In addition to providing an attractive solution to plans and participants seeking stability, liquidity, and yield that all stable value funds provide, guaranteed insurance accounts provide the following benefits:
GUARANTEED MINIMUM INSURANCE RATE
While minimum rates vary by structure and type of product, all stable value contracts guarantee a minimum rate of at least zero percent, which ensures principal preservation. Guaranteed insurance account structures often guarantee the minimum rate at higher than zero percent, typically varying from one to three percent. At no stage in the life of the contract can the actual crediting rate fall below the guaranteed minimum rate which is nondiscretionary and contractually stated.
CREDITING RATES
Rates are often fixed and guaranteed in advance for up to one year (sometimes longer) and must be greater than or equal to the guaranteed minimum rate. The crediting rate and its terms are defined in the contract.
In addition to the above which are specific to guaranteed insurance contracts, the below benefits apply to all stable value funds:
POLICYHOLDER STATUS
These insurance contracts or policies are backed by the full faith and credit of the insurance company. Claims under the guaranteed insurance account are pari-passu with other policyholders and ahead of general creditors to the insurance company.[i]
DIRECT GUARANTEE
The guaranteed insurance account contract is issued directly to the plan sponsor or trustee who receives a guarantee of benefit responsiveness from the insurer.
OPTION TO ANNUITIZE SAVINGS
Guaranteed insurance account contracts in the retirement plan universe typically offer participants the option upon retirement of withdrawing money as needed or annuitizing (converting their balances into a regular income stream for life).
REGULATORY SAFEGUARDS
State insurance regulators oversee insurer reserves and investments through regulation and regular audits.
STRONG RISK MANAGEMENT
Guaranteed insurance accounts are regulated as guaranteed products and the insurance industry employs a rigorous risk controlled approach to issuing and managing them.
BROAD USAGE AND CAPACITY
Guaranteed insurance account contracts are flexible and broadly available across multiple plan types offering capacity to the marketplace.
[i] Separate accounts are backed by the assets in the separate account first and then to the extent there is a potential shortfall, by the general account.
