Participant-Directed Cash Flow
In a stable value investment option, contributions, withdrawals, loans, or transfers that are controlled by a plan’s participant. (See also participant-initiated withdrawals.)
Section 404(c)
The section of ERISA that exempts a plan sponsor and other plan fiduciaries from fiduciary liability for losses suffered because of the participant’s investment choices, so long as the plan meets certain standards and conditions, including those regarding plan structure, disclosures, communications, and that the plan offers at least three core investment options with differing risk and return characteristics.
Synthetic GIC (also known as a “synthetic” or “synthetic investment contract”)
A stable value investment structure that offers similar characteristics as a guaranteed investment contract, i.e., pays a specified rate of return for a specific period of time, is benefit-responsive, and offers book value accounting. A synthetic GIC includes an asset ownership component and a contractual component that is intended to be valued at book value. The associated assets backing the contract’s […]
Associated Assets
A portfolio of bonds that are owned by the plan or trust and that are supported by synthetic GIC(s), which provides the contractual component(s) that offers similar characteristics as a guaranteed investment contract, i.e., pays a specified rate of return for a specific period of time, is benefit-responsive, and offers book value accounting.
Cash Flow Risk
The risk that participant-directed contributions, withdrawals, and net transfers have an adverse financial impact on the issuer of a stable value investment contract or such contract’s crediting rate. Alternatively, the risk that cash flows are different than expected.
Custodian
Refers to the bank or financial institution that maintains custody (either physical or electronic) for the safekeeping of assets for the trustee of a retirement plan. Often, an institutional trustee will combine the roles of trustee and custodian.
Expense Ratio
A fund’s operating expenses expressed as a percentage of average net assets. The expense ratio for a stable value option may include investment manager fees, wrap contract and other investment contract fees, and administrative, trustee, and custody fees.
Immunization
Managing a portfolio to a set maturity date such that the investment manager seeks to manage the value of the portfolio assets to equal the value of the corresponding liabilities at maturity.
Maturing
A stable value investment strategy that employs a portfolio of actively managed assets but the associated investment contract either may have a defined maturity date or may not have a defined maturity date but allows periodic payments of principal and interest from the assets for liquidity purposes. (Compare to buy and hold and constant duration.)