What implications do low market-to-book ratios have for plan sponsors?
First, future crediting rates are likely to be lower. In addition, if the ratio becomes too far out of balance and wrap capacity isn’t maintained, you could see negative returns for participants. Q: What’s the current situation with wrap capacity? Many wrap providers limited or completely eliminated their capacity to write new business in the third and fourth quarters of 2008 and this has continued into 2009. This has significant ramifications for stable value funds as plan sponsors and fund managers aren’t always able to replace wraps. It also has kept many plans from moving away from their existing stable value manager or underlying fixed-income managers because, in many instances, a change might require the negotiation of new wrap contracts. Fortunately there’s an alternative to wraps that offers similar features and additional capacity for the stable value market: insurance company “separate accounts.” Insurance company separate accounts have been offered for many years although th
