Investing December 8, 2015

Stable Value Could Replace Money Market in DC Plans

Money market fund reforms are leading plan sponsors to consider alternatives to those investments, MetLife finds.
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The vast majority (82%) of defined contribution (DC) plan sponsors who are familiar with the U.S. Securities and Exchange Commission’s (SEC) amendments to the rules governing money market funds (MMFs) feel that stable value is a more attractive capital preservation option for plan participants, according to MetLife’s 2015 Stable Value Study.

Additionally, most stable value fund providers and advisers—interviewed for the study and familiar with MMF reforms—predict that the use of money market funds in DC plans will decline over the next few years.

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The leading reason plan sponsors give for offering stable value is to provide a capital preservation option (65%); guaranteed rate of return (50%); and, better returns compared to money market and other capital preservation options (49%). Among plans with more than 100 participants that added stable value in the past two years, 77% offer stable value because it offers better returns than money market and other capital preservation options, up significantly from 38% in the MetLife 2013 Stable Value Study.

However, despite recognizing stable value as a more attractive capital preservation option, the study found there is a need for better communication about the strong performance of stable value—only 17% of plan sponsors and 23% of plan advisers realize that stable value returns have exceed inflation over the past 25 years.

“Stable value has a 40-year track record of performing exceptionally well—no matter what the market conditions,” says Thomas Schuster, vice president and head of stable value and investment products with MetLife. “Educating plan sponsors and participants about the advantages of stable value will not only help move plan assets to stable value, but will also help retain assets in qualified retirement plans, offering participants enhanced retirement income security.”

NEXT: Stable value returns and potential for money market litigation

When it comes to stable value’s performance against money market funds, the study found that nearly half of sponsors (47%) are unaware that stable value returns have outperformed money market returns: 22% believe that stable value and money market returns have been about equal, and 21% don’t know how the returns compare. Additionally, 4% actually believe that money market funds have performed better than stable value over this time period.

“Two rounds of reforms have reduced money market’s expected returns and made them less customer friendly,” says Warren Howe, national director for stable value markets, MetLife. “The reforms have also highlighted the fact that money market funds are designed for general retail use. In contrast, stable value funds, which are designed specifically for employer-sponsored plans, are uniquely structured to maximize returns while preserving principal.”

In addition to these reforms, recent litigation will also likely affect plan sponsors’ decisions about which capital preservation products to make available to DC plan participants, MetLife says. So far, six months after a $62 million class action settlement, followed by a recent U.S. Supreme Court ruling in Tibble v. Edison, 20% of plan sponsors are considering alternatives to money market funds, according to the study. Schuster believes others may follow suit, stating, “Plans that continue to offer money market and not stable value are potentially exposing themselves to enhanced litigation risk.”

MetLife engaged Greenwald & Associates and Asset International, Inc., publishers of PLANSPONSOR and PLANADVISER magazines, to conduct three separate studies—an online survey of 205 plan sponsors conducted in June 2015, as well as in-depth phone interviews with 20 stable value fund providers and nine advisers during July 14 to August 28. A report of study findings is available at www.metlife.com/stablevaluestudy2015.

Products December 8, 2015

Natixis Will Help Employees Pay Down Student Debt

Natixis Global Asset Management announced a new benefit to assist employees with the repayment of their student loan debt.
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Explaining the new benefit approach, Natixis Global Asset Management tells PLANSPONSOR it will contribute up to $10,000 to every full-time employee who has been at Natixis for at least five years and has outstanding Federal Stafford or Perkins Loans. The benefit will consist of one $5,000 cash payment to employees after five years of working at Natixis, followed by annual payments of $1,000 distributed over the next five years for a total of $10,000.

Tracey Flaherty, senior vice president in charge of retirement strategies at Natixis, explains the decision to offer the benefit was born out of conversations with members of Natixis’ team, especially Millennials entering the workforce right out of college.

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“Millennials are delaying important financial milestones because of the burden of student debt,” Flaherty says. “In addition, research conducted by the company indicates that although the best practice for retirement saving is to start young, student loan debt is keeping a significant number of young workers from taking that first step.”

Backing up the assertion, Flaherty cites the Natixis 2015 Retirement Plan Participant Study, which shows nearly one in four (23%) Americans and more than one-third (35%) of Millennials do not contribute to a company-sponsored retirement plan because they prioritize student loan debt payments.

NEXT: Leading by example

Among that survey’s Millennial respondents, Flaherty notes student debt is the third most common factor for not participating, behind the perennial issues of “needing the money today” (54%) and “feeling the company match isn’t big enough” (43%). While the former issue is pretty hard to get around, one will often be surprised to find out just how much they’re able to cut back from their budget with a little conscious effort, Flaherty says. And the messaging of compound interest should make the employer match look a little more attractive.

“One of the most powerful messages is that, if a Millennial starts investing seriously at age 23 and stops at age 40, he will still have more money by age 65 than if he simply started saving at age 40,” Flaherty says. “Saving over the course of a career really can generate financial independence by retirement.”

John Hailer, president and CEO of Natixis Global Asset Management in the Americas and Asia, says the company has heard loud and clear from its younger employees about the toll student debt can take on other financial obligations, especially saving for retirement and purchasing other helpful supplementary workplace benefits. “Our extensive research on Americans’ financial health supports the need to provide student loan repayment as a benefit,” he adds.

Natixis explains its student loan repayment benefit will take effect on January 1, 2016, with initial eligibility “based on employees’ outstanding student loan balances.” The payments will be taxed at the supplemental bonus rate and cannot be combined with Natixis’ tuition reimbursement policy, the firm says.

Flaherty says Natixis looks forward to tracking the take-up rate of the new benefit program, which she explains as one more piece being added to the holistic financial wellness approach that has been adopted by corporate leadership. “This is being folded into our other supplementary benefits beyond the 401(k) and health plan,” she says, agreeing a secondary benefit of the program will be greater employee retention and more an even more powerful recruiting pitch.  

While this program is for the Natixis staff, Flaherty adds the firm is committed to bringing holistic financial wellness solutions to market and will certainly learn from the experience of delivering a student loan repayment benefit to its own staffers. 

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