Does your 401(k) plan offer the best ‘cash’ option? What you need to know about capital preservation

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Any discussion of capital preservation in a defined contribution plan can cause confusion or disinterest amongst plan fiduciaries. But much like the offensive line during a game-winning drive, its importance is most apparent amidst times of turmoil. As capital preservation continues to be one of the few asset classes providing participants with a positive nominal rate of return, fixed account products and stable value funds have come to the forefront when fiduciaries speak with recordkeepers and investment managers.

Although these may fill the “cash” bucket of the defined contribution plan investment menu, they might better be viewed as cash-like. Many include unique terms and conditions that could prove challenging in the future. We’ll endeavor here to describe the different types of investment products that can be used as the capital preservation offering within a plan menu, discuss how they differ from one another, and explain the considerations that must be evaluated.