Plan sponsors and their advisors may have concerns about stable value in a rising interest rate environment. But if rates spike, either up or down, stable value funds are designed to provide more predictability and consistency. So should rates change rapidly, stable value will respond, albeit not as quickly as some other investments. This smoothing and steady return makes stable value an excellent anchor or cornerstone of a well-diversified, well-managed retirement portfolio. While many portfolios are equity heavy, stable value provides diversity even within the fixed-income arena, with liquidity, competitive crediting or interest rates and a guarantee of return of principal.
5. Select the best qualified default investment alternative (QDIA).
It’s essential for plan advisors to help plan sponsors pick the right QDIA options for their plan, since nearly seven in ten employees say they exert “little to no effort” in the benefits selection process, a Prudential study released in 2011 revealed. This means that the default investment option may be the only investment many participants own in your plan. Popular QDIAs are often target-date funds, but with the myriad options, you need to help plan sponsors select the one that most closely matches the plan’s investment policy goals, which should take into account plan participant characteristics, investment performance and risk, and more.
Plan sponsors may want to consider emerging, but potentially valuable, hybrid products, which deliver equity and bond exposure in addition to built-in lifetime income guarantees. Although they don’t guarantee market value, these products are becoming increasingly important to retirement security since many people have not saved enough for retirement and are living longer, which means they need a sustained potential for growth, downside income protection, access to their funds, plus guaranteed lifetime income.
Harry Dalessio is senior vice president of strategic relationships for Prudential Retirement.