INVESTMENT POLICY STATEMENT OF - Patriot Software



STATEMENT OF INVESTMENT POLICY

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I. PURPOSE OF THIS POLICY

The [Plan Name] Investment Committee (the “Committee”) has been appointed to serve in a fiduciary capacity.

In its capacity as a fiduciary, the Committee is responsible for selecting the investment options to be made available to Plan participants and for monitoring and reviewing those options on a periodic basis. The Committee hereby adopts this investment policy for the Plan (the “Policy”) to establish the investment objectives and guidelines that will be applied to ensure that the investment program of the Plan is managed in a manner consistent with the Plan document and applicable statutory requirements. The Policy is also designed to assist the Committee (and other fiduciaries) in ensuring that the investment options available under the Plan are chosen and monitored in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including its provisions relating to fiduciary responsibilities. By establishing and communicating clear investment guidelines and objectives, the Committee can enhance the effectiveness of the Plan’s investment program and thereby contribute to the overall goal of retaining and recruiting employees by delivering an attractive, low-cost retirement program.

The Committee may hire or appoint one or more consultants to assist it in the performance of its duties hereunder, and may rely on the advice rendered by such consultants. The services to be performed by such consultants shall be documented in writing.

Because of the dynamic nature of the economic environment, developments in financial theories, advances in technology, and changes in legal standards, this Policy will be examined by the Committee from time to time on a formal or informal basis and may, as a result of such examination or for any reason whatsoever, be revised by the Committee at any time as deemed prudent or necessary. The Committee shall have all due time to prepare and implement an appropriate amendment if in its sole discretion it determines that changes to this Policy are appropriate or desirable.

II. INVESTMENT OBJECTIVES

The primary objectives of the Plan’s investment program are as follows:

• Participant Control – Allow Plan participants to exercise control over their retirement accounts by providing them the ability to direct the investment of account assets. In doing so, the Plan intends to meet the “safe harbor” requirements of Section 404(c) of ERISA and applicable regulations.

• Diversification – Offer participants access to an appropriate range of prudent investment options that enables them to construct a well-diversified portfolio. The Committee will make available suitably diverse investment options so that Plan participants can materially affect the potential returns on amounts in their accounts, control the degree of risk to which such amounts are subject, and create a portfolio with aggregate risk and return characteristics normally appropriate for Plan participants and which, through diversification, will minimize the Plan participants’ overall risk, especially the risk of large losses.

III. INVESTMENT GUIDELINES

The Committee has established the following guidelines for administering the Plan’s investment program:

Diversification

In recognition of the fact that diversification is a tool for reducing portfolio risk, the Committee will make available to Plan participants at least three broadly diversified investment options, each of which shall offer materially different risk and return characteristics.

A. Investment Categories

All classes or categories of investments allowed by ERISA as acceptable investment choices may be considered by the Committee in determining the investment options to be made available to the Plan participants. The Committee may, as it deems appropriate, select and make available to Plan participants investment options in the form of commingled funds, such as insurance company separate accounts, mutual funds, and bank collective trusts, from any or all investment categories listed below, in addition to guaranteed or stable value investments.

To the extent that the Committee deems it appropriate and consistent with the Plan document and this Policy, the Committee may select and make available one or more customized investment portfolios and retain an investment manager to manage the assets of each such portfolio.

Asset classes permitted for Plan investment options may include but are not limited to:

1. Stable Value – portfolio comprised primarily of short-term, high quality debt securities including money market funds, stable value funds, and guaranteed interest arrangements.

Strategic Purpose: Stable returns, income, diversification

2. Domestic Fixed Income – portfolio primarily composed of debt securities issued by the U.S. government, U.S. government sponsored or related agencies, and U.S. domiciled corporations. Investment options may include all quality ranges (high, medium and low), all maturities (short, intermediate and long), be broadly diversified or concentrated (sector funds), and be either actively or passively managed (indexed).

Strategic Purpose: Income, diversification, deflation hedge

3. International or Foreign Fixed Income – portfolio composed primarily of debt securities issued by foreign governments, foreign government sponsored or related agencies, and foreign corporations. Investment options may include all quality ranges (high, medium and low), all maturities (short, intermediate and long), be broadly diversified or concentrated (sector funds), and be either actively or passively managed (indexed).

Strategic Purpose: Income, diversification

4. Domestic Stock – portfolio composed primarily of the common stocks of U.S. domiciled corporations. Investment options may include different sizes (large-cap, mid-cap and small-cap) and styles (value, growth and blend). Such options may be broadly diversified or concentrated (sector funds), and may be either actively or passively managed (indexed).

