Stable value funds hold more retirement savings than most people realize: $853.95 billion at the end of 2025, according to the Stable Value Investment Association (SVIA), which says the option appears in roughly three of every four defined contribution plans. On a 401(k) menu it usually sits next to the money market fund and looks much the same, a balance that does not fall when bond prices do. The machinery underneath is different. A stable value fund owns bonds with several years left to run and buys contracts that let participants trade at book value. This guide explains those contracts, how the crediting rate is calculated, how returns have compared with Treasury bills, and the transfer and exit rules that come with the guarantee. For other low-risk choices, see the safe investments hub.
What is a stable value fund?
A stable value fund is a conservative option in workplace retirement plans that pairs a short-to-intermediate bond portfolio with contracts guaranteeing participants can transact at book value.
Book value, also called contract value, is what you put in plus credited interest, minus withdrawals and expenses. Market value is what the bonds would fetch today. When rates rise, bond prices fall and market value can drop below book value, but your balance keeps growing at the crediting rate. The portfolios hold Treasuries, agency and mortgage-backed securities, corporate bonds and asset-backed debt, with any money not covered by a contract kept in short-term cash instruments. SVIA says stable value is only available in tax-qualified plans, most notably defined contribution plans; the 401(k) basics guide covers the account itself.
SVIA groups the funds into four types, and the type decides both the risk and the exit terms:
| Type | How it is built | Average duration, years | Exit terms for the plan sponsor |
|---|---|---|---|
| Individually managed account | The plan owns the bonds and buys wrap contracts from insurers or banks | 3.37 | Market value, or a wind-down that can stretch to about 10 years |
| Pooled fund | A collective trust shared by many plans, with its own wraps | 3.11 | Generally book value after 12 months' notice |
| Insurance separate account | A group annuity whose assets sit outside the insurer's general account | 4.07 | 3 to 10 years, sometimes paid out in stages |
| Insurance general account | A group annuity backed by the insurer's general account | 7.45 | 3 months to 10 years, sometimes paid out in stages |
The older form, a traditional guaranteed investment contract with a fixed rate for a fixed term, is now infrequently used, according to Callan's review for North Carolina's state plans. Synthetic contracts, where the plan owns the bonds and a wrap sits on top, have become the most common structure.
How do wrap contracts protect book value?
A wrap contract is an agreement in which an insurer or bank promises to cover the gap between book value and market value when participants withdraw.
SVIA describes the issuer as standing ready to fund the difference between contract value and market value when necessary for eligible withdrawals. Rather than settling up each day, the contract spreads market gains and losses into future crediting rates, which is why the rate moves slowly. In return the issuer charges a fee: wrap fees at Principal's Morley Stable Value Fund ran between 0.15% and 0.19% of assets in its 2025 financial statements, and they come off the crediting rate.
Large funds spread the job around. The fund used by North Carolina's supplemental retirement plans split its coverage among five insurers as of September 30, 2025: Prudential 22%, Nationwide 21%, American General 20%, Transamerica 19% and MetLife 17%, with 1% in cash. Callan's November 2025 review lists its wrap fees at 0.146% a year, within a total fee of 0.258%.
The guarantee has edges. The Morley statements say the issuer guarantees a minimum 0% crediting rate but that a wrap does not absorb any loss for credit defaults in the underlying portfolio. And the contracts cover ordinary participant activity, not events the employer sets off, which are covered further down.
How is the crediting rate set?
Funds typically reset the crediting rate monthly or quarterly with a formula that combines the portfolio's yield with its market-to-book gap, spread over its duration.
Crediting rate = (1 + yield to maturity) × (market value ÷ book value) ^ (1 ÷ duration) − 1
This version appears in both Callan's review and Principal's audited statements, though each contract negotiates its own terms. Duration, the subject of our bond duration glossary entry, sets how many years a gain or loss is spread over, typically two to four. The 0% floor stops the rate going negative, and fees are deducted from the gross rate.
Worked example: Two crediting-rate resets
Callan's illustration: a portfolio with a 2.80% yield to maturity, $12,000,000 market value, $11,850,000 book value and a 3.2-year duration.
- Market-to-book: 12,000,000 ÷ 11,850,000 = 1.012658
- Spread over 3.2 years: 1.012658 ^ (1 ÷ 3.2) = 1.003939
- Crediting rate: 1.028 × 1.003939 − 1 = 3.20%, above the 2.80% yield because a gain is being paid out
Now an underwater portfolio like North Carolina's on September 30, 2025, with market value at 97.5% of book and a 3.3-year duration, plus an assumed 4.15% yield to maturity:
- Spread over 3.3 years: 0.975 ^ (1 ÷ 3.3) = 0.992357
- Crediting rate: 1.0415 × 0.992357 − 1 = 3.35%, below the 4.15% yield because a loss is being recovered
The fund's reported crediting rate on that date was 3.36%.
Cash flows feed back into the rate. When participants withdraw while the fund is underwater, bonds are sold below book value and the shortfall grows for those who stay. North Carolina's fund saw $466 million of outflows since 2023, which Callan says reduced its market-to-book ratio and put downward pressure on the crediting rate.
How do stable value returns compare with money market funds?
Stable value lags when short-term rates jump and leads when they fall, because its crediting rate absorbs market moves over several years.
