Investment Basics - Mutual Funds

Relief association trustees and brokers occasionally have questions about portfolio limitations for mutual fund investments. Mutual fund investment authority depends on whether a relief association is investing under the limited list or the expanded list of authorized investment securities.

Relief associations that meet at least one of four statutory conditions may invest under an expanded list of authorized investment securities. The four conditions are:

• Having assets with a book value in excess of $1,000,000;
• Using the services of an investment advisor for the investment of at least 60 percent of the relief association’s assets, calculated on market value;
• Using the services of the State Board of Investment for the investment of at least 60 percent of the relief association’s assets, calculated on market value; or
• Using a combination of the services of an investment advisor and the services of the State Board of Investment for the investment of at least 75 percent of the relief association’s assets, calculated on market value.[1]

Relief associations that do not meet any of the four conditions above are restricted to a limited list of authorized investment securities. Permissible investments for a limited list plan are identified and described in Minn. Stat. § 356A.06, subd. 6. Permissible investments for an expanded list plan are identified and described in Minn. Stat. § 356A.06, subd. 7.

Limited List Investment Authority

Relief associations that are restricted to the limited list have two ways in which they may invest in mutual funds. First, limited list relief associations have authority under Minn. Stat. § 356A.06, subd. 6(f), to invest in shares of open-end investment companies, provided that the investments comply with paragraphs (c) to (e) of that subdivision. 

In effect, this means that relief associations investing under the limited list have authority to invest 100 percent of their portfolio in mutual funds, provided that the underlying assets of the funds are solely invested in directly-permissible limited list investments, which includes investment grade bonds, government debt, and insured certificates of deposit and savings accounts.

Second, relief associations investing under the limited list have additional authority under Minn. Stat. § 356A.06, subd. 6(g), to invest up to 75 percent of their portfolio in mutual funds as long as the underlying assets of the mutual funds consist of investments authorized under paragraphs (c) through (g) of the expanded list. This statute allows limited list relief associations to invest in certain types of expanded-list investments, through mutual funds, that they otherwise would be prohibited from investing in. Therefore, relief associations investing under the limited list may invest in mutual funds with underlying assets consisting of investment grade bonds, government debt, domestic and developed market corporate stock, real estate investment trusts, and any other investment as authorized and restricted by Minn. Stat. § 356A.06, subds. 7(c-g).

Expanded List Investment Authority

Relief associations meeting the requirements to invest under the expanded list of authorized investment securities have authority under Minn. Stat. § 356A.06, subd. 7(b), to invest in mutual investments, provided that the investments comply with limitations of that subdivision. 

In effect, this means that relief associations investing under the expanded list have authority to invest 100 percent of their portfolio in mutual funds, provided that the underlying assets of the funds are directly-permissible investments under the expanded list. 

Additional Resources

Additional information is provided for in a Statement of Position on Relief Association Investment Authority and in another Statement of Position on Relief Association Investment Policies.

[1] The investment advisor must be registered with the Securities and Exchange Commission in accordance with the Investment Advisors Act of 1940, or registered as an investment advisor in accordance with sections 80A.58, and 80A.60.  See Minn. Stat. § 356A.06, subd. 6.

Published last in the June 2011 Pension Newsletter