How the Prudential Guaranteed Investment Credited Rate is determined

DATE | 01/18/18
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Each year the announcement of the Prudential Guaranteed Investment Credited Rate prompts questions from participants such as...who decides the rate, how is it calculated, and does the Federal Reserve (Fed) rate influence the decision?

Below are answers to these questions and more. We hope they are helpful.

Who decides on the rate?

The Board of Trustees has the final say on the guaranteed rate. They base their decision on the analysis and reports provided by Member Benefits professional staff and investment managers from Prudential Financial, Inc. Prudential manages the guaranteed investment for the WEA TSA Trust and WEAC IRA programs.

Factors that impact the rate

Many factors contribute to the calculation of the rate, but because the contributions made to the guaranteed account are invested solely in the bond market, managers pay close attention to factors that influence the price of bonds.

To determine a rate of return, investment managers need to analyze what happened last year, what’s happening today, and what’s likely to happen in the coming year.

Evaluating last year

First, they look at the return on the money currently invested. The bonds currently held have a host of unique traits, including purchase prices, maturity dates, and rates of return. To determine what existing investments returned in earnings over the last twelve months, a manager must calculate a combined return—an averaging of sorts.

The current situation

Next, managers look at maturing bonds and anticipate how that money will be re-invested and how much it might earn. Managers analyze the bond market offerings today and make assumptions about future rates based on what the Fed might do with interest rates.

Anticipating the future

Finally, managers need to consider new contributions such as how much new money will be available for investment, where it will be invested, and the anticipated rate of return.

When the analysis is complete, the managers at Prudential provide us with a recommended rate of return. We then present it to the Board of Trustees for its consideration and approval.

What is the role of the Fed?

The Fed controls interest rates that member banks charge each other to borrow money. The Fed adjusts the rate to stimulate economic growth or slow the economy in order to control inflation. When the rate goes down, you will enjoy lower interest rates on loans to finance a home or a car. This is good news when you need to borrow money.

Why is there a difference between the rate I pay for a loan and what I receive in a savings account?

Every coin has a flip side. While low rates make it more economical to borrow, they don’t look so good when you consider the yield on your savings accounts, certificates of deposit (CDs), or money market investments. Just look at the interest rates being paid on savings accounts and CDs.

How does the Fed rate affect investments in stocks, bonds, and the guaranteed rate?

The stock market responds quickly to interest rate changes by the Fed. Bonds are also sensitive to interest rates. Bond prices move opposite interest rates, rising when rates fall and falling when rates rise. However, this has the greatest impact on bonds traded on the open market.  Prudential does not trade bonds on the open market. In their case, bonds are bought and held until maturity to provide the stability needed to generate a consistent rate of return.

What is the difference between compound interest and simple interest?

An account paying simple interest pays interest only on principal, whereas an account that pays compounded interest pays interest on the principal plus accumulated interest earnings. Interest is compounded daily in the 403(b) and WEAC IRA Guaranteed Accounts. 


*Interest is compounded daily to produce a yield net of Prudential’s administrative fee of 0.60%. PRIAC is compensated in connection with this product by deducting an amount for investment expenses and risk from the investment experience of certain assets held in PRIAC’s general account.

All earnings on investments are credited gross of 403(b) and IRA program fees.

The Prudential Guaranteed Investment is a group annuity insurance product issued by Prudential Retirement Insurance and Annuity Company (PRIAC). Amounts contributed to the contract are deposited in PRIAC’s general account. Payment obligations and the fulfillment of any guarantees specified in the group annuity contract are insurance claims supported by the full faith and credit of PRIAC. PRIAC periodically resets the interest rate credited on contract balances, subject to a minimum rate specified in the group annuity contract and subject to change. Past interest rates are not indicative of future rates. Participant Level Protections (PLPs) are in place to help preserve the guarantee of the fund. PLPs may limit your ability to withdraw funds from the fund.  For more information on the PLPs and how it may affect your account, please reference the Prudential Guaranteed Investment PLP question and answer sheet or by calling Retirement and Investment Services at 1-800-279-4030, Extension 8568.