404(c) AND STABLE VALUE FUNDS

[Guest penfirn]

Has anyone heard any recent developments on offering a stable value fund as an option in a plan meant to comply with 404©. The fund would be one of eight or more options and prices and allows withdraws and buys daily. All options under the plan will allow at least monthly changes.

[Jon Chambers]

I don't see a problem with this. Remember that 404© requires at least 3 core options, which, classically, include a money market fund, bond fund and general stock fund (often an S&P 500 index fund), but there is no reason why a stable value fund couldn't be one of the 5 non-core options, particularly if there are no unreasonable transfer restrictions.

[MWeddell]

There's no reason that the stable value fund couldn't be one of the three core funds in an ERISA 404© set of funds. In order to cover the risk & return range that is appropriate for 401(k) plan participants, most observers conclude that one must have at least a money market, stable value, or possibly a short-term bond fund as a conservative option.

You mention that all options will allow at least monthly changes. Note that the stable value fund may have to offer changes at least as frequently as any of your other investment options under Labor Reg. 2550.404c-1(B)(2)(ii)©(2)(ii). In other words, you can't allow participants to switch out of an equity fund on a daily basis unless they can go into an income-producing, low risk, liquid fund on a daily basis too.