Stable Value as annuity alternative.

[nun]

Annuities are getting another look from many as stock market volatility makes them nervous about generating retirement income. But if you have access to a stable value fund in your 401k why not use that as an alternative. It has the advantage of tracking short term interest rates rather than locking in today's rates in an annuity. Fees are also far more reasonable.

 

[bUU]

Perhaps it's simply becoming less common, but we don't really have a stable value fund, as such, in our 401k. The closest we have is MLIKX (yield currently 0.0%).

https://www2.blackrock.com/webcore/...ceName=PublicServiceView&ContentID=1111119562

 

[pb4uski]

Perhaps it's simply becoming less common, but we don't really have a stable value fund, as such, in our 401k. The closest we have is MLIKX (yield currently 0.0%)....

I think you are right. From what I can tell, my former employer seems to have had a stable value fund available in their 401k at one time but no longer offers one.

 

[nun]

I think you are right. From what I can tell, my former employer seems to have had a stable value fund available in their 401k at one time but no longer offers one.

Man 401ks really do suck. I have a SV fund in my 457 that is yielding 2.66% over the last year with an ER of 0.2% and with interest rates at historical lows it looks like a nice alternative to an annuity and other bond investments.

 

[Willers]

I think it is a great alternative if you are lucky enough to have it available. Unfortunately it does appear to be relatively uncommon. My DW's 401k doesn't offer this option.

 

[nun]

Maybe my initial question has highlighted some shortcomings in the range of options available in 401ks. Rather than offering a choice of sliced and diced sector mutual funds or actively managed funds with ERs upwards of 1% there should be some minimum standards for the funds offered and in those I'd include a stable value fund.

 

[bUU]

There are minimum standards for funds offered, but they don't include a stable value fund:

ERISA's fiduciary standards ... mean that fiduciaries must establish a prudent process for selecting investment alternatives and service providers to the plan; ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided; select investment alternatives that are prudent and adequately diversified; and monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices.

[Source: Department of Labor.]

 

[John Galt III]

I have 3 401k's and each of them has a Stable Value fund. They are getting 3.2 percent, 2.9 percent, and 1.6 percent. I'm a big fan of Stab Val funds, and I keep most of my 401k dollars in them. And yes, they were stable during the 2008 meltdown.

 

[gauss]

DW and I both have stable value funds available in 401(k)s and have made heavy use of them for the past 10 years.

Now that I have left MegaCorp, the question was should I roll my 401(k) balance to an IRA or not. Most of the discussions I have seen have suggested that the rollover is the way to go, but I was going to wait a bit.

If stable value funds like this are not available on the open market, then this should be added to any discussion on 401(k) rollovers from former employers.

-gauss

 

[jimnjana]

An unconventional alternative to a stable value fund is the the RiverPark Short-Term High Yield (RPHYX). Before you discard it as a junk bond fund. Do a little homework on it, you might find that it is a worthwhile addition to your portfolio. The average maturity of the holdings is less than 6 months, this means that the default risk is greatly minimized. Fund NAV has varied by no more than about a dime over the last 2 years. Because it is clumped int the junk bond category its not rated high because the total return is pretty much what the yield is a bit over 3%. Its expense ratio is high for me at 1.35 but I'm willing to pay it on less than 5% of our portfolio.

 

[nun]

An unconventional alternative to a stable value fund is the the RiverPark Short-Term High Yield (RPHYX). Before you discard it as a junk bond fund. Do a little homework on it, you might find that it is a worthwhile addition to your portfolio. The average maturity of the holdings is less than 6 months, this means that the default risk is greatly minimized. Fund NAV has varied by no more than about a dime over the last 2 years. Because it is clumped int the junk bond category its not rated high because the total return is pretty much what the yield is a bit over 3%. Its expense ratio is high for me at 1.35 but I'm willing to pay it on less than 5% of our portfolio.

I'd rather just go with a short term bond index fund that buys high quality and has a low ER......anyway I suggested the SV fund as an annuity alternative because of the insurance backing of the principal. The return you will get on an annuity and the SV fund will be close, they both have some guarantee (the annuity more so than the SV), but the fees on the SV will be lower and you have access to the principal. The annuity will win out if you live longer than your expected life time.

 

[SJ1_]

I think you are right. From what I can tell, my former employer seems to have had a stable value fund available in their 401k at one time but no longer offers one.

same with my x, they got rid of it before I retired. use to have great returns for cash.

 

[Sun456]

One company I worked for had a stable value fund. Most of those close to retirement had practically everything in it. Then one day we got a notice that it was being closed down due to being a ponzi scheme. The people who were in it had their money frozen for some time (might have been a year or more) by the government and were very unhappy. Eventually they got most of the principal back. This was in the mid-2000s and since we were a tiny company and the fund was big I imagine it was in alot of people's 401ks. This might be why stable value funds aren't often offered much any more. We had multiple levels of financial professionals review and approve the funds in our plan including our CTO. Everybody missed it.

