mtmingus wrote: ↑Thu Oct 18, 2018 10:15 amGibraltar Guaranteed Fund
(Sorry, OP, no answer to your question about whether there is anything you can do now. (Except possibly, if it is your employer whose meeting minutes I link below, finding out what they are talking about with amortizing the loss in the replacement bond fund.) The information below sadly does not help you, but I thought that it might be interesting/actionable for other people.)
I googled Gibraltar Guaranteed Fund and unearthed a couple of things, one informational and one rather disturbing (to me).
The informational item: this appears to be the short-form Fund Fact Sheet (not the whole prospectus. It would be interesting to know what was listed as "risks" in the prospectus.) https://www.retirement.prudential.com/R ... COLGGF.pdf
One slight eye-brow raiser (to me) in the Fund Fact Sheet is that this fund seems to be a product of a single insurance company (Prudential), rather than having 3-5 different insurance companies providing insurance wrappers. But, in the end, the loss doesn't seem to be a problem with the single insurance company (or at least not with its solvency, which is one of the usual risk you see mentioned with stable value funds. However, as you can read below, there could be an issue with the duration risks Prudential decided to take.)
Actionable item: Are stable value funds constructed with the insurance wrappers from multiple companies less at risk of what the OP experienced? I don't know. Kind of seems like this might be less an issue of how the insurance part was structured and more a problem self-inflicted by the investment committee at the employer on their own employees (see below)?
The disturbing (to me) item: I don't know if this is OP's employer, or just one of many employers who chose the fund. But here are minutes of a meeting in which an investment committee decided to dump the fund:
"PENSION REVIEW COMMITTEE RECOMMENDATION: REPLACE GIBRALTAR GUARANTEED FUND WITH CORE INTERMEDITE [sic] BOND FUND"; May 3, 2018; http://lancaster.ne.gov/clerk/agenda/20 ... raltar.pdf
I'm no expert on the pressures experienced by investment committees, but this sounds to me suspiciously like, when risk came home to roost, the investment committee panicked a bit, decided to market time interest rates and yield curve dynamics, and jumped ship, leaving the fallout with their employees invested in the fund. What would have happened to the principal of the individual investors if the investment committee had kept the fund and let individual investors decide to bail as the crediting rate fell? (For that matter, what did the talk about amortizing the loss mean for the principal of individual investors from one day to the next when the switch to the short term bond fund was made? Is this a different situation that what OP saw, where his/her principal dropped 5% from one day to the next?)
Actionable item: Since the unusually long duration of the underlying investments seems to be the issue with this fund, maybe people with investments in stable value funds should go find the tiny small print where it says what the duration of the underlying investments are? (Exercise for the reader: without using search, how long does it take you to find the duration in the Fund Fact Sheet for the Gibraltar Guaranteed Fund?)
During the past several years the Gibraltar Guaranteed Fund has performed very well, ranking as one of
the best funds in the stable value category. Gibraltar employs a strategy based on the Barclay's Capital
Aggregate Fund Index, which results in holding assets for longer durations than most stable value funds.
The longer durations have helped Gibraltar because interest rates have been stable. However, the bond
market has now entered a period of rising interest rates, and longer durations are beginning to hurt
Gibraltar returns.Prudential has proposed replacing Gibraltar with the Core Intermediate Bond Fund. CIBF holds assets
for shorter durations, averaging 4.23 years compared to Prudential's 6.02 years. This provides an
advantage when interest rates are rising. Moreover, CIBF is more actively managed the Gibraltar, which
is also an advantage in a rising interest rate environment. Additionally, CIBF has a lower expense ratio
than Gibraltar. During the last year CIBF returns have increased by approximately 100 bps.However, the market value to book value ratio for Gibraltar is 95.81% as of April 20, 2018. This means
that liquidation of the Gibraltar account would yield only 95.81C on the dollar. The market value to
book value ratio is also known as the market value adjustment, or MVA. It should be noted that the
MVA for Gibraltar was 96.82% on March 29, 2018, indicating the Gibraltar MVA continues to fall as
interest rates are rising.If the County decides to move from Gibraltar to CIBF, the CIBF returns will be negatively affected by the
Gibraltar MVA. On the day the Gibraltar funds are transferred to CIBF the existing market value for
Gibraltar would also be transferred. The Gibraltar MVA would then be amortized, thereby negatively
affecting the CIBF rate during the amortization period.On the other hand, moving from Gibraltar will minimize the effects of the declining MVA. Also, as the
longer duration Gibraltar assets are replaced with shorter duration assets, the CIBF yield is expected to
increase in the rising interest rate environment. In this regard, the Federal Reserve Board has indicated
more interest rate increases will be implemented during the upcoming year.After carefully reviewing the information presented, the Committee determined that the advantages of
moving from Gibraltar to CIBF outweigh the disadvantages.
The part that is disturbing to me: I had heard of stable value funds loosing money when the employer or an insurance company providing the insurance wrapper had gone out of business. I hadn't heard about a case of stable value funds loosing money (and having the loss passed on to the investors in the fund) because the (solvent) employer just decided to switch products in order to get a better ongoing yield.
