For most investors, the market crash shattered the notion of safe investments. Bond funds lost money, the government stepped in to bail out money funds, banks failed.

Now millions of workers who invest through their 401(k) plans are finding that one of the last pillars of safety so-called stable value funds may be riskier than they assumed.

These funds, which are typically only available through retirement plans, are essentially bond portfolios wrapped in insurance contracts that promise to smooth returns over time. As the value of the underlying portfolio rises and falls, the insurance company makes up (or holds onto) the difference. Historically, they ve been considered tremendously safe: Two out of three retirement plans offer a stable value fund as the most conservative option.

But as we pointed out in our earlier story, Think Your Money s Safe? , stable value funds are only as good as the guarantees behind them. And now that a fund in the Lehman Brothers retirement plan has suffered an unprecedented drop, investors and their employers are forced to wonder just how stable their fund really is.

How One Stable Value Fund Got Hit

Like all insurance policies, the contracts are laden with fine print. One of the lesser-known clauses: if the company offering the plan goes bankrupt, the insurance company is off the hook.

So when Lehman Brothers went bankrupt, some of the insurance companies revoked their guarantees on the stable value fund, cutting the return by 1.7 percentage points one day in December. For employees who had been in the fund all year long, that wasn t too terrible instead of earning about 4 percent, they earned a little more than 2. But if an employee had moved into the stable value fund in the days just before the drop, he or she would have lost money.

A Concern in Potential Bankruptcies

In this shaky economic environment, this should give employers and their employees pause. If the bond market were doing better, it wouldn t be a problem. But almost all stable value funds are under water right now, says Pam Hess, the director of retirement research at consulting group Hewitt.

That means the underlying portfolio is worth less than the guarantee and if the parent company goes bankrupt, the insurance company may not have to keep its end of the bargain. Companies that are in trouble should be planning for this, says Hess, but they often have bigger things to worry about. And if the fund manager says, you can t have your money back at par, someone s going to get hurt.

For most investors, this will never be an issue, experts say. Part of the problem with Lehman Brothers is that it happened so quickly usually, a bankruptcy just means a reorganization, most employees stay in the plan, and the insurers meet their obligations.

If you re concerned, and your company offers a money market fund as an alternative, planners say that s not a bad move. Until the spring, those funds are insured, too.