For more than 30 years, “stable value” has been marketed to retirement plan fiduciaries as a conservative, low-risk, bond-like option. That description is only accurate for one form of stable value: diversified synthetic stable value.
General Account (GA) and Separate Account (SA) stable value products are fundamentally different. They embed insurance spread products, opaque crediting decisions, and conflicted compensation structures that directly collide with ERISA’s duties of loyalty, prudence, and prohibited-transaction rules.
This distinction is not academic. It is measurable, documented, and long recognized in the academic literature.
I. The Academic Baseline: General Account Risk Is an Order of Magnitude Higher
In The Handbook of Stable Value Investments (Frank J. Fabozzi, ed., 1998), Jacqueline Griffin’s chapter on wrap provider credit risk demonstrates that general account stable value products carry roughly ten times the credit risk of diversified synthetic GIC structures. https://www.amazon.com/Handbook-Stable-Value-Investments/dp/1883249422
Why?
Because in a general account product:
- Participants are exposed to the entire insurer balance sheet
- Assets are commingled with unrelated insurance liabilities
- Returns are driven by insurer spread management, not portfolio performance
- Risk is single-entity, undiversified credit risk
Synthetic structures, by contrast, isolate risk, diversify exposure, and enforce constraints.
This is not a matter of opinion. It is structural.
II. What Makes Synthetic Stable Value Fundamentally Different
Diversified synthetic stable value is not an insurance product. It is a bond portfolio plus third-party guarantees.
Its defining features are:
1. Enforced investment guidelines
- Duration limits
- Credit quality floors
- Sector concentration caps
- Prohibited asset classes
These guidelines are contractual and enforceable, not aspirational.
2. Independent wrap providers
- Multiple, unrelated wrap issuers
- Diversified counterparty exposure
- No dependence on a single insurer’s solvency
3. Transparent crediting-rate formulas
- Crediting rates are formula-driven
- Inputs are observable: yield, duration, market-to-book ratio
- No discretionary “pricing committee” authority
4. No embedded spread product
- No insurer decides how much return to “pass through”
- No opaque profit margin extracted from participant balances
This structure aligns cleanly with ERISA fiduciary principles:
- Diversification
- Transparency
- Process discipline
- Arm’s-length pricing
That is why synthetic stable value does not raise inherent prohibited-transaction concerns.
III. General Account Stable Value: A Prohibited Transaction by Design
General Account stable value products invert every one of those principles.
A. Single-entity credit risk
A GA stable value fund is simply a fixed annuity backed by the insurer’s general account. Participants bear:
- Insurer credit risk
- Downgrade risk
- Liquidity restrictions
- Contract-value limitations
There is no diversification at the insurer level.
B. Discretionary, proprietary crediting rates
As shown in multiple audited disclosures (including recent Great Gray CIT filings https://greatgray.com/wp-content/uploads/2025/05/0.08-Stable-Value-Funds-2024-Final.pdf), insurers admit that:
- Crediting rates are reset periodically
- Rate setting is “discretionary and proprietary”
- Decisions reflect internal profit targets, expenses, and capital management
That is not investment management. That is spread extraction.
C. ERISA prohibited-transaction implications
When a plan fiduciary selects a GA product:
- The insurer is a party in interest
- The insurer sets participant returns for its own account
- The plan is locked into a conflicted bilateral contract
This squarely implicates ERISA §406(a) and §406(b):
- Transfer of plan assets to a party in interest
- Fiduciary causing plan to engage in transaction benefiting a service provider
- Self-dealing through spread profits
No exemption cures the structural conflict.
IV. Separate Accounts: “Synthetic-Like” in Marketing, GA-Like in Reality
Separate Account (SA) stable value products are often marketed as a safer alternative to GA products. That claim does not withstand scrutiny.
A. Illusory separation
While assets may be legally segregated, economic control remains with the insurer:
- Investment guidelines are often loose or discretionary
- Insurer retains rate-setting authority
- Participant returns remain subject to insurer spread decisions
B. Weak or non-binding guidelines
Unlike synthetic portfolios:
- SA guidelines frequently allow broader credit exposure
- Enforcement mechanisms are weak
- Insurers can “reinterpret” constraints during stress
C. Crediting rate discretion remains
Separate accounts still allow insurers to:
- Smooth returns to protect insurer margins
- Delay or suppress rate increases
- Internalize gains while socializing losses
As you’ve documented in The Great Annuity Mirage, separate accounts pretend to be synthetic while retaining the core conflicts of general account products. https://commonsense401kproject.com/2025/07/28/the-great-annuity-mirage-how-separate-accounts-continue-to-mislead/
From an ERISA perspective, SA products remain conflicted insurance arrangements, not arm’s-length investment products.
