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22 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What is duty of board?
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Dual - members/plan
Ultimate to plan Resolve conflicts of interest Delegate responsiblities |
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What is boards responsibility wrt conflicts of interest?
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Anticipate, Identify, Resolve with suitable documentation
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What are examples of conflicts of interest?
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Members on board make decision in own interest (principal/agent)
Interest of self vs plan Surplus Stock Trade off between cost/quality Investment fees reasonable Precedence if dual duty |
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To whom can board delegate responsibilities?
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Management
Committees (Pension/Audit/Investment/HR/Compensation) Hired Professionals |
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What is responsibility of pension committee?
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Attend to board requests
Review/Monitor administration Promote awareness/understanding of plan Recommend plan improvements |
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What is responsibility of hired professionals?
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Determine quality of completed functions
Understand roles of governance Efficient use of plan's resources |
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What are the areas of governance?
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Funding/Investment Policy
Plan Design Employee communications Define roles/responsibilities Administration/documentation Legal (statutory & plan) compliance |
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What is the primary objective of plan governance?
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Risk management of the enterprise (ERM)
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What are the categories of risk within ERM?
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Financial (market/interest rate)
Operational (regulatory) Strategic (plan design/demographics) Hazard |
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What other risks do plans face?
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Contract
Longevity Interest rate Financial performance of mkt Financial performance of er Demographic Regulatory Inflation Political change Job tenure Early retirement subsidies Wrongdoing |
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What risks do retirees face? (mitigation)
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consumer information (understand investments/risks)
health/med exp (med ins/supplements) inflation (own home, inf. adjusted annuity) longevity/outlive assets (ann, reverse mtg death of spouse (J&S, ins) replacement ratio (delay ret) employment in ret. (delay ret) needs of family marital status interest rate (ann, long bonds) standard of living savings inadequate public policy (municipal bond/Roth) business risk if ER folds/dc plan tied to stock loses value (diversify) facilities/caregivers independent living (LTC ins) stock market (diversify) housing |
children miss pb fish
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Who is concerned by pension risk?
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members (benefit security)
taxpayers (transfer of liability) employer (stable contributions, controlled costs, flexibility) CFO (minimize risk, maximize shareholder value, maintain good credit rating) |
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What are the principles of ERM?
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Seek compensable risks else hedge
Determine how much can afford to lose Set risk budget (% equity allocation) |
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How does board determine how much enterprise can afford to lose (ERM)?
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Consider
global pension liability vs size of ER Funded status Credit rating Workforce demographics Plan features |
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How is risk budget (% equity allocation) set in ERM?
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Use augmented balance sheet
Identify stakeholders (ee/er/govt/society/shareholders) identify risks (MOPCARS/FOSH) quantify risks (best guess/immaterial/deterministic/stochastic) separate/manage risks |
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What should ERM balance and coordinate?
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Benefit Policy
Accounting Policy Investment Policy Funding Policy |
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Why do employees withdraw from the workplace?
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voluntary retirements
Health Physical demands disabilities industrialization technological advances devt. of OASDI and pensions |
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Why is there an increased need for savings?
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Less employment opportunities
Rising health care costs Increased standard of living Inflation May use reverse mortgages |
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Why are plans established
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Paternalism
Plan fits strategic interests of sponsor Helps workers meet retirement goals |
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What are strategic interests of plan sponsor?
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Attract/Retain EE
Competition requires Golden handcuffs Increase productivity Reduce turnover Flexibility of plan design Sustainability of plan costs |
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What are the challenges of plan sponsors?
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Public policy uncertainty (SS)
Social patterns (ee shortage, change in demographics) EE perspective (value placed on plan, communication) |
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Why is saving for retirement difficult?
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Payoff is uncertain
Rather have gratification now than security later Delay decision w/o immediate consequence |
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