Stable Value Investments

Many defined contribution pension plans offer participants stable value funds as a conservative investment option. Defined benefit pension plans and health and welfare benefit plans also may invest in stable value funds. Stable value funds primarily invest in guaranteed investment contracts (GICs) issued by insurance companies or banks, synthetic GICs, or in a common collective trust or mutual fund which invests in these securities.

In December 2005, the FASB issued FASB Staff Position (FSP) AAG INV-1 and SOP 94-4-1, which amends SOP 94-4, Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined Contribution Pension Plans, which significantly changed the way certain stable value investments are reported in the financial statements of defined contribution pension and health and welfare plans. Defined benefit plans are not affected by the FSP. The FSP was effective for all investment contracts as of the last day of the annual period ending after December 15, 2006 (i.e., effective for calendar 2006 plan years).  

The FSP effectively removes the scope exception provided for fully benefit-responsive investment contracts reported at contract value in accordance with SOP 94-4, thus requiring that these contracts be reported at fair value. It also requires additional financial statement disclosures about the nature of the investment contracts and how they operate, and the average yield earned for all fully benefit responsive investment contracts. Under the revised definition in the FSP, on December 31, 2006, if an investment contract is considered fully benefit-responsive then it is considered to be fully benefit-responsive for all periods presented. Because ERISA requires comparative year Statements of Net Assets Available for Benefits, fair value and disclosure information must be reported for all comparative years presented.

·         FASB Staff Position (FSP), AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans

·         Technical Practice Aids 6931.08-.10

The AICPA issued three Technical Practice Aids (TPAs) to provide additional guidance on implementing FASB Staff Position (FSP) AAG INV-1 and SOP 94-4-1, which clarify the types of investments covered, financial statement presentation of investments in common collective trust (CCT) funds and master trusts, and related disclosure requirements.

·         EBPAQC "Topix" Primer, Stable Value Funds and Investment Contracts—An Overview

This non-authoritative practice tool developed by the EBPAQC provides general and background information on stable value investments, along with information about the relevant auditing and accounting standards, in an easy-to-understand format.

·         Stable Value Investments-EBPAQC Live Forum

The Center sponsored this Live Forum call on November 7, 2006. Follow along with the PowerPoint presentation as the EBP experts provide an overview of stable value investments, related valuation methodologies, and audit considerations, and answer participant questions.