BEST PRACTICES: Investment Policies for Defined Benefit Plans Flashcards
Defined benefit plans should establish and adhere to a formal investment policy to regulate and monitor the system’s investment program. Such policy should be viewed as a long-term governing document.
What is the purpose of investment policies for defined benefit plans?
To govern the investment program, strengthen the financial condition of the plan, deliver benefits to participants, define fiduciaries’ due diligence standards, document investment goals, define internal controls, and articulate the asset allocation strategy.
How often should the investment policy be reviewed and updated?
At least annually, and updated as deemed appropriate.
What must an investment policy reflect?
Legal restrictions set by federal, state, provincial, and local laws, common law, and fiduciary standards.
What should the investment policy include regarding goal and purpose?
A statement articulating the rationale for having the policy, the investment goals, and the appropriate level of risk.
How should risks of investments be managed according to the policy?
By identifying investment guidelines for investment professionals to follow, including limits on holdings of individual securities and credit ratings.
What does the asset allocation strategy entail?
Identifying factors for continuous monitoring of adherence to the long-term asset allocation strategy and specifying the plan’s rebalancing policy.
What guidelines should be set for other investment-related service providers?
Guidelines for the selection and periodic performance evaluation of professionals like investment consultants and custodians, focusing on service quality, cost, and communications.
What are investment management guidelines?
Criteria for selecting investment managers, manager watch list/termination guidelines, including specific benchmarks for placing an investment on a watch list or terminating an investment.
How should cost management be defined?
Expectations for evaluating total cost and fee transparency, including various types of investment-related expenses.
What should be included in performance measurement and reporting?
Measurement and reporting criteria, frequency of reporting, evaluation process, and performance benchmarks for permissible asset classes.
