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Is Vanguard Thinking About Life After Money Funds ?
So what happens with fixed annuities or 403b guarantee minimums like with TIAA and Valic? Will fixed, non FDIC, morph into variable?
Example - Right now I have a "10 year pay-out annuity" with TIAA from an old 403b. There is a "guaranteed minimum" on the rate. I also have a Valic 403b MMkt with a 4% minimum guarantee.
Fixed annuities are very similar to corporate bonds - you lend the insurer money, and in exchange you get a promise on interest and principal. The promise is that you will get a fixed rate of interest that the insurer will reset periodically, and that when it does reset the rate it will not be below the contract-specified minimum.
I'm sorry but I don't really see what one has to do with the other. The annuity is a debt obligation of a single issuer (like a single holding in a MMF portfolio, or like a bond). You're wondering about the rate that is being paid on what's analogous to a variable rate demand obligation (a note that resets its rates periodically). That seems different from the value (not rate) of a portfolio (not a single bond).
Thanks for the link. Yes, TIAA does not fit the definition given of a MMkt. I don't know about the Valic 403b MMkt because they call it money market but I don't know how it invests. When you own them they have the look and feel of a money market even if they aren't. That is why I asked.
A few years ago, I had an annuity 401K plan that offered a true MMF as one of its subaccounts. The net return after annuity expenses was negative. And in a low interest rate environment that's what I'd expect. So if you're getting something different in the Valic 403b, then I suspect it's not a real MMF, but a stable value fund.
If you look for "stable value", they list MMFs and Fixed Accounts (the real stable value accounts). The MMFs show current 7 day yields of -0.99% and -0.74%, while the Fixed Accounts have nice, positive YTD returns.
Thanks. Both of these accounts were from the 80s. I imagine at the time 4% rates seemed impossibly low. My husband's 457 uses Fidelity which has a stable value with no minimum for his group so it currently is somewhere around 1% which is closer to those in your valic link.
Hi Anna, Perhaps something like this? TIAA MM? The document also notes "stable value"; although the holdings look more traditional to a MM. From my recall of several years ago, stable value funds may or do hold types of "synthetic" bonds. Fidelity introduced a fund last year ( FCONX ), which I believe may be their attempt at a psuedo MM holding fund, but without a stable $1 NAV. For all practical purposes, it is effectively a T-bill fund. Regards, Catch
Actually, under my account at the valic web site the investment is called Fund 6, Short Term Fixed, 2012 rate 4%, guaranteed rate 4%. It appears as though the rates and minimums may still be in effect for new money under this plan. My husband's Fidelity plan has access to a couple of Fidelity MMkt funds like the select fund but the core fixed fund is Fidelity Managed Income Portfolio. That is the one that is giving about 1% right now. I don't think any of the funds I have been talking about have a NAV. They certainly don't have tickers. They just truck along adding interest to the small amount in them.
These are just legacy remnants of my youthful days. My mind just jumped to the realization that I had always assigned a NAV of 1 to the funds (even though they might be NAVless) and assumed that the percent would always be on a NAV of 1 value. Thus my off-the-wall question about whether the funds might change.
(Since that's a 2009 doc, don't pay too much attention to the VALIC insurance company ratings; they've changed slightly since then, mostly for the better.)
Comments
Example - Right now I have a "10 year pay-out annuity" with TIAA from an old 403b. There is a "guaranteed minimum" on the rate. I also have a Valic 403b MMkt with a 4% minimum guarantee.
MMFs are currently somewhat allowed to avoid mark-to-market pricing by Rule 2a-7, that, roughly speaking, lets them assume constant value and constant rate of interest on their underlying holdings. (Amortized cost accounting.) They're allowed to do this so long as the "true" value of the portfolio isn't off by more than 1/2% (half a penny). See, e.g. https://www2.blackrock.com/webcore/litService/search/getDocument.seam?venue=PUB_INS&source=CONTENT&ServiceName=PublicServiceView&ContentID=1111131535
I'm sorry but I don't really see what one has to do with the other. The annuity is a debt obligation of a single issuer (like a single holding in a MMF portfolio, or like a bond). You're wondering about the rate that is being paid on what's analogous to a variable rate demand obligation (a note that resets its rates periodically). That seems different from the value (not rate) of a portfolio (not a single bond).
For example, here's a 4 page pdf of Univ. of Northern Colorado's VALIC 403b. (Just happened to be one that turned up in a quick search):
http://www.valic.com/Images/unc_403b_perf_tcm1043-248188.pdf
If you look for "stable value", they list MMFs and Fixed Accounts (the real stable value accounts). The MMFs show current 7 day yields of -0.99% and -0.74%, while the Fixed Accounts have nice, positive YTD returns.
Perhaps something like this? TIAA MM?
The document also notes "stable value"; although the holdings look more traditional to a MM. From my recall of several years ago, stable value funds may or do hold types of "synthetic" bonds.
Fidelity introduced a fund last year ( FCONX ), which I believe may be their attempt at a psuedo MM holding fund, but without a stable $1 NAV. For all practical purposes, it is effectively a T-bill fund.
Regards,
Catch
These are just legacy remnants of my youthful days. My mind just jumped to the realization that I had always assigned a NAV of 1 to the funds (even though they might be NAVless) and assumed that the percent would always be on a NAV of 1 value. Thus my off-the-wall question about whether the funds might change.
Thanks for your effort and input.
http://www.valic.com/images/valic_structured_help_tcm82-150536.pdf
(Since that's a 2009 doc, don't pay too much attention to the VALIC insurance company ratings; they've changed slightly since then, mostly for the better.)