Understanding Key Drivers of Participant Cash Flows for Individually Managed Stable Value Funds

Behzad Alimoradian (), Jeffrey Jakubiak, Stephane Loisel and Yahia Salhi
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Behzad Alimoradian: Valerian Capital Group LLC, Dover, DE 19904, USA
Jeffrey Jakubiak: Valerian Capital Group LLC, Dover, DE 19904, USA
Stephane Loisel: Laboratoire de Sciences Actuarielle et Financière, Institut de Science Financière et d’Assurances, Université Claude Bernard Lyon 1, Univ Lyon, 50 Avenue Tony Garnier, F-69007 Lyon, France
Yahia Salhi: Laboratoire de Sciences Actuarielle et Financière, Institut de Science Financière et d’Assurances, Université Claude Bernard Lyon 1, Univ Lyon, 50 Avenue Tony Garnier, F-69007 Lyon, France

Risks, 2023, vol. 11, issue 8, 1-27

Abstract: In this paper, we investigate the behavioral and statistical characteristics of cash flows for stable value funds provided by numerous U.S. employee benefit plans. We analyze participant-initiated aggregated cash flow data, representing approximately 80% of the market for large employer plans with stand-alone stable value wraps within a 401(k) offering. By leveraging this unique dataset and contextualizing the 401(k) ecosystem, we examine numerous behavioral lapse hypotheses. Our findings highlight key behavioral lapse hypotheses for modeling lapses and generating risk scenarios. We demonstrate that cash flows exhibit medium- to long-term non-monotonic trends. Factors within the plan sponsor’s ecosystem, such as employment growth, default 401(k) plan options, and the introduction of new investment options, significantly impact participant cash flow behavior indirectly. Moreover, we find that flight-to-safety behavior plays a dominant role during global market crises. Although the risk of mass lapses due to reputational issues is observed, their probability of occurrence is low. Other behavioral hypotheses discussed in the literature, such as the moneyness hypothesis, are found to be less prevalent in this context.

Keywords: participant behavior; withdrawal modeling; 401(k); stable value; synthetic GIC (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:11:y:2023:i:8:p:148-:d:1215443

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