Stable-Value Funds
Stable-value funds are comprised of bundles of bonds coupled with an insurance policy and are found in some 401(k) plans. These funds have been around since the 1970s and oversee more than $600 billion. Investors in 401(k) plans have more money in stable-value than in bond funds. During 2008, these funds were up 2% for the year. DuPont has ~ 60% of its retirement plan assets in stable-value funds.
Whenever the market value falls below book value (typically $1 a share), the insurance enables anyone making a withdrawal to receive full book value plus interest. It is important for the advisor to remember that the insurance often includes covenants that can protect the insurer. For example, the guarantee can go away if the company offering the retirement plan initiates massive layoffs or an external manager violates investment guidelines.