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.
The U.S. Securities and Exchange Commission is a federal agency that was created by Section 4 of the Securities Exchange Act of 1934 (now codified as 15 U.S.C. § 78d and commonly referred to as the 1934 Act). The SEC holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States.
A structure some plan sponsors incorporate into their plan design that gives participants the opportunity to supplement a plan's core investment option menu through self-directed trading access in an in-plan brokerage account. Access to the brokerage window may allow participants to trade stocks, bonds, mutual funds, and exchange-traded funds. Participants typically pay additional fees for access to the brokerage window. (See also mutual fund window.)
A stable value investment contract that is first supported by associated assets in a segregated separate account held by the issuing insurance company and then, to the extent necessary, by the insurer’s general account assets and surplus. The crediting rate on a separate account GIC resets periodically based upon the earnings of the separate account assets. The securities held in the separate account are owned by the insurance company, but are held for the exclusive benefit of the plan or plans participating in the separate account. If the investment contract stipulates, in the event that the insurance company becomes insolvent the separate account assets may not be used to satisfy any of the insurer's other liabilities. (See also guaranteed insurance account.)
See plan sponsor.
A spread is the difference between the actual earnings on some investment contracts offered by insurance companies, such as traditional GICs or general account stable value investment options, and the crediting rate that is declared and guaranteed by the insurance company for a given period. While there is no certainty an insurance company will earn a targeted spread, the anticipated spread is used to compensate the insurer for risk charges, capital charges allocated by regulators, and other expenses. An issuer attempts to earn a spread using assumptions based on many factors such as the magnitude and timing of deposits, participant cash flows, investment performance, rate environment, and potential credit impairments. (See also guaranteed insurance account.)
Stable value is a unique asset class available only in corporate and governmental tax-qualified defined contribution plans, as well as some tuition assistance plans. When offered as an investment option in such a plan, stable value seeks to offer capital preservation, liquidity, and returns typically higher than other options focused on capital preservation, such as money market funds. Stable value investment options may be offered by investment managers, trust companies, or insurance companies in various structures, such as separately managed accounts, commingled funds or guaranteed insurance accounts. Sometimes a stable value investment option will be managed by a plan sponsor. While stable value investment options may be managed or structured in a variety of ways, the important similarity is the use of stable value investment contracts, issued by banks, insurance companies, and other financial institutions, which convey to the investment option the ability to carry certain assets at book value. These investment contracts are what enable a stable value investment option to maintain principal value and minimize return volatility. The investment options that typically purchase or offer stable value investment contracts are commonly named Fixed Income Fund, Capital Preservation Fund, GIC Fund, Interest Income Fund, Stable Interest Fund or Stable Value Fund, among others.
A non-profit organization dedicated to educating retirement plan sponsors and participants about (1) the importance of saving for retirement and (2) the contribution that stable value investment options can make toward achieving retirement security. The SVIA provides leadership and representation for stable value investments before the media, educators, legislators, regulators, and opinion leaders, and it provides a forum for the exchange of ideas and the discussion of pertinent issues. The SVIA is further committed to supporting public and private plan sponsor members in the fulfillment of their fiduciary obligations.
Refers to an investment manager, typically a QPAM, responsible for management and oversight of a stable value investment option. The stable value manager may manage all or only some of the associated assets of the stable value investment option.
At the request of Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA) issued SOP 94-4-1. This document defines the rules under which book value accounting may be used for the investment contracts issued to non-governmental defined contribution plans. This guidance was reaffirmed in FASB Staff Position (FSP) AAG INV-1 for the use of book value accounting for investment contracts in 2004.
See Synthetic GIC.
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 book value are owned and held in the name of the plan or the plan’s trustee. Such associated assets typically consist of a diversified fixed income portfolio, including but not limited to treasury, government, mortgage, and/or corporate securities of high average credit quality. To support the book value obligation, the contract-holder relies first on any associated assets and then, to the extent those assets are insufficient, the financial backing of the wrap issuer. Wrap contracts can be issued by banks, insurance companies, or other financial institutions.
See Synthetic GIC.