Stable value funds remain an integral part of defined-contribution plans, despite predictions their use might decline.

Participants must choose stable value funds, since they are not a qualified default option for defined-contribution plans. As a result, some experts thought their use would decline.

However, New York Life Retirement Plan Services has found that 20% of assets in defined-contribution plans are invested in stable value funds, which are pools of diversified bond portfolios that include insurance or bank contracts that create more price stability. In recent years though, many banks and insurance companies have stopped or reduced their principal guarantees for stable value funds.

Still, a study by New York Life shows that half of defined-contribution plan participants held some stable value funds in 2011. Baby boomers had the highest participation rate at 58%; followed by Gen X, those between 33 and 48 years old, at 46%; and Gen Y, those between 23 and 32 years of age, at 32%. The data is significant, according to New York Life, because participants must proactively place assets in stable value.

"Gen Y has 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, New York Life Retirement Plan Services managing director of retirement and investment strategy.

"All (retirement plan) 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," he adds.

On average baby boomers have 22% of their assets in stable value funds, Gen X participants have 12%, and Gen Y have 10%.

Defined-contribution plan sponsors are adding stable value investment choices to their plans, says New York Life. "A principal preservation asset class was once an afterthought for most sponsors and advisors, with a record keeper's proprietary solution being an easy choice," says Patrick Murphy, New York Life Retirement Plan Services managing director of sales.

"No longer. Our advisors know this core asset class demands the same level of scrutiny as any other investment option. With interest rates expected to be negligible for the foreseeable future, money markets are not a palatable option for most sponsors, and stable value investments need to deliver a competitive rate of return with a credible guarantee," he says.

New York Life Retirement Plan Services offers bundled retirement plan solutions and defined contribution investment products. A division of New York Life Investments, it administers $37.2 billion in bundled retirement plans.

-Karen DeMasters