CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction
A portfolio manager is drafting the investment policy statement for a defined benefit pension plan. Which of the following is most likely a legal and regulatory constraint?
Minimum funding rules and limits on holding the sponsor's own shares are legal and regulatory constraints because they come from external law. Benefit payment timing relates to liquidity and horizon, and the tobacco exclusion is an internally chosen preference.
- AMinimum funding rules and limits on holdings of the sponsor's own sharesCorrect
- BThe plan's expected need to pay benefits to retirees over the next decade
- CThe sponsor's preference to avoid investing in tobacco companies
Explanation
Legal and regulatory constraints are external rules such as funding requirements and concentration limits on employer securities. Benefit payments over a decade relate to liquidity and time horizon. Excluding tobacco is a unique circumstance or preference set by the sponsor, not an external rule.
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