What are the chances of AUL Stable Value Account fund looses $$?

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Hector
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What are the chances of AUL Stable Value Account fund looses $$?

Post by Hector » Fri Jul 12, 2019 5:31 pm

I have stable value account fund in company sponsored retirement account which is backed by AUL (American United Life Insurance Company)’s general account assets.
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How stable are stable value funds generally? What are the chances of it going bust? In which conditions?
Can I expect guaranteed rate?

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Wiggums
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Re: What are the chances of AUL Stable Value Account fund looses $$?

Post by Wiggums » Fri Jul 12, 2019 5:38 pm

these funds also charge annual fees that cover the cost of the insurance wrappers and are stable in nature, but not guaranteed. Although the chances of losing money in one of the funds is relatively slim, they should not be categorized with CDs, fixed annuities or other instruments that come with an absolute guarantee of principal.

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Re: What are the chances of AUL Stable Value Account fund looses $$?

Post by dbr » Fri Jul 12, 2019 5:49 pm

Wiggums wrote:
Fri Jul 12, 2019 5:38 pm
these funds also charge annual fees that cover the cost of the insurance wrappers and are stable in nature, but not guaranteed. Although the chances of losing money in one of the funds is relatively slim, they should not be categorized with CDs, fixed annuities or other instruments that come with an absolute guarantee of principal.
I agree. A Google search like this one may turn up some reading, but it seems very difficult to dig out actual statistics on failed funds and amount of loss. I know I have read of one or two cases of money lost in such funds: https://www.google.com/search?q=how+oft ... 36&bih=752

I think the bottom line is that such funds are safe, but not so safe you should have most or all your assets in such a fund. When I had access to such a fund I set a limit of 20% of total assets.

bberris
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Re: What are the chances of AUL Stable Value Account fund looses $$?

Post by bberris » Sat Jul 13, 2019 5:51 am

Failure, or breaking the buck, has happened to some of these funds. Losses were not huge, maybe 3 %, but because they were sold as safe, holders were surprised. There is usually an extraordinary event causing these losses; not related to the economy necessarily, but because of company events that forced or prompted the trustee to change providers. The event is usually a wholesale liquidation: a bankruptcy of the sponsor, a buyout. The contract with the insurance company specifies when the insurance company is not required to cover losses.

Given the flat yield curve currently, I think the risk is small. On the other hand, they probably don't offer much higher yields than short term bonds.

Stable value funds are offered only in 401ks and similar arrangements because there are restrictions on wholesale withdrawals that would force bond sales. SVFs offered higher yields by extending maturities and when forced to liquidate they had to recognize losses that would be covered by the insurance in cases where only a small amount was liquidated. Thus the need to restrict this type of fund to places where contributions can usually fund withdrawals. When the yield curve is flat, there is no need to extend maturities in the reach for yield.

student
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Re: What are the chances of AUL Stable Value Account fund looses $$?

Post by student » Sat Jul 13, 2019 6:13 am

AUL has good credit rating so I think it is as safe as one can expect. Personally I have essentially all my fixed income (other than cash) in TIAA Traditional, which can be viewed as a stable value account.

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Stinky
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Re: What are the chances of AUL Stable Value Account fund looses $$?

Post by Stinky » Sat Jul 13, 2019 7:43 am

student wrote:
Sat Jul 13, 2019 6:13 am
AUL has good credit rating so I think it is as safe as one can expect. Personally I have essentially all my fixed income (other than cash) in TIAA Traditional, which can be viewed as a stable value account.
TIAA has an overwhelmingly strong credit rating. It is among the very strongest US life insurance companies.

AUL, while it has a good credit rating, is just not as strong as TIAA. Most companies aren't as good as TIAA.

I wouldn't have a problem placing essentially all fixed income with TIAA. I would have a problem doing the same thing with AUL.
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bberris
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Re: What are the chances of AUL Stable Value Account fund looses $$?

Post by bberris » Sat Jul 13, 2019 8:02 am

Stinky wrote:
Sat Jul 13, 2019 7:43 am
student wrote:
Sat Jul 13, 2019 6:13 am
AUL has good credit rating so I think it is as safe as one can expect. Personally I have essentially all my fixed income (other than cash) in TIAA Traditional, which can be viewed as a stable value account.
TIAA has an overwhelmingly strong credit rating. It is among the very strongest US life insurance companies.

AUL, while it has a good credit rating, is just not as strong as TIAA. Most companies aren't as good as TIAA.

I wouldn't have a problem placing essentially all fixed income with TIAA. I would have a problem doing the same thing with AUL.
Insolvency of the insurance company is rarely the cause of losses, and probably has never happened. The contractual arrangement allows the insurance company to avoid paying for losses in the fund under certain circumstances.

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