Guaranteed Insurance Accounts

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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.

What is a spread?

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.

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