 

[brewer12345]

One company I worked for had a stable value fund. Most of those close to retirement had practically everything in it. Then one day we got a notice that it was being closed down due to being a ponzi scheme. The people who were in it had their money frozen for some time (might have been a year or more) by the government and were very unhappy. Eventually they got most of the principal back. This was in the mid-2000s and since we were a tiny company and the fund was big I imagine it was in alot of people's 401ks. This might be why stable value funds aren't often offered much any more. We had multiple levels of financial professionals review and approve the funds in our plan including our CTO. Everybody missed it.

So who got sued for the various ERISA violations that must have been required for this to have happened?

 

[Sun456]

So who got sued for the various ERISA violations that must have been required for this to have happened?

I don't quite get the question but doing a search here is a good link to read.
In economic crisis, even stable-value funds on shaky ground - Articles - Employee Benefit News

"For example, in 2005, the Trust Advisors Stable Value Plus fund declared bankruptcy. " I wonder if this was the fund in our 401K. The notice we got was that it was a ponzi scheme. I wasn't in it so didn't get the follow-up communication, just the initial announcement that the fund was being closed and why. There were many hallway discussions regarding the 'unstable value fund' as we renamed it. In addition people were angry at the company, feeling that they had done a bad job picking funds.

Edit: After another search I think this was the fund in our plan. Here are more details. Apparently they weren't the ponzi scheme but they had invested heavily in a ponzi scheme.
http://www.fiduciarycounselors.com/press/SVIA_CaseStudy102006.pdf

 

[bUU]

I have 3 401k's and each of them has a Stable Value fund. They are getting 3.2 percent, 2.9 percent, and 1.6 percent.

Wouldn't it have to return at least the rate of inflation to qualify as a stable value fund? Seems like that last fund is steadily declining in real value.

 

[nun]

I don't quite get the question but doing a search here is a good link to read.
In economic crisis, even stable-value funds on shaky ground - Articles - Employee Benefit News

"For example, in 2005, the Trust Advisors Stable Value Plus fund declared bankruptcy. " I wonder if this was the fund in our 401K. The notice we got was that it was a ponzi scheme. I wasn't in it so didn't get the follow-up communication, just the initial announcement that the fund was being closed and why. There were many hallway discussions regarding the 'unstable value fund' as we renamed it. In addition people were angry at the company, feeling that they had done a bad job picking funds.

Edit: After another search I think this was the fund in our plan. Here are more details. Apparently they weren't the ponzi scheme but they had invested heavily in a ponzi scheme.
http://www.fiduciarycounselors.com/press/SVIA_CaseStudy102006.pdf

The SV in my 457 is with Dwight who seem to be one of the biggest SV fund managers. They were bought by Goldman Sachs last year.....not sure if that's good or bad.

 

[brewer12345]

I don't quite get the question but doing a search here is a good link to read.
In economic crisis, even stable-value funds on shaky ground - Articles - Employee Benefit News

"For example, in 2005, the Trust Advisors Stable Value Plus fund declared bankruptcy. " I wonder if this was the fund in our 401K. The notice we got was that it was a ponzi scheme. I wasn't in it so didn't get the follow-up communication, just the initial announcement that the fund was being closed and why. There were many hallway discussions regarding the 'unstable value fund' as we renamed it. In addition people were angry at the company, feeling that they had done a bad job picking funds.

Edit: After another search I think this was the fund in our plan. Here are more details. Apparently they weren't the ponzi scheme but they had invested heavily in a ponzi scheme.
http://www.fiduciarycounselors.com/press/SVIA_CaseStudy102006.pdf

Note that even this sorry excuse for a stable value fund ultimately paid plan participants 100 cents on the dollar plus accrued interest.

 

[steelyman]

Wouldn't it have to return at least the rate of inflation to qualify as a stable value fund? Seems like that last fund is steadily declining in real value.

I never thought of a stable value fund as linked to inflation, but an alternative to money market funds with a potential for higher return. My 457 plan gives access to a Vanguard money market (institutional class) but I chose the stable value.

 

[Sun456]

Note that even this sorry excuse for a stable value fund ultimately paid plan participants 100 cents on the dollar plus accrued interest.

Yeah, it says that in their little summary but that wasn't what the participants experienced, at least from what they told me. They got back the money they put in but not the gains they had gotten over the years. The bit they tell you about as accrued interest (in the article) I think was a small part of the gains from over the years. They felt ripped off. This info was received from people crying in the bathroom, swearing in the hallways or banging their head on their desk. I was not in it so I'm relaying hearsay.

