Guaranteed insurance accounts can be structured in two ways: general accounts or separate accounts. In the general account structure the assets are invested in and owned by the insurance company’s general account, which means the entire general account of the insurance company, and effectively the ultimate claims paying ability of the insurer, supports the stable value guarantees. The assets in a general account are not attributable to any single policyholder or liability, and the Employee Retirement Income Security Act (ERISA) excludes the assets supporting these guaranteed insurance accounts from the definition of plan assets and treatment as plan assets.*
Separate accounts differ from general accounts in that the assets are segregated from the general account of the insurer. This separate account serves as the first line of collateral to meet the guarantees for the specific plan, and only if the separate account assets are insufficient would the general account step in to make up any potential shortage.
Apart from the structural differences, both the general account and separate account are remarkably similar in how each delivers stable value’s benefit responsiveness, which is the ability of plan participants to transact at contract value, i.e. at principal plus accumulated interest.
Because there are different types of stable value investments and differences in how they are structured, there are also differences in their disclosure requirements. Stable value investments such as synthetic GICs and separate account wraps are very similar to other fee based 401(k) investments in terms of disclosure because the rates of return for these products are tied directly and contractually to the performance of the underlying portfolio. These products have crediting rates which are reset using contractual formulas to pass through the investment performance of the underlying assets of the portfolio, and as such they are required to provide detailed listings of the underlying portfolio holdings to plan sponsors as well as meet the Department of Labor’s fee disclosure requirements.
Guaranteed insurance accounts on the other hand differ because they declare and guarantee a rate for up to a year or longer in advance, and also provide a minimum guaranteed rate of return regardless of the performance of the assets (which are held in the insurer’s general account). The rate is not tied directly to the investment performance of a specific underlying portfolio but based on the entire general account of the insurer, and because assets in the general account support guarantees made to all policyholders under multiple lines of business they are not attributable or dedicated to any specific contract. For interested parties, general account investment holdings are available through annual filings with the state insurance department.
*ERISA Advisory Opinion 05-19A (U.S. Department of Labor, 2005).