirement income security.”

NEXT: Stable value returns and potential for money market litigation

When it comes to stable value’s performance against money market funds, the study found that nearly half of sponsors (47%) are unaware that stable value returns have outperformed money market returns: 22% believe that stable value and money market returns have been about equal, and 21% don’t know how the returns compare. Additionally, 4% actually believe that money market funds have performed better than stable value over this time period.

“Two rounds of reforms have reduced money market’s expected returns and made them less customer friendly,” says Warren Howe, national director for stable value markets, MetLife. “The reforms have also highlighted the fact that money market funds are designed for general retail use. In contrast, stable value funds, which are designed specifically for employer-sponsored plans, are uniquely structured to maximize returns while preserving principal.”

In addition to these reforms, recent litigation will also likely affect plan sponsors’ decisions about which capital preservation products to make available to DC plan participants, MetLife says. So far, six months after a $62 million class action settlement, followed by a recent U.S. Supreme Court ruling in Tibble v. Edison, 20% of plan sponsors are considering alternatives to money market funds, according to the study. Schuster believes others may follow suit, stating, “Plans that continue to offer money market and not stable value are potentially exposing themselves to enhanced litigation risk.”

MetLife engaged Greenwald & Associates and Asset International, Inc., publishers of PLANSPONSOR and PLANADVISER magazines, to conduct three separate studies—an online survey of 205 plan sponsors conducted in June 2015, as well as in-depth phone interviews with 20 stable value fund providers and nine advisers during July 14 to August 28. A report of study findings is available at