What does protection against interest rate volatility mean?
The market value of all fixed income investments, including the underlying assets in a stable value fund, is volatile by nature. That is, the market value of the assets moves inversely with interest rate changes. As interest rates move up, the market value of the assets declines, and vice-versa. This volatility is not unusual. Unlike other 401(k) investments, however, all stable value funds have protection against interest rate swings via the protections in insurance company and bank contracts. This means that investors in a stable value fund are able to transact (make deposits, withdraws, transfers) at book or contract value, which is principal plus accrued interest. If the market value of the stable value fund’s underlying assets is insufficient to honor benefits for covered withdrawals at book value, then the contractual protections kick in to ensure that participants continue to transact at contract value. Contract value, or book value, is the value of all the assets supporting the
