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Reply #76: Here is why I am asking the question..... [View All]

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antigop Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jan-25-08 12:31 PM
Response to Reply #74
76. Here is why I am asking the question.....
Edited on Fri Jan-25-08 12:37 PM by antigop
NOTE: I know nothing about this website and do not know about the quality of the info. However, it seems to back up some other reading I have done.

http://www.referenceforbusiness.com/encyclopedia/Gov-In...

Guaranteed investment contracts are one of the most popular choices of participants in 401(k) retirement plans. The majority of 401(k) plans offer guaranteed investment contracts as an investment option, and GICs account for a significant portion of the invested financial assets of these retirement plans.
...
In contrast to bank CDs, GICs are backed only by the financial health of the insurance company issuing the contract, not by the federal government. Bank CDs are almost invariably insured by a federal agency called the Federal Deposit Insurance Corporation (FDIC); CDs issued by savings and loans, and credit unions are insured by similar federal deposit insurance agencies. Therefore, a GIC is only as good as the insurance company that issues the contract. Recently, some insurance companies burdened with investments in high-risk junk bonds and non-performing real estate loans, have seen their credit worthiness deteriorate considerably. The well-publicized failures in 1991 of the two insurance companies mentioned above, Executive Life and Mutual Benefit Life, have forced pension fund managers and 401(k) plan members to take a harder look at GICs and to re-evaluate the risk associated with them.


Question: How safe is a Stable Value fund in a 401(k)?

Unless you know exactly what the underlying assets are, can you really assess the risk?

<Edit to add> I would think you would need to know:
1) Which insurance companies are issuing these contracts
2) Exactly what assets are they investing in?
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