What are the differences between general accounts and separate accounts?

Guaranteed insurance accounts can be structured in two ways: general accounts or separate accounts. In the general account structure the assets are invested in and owned by the insurance company’s general account, which means that the entire general account of the insurance company, and effectively the ultimate claims paying ability of the insurer, supports the stable value guarantees. The assets in a general account are not attributable to any single policyholder or liability, and the Employee Retirement Income Security Act (ERISA) generally excludes the assets supporting these guaranteed insurance accounts from the definition of plan assets and treatment as plan asset as long as they are guaranteed benefit policies.[i]

Separate accounts differ from general accounts in that the assets are segregated from the general account of the insurer. The guarantees for the specific plan are first backed by the separate account, and only if the separate account assets are insufficient would the general account step in to make up any potential shortage.

Account TypeDescriptonRate of ReturnAssets
General AccountBacked by the assets of the insurer’s general account Can be fixed term or evergreenGuaranteed regardless of the performance of the underlying assetsOwned by the insurance company Held within an insurer’s general account
Separate AccountBacked by assets held in an account separate from the insurer’s general accountMay be fixed, indexed, reset periodically, or based on the actual performance of the segregated assetsOwned by the insurance company   Held in a separate account for the benefit of the plan(s)

Apart from the structural differences, both the general account and separate account contracts are similar in how each delivers stable value’s benefit responsiveness. Benefit responsiveness provides stable value’s distinct combination of characteristics: liquidity, principal preservation, and consistent, positive returns, and the ability of plan participants to transact at contract value, which is principal plus accumulated interest.

[i] ERISA Advisory Opinion 05-19A (U.S. Department of Labor, 2005).