Executive Summary 2000-OR-3
The Town of Riverdale Park began a Defined Benefit Pension Plan in 1999 open to all employees of the town. This legislation establishes the rules that govern how the town's Defined Benefit Pension Plan will be managed. The legislation does this through three separate sections of the legislation. First is the creation of a Board of Trustees that will make all the investment decision for funds in the pension plan. The second is the provision on hiring an Investment Fund Manager who will advise the Board. Third is the establishment of an investment policy which shall be used by the Board and Manager in crafting investment decisions.
Board of Trustees A five member Board of Trustees is created to make all investment decisions consistent with the mandatory investment policy. The Board will consist of the Town Administrator, a member of the Council, two employees vested in the plan, and a person with financial experience. All members will be appointed by the Mayor with the consent of the Council and shall serve for two-year terms (except the Administrator which is ongoing). The Board will also advise the Mayor and Council on proposed changes to the plan or investment policy that would improve the rate of return relative to the risk of all investments in the plan.
Investment Fund Manager The Town Council will hire a manager who has experience in the management of pension plans. This person or company will have a minimum of five years experience in this area. The Manager will advise the Board on investment decisions and strategies and make investments based on a majority vote of the Board. The Manager shall furnish the Mayor, Council and Board with quarterly reports on investment performance.
Fund Investment Policy Finally, a policy is established for the types of investments that the Board is permitted to make. It also prohibits the investment in riskier investments such as derivatives, margin and option trading and private stock. The policy establishes an acceptable range and a target of the proportion of total portfolio that shall be in a certain asset class. For example, the policy requires that the largest investment category be fixed income assets such as bonds that have guaranteed interest with minimal risk. The policy also mandates investments in stocks of primarily domestic origin and of large capitalized companies (over $1 billion in assets).
The purpose of the legislation is to allow those affected by the funds and its investments to make the critical decisions related to the fund. However, the legislation recognizes that any shortfall in performance may adversely affect the town's budget (i.e., an underfunded pension plan), and therefore a risk limitation is built into the policy to prevent such a shortfall.
Summary prepared by Michael Herman, Chairman, Legislative Committee.
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