Although the Federal Reserve's normalization of interest rates will likely give a boost to money market yields, retirement consultants recommend stable value funds as the best capital preservation option in defined contribution (DC) accounts.

More than eight in 10 consultants said they are likely or very likely to recommend stable value to plan sponsors seeking alternatives to prime money market funds (MMFs), according to PIMCO's 11th annual 2017 DC Consulting Support and Trends Survey. By contrast, only 21% said they would recommend that plans keep their prime money market option.

These results give further impetus to stable value, which has been a fixture of DC plans since their debut in the early 1980s. Unlike other common capital preservation options, such as money market funds, stable value has the potential to help preserve the purchasing power of participants' invested capital for use in retirement.

Indeed, low yields have tarnished the appeal of MMFs. And with the market pricing in fewer interest rate hikes in coming quarters, we think it unlikely that MMFs will outperform inflation anytime soon. Moreover, the SEC's sweeping money market reforms last October added potential gates and fees to prime MMFs, further eroding their attractiveness and causing many sponsors to move into lower-yielding government MMFs.

In PIMCO’s DC Consultant Survey, which captured opinions from 69 U.S. consulting firms serving over 12,000 clients with DC assets in excess of $4 trillion, 64% recommended stable value over government MMFs, which were not affected by the SEC's regulatory reforms.

Asset flows suggest plan sponsors and participants agree with consultants' recommendations: According to the Stable Value Investment Association (SVIA), stable value assets rose by nearly $30 billion to $819 billion in the year ended 31 March 2017. Industry-wide weighted-average crediting rates are about 2.5%, according to the SVIA. This includes the performance of individually managed stable value accounts, pooled stable value funds and insurance-company-guaranteed insurance accounts – a stable value investment option entirely offered and guaranteed by a single insurance company.

PIMCO views capital preservation options as essential elements of a DC plan’s core investment lineup. They offer the potential to preserve principal, generate income, and should provide a liquid, low-risk investment during volatile markets or offset riskier investments in a portfolio.

Liquidity, low-risk and long-term real returns

When it comes to selecting a capital preservation option, PIMCO has long suggested sponsors focus on a few important investment characteristics:

  • Liquidity. In the capital preservation context, we believe liquid investments must be easily converted to cash not only in normal markets, but also when markets are stressed.
  • Low risk. We believe the value of a low-risk capital preservation investment should be reasonably assured over an appropriate time horizon as determined by the sponsor – whether daily, monthly or quarterly.
  • Real returns. Generating an after-inflation return on investment capital is also an important, but often overlooked, consideration given the long-term retirement savings objectives for DC participants.
  • Active Management.  In today's low interest rate environment, we think an active approach is critical. For example, the median active intermediate-term bond manager has outperformed its passive peer by about 50 basis points over the last 10 years – unlike its equity counterpart.1

These gains may compound over time and can represent meaningful total return potential. For more on active management, please see "Why Bonds Are Different."

Since the capital preservation needs of each plan are unique, it's possible that a MMF remains appropriate for a particular DC plan. But clearly DC consultants, sponsors and participants have recognized the changing value proposition of MMFs.

Alternatives for DC

For sponsors considering moving away from MMFs or simply seeking to review their current option, PIMCO has extensive expertise on alternatives that sponsors have used to fulfill the role of a DC plan’s most conservative option. These include short-term bond funds specifically designed for use in DC, stable value and white-label (or custom) solutions.

1 Based on Morningstar U.S. Intermediate-Term Bond Category for fixed income and Morningstar U.S. Large Cap Blend Category for equities. Institutional share class. As of 31 December 2016. Source: Morningstar.


Related Funds


Past performance is not a guarantee or a reliable indicator of future results.

Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your investment professional or PIMCO representative or by visiting Please read them carefully before you invest or send money.

You could lose money by investing in a Prime Money Market Fund. Because the share price of the Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

You could lose money by investing in a Government Money Market Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

PIMCO does not offer insurance guaranteed products or products that offer investments containing both securities and insurance features.

A word about risk:

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.

Stable value investment contracts are issued by insurance companies, banks, and other financial institutions, are intended to help reduce principal volatility of, while providing steady income from, any associated Fund fixed income investments, and are intended to be valued at contract value (typically, deposited principal plus accrued interest less redemptions). Investment contracts vary and may include insurance company separate account contracts, synthetic contracts (also known as wrap contracts), or insurance company general account contracts. Insurance company separate account contracts and synthetic contracts are a combination of fixed income investments (associated assets) and an agreement by a contract provider to allow qualified participant transfers and withdrawals from a fund at contract value. Generally, there is no immediate recognition of investment gains and losses on associated assets; instead, investment gains and losses are amortized over time into the investment contract’s performance by adjusting the contract’s credited rate of interest. A general account contract is a deposit into an insurance company’s general investment account. Stable value wrap contracts are subject to credit and management risk. Although stable value investments seek to reduce the risk of principal loss, you could lose money by investing in a Stable Value Fund.

Management risk is the risk that the investment techniques and risk analyses applied by the investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the investment manager in connection with managing the strategy.

There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2017, PIMCO.

PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY, 10019 is a company of PIMCO.


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