What are some other aspects of guaranteed insurance accounts that a plan sponsor should consider?


The stable value fund assets are owned by the insurance company either in the general account or set aside in a separate account for the benefit of the plan(s) in the separate account. This is different than the other stable value segments (pooled funds and individually managed accounts) where the stable value fund assets are directly owned by the participating plan(s).


The guarantee is backed by a single issuer. This is different than the other stable value segments (pools funds and individually managed accounts) where the guarantee is often diversified across multiple issuers.


Because there are different types of stable value funds and differences in how they are structured, there are also differences in their disclosure requirements. The DOL excluded fixed return products from some fee disclosure under 408(b)(2) and subsequently stated that these products must “provide a fixed or stated rate of return to the participant for a stated duration” which guaranteed insurance accounts do during the rate guarantee period. The DOL defined fixed return products in the preamble to the fee disclosure regulations as “certificates of deposit, guaranteed investment contracts, variable annuity fixed accounts, and other similar interest-bearing contracts from banks or insurance companies.”[i]

While there are variations, guaranteed insurance accounts declare and guarantee a rate for up to a year or longer in advance and also provide a minimum guaranteed rate of return regardless of the performance of the assets. In the case of general account guaranteed insurance accounts, the rate is not tied directly to the investment performance of a specific underlying portfolio but is instead based on the entire general account of the insurer. Because assets in the general account support guarantees made to all policyholders under multiple lines of business, they are not attributable to or dedicated to any specific contract. For interested parties, general account investment holdings are available through annual filings with state insurance departments.

Pooled funds and individually managed accounts are very similar to other fee-based 401(k) plan investments in terms of disclosure. They are similar since the rates of return for these products are tied directly and contractually to the performance of the underlying portfolio over time. These stable value funds have crediting rates that are reset using contractual formulas to pass through the investment performance of the underlying assets. Because of this, they are required to provide detailed listings of the underlying portfolio holdings to plan sponsors as well as meet the Department of Labor’s (DOL) fee disclosure requirements.


Pooled funds and individually managed accounts disclose an explicit fee that can be easily compared across providers. Guaranteed insurance contracts do not disclose an explicit fee, but rather earn a spread on the underlying assets.

The supporting investments for general account guaranteed insurance contracts are managed collectively in the insurer’s general account and are not earmarked to a specific liability. The spread earned by the insurer is not fixed, changes continuously, is not known until after the expiration of the rate guarantee period, and as a result cannot be easily attributed to specific products for purposes of disclosure. There can even be situations of negative spread should there be sustained investment defaults, poor performance, or if cash flows are significantly adverse. In addition, spread also varies based on the insurer’s specific structure of underlying assets, contract terms, and capital requirements. For these reasons, measurement and disclosure of guaranteed insurance account spreads do not provide the ability to perform meaningful product or insurer comparisons.


Contract termination options vary depending on the structure of the product but they are always disclosed in the underlying insurance contract. Guaranteed insurance contracts usually have longer termination periods relative to other types of stable value funds (such as pooled funds and individually managed accounts). Typically contracts allow the plan to terminate the contract and receive proceeds at the contract value over a stated period of time, either in installments or a lump sum payment. During this period the contract remains fully benefit responsive to participants and is still subject to the guaranteed minimum rate. Many contracts also allow for an immediate lump sum payment at a calculated market value based on a stated formula.

[i] Federal Register, Volume 75, Number 202, “Department of Labor, Employee Benefits Security Administration 29 CFR Part 2550, Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans; Final,” page 64916.