Long-term investing in a time of instability

DATE | 05/30/23
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You probably read the news headlines in March when Silicon Valley Bank and Signature Bank both collapsed following bank runs.

The sharp rise in interest rates led to a decline in the value of Silicon Valley Bank’s mortgage bonds and Treasuries. The bank’s business was concentrated in the tech industry and many of their depositors had large uninsured balances (over the $250,000 FDIC insurance limit) at the bank. When technology start-up funding began to dwindle, customers’ withdrawals increased, forcing the bank to sell investments at a loss.

When news of this loss broke, panicked customers rushed to pull out their money and the bank was not able to meet demands. Days later, Signature Bank was ordered to close to avert a bigger crisis after it faced an influx of withdrawals following the Silicon Valley Bank failure.

We understand that some of you may have some concerns or questions about the safety of our Guaranteed Stable Investment fund after what has happened in the banking world. Here are some answers to that question.

Banks: Short-term savings

Bank deposits are intended for short-term liquidity and not for long-term investment. Generally speaking, making a short-term investment means you plan to access your money in three years or less. FDIC-insured banks cover up to $250,000 per depositor, per insured bank, for each account ownership category. Bank deposits over this amount are at risk when a bank fails.

Guaranteed Stable Investment: Long-term savings

The Guaranteed Stable Investment (GSI) is intended as a long-term investment, not a short-term savings account. However, it offers benefits from both worlds by providing a long-term investment opportunity with some built-in stability and protections. The principal and accumulated interest of your GSI are fully guaranteed by Empower Annuity and Insurance Company (EAIC) with no limit.

EAIC strength and stability

The GSI fund is backed by EAIC. As of December 31, 2022, EAIC has $27.7 billion of total net assets, and is rated AA-/Aa3/AA- (the second highest of nine categories) by S&P, Moody’s, and Fitch rating agencies, respectively.

These ratings are subject to change and represent the opinions of the rating agencies regarding the financial strength of EAIC and its ability to meet ongoing obligations to its policyholders.

Participant level protections

As discussed in prior communications over the years, the GSI has protections in place to prevent harm to the fund and its investors in the event of high withdrawals during certain economic conditions. Prudential (now Empower) introduced participant level protections (PLP) in 2018 to increase the safety of members who are in the fund. You can read our 2018 article, “Protecting a legacy: Participant level protections,” for more information about how the protections work and what they mean to you.

These protections exist to ensure the long-term health of the GSI and kick in to preserve the guarantee of the fund. They are considered to be state of the art in terms of 403(b) plan participant protections.

If you have any questions about the GSI fund, give us a call at 1-800-279-4030.