Investors, for whom losses in stable value have been rare events, may not have realized that in some cases fund managers were propping up their own products during the financial crisis.

State Street voluntarily contributed about $450 million of its own capital to the stable-value funds it managed during the fourth quarter of 2008, and purchased about $2.5 billion of debt securities from the funds, because the investments the funds held had fallen significantly in value, according to its annual report from that year.

'All Bets Off'

"During 2008, the liquidity and pricing issues in the fixed-income markets adversely impacted the market value of the securities in these accounts to the point that the third-party guarantors considered terminating their financial guarantees with the accounts," the report said. The Boston-based company is in the process of exiting the stable-value business, said spokeswoman Alicia Curran Sweeney.

Some insurance contracts allow the issuer to terminate for any reason provided the company gives notice, such as 90 days, Stone said.

"If we went into some kind of world calamity here, it could be all bets off," Stone said. "You can imagine an instance where the guarantee might be difficult for a company to honor."

After the financial crisis, the cost of the insurance has more than doubled to 15 basis points to 25 basis points of fund assets from 4 basis points to 8 basis points, said Mitchell, of the Stable Value Investment Association. A basis point is 0.01 percentage point.

Fee Disclosure

"Insurers had priced this business on the idea that they would never have any claims," Stone said. During the 2008 to 2009 financial crisis, "they were really staring into the face of having to pony up quite a bit of money."

Those costs reduce fund yields and aren't generally disclosed to participants, according to Galliard's Caswell. That may change in 2012 when a U.S. Department of Labor rule requiring comprehensive fee disclosure for 401(k)s takes effect. Management fees, which generally range from 10 basis points to 55 basis points depending on the size of the retirement plan, are disclosed to investors, according to Mitchell.