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Stable Value as annuity alternative.
Old 05-15-2013, 07:20 AM   #1
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Stable Value as annuity alternative.

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.
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Old 05-15-2013, 07:35 AM   #2
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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/l...tID=1111119562
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Old 05-15-2013, 08:07 AM   #3
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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.
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Old 05-15-2013, 09:28 AM   #4
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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.
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Old 05-15-2013, 09:41 AM   #5
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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.
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Old 05-15-2013, 11:07 AM   #6
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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.
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Old 05-15-2013, 11:43 AM   #7
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There are minimum standards for funds offered, but they don't include a stable value fund:
Quote:
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.]
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Old 05-15-2013, 07:01 PM   #8
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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.
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Old 05-15-2013, 07:15 PM   #9
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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
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Old 05-16-2013, 08:14 AM   #10
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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.
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Old 05-16-2013, 08:45 AM   #11
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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.
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Old 05-16-2013, 08:57 AM   #12
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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.
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Old 05-16-2013, 09:11 AM   #13
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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.
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Old 05-16-2013, 09:30 AM   #14
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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?
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Old 05-16-2013, 09:45 AM   #15
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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/p...tudy102006.pdf
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Old 05-16-2013, 11:03 AM   #16
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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.
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Old 05-16-2013, 12:05 PM   #17
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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/p...tudy102006.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.
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Old 05-16-2013, 12:39 PM   #18
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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/p...tudy102006.pdf
Note that even this sorry excuse for a stable value fund ultimately paid plan participants 100 cents on the dollar plus accrued interest.
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Old 05-16-2013, 04:39 PM   #19
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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.
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Old 05-16-2013, 04:49 PM   #20
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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.
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