401K Stable Value Funds Making Changes

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Electron
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401K Stable Value Funds Making Changes

Post by Electron » Sun Jun 24, 2012 2:03 pm

Attached is a link to a very interesting article on Stable Value Funds. These funds appear to be changing.

http://www.reuters.com/article/2012/04/ ... 2B20120411

The Stable Value Fund in my 401K plan just closed and was replaced by a Money Market fund and Short Term Bond fund.

Has anyone else seen a change in their Stable Value offering?
Electron

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leonidas
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Re: 401K Stable Value Funds Making Changes

Post by leonidas » Sun Jun 24, 2012 2:59 pm

Ours has done the same thing. No new contributions and when the investments mature they are rolled into other investments in any percentage desired.

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ofcmetz
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Re: 401K Stable Value Funds Making Changes

Post by ofcmetz » Sun Jun 24, 2012 5:28 pm

My wife's stable value fund went away last year in her 401K. It was replaced with a short term bond fund.
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xerty24
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Re: 401K Stable Value Funds Making Changes

Post by xerty24 » Sun Jun 24, 2012 5:30 pm

And returns for short term bonds are, what, 2% worse than Stable Value funds? All the changes seem to be for the worse.
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555
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Re: 401K Stable Value Funds Making Changes

Post by 555 » Sun Jun 24, 2012 5:46 pm

I'll use my SVF as long as it lasts (if interest rate is good). If it goes away, I'll use something else.

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ofcmetz
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Re: 401K Stable Value Funds Making Changes

Post by ofcmetz » Sun Jun 24, 2012 5:49 pm

xerty24 wrote:And returns for short term bonds are, what, 2% worse than Stable Value funds? All the changes seem to be for the worse.
Yup, we don't use hers because we have access to other stable value funds in my accounts. Less than 1% is the yield and add a 0.79% fee after the funds ER. :annoyed
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winterescape
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Re: 401K Stable Value Funds Making Changes

Post by winterescape » Sun Jun 24, 2012 6:02 pm

yes, Stable Value fund went away in our 401k replaced by short term bond fund

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stevewolfe
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Re: 401K Stable Value Funds Making Changes

Post by stevewolfe » Sun Jun 24, 2012 6:06 pm

My 401(k) has Vanguard Retirement Savings Trust as it's Stable Value fund, hope that is not going away any time soon.

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Electron
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Re: 401K Stable Value Funds Making Changes

Post by Electron » Sun Jun 24, 2012 6:23 pm

xerty24 wrote:And returns for short term bonds are, what, 2% worse than Stable Value funds? All the changes seem to be for the worse.
Stable Value funds could be a very desirable holding in a rising interest rate environment, even though the payout might not rise for a period of time. Now that I think about it, the payout could even drop for a while if rates rise more than a modest amount.

Stable Value funds maintain a market/book ratio, and I believe they can adjust the payout to keep that ratio within range. The insurance wrap companies would not be happy with a ratio very much below 1.00.

I've been wondering if the problems in Europe could have been a factor in the changes in Stable Value funds. The insurance wrap companies would not be happy with the possibility of another 2008 style credit crisis. They take quite a bit of risk for a relatively small fee.

My Stable Value fund took a number of months to liquidate and all investors that stayed in the fund received a fairly nice bonus after the final trading day. It appears to me that the market/book ratio was modestly above 1.00 and the fraction above 1.00 was paid out on the last day.
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Re: 401K Stable Value Funds Making Changes

Post by winterescape » Sun Jun 24, 2012 6:37 pm

KAWill70 wrote: My Stable Value fund took a number of months to liquidate and all investors that stayed in the fund received a fairly nice bonus after the final trading day. It appears to me that the market/book ratio was modestly above 1.00 and the fraction above 1.00 was paid out on the last day.
Good point, our Stable fund liquidated at the end of February this year, all in one day and converted to a short term bond fund, the value of the funds increased by 4% that day.

Default User BR
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Re: 401K Stable Value Funds Making Changes

Post by Default User BR » Sun Jun 24, 2012 9:33 pm

No news from MyMegaCorp about ours.


Brian

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Electron
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Re: 401K Stable Value Funds Making Changes

Post by Electron » Mon Jun 25, 2012 12:44 pm

winterescape wrote:Good point, our Stable fund liquidated at the end of February this year, all in one day and converted to a short term bond fund, the value of the funds increased by 4% that day.
Think of the people that sold their shares just ahead of the liquidation and missed out on the 4% gain. This makes one wonder if Stable Value funds disclose all the details on fund operation including what might happen if the fund is liquidated. It also makes one wonder about a liquidation of the fund when the market/book ratio is less than 1.00.

The referenced article was quite interesting to me as a number of things have come into play. That includes demands from the insurance wrap companies on the quality of investments, higher fees, guaranteeing only a portion of assets, redeeming fund shares at Market Value rather than Book Value in some cases, and changing the Put Option from 12 months to 24 months.

The Put Option appears to define how long it would take an employer to exit a stable value fund and move the proceeds to other funds. I suspect that in most cases the Put Option allows the market/book ratio to recover if it is less than 1.00. Bonds will mature or approach maturity and principal will be recovered unless there are a significant number of defaults.
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White Coat Investor
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Re: 401K Stable Value Funds Making Changes

Post by White Coat Investor » Mon Jun 25, 2012 3:15 pm

Mine was also pulled this year. I blogged about it here:

http://whitecoatinvestor.com/my-401k-st ... -me-laugh/
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Electron
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Re: 401K Stable Value Funds Making Changes

Post by Electron » Mon Jun 25, 2012 11:13 pm

EmergDoc wrote:Mine was also pulled this year. I blogged about it here:

http://whitecoatinvestor.com/my-401k-st ... -me-laugh/
It's not a pleasant experience being moved from a Stable Value fund to a Money Market fund today.

I'm not sure those commenting in the blog understand Stable Value funds very well. They work in a 401K plan because cash flows are much more predictable than in a retail bond fund.

The predictable cash flows allow the Stable Value fund to invest in a bond ladder and generally hold bonds to maturity. If investors were especially well behaved, you could even dispense with the insurance wrap and have a reasonably good investment.

That brings to mind bond unit trusts that brokers have sold for many years. They would work quite well as a longer term fixed income investment if the fees and sales commissions were somewhat lower. One would buy a range of unit trust maturities to deal with changes in interest rates.
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Re: 401K Stable Value Funds Making Changes

Post by Wagnerjb » Tue Jun 26, 2012 7:42 am

Default User BR wrote:No news from MyMegaCorp about ours.


Brian
Same here...no changes at this MegaCorp.
Andy

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Electron
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Re: 401K Stable Value Funds Making Changes

Post by Electron » Tue Jun 26, 2012 3:58 pm

Thanks to all for your replies.

The Stable Value fund option was one reason that I chose to stay with my 401K and not roll all assets to an IRA. I may now consider a rollover which can be a lower cost option.

There are several types of Stable Value funds and my comments applied primarily to the Synthetic GIC (Guaranteed Investment Contract). They are created using a laddered bond portfolio with an insurance wrapper.

Speaking of laddered bonds, did anyone ever notice the range of maturities in the Vanguard Bond Index fund?

https://personal.vanguard.com/us/funds/ ... st=tab%3A2

Take a look at the distribution by maturity which comes about as close to a ladder as one will see in any bond fund.

Fixed Income ETFs are starting to appear that can be held to maturity. One example is the iShares tax exempt series MUAA through MUAF. I believe there are also some similar ETFs holding taxable bonds.
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