Guaranteed insurance accounts are stable value investments that are offered to defined contribution plans such as 401(k), 457, 403(b) and some 529 tuition assistance plans on a full service or investment only basis.» Read the full answer
Given the complexity and uncertainty of today’s financial markets and economy, it is no wonder that plan sponsors and plan participants continue to appreciate the benefits of stable value. As of December 31, 2014, over 25 million plan participants in more than 165,000 defined contribution plans invested $705.6 billion in stable value products.
Throughout their 40-year history, stable value products have consistently delivered a unique combination of benefits: liquidity, principal preservation, and consistent, positive returns. Stable value’s unique characteristics are called “benefit responsiveness.” The standards that determine stable value’s benefit responsiveness are set by the Financial Accounting Standards Board as well as the Governmental Accounting Standards Board.
Stable value products, regardless of the product or how it is managed, have weathered various economic cycles and consistently performed in meeting the needs of plan participants and their beneficiaries. While stable value continues to deliver as promised, the challenges of the financial crisis and the Great Recession have resulted in subtle changes within the stable value landscape. Insurance companies have become more prominent, and have over $375 billion outstanding in guaranteed insurance accounts.
Because of the significant allocation of assets to guaranteed insurance accounts and the scant amount of publicly available information, the following FAQ seeks to shed some light on this segment.
Guaranteed insurance accounts are similar to other stable value investments in that they deliver principal safety, cash like liquidity for participant driven transactions, and consistent, positive returns that are generally higher than money market funds.» Read the full answer
In addition to providing an attractive solution to plans and participants seeking stability, liquidity, and yield, guaranteed insurance accounts provide the following benefits:» Read the full answer
By declaring a rate that can never fall below the guaranteed minimum interest rate in advance, the insurance company assumes certain risks.» Read the full answer
Transferring risk from policyholders to the insurance company is at the very heart of what insurance companies do every day.» Read the full answer
Guaranteed insurance accounts can be structured in two ways: general accounts or separate accounts.» Read the full answer
Guaranteed insurance accounts are fully compliant with the disclosure requirements under 408(b)(2).» Read the full answer
A spread is the difference between the actual earnings on investments and the credited rate that is declared and guaranteed by the insurance company for that period, which is subject to the minimum rate guarantee.» Read the full answer
Spread earnings are prospective, variable and unpredictable.» Read the full answer
Contract termination options vary depending on the structure of the product but they are always disclosed in the underlying insurance contract.» Read the full answer
Aside from the fact that any claims related to guaranteed insurance accounts are pari-passu with policyholders and ahead of general creditors, insurance companies are highly regulated with rigorous risk management and oversight processes...» Read the full answer