A ) Unlike Defined benefit plans, foundations are not required to consider correlation between sponsor’s financial performance and performance of portfolio. B) Like the performance of DB plan, the liquidity needs of foundations fluctuate over time.
A) it depends on the situation, if the foundation is dependent on frequent contributions from the sponsor and the foundation because it has promised certain outlays, you could be in a situation where it might not make sense to have the portfolio correlated to the financial performance of the sponsor. However, if it is a one time large donation with no more donations coming, then it might not matter so much. B) I dont think you can compare the two; a DB has to make outlays and it’s liquidity needs are critical; a foundation can always cut back on gifting or programs, but at the end of the day they could both vary over time. These questions are very Schweseresque - no context, no added detail to make an intelligent choice.
A is correct. B is incorrect. Because foundation has a predetermined spending rule, around 5% and plus inflation. This is relatively stable over time.
It appeared in 2006 actual exam. But i agree with your observations. I think liquidity need of foundation are stable over time as they only have to maintain the min. spending needs. Will you say corr. is more of a concern in case of endowments relative to foundation? As endowments might be required to maintain the operating budget of sponsor…
And the suggested answer is A) Agree B) Agree But i do not ‘‘agree’’ . A is too subjective. B should fefinately be ‘‘disagree’’.