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While unfortunate events in our investment portfolios may have prompted some anxiety, the vast majority of us can at least enjoy some smug satisfaction at having avoided a wipe-out from the Bernie Madoff Ponzi scheme. Bernie offers, however, a lesson for all of us. We need to lift the veil of our investment packages (mutual funds, annuities, etc.) to see what they hold as their underlying investments. How can we be sure the money is actually there?

With mutual funds, the evidence is clear and well-regulated. Mutual funds produce annual and semi-annual statements that list every asset and that spell out what the income and expenses were for the fund. Officially, a mutual fund is known as an investment company, so investors can expect the same reporting they would receive from any company whose stock is sold to the public. The monitoring and auditing of these requirements is dictated by the SEC and a new entity, FINRA, which took the place of the former NASD.

When it comes to annuities, which are life insurance products, the lines of responsibility are a little less clear. Life insurance companies are only monitored by the states in which they operate. A 100-year-old law (McCarrun Fergusen Act) actually prohibits federal oversight. When life insurance companies fail, some states have funds that protect investors, but getting the money paid out can take years if it happens at all.

In the case of Executive Life, investors like the Pacific Lumber Co. retirement plan participants got next to nothing. Then, Mutual Benefit Life was the 14th largest life company in the U.S. when it failed about 15 years ago. After its assets were slowly unraveled, investors got their money back, but with no interest several years later.

That company beside the freeway in Davis, Pacific Standard Life, failed in 1994, and its assets were then taken over by Hartford Life. Unfortunately, Harford assets have been downgraded to junk which means it could follow in Pacific Standard's tracks. All in all, this amounts to pretty shabby treatment of insurance industry investors.

By comparison, on the day a bank fails, an army of FDIC auditors arrives in a fleet of limousines and descends on the hapless institution. It is a show of force as impressive as a presidential motorcade according to those who have seen it first-hand. As for mutual funds, none have ever failed.

For those whose money is in insurance company products of any stripe --- annuities, 401(k) plans, guaranteed investment contracts (GIC's), etc. there is at least some basis for being concerned. Some of the largest companies in these markets have seen their stock prices drop by 95 percent. Hartford, Lincoln Financial, Prudential and a number of other companies are showing signs of financial distress. Moody's bond rating for Hartford has dropped to Baa3 according to the March 31st Wall Street Journal. More downgrades are probably on the way.

Stable asset funds, or Guaranteed Investment Contracts, invest in bonds and derivatives and then guarantee an interest rate to 401(k) participants for whom this is a popular investment choice (especially recently.) To create any profit beyond what they have guaranteed to investors, the underlying investments have to generate higher yields --- which means taking more risk. The average, industry-wide value of the underlying investments right now is 95 percent of the principle amount guaranteed by the insurance company. So, how good is your guarantee if you're just the general creditor of an institution whose investments (according to the rating agency) are now ranked as candidates for default.

The question for 401(k) trustees, fiduciaries, and the participants they represent is, "Who backs up the pool of money that is invested in what I thought was my guaranteed account." A stable asset GIC is a mandatory investment offering in an insurance company 401(k) product, because this is where the company covers most of its costs.

The "spread" between investment yields and the guaranteed payment amount is buried and not available for disclosure. It's not a Madoff- level catastrophe when the insurance company, possibly under water, stalls for time. However, to the former employees of bankrupt Mervyn's who have been waiting since last October for their 401(k) money; it is a nuisance that could have been avoided.

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