Selecting a Stable Value
Provider – and Using
This Expertise to
Enhance Your Practice
April 21, 2015
For One-Time Institutional Use Only. Not to be Distributed to the Public 1
Kevin T. Mansfield National Director
New York Life Stable Value Investments
Stable Value - A Core Holding
• Stable value funds – a core investment
in defined contribution employee
benefit plans
• $721 billion invested in stable value
assets
• 160,827 defined contribution
employee benefit plans
• Offered in approximately half of all
defined contribution plans
• Stable value funds comprise 12% to
19% of all defined contribution assets
(ICI Report)
2Not for Distribution
Money Market Funds Stable Value Funds Bond
Funds Balanced Funds Growth & Income Funds
Growth
Funds International/Global Equity Funds Specialty Funds Company Stock
Investment Risk Spectrum
Source: SVIA Annual Policy surveys Date as of 12/31/13 401(k), 55.64% 457 - 8.45% 403(b), 29.96% Others, 8.79%
Types of Assets Invested in Stable Value as of 12/31/13
A Popular Investment of Choice
3Stable
Value
Defined
Contribution
Defined Benefit
Non-Qualified
403b
Stable Value Benefits
Principal preservation
Historically consistent
returns
Core Investment Option: Transcends generations
4
Capital Preservation and Stable
Returns*
5
*Source: Stable Value Investment Association 12/31/13
Strong, sustained popularity of
Stable Value
• Participants value the insurance aspect and safety aspect,
peace of mind especially in volatile times
• Generally provides higher returns than its like option - money
market funds
• Has delivered as expected through turbulent times even in
the financial crisis
• Diversifies risk away from more volatile asset holdings
• Stable Value is a good asset class to construct an optimal
portfolio on the efficient frontier
For One-Time Institutional Use Only. Not to be Distributed to the Public 6
Evaluating Stable Value Providers
•
Provider information
–
Financial strength
–
Organization structure
–
Surplus
•
Investment information
–
Duration
–
Crediting Rate
–
Portability
•
Contract provisions
–
Termination provisions
–
Book value payout
–
Investment costs
3 Major Types of Stable Value
Fund Structures
8
Insurance Accounts
(small to mid size plans)
• Combine or ‘Pool’ assets and experience of unrelated plans
• Invest in a group annuity contract issued with a guarantee
of principal and accrued interest from a highly rated issuer
• Offer guaranteed minimum rates ranging between 1% to
3%
CITs/Pooled Funds
(small to mid size plans)
• Combine or ‘Pool’ assets and experience of unrelated plans
• Overall investment strategy managed by stable value
manager
• Backed by bank or insurance wrappers for stable value
Single Plans - Separately Managed Accounts
(large plans)
• No pooling of assets; specifically customized to meet the
objectives of a single p
lan
Despite structural differences, all are designed to deliver the same benefits of stable value.
For One-Time Institutional Use Only. Not to be Distributed to the Public
Not for Distribution
Source: SVIA Annual Stable Value Investment & Policy Survey 12/31/13
Stable Value Investment Contracts
9
Types of
Stable Value Contracts Description Rate of Return Assets
General Account
Backed by the assets of the insurer’s general account Can be fixed term or evergreen
Guaranteed fixed (GICs) or rate that resets
Typically guaranteed minimum rate > 0%; ranges
from 1% to 3%
Owned by the insurance company
Held within an insurer’s general account
Separate Account Backed by assets held in an account separate from the insurer’s general account
Fixed, indexed, or reset based on the performance of the
segregated assets
Typically guaranteed minimum rate of 0%
Owned by the insurance company
Held in a separate account for the benefit
of the plan(s)
Synthetic GICs/Wraps
Assets held in an external trust Bank or insurance Wraps
Usually evergreen
Rate of return based on the performance of the underlying assets Typically guaranteed minimum rate of 0% Owned by the participating plan(s).
Financial Markets Overview
10
Financial crisis of 2008-2009
•
Significant decrease in the stock market
•
Bond markets declined
•
Credit markets seized up
•
Some money market funds “broke the buck”
Impact on stable value investments
•
Some stable value wrap providers were downgraded or exited the market
•
Some stable value providers infused cash into their products
•
Decrease in wrap capacity and increased wrap costs
Flight to quality, but now with questions
•
How safe are Money Market Funds?