Strategic Purpose: Long-term growth, diversification

5. International or Foreign Stock – portfolios composed primarily of the common stocks of corporations domiciled outside of the U.S. Investment options may include different regional and emerging markets funds, a variety of sizes (large-cap, mid-cap and small-cap) and styles (value, growth and blend), be broadly diversified or concentrated (sector funds), and be either actively or passively managed (indexed).

Strategic Purpose: Long-term growth, diversification

6. Balanced/Asset Allocation – portfolio consists primarily of significant proportions of both equities and fixed income investments.

Strategic Purpose: Long-term growth, diversification

7. Real Estate – portfolio consists primarily of owned real estate investment options including real estate investment trusts of all types and other commingled real estate equity investment options.

Strategic Purpose: Income, diversification, inflation hedge

B. Selection of Investment Options

The Committee shall select investment options based on an evaluation of qualitative and quantitative factors. The evaluation process will include consideration of the following criteria, although no one factor is intended to be determinative:

1. Investment Objectives – the extent to which the fund has adhered to clearly defined investment objectives.

2. Performance Generally – whether the fund has demonstrated investment results that rank it in the upper median of those funds with similar objectives, and whether it has performed in line with a relevant index over a reasonable period of time

3. Down Market Performance – the extent to which the fund has performed favorably in difficult market environments relative to its peers.

4. Analytical Rankings – whether the Alpha, Beta, R-squared, Standard Deviation, and risk/reward analysis of each fund is favorable and commensurate with the stated investment objectives of the Plan.

5. Expenses – whether the expense ratio of the fund is reasonable relative to funds with similar objectives, taking into account as appropriate any opportunities to offset Plan recordkeeping costs through use of fund expenses.

6. Size – whether the fund is an appropriate size to accommodate the assets of the Plan and its anticipated needs for liquidity.

7. Organization – the extent to which the fund sponsor or fund family has demonstrated over time that their depth of operation and management is superior and meets all applicable legal requirements.

8. Outlook – whether the future outlook of the fund is positive considering the fund manager(s), portfolio structure and investment style.

These factors are intended to ensure that investment option selections are compatible with the requirements of ERISA Section 404(c), made with a prudent degree of care, and that excessive risk is avoided. Notwithstanding the above, the Committee may also include other factors that it believes are appropriate for a specific manager/option selection exercise. The Committee may obtain analytics from independent organizations such as Morningstar, Lipper Analytical, CDA/Wiesenberger, Callan Associates, etc., to use in its analysis of the investment options. Additionally, the Committee may rely on analysis performed and presented to it by other qualified independent third parties, taking into account any potential conflicts of interest of such entities.

D. Monitoring and Periodic Review of Investment Options

The Committee will meet on a semi-annual or more frequent basis (as circumstances warrant) to review the suitability of the Plan’s investment options. At such meetings, the Committee will:

1. Review each investment option's objectives to make sure they remain consistent with the option's role within the Plan's overall investment structure.

2. Compare each investment option's performance against the option's stated benchmark, as well as the option's peer group, as identified on Exhibit A to this Policy, giving due consideration to investment time horizons so as not to overemphasize short-term results.  Each investment option is expected to perform in the upper half of the fund’s/manager's respective style universe over a reasonable period of time as determined by the committee.

3. Assess the risk associated with the portfolio of each investment option, as measured by the variability of quarterly returns (Standard Deviation) and portfolio Beta (i.e., the measure of securities’ fluctuations in comparison to the broad market). The Standard Deviation is expected not to exceed that of the benchmark index and/or the peer group as appropriate based on market activity without a corresponding increase in performance above the benchmark and peer group. Correspondingly, it is expected that the portfolio Alpha (i.e., the difference between an investments’ expected and actual rates of return) should exceed that of the benchmark and average peer over a reasonable period of time as determined by the Committee.

4. Note if there has been any significant change in the asset size of an investment option that could hamper the option's ability to meet its investment objectives or adversely impact the option's investment implementation.

5. Review the reasonableness of each investment option's fees and expenses relative to performance when compared to similar alternatives in the marketplace taking into account any portion of fees that may be applied to offset Plan recordkeeping expenses.

6. Evaluate the experience and track records of the investment options' portfolio managers, both with respect to their current funds and, in the case of any replacement portfolio managers, their previous funds.

