Posted by: mcpass (IP Logged) [hide posts from this user] Date: June 7, 2009 12:33PM sct123 Wrote: ------------------------------------------------------- > foundation Typically yes but they stated clearly that the sponsoring company for the PF was doing great and was willing to additionally add money to the fund. For the foundation they specifically stated that they would not donate anything else. Thus, I specifically stated that usually it’s a foundation but due to the above reasons I went for the PF. motorfinger Wrote: ------------------------------------------------------- that;s what i finally chose too, had to rewrite the whole q when i changed my mind.
But the foundation was still receiving donations from the public. A DBP (with contractually bound obligations and some retired bene’s) is always going to have a lower ability to take risk than a perpetual foundation (with no contractual / legal obligations). The only case where it wouldn’t is if the foundation was sponsoring some absolutely essential function, for which it provided almost all of the necessary funding (not specified in the question).
It’s reassurance that Mr. 97% got the same answer as me…
McLeod81 Wrote: ------------------------------------------------------- > But the foundation was still receiving donations > from the public. > > A DBP (with contractually bound obligations and > some retired bene’s) is always going to have a > lower ability to take risk than a perpetual > foundation (with no contractual / legal > obligations). > > > The only case where it wouldn’t is if the > foundation was sponsoring some absolutely > essential function, for which it provided almost > all of the necessary funding (not specified in the > question). Foundation definitely. The benchmark for the pension plan are its liabilities. As the pension fund is fully funded, why would it risk anything by taking risk. Foundation can on the other hand hope for a large return so that it can increase its giving. NC
i have vague memory (…may be wrong) that the corporate sponsor mentioned that , since they are unwilling to put any more into the foundation, so the foundation could use that originally donated amount (in addition to gained income) to sponsor as much gifts as possible…so i thought shortening time horizon for the foundation.
I put the pension plan had higher tolerance and justified my answer. Felt good about it at the time but not 100% sure though of course.
I put Pension had hgh risk ability as well. Foundation had to pay out 5% annually plus expenses and inflation which was another 3% or so. Not only was the Pension fully funded. but its PAYMENTS to retirees were not indexed for inflation. I know rule of thumb is Foundation has higher ability…but i really think this question was to trip people up on basing decisions on huristic biases 
Pension yo! minimum spending requirement, inflation and one time donation automatically reduces the ability. whereas pension payments are not indexed to inflation i think it’s a huge factor combined with profitability and financial condition.
some points: 1. the pension need to preserve the real purchasing power, and 5% + 0.6%? expense+… and should be meet only take risker securities to get that rate. that should reduce ability,right? 2. and pension has all characteristics, fully funded, age… 3. my experience is: when vignette contradict with rule of thumb, like (swecher) we need to refer to vignette. just my two cents. not sure.
Put Pension because the company will put addional money for the FF. and FF need more liquidity as well given.
I just put my full considerations in there which is mcleod’s story + my thoughts about the sponsor’s commitment to the PF. So even if PF is wrong, I expect to take some points away here.
I put that the foundation had more risk tolerance because 1. they don’t mention the surplus/deficit in pension plan 2. pension plan has firm liabilities 3. foundation would be good to pay 5% but not necessary ( they would get taxed) 4. foundation had no limit on spending just income etc etc
What was the deal with the spending rule for the foundation? Geometric versus arithmetic? I need to review that section.
the geometric adds a scale to reduce the affects of increased spending. It was partially a guess for me
Slash Wrote: ------------------------------------------------------- > the geometric adds a scale to reduce the affects > of increased spending. It was partially a guess > for me I said it reduced the volatility of spending or some BS like that. Was basically fishing for points on that one.
geometric should always be less than arithmetic, correct?
I just wrote some stuff, hoping I would get partial credit. Didn’t have a clue, really, and tried to disguise that.
just think about the consequences of not be able to make pension payment and not being able to meet foundation spending. for pension it would be a disaster. for foundation, what else could happen other than paying tax. so my judgment is, no matter what they say, pension always has lower risk tolerance than foundation.
I said the foundation. It’s liability is a function of its asset base so if the assets go down in value, the liability is adjusted accordingly (ie the 5% spending) where as with a pension, the assets can go down in value and the liability will most likely increase in value leading to less risk taking ability. As for Geo, i think it puts more weight on the earlier years than the straight up 3 year smoothing rule.
Did anyone notice that the foundation had only one employee who was a custodian or something (not a portfolio manager). Shouldn’t that limit its ability to assume risk? I recall one of the barriers to investing in alternative strategies (and other risky strategies) being that a sufficient number of skilled employees are needed to research and monitor the opportunities. Maybe I’m reaching here…