V. The Efficient Frontier Confirms the Legal Analysis
Your Stable Value Efficient Frontier work shows what theory predicts:
- Synthetic stable value delivers higher risk-adjusted returns
- GA and SA products underperform after adjusting for credit risk
- The “stability” premium is purchased with hidden tail risk
In other words, GA and SA products are not just legally problematic — they are economically inferior.
That makes their selection even harder to defend under ERISA’s prudence standard.
VI. Why This Matters for Litigation and Fiduciary Oversight
The takeaway is simple:
- Synthetic stable value
- Diversified
- Transparent
- Formula-driven
- Consistent with ERISA duties
- General Account stable value
- Single-entity credit risk
- Discretionary insurer pricing
- Embedded self-dealing
- Inherently conflicted
- Separate Account stable value
- Cosmetic separation
- Weak constraints
- Same economic conflicts
Courts have increasingly recognized that process matters. When fiduciaries choose GA or SA products over available synthetic alternatives, they are not just choosing a different implementation — they are choosing a conflicted structure.
That is why GA and SA stable value products should be analyzed not merely as “imprudent,” but as ERISA prohibited transactions.
VII. Conclusion: Stable Value Done Right — and Done Wrong
Stable value itself is not the problem.
Insurance-based stable value is the problem.
Diversified synthetic stable value shows that it is entirely possible to deliver capital preservation, liquidity, and reasonable returns without exposing participants to insurer balance-sheet risk or conflicted rate-setting.
When fiduciaries instead choose GA or SA products, they are choosing opacity, concentration, and conflicted compensation — the very conditions ERISA was designed to prevent.
—————————————-
Why General Account (GA) and Separate Account (SA) Are ERISA Prohibited Transactions — and Diversified Synthetic Is Not
| Feature | General Account (GA) Stable Value | Separate Account (SA) Stable Value | Diversified Synthetic Stable Value |
| Underlying structure | Fixed annuity backed by insurer’s entire general account | Insurer-managed separate account marketed as “bond-like” | Diversified bond portfolio + third-party wrap contracts |
| Primary risk bearer | Plan participants (single insurer credit risk) | Plan participants (still insurer-controlled) | Participants bear diversified bond risk; wrap providers guarantee liquidity |
| Credit risk profile | Single-entity, undiversified insurer balance-sheet risk | Still insurer credit risk; separation is largely cosmetic | Diversified across multiple wrap providers and issuers |
| Academic risk comparison | ~10× the credit risk of diversified synthetic (Fabozzi Handbook) | Higher than synthetic; lower than GA only in marketing | Lowest structural credit risk |
| Investment guidelines | None applicable to participants; insurer invests freely | Often loose, discretionary, insurer-controlled | Strict, enforceable guidelines (duration, credit, sectors) |
| Guideline enforcement | Internal insurer discretion | Insurer discretion; weak enforcement | Contractual, third-party enforceable |
| Crediting rate determination | Discretionary and proprietary insurer decision | Insurer-set, discretionary, smoothed | Formula-driven, transparent, observable inputs |
| Crediting rate transparency | Opaque; internal pricing committees | Opaque; insurer methodology | High transparency; auditable formulas |
| Spread extraction | Explicit spread product (insurer profits from rate suppression) | Spread product remains | No embedded spread |
| Liquidity / exit risk | Contract-value limits; MVAs possible | Similar termination risk | Liquidity guaranteed by wraps, subject to formula |
| Diversification | None (single insurer) | Limited / illusory | True diversification |
| Party-in-interest status | Insurer is a party in interest | Insurer is a party in interest | Wrap providers are arms-length counterparties |
| ERISA §406(b) self-dealing risk | High – insurer sets returns for its own account | High – insurer controls rate setting | Low – no discretionary self-pricing |
| ERISA §404 prudence alignment | Weak (opaque, concentrated risk) | Weak (misleading structure) | Strong (process-driven, diversified) |
| Regulatory oversight | State insurance regulators | State insurance regulators | Plan fiduciaries + contractual oversight |
| Typical marketing narrative | “Guaranteed,” “safe,” “principal protected” | “Synthetic-like,” “separate,” “safer GA” | “Institutional,” “transparent,” “bond-based” |
| Economic reality | Insurance balance-sheet exposure | Insurance balance-sheet exposure with cosmetic separation | Bond portfolio + diversified liquidity protection |
| ERISA litigation posture | Inherently conflicted; prohibited transaction | Conflicted; prohibited transaction | Defensible investment structure |
General Account and Separate Account stable value products embed insurer self-dealing, discretionary pricing, and single-entity credit risk, making them structurally incompatible with ERISA’s duties of loyalty and prohibited-transaction rules — while diversified synthetic stable value does not.
Journal of Economic Issues Thomas E. Lambert University of Louisville, Christopher B. Tobe , ““Safe” Annuity Retirement Products and a Possible U.S. Retirement Crisis,” https://ir.library.louisville.edu/faculty/943/
https://commonsense401kproject.com/2025/10/30/the-stable-value-efficient-frontier/
The CommonSense 401k Project 