Fixed Income Investment Option

Prudential Guaranteed Investment

Prudential Guaranteed Investment

Member Benefits began offering the Prudential Guaranteed Investment* to Wisconsin public school employees in 1978. Through a long-time partnership with Prudential, we have been able to offer participants in our 403(b) and IRA program a guaranteed investment option designed for the conservative investor that provides an attractive rate of return. Prudential is a solid company that continues to receive high marks for strength and stability in the financial industry.

The Prudential Guaranteed Investment account is a long-term savings vehicle with goals and strategies fit for long-term investing. It assumes the role of a fixed-income or bond investment in your asset allocation mix and therefore may be a good choice for those looking for a more conservative approach. The funds in the WEA TSA Trust program and WEAC IRA Prudential Guaranteed Investment are held by Prudential Retirement Insurance and Annuity Company.

The 2019 Prudential Guaranteed Investment credited rate of return for both the WEA TSA Trust and WEAC IRA programs is 3.25%*.

The guaranteed fund invests in a broadly diversified fixed income portfolio designed for the conservative investor that provides an attractive rate of return.

The guarantee is on the participant’s principal and net credited interest. In other words, you will never receive less than what you have contributed and the interest credited on those contributions.

While there is no insurance like FDIC that covers your bank deposits, the guarantee is supported and backed by the strength and stability of Prudential Financial. Prudential is required to hold reserves equal to the assets in the Guaranteed Investment to ensure the safety of participant assets.

Prudential Retirement Insurance and Annuity Company has received financial strength rating of AA- (Very Strong) by Standard & Poor’s and A1 (Good) by Moody’s as of August, 2017. 

More information:

Investment evaluation

Just as we monitor our mutual funds to make sure they continue to meet our standards, we also monitor the Guaranteed Investment and evaluate Prudential Retirement Insurance and Annuity Company (PRIAC) in their role as manager of the account to ensure the best interests of our participants are being served. Member Benefits completed an evaluation of the Guaranteed Investment which began in the fall of 2016. Details of the evaluation can be found in our Winter 2018 issue of your$.

Not saving yet?

Start your 403(b) or IRA today by completing the online enrollment form, or call 1-800-279-4030 to speak with a consultant. Call us if you have any questions about the Prudential Guaranteed Investment.

 

*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.

History of the Prudential Guaranteed Investment

How it compares to other savings options

From time to time we field questions regarding our Prudential Guaranteed Investment* interest rate, especially in environments when interest rates are on the rise. The questions go something like this: How is it that the current guaranteed rate can ever be lower than short-term Certificate of Deposit or Money Market rates? Shouldn’t a long-term rate of return always beat a short-term fairly liquid investment?

Not apples to apples

The first thing you need to know is that comparing the Prudential Guaranteed Investment rate to Certificates of Deposit (CD) or Money Market account rates is not an apples to apples comparison. Our Prudential Guaranteed Investment account is a long-term savings vehicle, with goals and strategies fit for long-term investing.

Goals and strategies

Prudential Retirement Insurance and Annuity Company manages the Prudential Guaranteed Investment. They describe the goals and strategies for this fixed income account as follows:

The goal of this portfolio is to maximize the long-term rate of return consistent with insuring the safety of invested assets.

By carefully structuring a portfolio of commercial mortgages plus privately placed and publicly traded debt securities, the portfolio manager seeks to achieve higher long-term yields than are available from public offerings, as well as an essential degree of liquidity.

In short, unlike Money Market or CD accounts, the Prudential Guaranteed Investment account has a long-term strategy designed to earn investors a higher return over time than could be realized by investing in the CDs or money markets offered commercially.

Over time, interest rates fluctuate. When rates to borrow money are decreasing, as they did between 2000 and 2005, long-term accounts will generally outperform short-term accounts such as CDs or money market funds. However, when interest rates rise, short-term rates will look better than a long-term rates offered through a retirement vehicle such as ours.

When interest rates level out, long-term managers will again outperform the short-term approach.

Historical interest rate

The table below shows the January 1 Federal Funds Rate (U.S. short-term benchmark set by the Fed’s monitoring policy committee), money markets (Morningstar category average for money market mutual funds) and the WEA TSA Trust program Prudential Guaranteed Investment (net of fees) interest rates from 2000-2017.

YearFedMoney MarketWEA
20006.24%5.76%6.70%
20013.88%3.60%7.20%
20021.67%1.22%6.20%
20031.13%0.60%4.70%
20041.35%0.78%3.95%
20053.22%2.59%4.20%
20064.97%4.42%4.20%
20075.02%4.63%4.68%
20081.92%2.00%4.93%
20090.16%0.17%4.93%
20100.18%0.04%4.65%
20110.10%0.02%3.90%
20120.14%0.03%3.80%
20130.11%0.02%3.70%
20140.07%0.01%3.50%
20150.12%0.02%3.45%
20160.39%0.04%3.45%
20171.00%0.08%3.15%
20181.42%1.58%2.90%

The historic returns under each scenario demonstrates the advantage of the long-term strategy Prudential Retirement Insurance and Annuity Company employs in the management of the WEA TSA Trust and the WEA Member Benefits IRA Prudential Guaranteed Investment. This is for illustrative purposes only and not indicative of any investment. Guarantees are based on the claims paying ability of the issuing company.

How the rate is set

Each year in the fall the investment managers from Prudential calculate the estimated return of the portfolio and projected return for the next year. With this information and with input from our professional staff, the Board of Trustees approves the recommended rate and Prudential credits that rate for the next calendar year. Read more about how the rate is set…

*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.

How the Prudential Guaranteed Investment credited rate is determined

Each year the announcement of the 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.