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SVIA Working with GASB on Synthetic GICs

Stable value funds have been a long-standing investment in defined contribution retirement savings plans. Stable value, along with equity and company stock, comprises the core of most people’s retirement savings, according to Hewitt’s 401(k) Index™, with each comprising roughly 20 percent of assets. That’s just the private sector. It is estimated that over $100 billion is invested in stable value by state and local employees in their defined contribution savings vehicles and by investors in 529 college savings plans.

Because stable value funds are such an important component to tax-deferred savings for retirement and education, standard-setters like the Governmental Accounting Standards Board (GASB), have agreed to take up issues affecting stable value, which may seem more like the needle in the haystack in providing accounting guidance to state and local entities on the reporting of derivatives and hedges.

As Aruna Hobbs, vice president in the Pensions and Savings Group at AEGON Institutional Markets and SVIA Accounting Committee Chairman, explains, “GASB’s preliminary views on derivatives created uncertainty on how synthetic GICs should be reported. To date, GASB is working to provide guidance on how contract value should be applied to synthetics as part of the derivatives project.”

“The commitment of the GASB Board and staff has been amazing on our synthetic GIC issue. The derivatives project is probably one of the Board’s largest undertakings. They have made time to listen to the Association’s concerns and most importantly take on our issue while moving forward on the derivatives project,” says Hobbs.

GASB has set an aggressive schedule for its guidance on derivatives and hedges, which now include synthetic GICs. The deadline for the exposure draft is March of 2007. The exposure draft will have a 90-day comment period. GASB has set a year-end 2007 deadline for not only final guidance but also implementation guidance of their new accounting standard.

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