Fire Fighters’ Local 311
Post Retirement Benefits Trust
Investment Policy Statement
This Benefits Trust was established in 1999 to provide health and life insurance premium benefits for members of the IAFF Local 311. The Plan is governed by a Board of Trustees. Contributions to the Benefits Trust are made by the City of Madison as provided by the labor contract between the City and Local 311. The assets of the Trust are used to pay Plan benefits. Growth in the Trust Fund results from a combination of contributions and the investment return achieved from investing in financial assets.
The purposes of this Statement of Investment Policy are to:
1. Articulate the Trustees’ objectives for structuring an investment program suitable to the long-term needs and risk tolerances of the plan.
2. Formulate policies for selecting appropriate investment managers, commingled and/or mutual funds, or other suitable investments within the framework of that structure.
3. Establish objectives for prudently monitoring and evaluating the performance of such an investment program.
The Plan seeks to achieve the following long-term investment objectives:
1. A long-term rate of return in excess of the annualized inflation rate, defined as the average annualized compound rate of the consumer price index (CPI) calculated on a five year moving average.
2. A long-term competitive rate of return on investments, net of expenses, that is equal to or exceeds various benchmark rates on a moving five year average.
3. Maintenance of sufficient income and liquidity to pay annual retiree benefits, along with Trust and Plan expenses.
1. The Trustees will select investment managers and/or commingled funds, and allocate the assets of the Plan to seek to achieve the stated investment objectives and to control risk. The assets subject to each such investment manger or commingled fund shall constitute an “investment account.”
2. The Trustees will establish reasonable guidelines for each asset class and investment account.
3. The Trustees will monitor the activity and performance of each investment account and the Plan as a whole and report to Local 311 on a periodic basis
The strategic target asset allocation will be as follows:
Asset Class
Equities 0-50 %
Fixed Income 0-40 %
Cash Equivalents 0-10 %
Investment guidelines for commingled trusts, mutual funds and insurance contracts will be identified in the governing documents of such investment. To the extent that assets are place in these funds, the practices of such funds are identified in the fund prospectus or contract shall be materially consistent with this Statement.
A. Equity Securities
1. Investment Objective
Equity investments are intended to provide a real rate of return over a market cycle (generally three to five years), and therefore to contribute to the participants’ “purchasing power” and long term capital growth. In addition, each active equity investment manager is expected to produce a net return that is equal to or exceeds an appropriate benchmark index (i.e., S&P 500, Russell 2000, etc.) based on the individual investment account style and to outperform the median performance of other equity managers or funds that use the same or substantially similar style of equity management on a gross return basis over a five year basis.
For purposes of performance measurement, rate of return shall mean total rate of return, that is, investment income plus realized and unrealized capital gains and losses. It shall be calculated on a time-weighted basis by linking dollar weighted monthly rates of return.
2. Diversification
To assure a prudent degree of diversification and avoid excessive risk, equity investment accounts shall not exceed the following limits:
a. No more than 5% of the investment account total assets in the securities of any one issuer of affiliated group.
3. Permitted Activity
Unless specifically recommended otherwise by the Trustees in writing, selection of equity funds or managers shall not be subject to restriction or requirements (beyond those imposed by law or prudence) pertaining to:
a. Turnover, except that turnover will be monitored and shall be subject to guidelines to be applicable to each investment account;
b. Realizing gains and losses;
c. Use of convertible securities;
d. Use of (i) securities of foreign-based companies that are traded on a major U.S. exchange in U. S. dollars and (ii) ADRs, up to a combined maximum of 25% of all equity securities. “ADRs” are American Depository Receipts. These are listed and freely tradable on major American exchanges and represent ownership in major, non-American corporations.
4. Prohibited Activity
Unless otherwise approved in writing by the Trustees no equity investment manager shall engage or invest in the following, and no commingled fund in which the Plan invests shall in the aggregate substantially engage or invest in any of the following:
a. Short sales, unless part of a market neutral strategy, specifically approved by the Trustees;
b. Options or futures contracts, except for purposes of hedging within a commingled fund;
c. Commodities;
d. Restricted stock or letter stock;
e. Non-marketable securities; and
f. Margin transactions or any other borrowing of money, except for emergencies, such as a need for commingled fund to meet redemption requests or in conjunction with a market neutral strategy.
