I agree with the June 13 editorial on stable value except for the last line. “Further, any limitations on withdrawals, or communications between sponsor and participant, must be removed.” First, I feel the life insurance lobby in Washington would like to replace the most transparent low-fee synthetic guaranteed investment contract stable value and go back to their traditional insurance separate account and general account products with huge hidden spreads and single-entity credit risk. I feel the Government Accountability Office report was influenced by this lobbying by nitpicking at every issue with synthetic-based stable value, while ignoring the glaring fee and risk issues with insurance company separate account and general account.
In synthetic GIC contracts, which for the most part are 100% participating, limitations on withdrawals and communications protect first the long-term participants in the plan and, only in the end, the wrapper. These are more like the overnight trading restrictions on international mutual funds. These are put in to prevent arbitrage and runs on the bank. On the best synthetic GIC contracts like those used by Fortune 50-type funds, every limitation on withdrawals and communications serves to protect long-term participants and should be retained. This propaganda on “limitations on withdrawals, or communications” perpetuated by the life insurance lobby and bought into by the GAO is designed to actually force less transparent and higher spread fees on the 401(k) market.
Principal, Stable Value Consultants
EDITOR'S NOTE: Mr. Tobe also is a trustee of the Kentucky Retirement System, Frankfort.