Callan measures North Carolina's fund against three-month Treasury bills plus 1.50 points. Subtracting the 1.50 gives an approximate bill return, a stand-in for a government money market fund before its expenses:
| Year | NC stable value fund | Three-month T-bills, approx. | Difference, points |
|---|---|---|---|
| 2019 | 2.74% | 2.28% | +0.46 |
| 2020 | 2.52% | 0.67% | +1.85 |
| 2021 | 1.91% | 0.05% | +1.86 |
| 2022 | 1.98% | 1.46% | +0.52 |
| 2023 | 2.85% | 5.01% | −2.16 |
| 2024 | 3.18% | 5.25% | −2.07 |
Over the six years, $10,000 grew to about $11,617 in the fund and $11,552 in bills: nearly a tie, reached by very different paths. Longer records lean toward stable value. SVIA's composite returned 2.45% a year over the 15 years to 2025 against 1.28% for a money market index, both before management fees, and testimony to the Labor Department's ERISA Advisory Council in 2009 put stable value's net returns from 1989 to 2008 at 6.3% a year against 4.1% for money market funds. Those are industry composites and one plan's record; your plan's fund will differ.
Worked example: What the lag meant on a $50,000 balance
- 2023: stable value at 2.85% earned $1,425, while bills at about 5.01% earned about $2,505, so stable value trailed by about $1,080
- 2021: stable value at 1.91% earned $955, while bills at about 0.05% earned about $25, so stable value led by about $930
Plans post the current crediting rate on the fund fact sheet. To compare it with cash, use the plan's money market fund yield, explained in how money market funds work, or current bill yields from the Treasury bill calculator.
What is an equity wash?
An equity wash is a plan rule that stops you from moving money directly from stable value to a competing option, such as a money market fund.
Money leaving stable value must first go to a non-competing option, usually a stock or longer-term bond fund, and stay there for a set period, often 90 days, before it can move into the competing one. Callan's glossary counts other principal-preservation options as competing and notes that self-directed brokerage or mutual fund windows often qualify too. Moves between stable value and non-competing funds can happen daily.
The rule protects the wrap issuers and the participants who stay. When rates jump, a money market fund can pay more than the crediting rate just as stable value's bonds are worth less than book. Without a wash, participants could leave at book value for cash and leave the shortfall with everyone else. Dropping the rule can itself trigger a market value adjustment, according to the Ameren Corporation Savings Investment Plan's 2023 annual report.
Worked example: Moving $30,000 from stable value to the plan's money market fund
- Day 1: transfer $30,000 into an S&P 500 index fund, a non-competing option
- Days 1 to 90: the money rides the stock market, so a 10% drop would leave $27,000
- Day 91: move whatever is left into the money market fund
The wash turns a cash-to-cash switch into three months of stock market exposure.
What happens if the employer or the plan exits?
Book value covers withdrawals participants choose, but employer-initiated events can shift the payout to market value or delay it.
Retirements, job changes, loans, hardship withdrawals and transfers within the plan's rules are paid at book value. Each contract lists the exceptions. The Ameren report names events that may trigger a market value adjustment, including:
- a group layoff or early retirement incentive program
- the closing or sale of a subsidiary, or the sponsor's bankruptcy
- termination of the stable value account or a merger with another plan
- eliminating the equity wash or other changes to competing options
- any communication designed to persuade participants to stop investing in the option
These are not theoretical. In late December 2008, the stable value fund offered to Lehman Brothers employees lost 1.7% after bond prices fell and its wrap contract ended in response to Lehman's bankruptcy filing, according to the ERISA Advisory Council's 2009 report.
Sponsor exits come with waiting periods. SVIA's summary of exit provisions says pooled funds generally pay book value after 12 months' notice, the so-called twelve-month put, while insurance separate and general account products can take from 3 months to 10 years and may pay out in stages.
Worked example: A market-value payout at 97.5% of book
A plan terminates its stable value option immediately while market value is 97.5% of book.
- A participant with a $40,000 book-value balance receives $40,000 × 0.975 = $39,000
- The loss is $1,000, or 2.5%, even though the balance never showed a decline
What are the risks of a stable value fund?
The main risks are a crediting rate that trails cash when rates rise, wrap and insurer failures, bond defaults and employer events that bypass the book-value promise.
- Lagging yield. After a fast rise in rates the crediting rate can trail money market funds for a year or more, as in 2023 and 2024.
- Wrap issuer risk. The Ameren report notes that collecting on the contracts depends on the issuer's ability to meet its obligations. Supply can shrink, too: in 2009 one witness told the ERISA Advisory Council that only three or four firms offered wraps, and in 2024 Transamerica and State Street announced cuts to their wrap exposure.
- Insurer credit risk. General account products rest on one insurer's balance sheet; separate account assets may not be used to pay the insurer's general account liabilities.
- Credit defaults. Wraps do not absorb default losses, so a bond default lowers market value and future crediting rates.
- Employer events. Layoffs, plan changes and bankruptcies can move payouts to market value, as Lehman employees found.
- Inflation. Consumer prices rose 3.74% in the year to September 2026, so a crediting rate in the low 3% range, like the 3.36% North Carolina's fund credited a year earlier, would lose buying power; real returns and inflation shows the math.
- No deposit insurance. The protection is contractual, not federal, and transfers face the equity wash.
How these compare with the risks of bonds, cash and stocks is covered in types of investment risk, and why the underlying bonds lose value when rates climb in why bond prices fall when rates rise.
What should you check in your plan's stable value option?
The fund fact sheet and the plan's annual financial statements, sometimes filed with the SEC on Form 11-K, answer most of the questions that matter.
Stable value due diligence
- The current crediting rate, how often it resets and whether it has a 0% floor
- The market-to-book ratio; below 100% means a shortfall is being spread into future rates
- How many wrap issuers there are, each one's share of coverage and their credit ratings
- Total expenses, including wrap fees, and whether quoted returns are before or after them
- The equity wash period and which options count as competing
- Events that could trigger a market value adjustment, and the sponsor's exit terms
For how stable value fits next to stocks and bonds in a long-term mix, see building a well-balanced portfolio, and to see what a few tenths of a point of yield add up to over a decade, try the compound interest calculator.