QI have never found an investment that provides returns as high and as safe as stable value funds. These are only available in 401(k)s. Therefore, I think the advice to roll over a 401(k) into an IRA is inappropriate, especially for a person near retirement age.


AYou're right, you can only invest in stable value funds in a retirement savings plan like a 401(k). The attraction of a stable value fund is that it pays a better-than-money-market-mutual-fund yield while the principal value doesn't fluctuate much. In essence, a stable value fund is built off a bond portfolio that is wrapped in an insurance contract, which backs the stability of principal. These funds are especially attractive to those who want to lock in the value of at least part of their 401(k) savings.

The good experience you've had with stable value funds also reflects the overall positive bond market we've had over the past quarter century. It is definitely an investment to consider before rolling over 401(k) money into an IRA.

That said, stable value funds aren't risk-free. For one thing, I don't like it when it's difficult to understand the quality of the assets in a fund. Like many engineered financial products, these funds tend to be opaque. I'm wary, too, of the promise of stability.

Also, fees tend to be high. The wrap contract is only as good as the balance sheet of the insurer. Fed Chairman Ben Bernanke in 2009 testimony before Congress on why American International Group (AIG) was bailed out, mentioned stable value funds: If not for the bailout, he said, "Workers whose 401(k) plans had purchased $40 billion of insurance from AIG against the risk that their stable value funds would decline in value would have seen that insurance disappear."

My sense is that employers are well aware of the risks and are asking questions. The last few years have made all too clear that near-retirees with 401(k)-type plans need some good options for locking in value and an income from at least part of their retirement savings.

 So, leaving some money in a stable value fund is a reasonable choice. I would emphasize the importance of diversification: Don't put all your investment assets in one investment. And in most cases I still prefer that people take control of their retirement money when they've left their former employer. They can create their own financial safety net through a combination of U.S. Treasury bills, Treasury Inflation Protected Securities, certificates of deposit, etc.

Chris Farrell is economics editor for "Marketplace Money." Send your questions to cfarrell@mpr.org.