7. Consider the financial stability of the fund family groups and the relevant investment advisory firms, especially in the event of any sale or reorganizations.

8. Asset Allocation funds and/or accounts will be scored and monitored using the previously described guidelines. Unlike other funds which are monitored and scored individually, these funds should be evaluated as a group. Due to the unique importance of these professionally managed vehicles for participants in the Plan, funds or accounts failing to achieve criteria standards will be carefully reviewed before removal from the Plan (in the absence of a reasonable alternative). In addition, funds with short time history should be evaluated qualitatively.

These funds and/or accounts may consist of asset classes not otherwise permitted or specifically referenced by the IPS. In the event that such asset classes exist in the underlying portfolios of the asset allocation funds, plan fiduciaries should consider the issue but it should not preclude a plan sponsor from choosing such funds and/or accounts. The use of such underlying asset classes should be considered in the general context of the evaluation of overall fund performance and metrics.

9. Index funds should be evaluated differently. Index funds will periodically fail to meet performance requirements in certain periods due to the presence of expense ratios, which impacts the comparison and fund performance to the benchmark. Variances will also be present due to comparisons of index funds to actively managed funds within the same asset category.

In situations where the Committee believes a current investment option fails to meet the Plan’s investment guidelines over a reasonable period of time, the Committee can take steps to remedy the deficiency. These steps may include undertaking a more in-depth review, placing the investment option on a “watch list,” adding a similar style investment option, or replacing an underperforming investment option. The Committee may add or remove an investment option at any time if the Committee believes such actions are in the best interest of the Plan and its participants.

Being placed on the “watch list” means that the Committee has an increased level of concern about a particular issue or event involving an investment option, which if left unresolved, could lead to the elimination of the option from the Plan’s investment lineup. However, placing an investment option on the watch list, or removing an investment option from that list, is not a recommendation from the Committee as to whether the particular investment option is or is not an appropriate investment for any particular participant.

E. Conducting an In-Depth Review. An in-depth review and analysis of an investment option may be performed at the direction of the Committee. Reasons for an in-depth review and analysis may include (but are not limited to) the following:

1. An investment option consistently performs in the bottom quartile (75th percentile) of its peer group and/or benchmark over several quarters or a year.

2. Issues with respect to fund management and/or the organization responsible for managing the assets of fund.

3. Issues with respect to a dramatic change in the adjusted return of an investment option which falls below that of the median manager within the appropriate peer group.

F. Elimination or Replacement of Investment Options

The Committee may eliminate an investment option at any time if the Committee deems it in the best interests of the Plan and its participants. Reasons for the elimination or replacement of an investment option may include (but are not limited to) the following:

1. Failure to attract sufficient Plan assets to warrant continued availability to the Plan participants;

2. Inability to achieve performance and risk objectives or to comply with investment guidelines, including, by way of example, the consistent performance by an investment option below the median (50th percentile) of its peer group and/or benchmark over rolling three-year periods; the performance of an investment option below the median (50th percentile) of its peer group and/or benchmark over a five-year period.

3. Failure to comply with reporting or other legal requirements;

4. Lack of stable organization and/or retention of key investment professionals.

5. Significant account losses and/or significant growth of business of the company issuing the investment option.

In addition to the factors listed above, other factors may include professional or client turnover, material change to investment processes, or any other criteria deemed prudent by the Committee. If a fund is to be eliminated, the Committee shall direct one of the following approaches to achieve that goal:

1. Remove and replace (map assets) with an alternative fund option;

2. Freeze the current fund and direct new assets to a replacement fund;

3. Phase out the fund over a specified period of time;

4. Continue the fund but add a competing fund.

G. Proxy Voting

To the extent that the responsibility for voting proxies of securities held in an investment option is not a responsibility of a fund manager, the proxies shall be voted by participants.

IV. PARTICIPANT RESPONSIBILITY

The election of investment options for a participant’s Plan accounts is the sole responsibility of each participant. Neither the Committee nor the Plan’s trustee will advise a participant as to the selection of any investment option with respect to his or her Plan accounts. Under ERISA Section 404(c), and as provided by the federal Department of Labor, neither the Committee nor any other Plan fiduciary will be liable for any loss which results from a participant’s exercise of control over the assets in his or her Plan accounts. Neither the Committee nor any other fiduciary who complies with the foregoing standards will be liable for any loss which results from the investment performance of any of the investment funds including, but not limited to, depreciation in the value of stock or other property held in any of the investment funds.

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