(Source: Business Wire)MetLife today announced the 20th anniversary of its introduction of the defined contribution retirement industry's first separate account stable value product in 1989. The MetManaged GIC, the first separate account guaranteed interest contract (GIC), offers an integrated approach to asset/liability management and combines institutional investment management with a strong book value guarantee. MetLife, which has been in the stable value market for over 30 years, had more than $22 billion in stable value business as of June 30, 2009.

Defined contribution participants looking for ways to keep their portfolio value stable while still earning returns generally higher than money market returns can turn to stable value as a core part of their plan. Stable value is designed so that participant balances do not decrease1 with returns that are generally comparable to those for intermediate bonds, but with less volatility. Stable value funds reduce return volatility by investing primarily in general account or separate account guaranteed investment contracts (GICs) issued by insurance companies, similar contracts issued by banks, synthetic GICs or some combination of these investments. Stable value funds are available only to participant-directed defined contribution plans.

"As MetLife celebrates this important milestone, it's important to note just how well stable value has risen to the challenge posed by these circumstances," said Cynthia Mallett, vice president, Product & Market Strategies in MetLife's Corporate Benefit Funding business, who recently testified at an ERISA Advisory Council hearing on stable value. "Plan participants have received consistent benefits, and the rate reset mechanisms designed to withstand and manage the effects of an extreme economic event over time are working as intended."

Even since the turbulent economic environment worsened beginning in late 2007, stable value has continued to offer a safe haven for plan participants. A Fidelity Investments survey reported that overall participant 401(k) balances declined by 27.5% in 2008. Yet, during that same time period, the return on an average stable value fund was a positive 4.75%, according to the Hewitt 401(k) IndexTM.

Learning from the Past

A look at how stable value has evolved is helpful in understanding today's stable value asset class.

The first generation of modern stable value products was introduced some 30 years ago in the late 1970's. The insurance company guaranteed interest contracts (GICs) that emerged from earlier "portfolio rate" products remain a mainstay of stable value today. They are easily understood by plan sponsors and participants, featuring an interest rate guaranteed in advance, guaranteed principal, a specified maturity date and the ability of plan participants to make allocations to and from the funds at book value.