Linda Haynes Quoted in IOMA's Report on Managing 401(k) Plans
"Are Stable Value Funds Getting Shakier?"

Linda Haynes was quoted in the June 2009 issue of IOMA's Report on Managing 401(k) Plans in the article, "Are Stable Value Funds Getting Shakier?" The article discussed how no investment fund, including stable value funds, has gone unharmed with all the financial turmoil that has overtaken the market over the past year. Linda noted, "It is a perfect storm that we have seen happening in so many different areas of the market in the past 12 months or so. Most stable funds are set up where there is an underlying fixed-income portfolio that is then wrapped in a contract with a financial institution, which guarantees certain things so you can microkeep for the fund on book value versus market value." Linda also added that with everything that has been going on in the market, the value of that fixed income portfolio has dropped significantly. There's a big difference in a lot of portfolios between the market value of the fixed-income portfolio and the book value for the fund.

According to the article, with all the consolidation that has been going on with financial institutions and financial institutions' concerns about their own balance sheets and businesses, the financial institutions that are willing to continue to provide those wrap contracts is shrinking. Linda continued, "Right now, it is really a seller's market, and there really aren't very many who are willing to enter into new arrangements." She added that "if there is an existing contract, they are living up to that contract. But if a plan sponsor would like to replace a provider or if the sponsor's contract is expiring, it's a real struggle right now to find a replacement."

Additionally, Linda recommended that plan fiduciaries who have either a stable value fund or a pooled fund within their investment offerings should ask the following of their stable value provider: What is the current bear market value of the fixed-income portfolio to book? That is going to give them an idea of what the gap is, she added. Linda concluded, "I've seen funds where their fair market value to book is in the high 90s. I've seen others where it's in the mid-80s. There's a big difference. That's a very important question to ask because that will then give you an idea of where they are."