Editor’s Note: This is the latest in a series of posts by speakers at the 2013 NAPA/ASPPA Summit, March 3-5, 2013 in Las Vegas. George Baumann of Invesco — who will team up with MassMutual’s John G. Budd and Larry Mills of UBS to discuss stable value in a workshop at 2:45 on Monday, March 4 — outlines the key questions to ask when analyzing stable value.
Every year in the defined contribution world, analysts and advisors spend countless hours poring over portfolio data on thousands of investment options. Stock, bond, target date, asset allocation, real estate and commodity funds get a deep scrubbing. However, only a few spend much time analyzing what can be the single largest asset category in the DC plan: stable value (or money market). Stable value is an important asset class used by all types of plans (401(k), 403(b), and 457(b)) and all types of participants (Baby Boomers, Gen X, and Gen Y).
These “risk free” options are often glossed over, and most plan sponsors historically defaulted into the record keeper's in-house option. Yet in today's world of financial repression, the Federal Reserve has practically guaranteed money market investors a 0% return for at least the next three years, and it could be less than zero if the SEC changes the rules. This leaves stable value funds as the remaining option.
How does your firm analyze stable value? What do the insurance and bank wrap policies say? What's in the underlying portfolio? How do you compare options that constructed differently — general account, separate account, and collective trust? Is there default risk with the wrap provider(s)? Join us at the “State of Stable Value” workshop, where we'll try to provide some valuable insight into these issues.
