16 January 2018

Stable Value Funds, Retirement Draw-Down Strategies

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A growing numbers of plan sponsors have expressed openness to embracing stable value funds as part of their retirement plans. For years, fewer than half of defined contribution plans have offered stable value funds, according to data from Prudential Retirement. Greater use of stable value in the future is inevitable due to a number of factors, according to new research from Prudential. First, plan sponsor and adviser attitudes toward broader use of the asset class are favorable, Prudential notes. Among plan sponsors, 55% of non-adopters plan to offer stable value in the future, while only 9% of adopters say they’re considering getting rid of it.

For advisers and consultants, 30% of those who recommend stable value funds to employer-clients are doing so more often today than they did a year ago, and 35% expect this trend to accelerate over the next three years, according to the paper. One factor that could spur greater interest in stable-value funds is the evolving regulatory landscape for money market funds, Prudential notes. Beginning this October, the SEC will allow money market funds to impose redemption fees, or temporarily halt redemptions, when the funds fall below certain liquidity thresholds.

Sixty-three percent of sponsors that currently offer money market funds and 49% of consultants and advisers who currently recommend them say the SEC ruling is likely to drive changes in their allocation to money market funds, the study notes.

The changing retirement scene 

More broadly, employers and retirement plan sponsors are stepping back to take a more holistic look at retirement readiness in 2016. This will be an important year for retirement plan sponsors and the retirement income community, says William Charyk, president of The Institutional Retirement Income Council. The need for plan sponsors to help workers address their financial and retirement challenges has never been greater. We expect plan sponsors to broaden their wellness programs to include financial wellness initiatives and also take a closer look at ways to provide secure retirement income to participants.

The year 2015 saw the definition of wellness broaden to incorporate more than physical health and IRIC predicts employers will continue to embrace that thinking. And while the retirement readiness conversation has exploded in recent years, it is equally important to focus on how employees will draw down their nest eggs to ensure they have sufficient ongoing assets for a comfortable retirement. Incorporating Social Security planning and education on in-plan and out-of-plan products and features into financial wellness programs will become more common, the IRIC predicts.

Click here to access the full article on Employee Benefit News.

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