Selecting a Stable Value Provider and Using This Expertise to Enhance Your Practice

Transcription

1 Selecting a Stable Value Provider and Using This Expertise to Enhance Your Practice April 21, 2015 Kevin T. Mansfield National Director New York Life Stable Value Investments Kevin Mansfield@nylim.com (Office) (Cell) For One-Time Institutional Use Only. Not to be Distributed to the Public 1

2 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) Types of Assets Invested in Stable Value as of 12/31/13 403(b), 29.96% % Others, 8.79% 401(k), 55.64% 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 Not for Distribution 2

3 A Popular Investment of Choice Defined Contribution Stable Value Benefits Stable Value Defined Benefit Non-Qualified 403b Principal preservation Historically consistent returns Cash-like liquidity 3

4 Core Investment Option: Transcends generations Source: New York Life Retirement Plan Services, December 31, 2013 Not for Distribution 4

5 Capital Preservation and Stable Returns* *Source: Stable Value Investment Association 12/31/13 It is not possible to invest in an index. Past performance is no guarantee of future results. 5

6 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 Not for Distribution For One-Time Institutional Use Only. Not to be Distributed to the Public 6

7 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 For One-Time Institutional Use Only. Not to be Distributed to the Public 7

8 3 Major Types of Stable Value Fund Structures 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 plan Source: SVIA Annual Stable Value Investment & Policy Survey 12/31/13 Despite structural differences, all are designed to deliver the same benefits of stable value. Not for Distribution For One-Time Institutional Use Only. Not to be Distributed to the Public 8

9 Stable Value Investment Contracts 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). 9

10 Financial Markets Overview Financial crisis of 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 Historically low interest rate environment 10

11 Stable Value Marketplace 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 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 11

12 Challenges/Opportunities Rising Interest Rates Not for Distribution 2014 Stable Value Summit Stable Value Trends and Observations June 5,

13 Rapid Spike in Rates 8.00% 7.00% 6.00% Crediting Rate vs. Money Market Rates Interest rates 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Years 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 Source: NYL internal stochastic rate generator models 6/30/14 Not for Distribution 13

14 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 Not for Distribution 14

15 Regulatory 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 15

16 Summary 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 Not for Distribution 16

17 Using stable value for prospecting and retention For One-Time Institutional Use Only. Not to be Distributed to the Public 17

18 New York Life s Advisor Support 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 For One-Time Institutional Use Only. Not to be Distributed to the Public 18

19 Stable Value Dashboard For One-Time Institutional Use Only. Not to be Distributed to the Public 19

20 New York Life Advisor Tools For One-Time Institutional Use Only. Not to be Distributed to the Public 20

21 New York Life RPS Stable Value Offerings STABLE VALUE PRODUCT LINE UP Guaranteed Interest Account (GIA) Guaranteed Interest Pension Account (GPA) Anchor Account New York Life Anchor Account - Series I 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 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. For One-Time Institutional Use Only. Not to be Distributed to the Public 21

22 Questions & Answers For One-Time Institutional Use Only. Not to be Distributed to the Public 22

23 Online Resources New York Life Retirement Plan Services stable value landing page Fact sheets, thought leadership, comparison tools, and more Stable Value Investment Association homepage Stable value basics and information, FAQs, industry statistics, current news Hueler Companies homepage Stable value indices: industry benchmark for performance returns of stable value pooled funds and separate account portfolios LIMRA International homepage Research, benchmarks and other stable value industry insight For One-Time Institutional Use Only. Not to be Distributed to the Public 23

24 Thank You! For One-Time Institutional Use Only. Not to be Distributed to the Public 24

25 Appendix For One-Time Institutional Use Only. Not to be Distributed to the Public 25

26 Important Information 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. For One-Time Institutional Use Only. Not to be Distributed to the Public 26

27 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 March 2014 For One-Time Institutional Use Only. Not to be Distributed to the Public 27

28 Slide 27 t15 Please update the SMRU number and the date. t62jqom, 4/7/2015