•
Plans more carefully considering the financial strength of issuers
11
Stable Value Marketplace
…and the Market Outlook
• Popularity due to uncertain environment,
market volatility, aging baby boomers
• Strong demand–supply is slowly, but
selectively, returning to the market
• Insurance companies replace banks in
market–guarantee business aligned with
insurance company core business
• Fund consolidations : smaller size, asset
problems, not core to business model
• Low rate environment: Bank CITs—
temporary soft close to new business;
Insurance providers—open to new business
• Stable Value (& DC landscape) to continue
meeting regulatory challenges
The Market Today
• Historically low interest
rate environment
• Historically high cash positions to
insure against uncertainty
• Wrap premiums remain at
elevated levels
• Conservative investment guidelines
still required
• Some bank wrapped providers
have left the market
Challenges/Opportunities
Rising Interest Rates
12
Not for Distribution
As money market rates spike, average crediting rate lags money market rates ‐ BUT
• Historically it never lags by more than approximately 100 bps which may be inadequate to trigger
any significant withdrawals
• Historically the inversion is short‐lived and not prolonged
130.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14Crediting Rate vs. Money Market Rates
YearsNot for Distribution
Rapid Spike in Rates
Source: NYL internal stochastic rate generator models 6/30/14
Interest
Industry Trends/Outlook
• Consolidation activity in full swing – Asset Managers, financial services
• Capacity back to normal, insurance companies dominate, industry is strong
• Customized Target Date Funds and Glide Paths including Stable Value
• 403(b) plans
Stable value option must be an “annuity”; Newer regulations and
consolidation of vendors has led to increased review of investments
• 529 or College Savings Plans
Untapped market with a need for diversification options; many states
only offer money market
Regulations and provisions still being addressed by the industry
• Solutions for Retirement Income
• Health Savings market
• International DC; Other
14Regulatory Trends
• SEC on Money market Reform to Floating NAV
Continues to be on the SEC review items
Liquidity Gates, Redemption Fees, Floating NAV
Capital Back stop seems off the table
• Dodd Frank CFTC swap rules on hold
No news is good news, stable value is grandfathered
• DOL Activity on 408(b) (2) Disclosures continues
Implemented in August 2012 already being revisited
• Federal register on disclosures on Target Date Funds: SEC
increased disclosures on “risk based” glide paths
Opened for comment period
15Summary
• Stable value option in a core line up – past and present
• Can be a key part of any emerging trend in retirement landscape
• One of the best risk/return in the conservative space relative to alternatives
• Only option that comes with back stop insurance for the participant.
• Boomer generation is well served by protections
• Industry is viable with strong providers, strong demand
• Well positioned to handle rising rates and other challenges
• Somewhat complex asset class
• Its Insurance based investments
• Multiple product versions even though all deliver the same benefits
• Liquidity trade offs for higher yield
• Not SEC registered mutual fund ‐ standard investment performance tools
cant be applied
16Using stable value for
prospecting and retention
New York Life’s Advisor Support
For One-Time Institutional Use Only. Not to be Distributed to the Public
•
Interactive Dashboards
•
Updated monthly, these provide a snapshot of stable value industry
data, as well as participant usage by age and industry.
•
Comparison tools
•
Materials to help you easily learn about different types of stable value
products and tools to help you compare and contrast options for your
plans.
•
Sample advisors sales slides and talking points
•
Library of talking points and presentation slides you can leverage for
your own conversations
Stable Value Dashboard
New York Life Advisor Tools
20 For One-Time Institutional Use Only. Not to be Distributed to the Public
New York Life RPS Stable
Value Offerings
Guaranteed Interest
Account
(GIA)
Guaranteed Interest
Account
(GIA)
•
Supported by the
General Account of
New York Life
•
Over $3.2 billion in
assets
•
Established in 2009
•
Available to 401a,
401k, 403b, and 457
plans
Guaranteed Interest
Pension Account
(GPA)
Guaranteed Interest
Pension Account
(GPA)
Anchor Account
Anchor Account
New York Life Anchor
Account - Series I
New York Life Anchor
Account - Series I
•
Similar crediting rates
and provisions as the
GIA product
•
Available to Defined
Benefit Plans
•
Supported by a New
York Life separate
account
•
Over $3.8 billion in
assets and 600 plans
•
Established in 1995
•
Collective Trust
established in
partnership with Reliance
Trust Company
•
Currently invested in the
same New York Life
separate account as
Anchor
•
No asset minimums
•
Available on dozens of
recordkeeping platforms
Each product offers multiple expense levels with various levels of revenue sharing.
