New York Life found that despite low interest rates, 50 percent of retirement-plan participants use stable value products, which are classified as principal preservation investment solutions.
“Since the financial crisis of 2008, on average more than 20 percent of retirement assets have been invested in stable value investments and half of all participants across New York Life's retirement platform have some 401(k) savings within a stable value investment today,” said Steven Dorval, managing director of retirement and investment strategy at New York Life Retirement Plan Services in Boston.
New York Life began working with the largest stable value plan sponsors two years ago, purchasing wrap contracts that guarantee the principal on a fixed income portfolio. “The wrap contract is a return home for insurance companies,” Dorval told Insurance Networking News. “We were the early providers but lost the lead to bank holdings who offered lower margins. Insurers are back now in their natural role as guarantors.”
Pricing for the cost of a wrap contract before 2008 was .05 to .08 basis points, according to New York Life. Today, pricing is .2 to .25 percent basis points.
“It’s more than an $8 billion book of business for us, which has increased $5.5 billion since 2008,” said Dorval. “From a competitor perspective, a number of insurers, including Prudential, have seen more assets increase because stable value products are able to earn higher returns than money markets.”
Stable value funds are yielding two percent or more. The benefit for investors is return without the volatility.
“That’s a significant increase over money markets,” Dorval said.
Interest in stable value products is not exclusive to the baby boomer generation, according to New York Life’s analysis.
While baby boomers did have the highest rates of stable value use at 58 percent, the Gen X and Gen Y demographic were not far behind with rates of 46 percent and 32 percent, respectively.
“As people get closer to retirement, principal preservation is a higher priority,” said Dorval. “Younger folks shouldn’t have stable value exposure but across all demographics, we are finding that younger workers do have exposure because they may be more conservative due to the down market.”
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