When plan sponsors look for low-risk investment strategies coupled with capital preservation, there aren't too many options out there these days.

Stable value and money market funds both come to mind, but if sponsors are looking for strategies that also provide higher fixed-income returns, the stable value option is a no brainer, especially in the current low interest rate environment.

"Right now, money market funds are yielding 10 to 25 basis points," said Ron Heath, managing director of sales and marketing at Morley Financial Services Inc., which has $14 billion under management. "Stable value funds have provided participants returns of 2% to 4% over the past year and look attractive by comparison."

"Stable value funds are still offering returns north of money market funds and in line with intermediate bond funds," agreed James King, senior vice president and head of stable value markets at Prudential Retirement.

Stable value is one of the most prevalent investment strategies in 401(k) plans and participants have consistently outperformed money market funds, even in the longer term.

Looking at one-returns, stable value funds outperformed money market funds by 2.55%, with stable value returning 3.07% as of April 2010, according to Hueler Co. On a three- year basis, stable value funds returned 4.01%, outperforming the Lipper Money Market average by 1.59%. On a five-year basis, they returned 4.28%, outperforming the Lipper Money Market average by almost 1%.

Additionally, money market funds have proven during the financial crisis that they aren't as safe as initially believed. For example, one money market fund "broke the buck" at the height of the crisis, meaning that its value went under $1, an unprecedented event. In comparison, even if the market-to-book value of some stable value funds fell below 100% in 2008, they quickly bounced back and wrap providers insured that participants could still withdraw at book value.

One of the few advantages of money market funds over stable value is that if the fees for wrap contracts, which insure book value to participants even if market value has fallen below, keep going up, stable value funds might become too expensive to manage. Fees have also soared in the past three to four years to between 15 and 25 basis points, putting pressure on returns. State Street Global Advisors decided in June 2010 to close its stable value asset management business due to uncertainties in the market, including increasing difficulties to obtain new wrap insurance capacity. The company opted instead for a money market fund as a cash option in its defined contribution offering.

Still the SSgA example remains the exception as managers continue to be confident in the efficiency of stable value products. "Stable value funds remain competitive in the market place," said Mr. King.