Each product offers multiple expense levels with various levels of revenue sharing.
STABLE VALUE PRODUCT LINE UP
Questions & Answers
Online Resources
23
www.stablevalueinvestments.com
•
New York Life Retirement Plan Services stable value landing page
•
Fact sheets, thought leadership, comparison tools, and more
www.stablevalue.org
•
Stable Value Investment Association homepage
•
Stable value basics and information, FAQs, industry statistics, current news
www.hueler.com
•
Hueler Companies homepage
•
Stable value indices: industry benchmark for performance returns of stable value
pooled funds and separate account portfolios
www.limra.com
•
LIMRA International homepage
•
Research, benchmarks and other stable value industry insight
Thank You!
www.stablevalueinvestments.com
Appendix
25 For One-Time Institutional Use Only. Not to be Distributed to the Public
Important Information
26
Indexes are unmanaged. It is not possible to invest in an index.
S&P 500® Index is widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market.
Morgan Stanley Capitalization International (MSCI) Europe, Australasia, Far East (EAFE) Index
The MSCI EAFE Index is a market-value-weighted combination of 21 countries, representing the “developed” world and excludes the United States and Canada.
The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. It is not possible to invest directly in an unmanaged index. The index does not reflect deductions for fees and expenses. Prior to November 1, 2008, this index was published by Lehman Brothers.
Barclays Intermediate Aggregate Index is an unmanaged indexed that consists of1-10 year Governments, 1-10 year Corporates, all Mortages, and all Asset-Backed securities within the Aggregate Index (i.e. the Aggregate Index less the Long Government/Corporate Index).
The Barclays Intermediate Ba U.S. High Yield Index covers the universe of fixed rate, non-investment grade debt that consists of 1-10 year securities rated Ba. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of
Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also included.
The Barclays U.S. Intermediate Government/Credit Bond Index measures the performance of U.S. dollar denominated U.S. treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than or equal to 1 year and less than 10 years. Securities have $250 million or more of outstanding face value and must be fixed-rate and non-convertible.
The iMoney Net Money Fund Report Averages are unmanaged composites of professionally managed money market investments with similar investment objectives that are not available for direct investment.
Important Information
There is no guarantee Investment objectives will be met. The Portfolio risk management process described herein includes an effort to manage risk, but should not be confused with and doesn’t imply low risk. Past performance is no guarantee of future results, which will vary.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although the fund strives to maintain the value of your investment at $1.00 per share, it is possible to lose money investing in the fund.
The stable value option seeks capital preservation, but there can be no assurance that this goal will be achieved. Returns will fluctuate with interest rates and market conditions.
The GIA is a group annuity contract and not a mutual fund or a collective trust. New York Life provides the guarantee of principal and accumulated interest. New York Life may earn more or less than the interest rate it credits to the GIA. The interest rate that New York Life credits to the GIA will never be less than 1.00%. This option is not guaranteed by the FDIC or the federal
government. Past performance is no guarantee of future results.
The Anchor Account is a group annuity contract and not a mutual fund or a collective trust. New York Life Insurance Company provides the guarantee of principal and accumulated interest. This option is not guaranteed by the FDIC or the federal
government. Past performance is no guarantee of future results.
Neither New York Life Investment Management LLC, its affiliates nor its representatives provide tax, legal, or accounting advice. Please contact your own advisors.
New York Life Retirement Plan Services is a division of New York Life Investment Management LLC.
NYLIM 33204 – March 2014
Slide 27
t15 Please update the SMRU number and the date.
