Stable value funds aren't as stable as most investors would like, according to a white paper by Towers Watson. In the past, stable value investments performed fairly well and investors appreciated the benefits offered through stable value: principal protection, benefit responsiveness and liquidity. They also offered higher returns than money markets while taking on modestly higher amounts of interest rate and credit risk exposures.

The changing economic climate with greater regulatory uncertainty, diminishing wrap capacity and lower yields have reduced the stability and value of these funds and plan fiduciaries face less stability and an increased governance burden.

Stable value funds have been a popular investment strategy within defined contribution plans because they were perceived as a more secure investment. Investors have allocated more than $500 billion, or 10 percent of defined contribution assets, into the strategy.  According to Towers Watson, investors need to know that the economy and legislation, like the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, have reduced the industry's wrap capacity, tightened investment guidelines, raised fees and the potential for an increasing interest rate scenario.