The OSA occasionally sees compliance issues when relief associations do not stay within investment portfolio limits set in statute.
A relief association has authority to invest directly, or indirectly, up to five percent of its portfolio in below investment-grade bonds. The five-percent portfolio limit on below-investment-grade bonds includes direct investment in these types of bonds as well as investments through mutual funds or exchange-traded funds. Many relief associations invest in mutual funds that have a small allocation in these types of bonds. The portion of these mutual funds that include below-investment-grade bonds are counted toward the five-percent portfolio limit.
All unrated bonds are also counted toward the five-percent portfolio limit.
Consider an example. A relief association has $15,000 invested in a balanced mutual fund with 40 percent of its holdings allocated to bonds. Of these bonds, 20 percent are below-investment-grade and five percent are unrated. Of this mutual fund’s holdings, $1,500 would count toward the relief association’s total portfolio limit of five percent on below-investment-grade bonds.
Additional information about relief association investment authority is provided in our Statement of Position on this topic.
Published last in the September 2019 Pension Newsletter