What is the Stable Value Account?
The GEBA Stable Value Account is the new and improved investment product that will replace the GEBA Guaranteed Investment Contract (GIC) as of January 1, 2010. The Stable Value Account is a low-risk, high quality investment that seeks to provide a stable rate of return and to preserve principal (plus accrued interest (book value)). It offers similar returns to the GIC, but pays a rate that adjusts gradually with market rates. Stable Value Accounts have been offered for years in 401K plans. GEBA is now making this product available to its members outside of a 401K.
The Advantages of the Stable Value Account:
Improved Diversification: The current economic turmoil has really demonstrated how vital diversification can be. The Stable Value Account invests in a portfolio of GICs from multiple insurance companies, not just one. This significantly limits exposure to any single provider, reducing your risk. It also includes high-quality wrapped bonds, further broadening sector and security diversification.
Less Volatile Returns with Lower Risk: The Stable Value Account is designed to preserve capital while providing steady, positive returns. It invests in low-risk, fixed income securities with return characteristics similar to high quality bond funds. But the Stable Value Account is protected against interest rate volatility by contracts from banks and insurance companies. These contracts also protect against changes in market value of the underlying assets so that contributions and withdrawals are always at book value (principal plus accrued interest). If the market value of the underlying assets declines, contractual features ensure that participants continue to transact at book value. Consequently, you receive a return comparable to GIC investments and high-quality bond funds, but with lower risk.
Simplified Investing: The Stable Value Account is simpler in two important ways:
- Instead of dealing with multiple contracts and separate GIC maturities every year, you only need to maintain one account for your annuity and one for your IRA. See transition link for more information.
- With the Stable Value Account, you’ll receive an attractive return that adjusts gradually to stay competitive over time, regardless of when you invest. This eliminates having to lock into a long-term GIC rate when market rates are low, with no recourse if rates rise after your contract is set.
Stable Returns: Stable Value Account customers earn returns similar to bond funds but with reduced volatility across market cycles. This means a Stable Value Account can play an important role in stabilizing the returns in your retirement portfolio, in contrast to the sharp ups and downs typical of other investments.
We believe these advantages are such an improvement for our members that we will stop offering the GIC at the end of 2009, and will convert maturing GICs to the Stable Value Account as they mature over the next 5 years. See our GIC transition page for details on how maturing GICs will convert to Stable Value Accounts.
How is money in a Stable Value Account invested?
The Stable Value Account is invested in a diversified portfolio of GICs from multiple companies plus “wrapped” bonds (see Q&A).
These accounts are managed by Fiduciary Capital Management, Inc. (FCM), long recognized as an outstanding stable value asset management firm. FCM is an SEC Registered Investment Advisor whose experienced professionals have specialized in Stable Value Investments for over twenty years. As of June 30, 2009, FCM has $1.6 billion under management.
More information on FCM is available at www.fcmstablevalue.com.
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What return can I expect from a Stable Value Account?
The Stable Value Account is being established specifically for GEBA, so at this point it has no historical track record. When the account goes live in January, returns will be calculated quarterly and reported on your statement.
However, representative rates of return on similarly constructed Stable Value funds are shown in this chart. Note the positive return in the one-year period (2008-2009), when many other investments were showing large losses.
By regulation, Stable Value IRA and Annuity investments must be held separately and may over time pay slightly different rates of return.
For more information on this product or other GEBA services, or to talk through your investment needs with one of our Member Services Representatives, please call us at (301) 688-7912 or (800) 826-1126, stop by our office M-F 7:30am – 4:30pm, or e-mail us at geba@geba.com.