Market Value Event
Any event or occurrence outside the normal operation of a plan that may be expected to have an adverse financial effect on the issuer of a stable value investment contract. When such an event occurs, some investment contracts require benefit payments to be made at the contract’s market value or surrender value, rather than at book value. Other investment contracts may require […]
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.
Impaired Securities
A security, the principal and/or interest of which has not been paid in accordance with its contractual terms, e.g., has been forced to make accelerated payments, has failed to make payments when due, has reduced either the principal or interest terms from the contractual terms, or, in a stable value investment contracts, no longer meets the required investment guidelines.