Institutional Investors Managing Investment Portfolios. Tieu JD Ngao

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СКАЧАТЬ Directed by donors, of which almost like a DB plan, donors choose investments. For example, a profit sharing plan (retirement plan where contributions are made only by the employer) as directed by the donor.

      • Directed by participants, in which donors provide a list of diversified investment options and the participants decide their own investment mechanism. Most DC plans as directed by the participants.

      For a DC plan is directed by participants, donors have very little influence on the creation of investment allocation policy. Even for DC plan directed by donors, investment policies much less complex than in the DB plan.

      2.1. The defined benefit plan: Overview and Investment Environment

      Defined benefit plan has existed for a long time, form first appeared in 1928 in the U.S. and is set by the American Express Company. Currently, DB plans have different spheres of influence all over the world, but in recent years, the use of DC plans has increased. In the U.S., the assets of the DB plan at nearly $ 2.5 trillion by the end of 2000. However, in the U.S., evaluated by both the number of participants and total assets, the DC plan than outstanding. The growing advantages of DC plans in the U.S. have largely been created by the rise of 401 (k) plans in the business sector. In the UK, the traditional models DB prominence, accounting for about 4/5 of the total plan of the private sector in 2001; however, the percentage of companies using DB plans including the new members dropped 38% in 2004 from 56% in 2002. In Europe, DB plans continue to be made based on the model of the basic pension; however DC plan is slowly becoming more accepted. Japanese private pension funds have overwhelming advantages in favor of the benefits identified, but the Japanese company now also offers cash balance plan and the DC plan.

      Asset retirement resources to pay for retirement benefits. Therefore, the investment performance of a pension plan should be evaluated relative to the assets of the plan and shall provide pensions; even when it is evaluated based on a total basis . Clear understanding of the pension liability is very important for the establishment of effective investment policy.

      Expert of the plan sponsor is a mathematician responsible for the estimated pension liability. Along with the specific benefits identified, estimated pension liability also involves forecasting changes in human resources, determine the growth of salaries and wages, estimated capacity of the early retirement option, the applicable mortality table and other factors.

      First, the specialist will determine the liability payments and the present value of it compared to the current value of assets of the list. The relationship between the value of the assets of a plan and its current debt value is called the capital of the state plan. In a fully funded plan, the ratio between the assets and liabilities of about 100% or more (the state capital is 100% or more). Pension surplus is calculated as the market value of pension plan assets minus the market value of pension plan liabilities. In a plan is not enough capital, the ratio of plan assets and liabilities is less than 100%.

      There are three basic concepts debt exists in the pension plan:

      • Responsibilities of accumulated benefits (ABO - Accumulated Benefit Obligation). ABO is the present value of pension benefits in the event the plan is terminated immediately and therefore responsible to fund retirement income payments to all beneficiaries during operations to fund the time of termination of (Accumulated services)

      ABO excludes the impact of the increase in salaries and wages in the future

      • Responsibilities of expected benefits (PBO). PBO stop the service accumulation similar to the case of ABO but compensation is expected in the future will increase if benefits are determined to be associated with a certain amount of the final payment. Therefore PBO including the impact of the compensation expected to rise and is a reasonable measure of pension liabilities for an enterprise to continue operations and has no plans to terminate their DB plans.

      • General liability to pay future. This is a measure of the easiest to understand but most certainly not responsible for the pension plan. Total future liability of card defined as the present value of the accumulated value and forecasts of future service benefits, including the impact of the value of future compensation increases. Financial means can be done internally as the basic elements to create investment policies.

      Insurance professional mission is to determine the division ratio of debt plan members and retired employees. This distinction indicates two important factors:

      • Because the people who are receiving retirement benefits, if the number of people who retire more and more in larger monthly cash flow, therefore, the liquidity requirements of the higher retirement. The rate of debt retirement related to employee retirement period is retired; related to people who are in the stage of labor is the labor time is.

      • Do the same mortality table used for plan beneficiaries are retired workers and a greater rate plans who retire with a shorter average duration calculated future pension liabilities.

      We move on to the construction of the factors in the investment policy for a DB plan.

      2.1.1. The objective of risk in the process of building target risks, plan sponsors must consider the status of the plans, financial position and profit of the donor, the overall risk of the donor and retirement experience, a description of the plan, the characteristics of the labor force, as shown in Table 3-1. (The ability to take risks, broadly speaking, is the willingness and ability to take risks)

      Identified in Table 3-1 should be a comment. In principle, a retirement plan can provide enough capital to withstand a certain degree of negative profit without affecting the payment of debts of the plan assets is due to the redundancy capital surplus of the plan. Therefore, the ability of donors to predict the risk increases with investment capital situation, however, may not need to do so. A plan is not enough capital may increase the willingness to accept the risk of donors to provide sufficient funds for the plan; however, nor other cases, a lack of capital are less likely to plan accept more risk because of lack of risk capital appeared right from the start. Therefore, a lack of capital plan should reduce the willingness to take risks.

      a plan may not provide sufficient funds, plan sponsors have a responsibility to contribute to the plan. Financial condition and profitability may affect the ability and willingness to contribute as needed. When the donor is in poor financial condition, this reduces the ability to provide the missing money which suddenly due to some unfavorable investment. In addition, as a result of donor activities dependent on benefits of retirement income, the level of contribution to the pension fund as a result of donor activities is not effective. Historically, in some countries such as Germany and the United Kingdom, the DB pension fund is not established private institutions and pension liability for the book on reserve in the balance sheet of a company. However, the European Union required that listed companies in the EU where applicable International Accounting Standard System before 2005 (or 2007 in some cases) is one of a number of efforts to make reduce the differences between countries.

      Some backup plan can facilitate plan members have the option to speed up the payment of benefits, reduced tolerance for risk or other measures similar to the above. More elderly labor force that is responsible for short-term and higher liquidity requirements mean risk tolerance is generally lower. Moreover, for a plan with more elderly labor force, if the plan becomes undercapitalized, the company will also have less time to engage and capital contributions to the plan.

      The main purpose of the DB pension fund assets is to ensure the solvency of the fund. This is a common feature of DB plans and insurance companies and banks, as we will discuss in the next section. For all of these investors, the relationship between risk and debt management is very important and the ratio of assets / liabilities in terms of risk and investment is the main concern.

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