B. Fixed Income
1. Investment Objective
Fixed income investments are intended to provide a positive rate of return over a full market cycle, (generally three to five years) and to provide a regular supply of cash flow. Fixed income investment accounts are expected to (a) produce a net return that is equal to or exceeds the return of an appropriate benchmark index (e.g., Lehman Brothers Government/Corporate Index, Lehman Brothers GNMA, etc.) based on the individual style of the fixed income account over a five year basis and (b) out-perform the median performance of other fixed income managers or commingled funds that use the same or substantially similar style of fixed income management on a gross return basis over a five year basis.
2. Diversification
To assure a prudent degree of diversification and avoid excessive risk, fixed income investment accounts shall not exceed the following limits:
a. No more than 5% of the fixed income investment account and Plan’s total assets shall be committed to the securities of any one issuer or affiliated group at the time of purchase, with the exception of securities issued or guaranteed by the full faith and credit of the United States or AAA-rated securities issued by government–sponsored enterprises (as to which there is no limit);
b. No more of the fixed income investment account’s total assets shall be committed to any one industry than as agreed in a separate set of guidelines with each fixed income manager or as stated in each commingled fund’s prospectus.
3. Permitted Activity
Unless specifically approved otherwise by the Trustees in writing, selection of fixed income funds and managers shall not be subject to restrictions or requirements (beyond those imposed by law or prudence) pertaining to:
a. Turnover, except that turnover will be monitored and shall be subject to guidelines to be applicable to each investment account;
b. Realized gains and losses;
c. Use of convertible securities;
d. Use of securities of foreign-based companies that are traded on a major U.S. exchange in U.S. dollars, up to a maximum of 15% of all fixed income securities in the portfolio.
4. Prohibited Activity
Unless specifically approved otherwise by the Trustees in writing, no fixed income manager shall engage or invest in the following and no commingled fund in which the Plan invests shall in the aggregate substantially invest or engage in any of the following:
a. Repurchase agreements against securities which are not permitted to be held in the portfolio;
b. Short sales;
c. Options or futures contracts, except for hedging within a commingled fund;
d. Commodities;
e. Non-marketable securities;
f. Margin transactions or any other borrowing of money, except for emergencies, such and a need for a commingled fund to meet redemption requests;
g. Foreign fixed income securities beyond 15% of the total fixed income allocation;
h. Securities with less than an investment grade rating up to a maximum of 10% of all fixed income securities in the portfolio, unless specifically authorized;
i. Non-FDIC insured bank deposits; and
j. Portfolios which have an average maturity and duration exceeding 10 years.
C. Short-term Investments
1. Investment Objective
Short-term investments are intended to be conservative, to assist in meeting any necessary disbursements from the Plan and to accumulate funds for future investment. The Plan will offer a short-term investment vehicle as an alternative asset class to those participants who desire a very conservative investment option. The short-term investments will be expected to provide net returns at least equal to the Solomon Brothers U.S. Treasury Bill Index on a one year moving average.
2. Permitted Activity
Short-term investments are a permitted class of assets provided they meet the following guidelines:
a. U.S. Government securities backed by the full faith and credit of the U.S. Government and U.S. Agency;
b. Certificates of deposit, maturing within 12 months, of any domestic bank meeting the capital standards mandated by the FDIC improvements Act of 1991, provided that such certificates of deposit from one institution shall not represent more than 5% of the assets of the short-term investment account;
c. Commercial paper, maturing within nine months, of any domestic issuer, provided that such commercial paper shall be rated no less than A-1 by Standard & Poor or Prime 1 by Moodys;
d. Repurchase agreements secured by U.S. Government or U.S. Agency obligations;
e. High grade bankers’ acceptance; and
f. Commingled accounts offered by banks or mutual funds that are approved for investment by tax exempt organizations.
3. Prohibited Activity
Unless specifically approved otherwise by the Trustees in writing, no short-term investment account shall engage or invest in the following and no commingled fund in which the Plan invests as a short-term vehicle shall in the aggregate substantially invest or engage in the following:
a. Options or futures contracts;
b. Non-marketable securities; and
c. Margin transactions or any other borrowing of money except for emergencies; such as a need for a commingled fund to meet redemption requests.
D. Periodic Review of this Statement
The Trustees shall review this Statement annually. Changes to any portion of this Statement will be made to the extent such changes would be in the interest of the Plan.