Post Money Market Fund Reform, Stable Value Viewed as More Attractive
December 12 2017 - 9:55AM
Business Wire
~ However, a Disconnect Exists Between DC
Plan Advisor Recommendations and Plan Sponsor Actions ~
One year after the U.S. Securities and Exchange Commission’s
(SEC) money market fund (MMF) reform rules went into effect, there
has been meaningful movement away from money market funds as a
capital preservation option in defined contribution (DC) plans,
with just over half of plan sponsors now offering money market as a
capital preservation option (52%), down from 62% in 2015, according
to MetLife’s 2017 Stable Value Study, released today. Additionally,
there has been growth in stable value funds, with 9% of sponsors
adding stable value funds to their plans in the past two years. A
full report examining these findings is available at
www.metlife.com/stablevaluestudy2017.
Among plan sponsors who are reasonably familiar with MMF reform,
a clear majority (83%) feel that stable value is a more attractive
capital preservation option for plan participants than money market
funds, as do nearly all DC plan advisors surveyed. Even among plan
sponsors familiar with the rules whose plans offer only a money
market option, a majority (55%) think stable value is a better
option. Despite recognizing the attractiveness of stable value, the
Study found that just three in ten plan sponsors overall (31%)
evaluated their use of money market funds as their plan’s capital
preservation option in light of MMF reform. This indicates a
continuing need for education about the rule changes and the role
stable value funds can play as the capital preservation option
within DC plans.
“The new MMF Reform rules highlight that money market funds are
not able to take into account the special characteristics of the
qualified DC plan participant environment, while stable value funds
are designed specifically for qualified plans,” says Tom Schuster,
vice president and head of Stable Value and Investment Products
with MetLife. “Now is the time for plan sponsors to carefully
consider replacing their money market fund with stable value, and
they should heed the recommendations of their plan advisors.”
Indeed, advisors yield a great deal of influence in plan
sponsors’ selection of capital preservation options, with 73% of
sponsors who offer stable value and 67% who offer money market
saying their advisors recommended these options to them. However,
there is a disconnect between the capital preservation
recommendations advisors say they are providing and the actions
plan sponsors are taking. According to the findings, 90% of
advisors report recommending stable value very often, but 86% say
they seldom or never recommend money market funds.
Perceptions of Stable Value’s Performance
Another factor impacting the adoption of stable value may be
plan sponsors’ perceptions of its performance. Historically, stable
value options have outperformed money market funds, with both
higher yields and lower volatility, and have also outperformed
inflation. However, just over half of plan sponsors (56%) are aware
that stable value returns have outperformed money market returns
over the past 15 years, while 84% did not know that stable value
returns have exceeded inflation over that same period.
There is some good news regarding the perception of stable
value’s performance. Seven in ten plan sponsors (70%) believe that
stable value will preserve its rate advantage over money market
returns even if interest rates go up, and one-third who would
consider eliminating money market in favor of stable value (33%)
say they are motivated by stable value’s better rates. For those
who include stable value in their DC plans, the leading reason for
doing so is because it offers better returns than money market or
other capital preservation options (43%).
“Stable value funds are attractive to plan participants – no
matter what the market conditions – because they offer safety and
stability by preserving principal and accumulated earnings,” notes
Warren Howe, national director, Stable Value Markets.
About the Study
The 2017 Stable Value Study is the fourth study that MetLife has
commissioned to gain strategic insight into the current marketplace
for stable value, a capital preservation option offered in defined
contribution (DC) plans. MetLife commissioned Greenwald &
Associates and Strategic Insight to conduct the research of plan
sponsors, advisors and stable value fund providers between June and
August 2017. A total of 241 plan sponsor interviews were completed
among plan sponsors who offer a 401(k) 457, or 403(b) plan. Assets
under management for plans included in the study ranged from under
$5 million to over $1 billion. Each respondent was required to have
at least a moderate amount of influence over decisions regarding
stable value or related funds for their company’s defined
contribution plan(s). Telephone interviews were conducted with 10
DC plan advisors and 19 stable value fund providers.
About MetLife
MetLife, Inc. (NYSE: MET), through its subsidiaries and
affiliates (“MetLife”), is one of the world’s leading financial
services companies, providing insurance, annuities, employee
benefits and asset management to help its individual and
institutional customers navigate their changing world. Founded in
1868, MetLife has operations in more than 40 countries and holds
leading market positions in the United States, Japan, Latin
America, Asia, Europe and the Middle East. For more information,
visit www.metlife.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20171212005848/en/
MetLifeJudi Mahaney, 212-578-7977jmahaney@metlife.com
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