The Stable Value Investment Association, a low-key non-profit that represents conservative GIC-like 401k options, recently published a document entitled, "Guaranteed Insurance Accounts -- Frequently Asked Questions." The SVIA tells us, "Because of the significant allocation of assets to guaranteed insurance accounts and the scant amount of publicly available information, the SVIA has released the following FAQ to shed some light on this segment. This FAQ is limited to an overview of guaranteed insurance accounts and focuses primarily on 'spread-based' general account insurance products."
The FAQ explains, "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, 2011, over 25 million plan participants in more than 159,000 defined contribution plans invested $645.5 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."
The SVIA website, which has updated data through 12/31/12, tells us, "Stable value funds are a core investment in defined contribution employee benefit plans: $701.3 billion invested in stable value assets; 189,000 defined contribution employee benefit plans; Offered in approximately half of all defined contribution plans; 401(k) allocations to stable value funds have ranged between 17% to 37% over the life of the Aon 401(k) Index."
SVIA's FAQ continues, "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 $281 billion outstanding in guaranteed insurance accounts."
It adds, "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. This FAQ is limited to an overview of guaranteed insurance accounts and focuses primarily on 'spread-based' general account insurance products. For simplicity, the FAQ assumes a plan uses only one guaranteed insurance account product for the entirety of its stable value investment option. The FAQ does not address all the variations of guaranteed insurance accounts or the combination of stable value products that may be used by a plan. This FAQ does not discuss or compare other stable value products such as synthetic GICs or differences in investment management."
The piece asks, "What is a stable value guaranteed insurance account?" It answers, "Guaranteed insurance accounts are stable value products 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, generally managed entirely and guaranteed directly by a single insurance company. The guaranteed insurance account generally represents the entire stable value investment option. Further, a recent SVIA survey found that guaranteed insurance account general accounts represent thirty-eight percent of stable value assets. Guaranteed insurance accounts are provided via a group annuity contract or a funding agreement that can be issued from either the general account or a separate account of the insurer. The underlying assets are typically managed by the insurance company or an affiliated manager. In all cases, guaranteed insurance accounts are backed by the full financial strength and credit of the issuing insurance company."
