See liquidity buffer.
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.
An evaluation by an NRSRO of the financial strength and relative ability of an insurance company to pay claims on its insurance policies or contractual liabilities as distinct from its debt obligations.
See commingled fund.
See pooled fund.
See pooled fund.
An investment option offered by a defined contribution plan in addition to the stable value investment option that has principal preservation as a primary objective (such as a money market option or short-term bond option) or other characteristics similar to stable value. Additionally, self-directed brokerage or mutual fund windows may be deemed competing if a competing option is made available through the window. The presence of competing options subjects stable value investment options, invested participants, and investment contract issuers to the risk of arbitrage, so the addition of such an option by the plan sponsor usually requires issuer consent and the use of an equity wash so as to restrict direct transfers from the stable value investment option to the competing option.
A federal agency that charters and regulates national banks, including a bank’s collective trusts. State-chartered banks are not subject to OCC jurisdiction, but many state banking regulations are similar to the OCC’s.
A stable value investment strategy that employs a portfolio of actively managed assets that are constantly rebalanced to maintain a targeted duration. In a constant duration (also known as an "evergreen") structure, the stable value investment contract does not have a defined maturity date. (Compare to buy and hold and maturing.)
The owner of a stable value investment contract, typically the plan sponsor or trustee. The contract-holder is usually the party responsible for taking any actions allowed or required under the terms of such contract.
The risk an investment contract issuer could default, become insolvent, file for bankruptcy protection, or otherwise be deemed by the plan’s or trust’s auditor to no longer be financially responsible.
See book value.
A measure of the financial soundness of an institution, indicating its ability to honor its financial obligations in a timely manner. NRSROs assign quality ratings on banks, insurance companies, and other entities based on a number of criteria, such as their financial health, industry outlook, balance sheet and management quality. A credit quality rating may also be assigned to a specific financial instrument.
A reduction in an organization's or financial instrument's credit quality rating as published by a NRSRO. A credit downgrade indicates the NRSRO’s view that the financial strength of the organization or financial instrument has deteriorated.
The interest rate applied to the book value of a stable value investment contract, typically expressed as an effective annual yield. As provided in the investment contract, the crediting rate may remain fixed for the term of the contract or may be “reset” at predetermined intervals. The crediting rate may be expressed as a gross or net crediting rate. For separate account GICs or synthetic GICs, the crediting rate is the mechanism that allows the contract to amortize differences between the book value and market value over time.
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.