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 should defined benefit plans establish regarding their investment program?
A formal investment policy to regulate and monitor the system’s investment program.
What is the purpose of investment policies for defined benefit plans?
To govern investment programs, strengthen the financial condition of the plan, and deliver benefits to plan participants.
What does an investment policy document?
Fiduciaries’ due diligence standards, investment goals, priorities, performance review, measurement, and internal controls.
How often should the formal investment policy be reviewed and updated?
At least annually and updated as deemed appropriate.
What must an investment policy reflect?
Legal restrictions set forth in federal, state, provincial, and local laws, common law, and fiduciary standards.
What is the role of fiduciaries in defined benefit plans?
To invest the system’s assets for the exclusive benefit of the participants.
What should the statement of goal, purpose, or mission in an investment policy articulate?
The rationale for having the policy and the investment goals.
What should the asset allocation strategy in an investment policy identify?
Factors for continuous monitoring, reviewing adherence to the plan’s long-term asset allocation strategy, and specifying the plan’s rebalancing policy.
What does cost management in an investment policy define?
Expectations for the evaluation of total cost and fee transparency.
What should performance measurement and reporting in an investment policy define?
Measurement and reporting criteria such as frequency of reporting, evaluation process, and performance benchmarks.
