Top 5 stable value questions from plan sponsors
Consider the following frequently asked questions to learn more about stable value investments offered as guaranteed insurance accounts:
What are stable value investments?
Stable value investment options are low-risk assets that offer capital preservation, liquidity, and yield. They seek to reduce market uncertainty by preserving invested capital and providing steady returns. Stable value investment options are often offered by insurance companies as guaranteed insurance accounts.
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How do guaranteed insurance accounts serve the needs of the defined contribution plan landscape?
Guaranteed insurance accounts are stable value investments offered to defined contribution plans, such as 401(k), 457, and 403(b) plans. They are generally managed and guaranteed by a single insurance company, which may or may not be the plan’s recordkeeper. Guaranteed insurance accounts are tailored to fit the needs of a range of plan sizes. To meet the needs of plan participants seeking capital preservation and yield, stable value investments typically have an interest rate that is set in advance for a certain amount of time—such as six months—and often have a guaranteed minimum interest rate stated in the terms of the contract.
What are the general account and the separate account?
Guaranteed insurance accounts are provided via a group annuity or funding agreement contract that can be issued using either the general account or the separate account of the insurance company. General account assets are invested by and owned by the entire general account of the insurance company—which supports all the insurance company’s obligations. Separate account assets are segregated from the general account of the insurer and used to support the obligations specific to that separate account.
What are the plan’s exit rights in guaranteed insurance accounts?
A plan’s exit rights or contract termination options can vary, but they’re always disclosed in the insurance company contract. Often, the contract allows the plan to terminate the contract and receive proceeds over a stated period. During this time, the contract generally remains fully benefit-responsive to participants. Most contracts also allow for an immediate lump-sum payment at market value based on a stated formula. Lastly, if contract termination is due to a change in recordkeepers, some stable value contracts can be portable to other recordkeeping platforms to avoid contract termination.
How can a plan get comfortable with a single guarantor behind a guaranteed insurance account?
Insurance companies are highly regulated and subject to examinations by state insurance departments. Many insurance companies have long histories in the guarantee business and a strong time-tested commitment to the market. Insurance companies are required by law to hold reserves for guaranteed insurance accounts. These reserves are prescribed by insurance laws with conservative reserve requirements that are held against the liabilities to protect against losses and further protect contract holders. In addition, state guaranty associations make available certain additional protections. The National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) provides additional information at www.nolhga.com.