Smart Retirement Savings

Stable Value Fund May Not Be Safe

My company's 401(k) plan never includes a stable value fund, so I never got the chance to make a decision whether to invest in such funds. However, NY Times reminds us that stable value funds have their fair share of risks too. Some poorly run funds can go bankruptcy, and costing investors a fortune.

In fact, stable value funds and their close cousins, guaranteed investment contracts, together accounted for 21.3 percent of the assets in such plans in September, making them second in popularity only to company stock, at 21.6 percent, according to Hewitt Associates, an independent provider of 401(k) services.

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A year ago, for example, the Trust Advisors Stable Value Plus fund declared bankruptcy. With investments of $200 million from 1,500 pensions plans nationwide, it was but a small player in the 401(k) market, which Hewitt says has assets of more than $1 trillion. Nevertheless, it provides a cautionary tale.

Like other stable value funds in 401(k) plans, it was not a mutual fund but a collective trust. While the Securities and Exchange Commission regulates mutual funds and requires that they provide daily pricing and publish prospectuses with detailed financial disclosure, the agency does not regulate collective trusts. In the fall of 2005, the Labor Department sued the Circle Trust Company of Darien, Conn., the fund’s former trustee, saying that imprudent investments had caused the fund to lose between $17 million and $47 million. Circle Trust went into receivership, and the Connecticut banking commissioner, John P. Burke, was named receiver. The fund was put under the management of an independent trustee, Fiduciary Counselors Inc. in Washington.