In a recent analysis of its client base, New York Life Retirement Plan Services found that despite a low interest rate environment, stable-value funds remain a heavily utilized retirement plan investment option with 50% participant utilization.
Since the financial crisis of 2008, on average, more than 20% of retirement assets have been invested in stable-value investments and half of all participants across the retirement platform have some 401(k) savings within a stable-value investment today. With the exclusion of stable-value investments as a qualified default investment in the Pension Protection Act, the viability of stable-value investments as a mainstream retirement asset class was considered to be in doubt. Yettime — and and a turbulent economic environment — has proven otherwise.
“Gen Y [workers have] not experienced a positive market cycle during their professional careers, and baby boomers just watched a good portion of their retirement erode in rough market conditions,” says Steven Dorval, managing director of retirement and investment strategy at New York Life Retirement Plan Services. “All participants require an investment option that will preserve principal, and at a minimum keep up with inflation. These are among the reasons stable-value continues to be a core savings option.”
The reliance on stable-value is not attributed solely to an aging population that wants to shelter their retirement savings from the marketplace. Instead, significant stabl-value usage spans all age ranges. On average, baby boomers allocate 22% of their assets in stable value, compared with 12% for Gen X participants, and 10% for Gen Y (ages 23 to 32).
Half of all participants invested at least a portion of their defined contribution balances in stable-value in 2011, according to the analysis. Baby boomers logically had the highest rates of stable value use, at 58%, followed by Gen X at 46% and Gen Y at 32%. The data is significant, given that participants are not automatically defaulted into a stable-value investment, but must proactively place assets there.
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