Edit: It also took a long time for the whole thing to settle out and for many people they didn't know if they would get anything back during that time, nor could they transfer anything out of the fund as it was all frozen. Lots of lost opportunity cost and sleepless nights for those near retirement that had most or all their 401K in there.

2nd Edit: To give you an idea of the timeline:
The Trust Advisors Stable Value Plus Fund (the "Fund"), filed a voluntary bankruptcy petition on September 30, 2005.
The Fund emerged from bankruptcy on August 14, 2006. Between 2006-2009, distributions were made to plan and trust investors (equity holders) [2.29MB] that are on the list filed with the Court on January 12, 2006.

 

[brewer12345]

Yeah, it says that in their little summary but that wasn't what the participants experienced, at least from what they told me. They got back the money they put in but not the gains they had gotten over the years. The bit they tell you about as accrued interest (in the article) I think was a small part of the gains from over the years. They felt ripped off. This info was received from people crying in the bathroom, swearing in the hallways or banging their head on their desk. I was not in it so I'm relaying hearsay.

Edit: It also took a long time for the whole thing to settle out and for many people they didn't know if they would get anything back during that time, nor could they transfer anything out of the fund as it was all frozen. Lots of lost opportunity cost and sleepless nights for those near retirement that had most or all their 401K in there.

2nd Edit: To give you an idea of the timeline:
The Trust Advisors Stable Value Plus Fund (the "Fund"), filed a voluntary bankruptcy petition on September 30, 2005.
The Fund emerged from bankruptcy on August 14, 2006. Between 2006-2009, distributions were made to plan and trust investors (equity holders) [2.29MB] that are on the list filed with the Court on January 12, 2006.

Understood. From what I have seen in the industry today, stable value plans are today run in a far more conservative manner than this fund was run, and I believe that the vast majority of funds were run more conservatively than Trust Advisors back in 2006.

 

[Sun456]

Understood. From what I have seen in the industry today, stable value plans are today run in a far more conservative manner than this fund was run, and I believe that the vast majority of funds were run more conservatively than Trust Advisors back in 2006.

I'm sure they are but this and several other things that have happened to me over the years remind me not to have too much in any one place. These include:

• Account at Scott Trade where balance of IRA went to zero over night. Took 3 weeks (and many phone calls by me) for them to track it down and restore my account. Never told me what happened. I noticed it, not them. Glad I was paying attention.
• Account at bank where $4K was transferred out to unknown account. Was fixed over night. No apology, no explanation. Also caught by me. Glad I was paying attention.
• 401k offered company stock was in mystery units (not publicly traded units). Mystery stock was exchanged for new spun out companies. New mystery spun out companies was later exchanged back into mystery units of company stock. Account value plummeted. I was too young to know I should have questioned it and figured there was govt oversight of these things and accounting oversight so things must be on the up and up. But now I know there really isn't any oversight and I should have tried to figure out what shenanigans were being done. Had multiple $100K reductions in value...

 

[Sittingduck]

Thank you for the discussion on this thread. I am invested in a stable value fund through my Mega Corp 401k. I always viewed it a a sleepy little corp bond fund. Now that I am getting close to ER , I am taking a closer look at it. The annuity comparison is interesting. I have read everything the company has supplied about the fund, but nowhere have I read where the principle is "insured" against loss. Is this an understood definition of a SVF?

Thanks again. I am so glad I found this forum when I did!

 

[brewer12345]

I'm sure they are but this and several other things that have happened to me over the years remind me not to have too much in any one place. These include:

• Account at Scott Trade where balance of IRA went to zero over night. Took 3 weeks (and many phone calls by me) for them to track it down and restore my account. Never told me what happened. I noticed it, not them. Glad I was paying attention.
• Account at bank where $4K was transferred out to unknown account. Was fixed over night. No apology, no explanation. Also caught by me. Glad I was paying attention.
• 401k offered company stock was in mystery units (not publicly traded units). Mystery stock was exchanged for new spun out companies. New mystery spun out companies was later exchanged back into mystery units of company stock. Account value plummeted. I was too young to know I should have questioned it and figured there was govt oversight of these things and accounting oversight so things must be on the up and up. But now I know there really isn't any oversight and I should have tried to figure out what shenanigans were being done. Had multiple $100K reductions in value...

And after all this you are buying variable annuities?

 

[Sun456]

And after all this you are buying variable annuities?

Again, not sure what your intending by your question. My only objective in contributing to this thread was to remind people not to have everything all in one place even if it is a stable value fund in a 401K. You don't want to be the one with a frozen account, not knowing if your getting any of it back. Things happen and 2005 wasn't so long ago that it was another generation or anything. One of my friends had rolled all their past 401Ks into this 401K and all of it into the stable value fund as they were close to retirement. That was the one banging the head on the desk. Another friend didn't want to be in the market and had all of their 401K in the stable value fund. That was the tears in the bathroom one.