What happens in bankruptcy to a stable value fund?
There are several ways a stable value fund may be affected by bankruptcy. The 401(k) sponsor or employer may go into bankruptcy. As stated above, bankruptcy is typically considered a corporate or employer-initiated event and may not be covered by a stable value fund. However, because there is a process for bankruptcy, the 401(k) sponsor and the stable value fund generally have time to negotiate coverage during the bankruptcy so that all participants continue to transact at book value. A stable value fund may also be impacted by bankruptcy if an issuer of a stable value fund investment becomes insolvent. In the event of an insurance company insolvency, a general account GIC contract holder would have claim at the policyholder level, in front of the insurer’s general creditors. For a separate account contract, the separate account assets are used solely to satisfy the claims of the contractholder. Any shortfall would be subject to claim against the insurer’s general account, alongside po
