Stable Value Funds and Market Value Adjustments

Stable value funds and market value adjustments (MVAs) have been a topic of discussion recently due to the changing interest rate environment over the last 18 months. With the increase in rates, MVAs are being assessed at a higher rate to protect against potential losses. Although MVAs aim to stabilize a fund, they can result in losses for withdrawing participants, leading to a financial penalty. Plan sponsors should be aware of how plans can be impacted by MVAs if stable value funds are offered in their plan. Let’s look at some fiduciary basics of how MVAs can affect your plan and some considerations to take if you run into a scenario where exiting a stable value fund arises.

What is a Market Value Adjustment?

An MVA is a feature of stable value funds that helps promote the stability of returns in such offerings. An MVA is a mechanism that adjusts the account’s value when withdrawals are made outside of specified conditions. It safeguards both the fund and its participants against fluctuations in interest rates and market conditions.

When does an MVA occur?

An MVA can take place if a plan sponsor wants to sell out of a stable value fund in the plan. This scenario typically arises if:

  • A sponsor is looking to change their cash management option in a retirement plan.
  • A plan is changing providers, and the provider does not have access to the existing stable value offering.
  • The plan is terminating.

There are important decisions to be made by plan sponsors during a plan conversion or the removal of a stable value fund from the investment menu. Plan sponsors have a few options when encountering a scenario with MVAs.

1 – The sponsor can decide to liquidate the stable value fund and pay the fee (MVA) from corporate assets or plan assets (participants).

  • We strongly advise against paying the fee from plan assets. This method has been named in a few lawsuits due to poor fiduciary practices on behalf of participants.

2 – Most stable value funds have a delayed withdrawal option, often referred to as a “Put”. The delayed withdrawal option is typically 12 months but could be longer depending on the stable value option. Assets in the stable value fund at the time of the plan conversion would be held with the current provider for a period of 12 months. After the period is over, the assets would be eligible to be transferred over to the new provider and reinvested accordingly.

In the news

A suit was filed in late 2023 against Bed, Bath, and Beyond and plan fiduciaries as a result of a market value adjustment on the plan’s stable value fund. Participants alleged that imprudence led to losses of over $5,000,000. The plaintiffs claim to have lost 10% of their stable value balance due to market value adjustments because of a plan termination when the company filed for bankruptcy.

3 – In some cases, participants do have the option to move out of the stable value fund prior to the plan’s “blackout period”. Education can be provided to participants on their option to move money out of the fund.

  • Note: Depending on the timing of the rollover and the specific rules of the stable value fund, an MVA may apply to the amount being transferred.

4 – Consult with an Investment Advisor – an advisor can provide guidance for plan sponsors and help navigate the implications of MVAs effectively.

It’s crucial for participants and plan sponsors to review the terms and conditions of their retirement plan and stable value funds regarding MVAs.  Understanding how MVAs operate and considering the potential impact on withdrawal amounts can help participants and sponsors make informed decisions that align with their financial objectives and retirement planning strategies. 

Have any questions regarding stable value funds? You can reach out to our fiduciary team directly at:

Sean Duffy, QPFC, AIF®
Investment & Fiduciary Consultant