Against an ongoing backdrop of market volatility and economic uncertainty, stable value funds— which have performed as designed and delivered on their promises even during the Great Recession and, more recently, the Covid-19 pandemic—are uniquely positioned to meet the moment in a variety of investment scenarios. While designed for exclusive use in tax-qualified retirement savings plans, such as 401(k)s, stable value has evolved since its inception and, as retirement plan regulations have changed, it has opened the door to more flexibility in how stable value funds can be incorporated in retirement plan investment lineups.
Stable value, with its capital preservation and volatility smoothing principals, can be used in expanded group offerings, such as Multiple Employer Plans (MEPs) and Pooled Employer Plans (PEPs). This is good news for participants in MEP and PEP retirement plans, especially older workers nearing retirement, who can least tolerate market volatility. This last point is important because the SECURE Act of 2019 removed age limits on retirement contributions and raised the required minimum distribution age to 72 from 70½; more recently, the Secure 2.0 Act of 2022 will further increase the age for minimum distributions to 75 over the next several years. With participants potentially staying invested in their plans longer, plan lineups need to include more capital preservation options for workers nearing retirement age or even in retirement since many plans allow retirees to stay invested in their plans.
About MEPS and PEPS
Both MEPS and PEPs encourage small businesses, which individually would lack the administrative and financial resources to offer their employees a tax-advantaged retirement savings plan, to come together to achieve certain economies of scale that makes it possible to begin offering their workforce this significant benefit.
MEPS: For Related Businesses
MEPS are a special type of retirement plan in which employers join together and pool their purchasing power within a single plan. While initially formalized by the Labor Relations Act of 1947 (also known as the Taft Hartley Act), its use has expanded to allow two or more small employers of related businesses to band together and offer a retirement plan. While there are various types of MEPs (Open, Closed and Association Retirement Plan), they all allow for businesses in the same trade or industry to participate in a shared plan.
PEPS: For Unrelated Businesses
PEPs, which were established by a provision in the SECURE Act, have been in effect since January 2021. PEPs allow unrelated employers to band together to participate in a single retirement plan that is sponsored by a pooled plan provider.
Stable Value for MEPS and PEPs: The Right Option, Right Now
Stable value offers the flexibility and volatility smoothing that you need in a capital preservation option, and it can and should be a part of the investment option line-up that you are offering your MEP and PEP plan sponsors.
- Exclusive. Stable value funds are accessible only through qualified retirement plans. Unlike other qualified plan offerings, Stable Value funds cannot be purchased outside of the plan.
- Protection from Market Risk. Stable value returns are generally negatively correlated, meaning they have the least relationship with equity investments. So Stable value protects retirement savings when equity markets slide.
- Preserves capital. Stable value is one of the most reliable capital preservation options available. This income-producing, low-risk investment option has historically outperformed both money market funds and inflation while providing a guarantee of principal and interest.
Plan sponsors trust your advice on the selection of their core investment options and we’re here to assist you in choosing the strongest capital preservation option for MEP and PEP retirement plan investment lineups.