Investment policy is always a compromise between a sponsor's ability and willingness to make contributions and its commitment to participants to secure funding of pension benefits.
The book, “A Primer for Investment Trustees,” recently published by the Research Foundation of the CFA Institute, brings a keen insight into reconciling these conflicting goals.
“Now, if the investment committee were solely concerned with benefit security, the trustees would place the fund in low-volatility investments,” the book states. But the “problem with that approach is that it is likely to result in considerably higher contributions.”
“Despite the overriding importance of securing the pension promise, decision makers and stakeholders should never forget that a financially healthy organization is required for pension benefits to be offered,” the book adds. “If the fund's mission doesn't take into account the financial needs of the (sponsor), then the plan may eventually be neglected, poorly funded, or possibly even terminated. None of these outcomes would serve the interests of plan participants.”
“Investment policy identifies the key roles and responsibilities related to the management of the fund's assets,” the book adds. “Not only does the investment policy establish accountability, but it also helps to minimize conflicting interests.”