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. In the 1970s, when PTC was a much smaller company and all employees were U.S.- based, its retirement plan consisted solely of a tax-exempt defined contribution (profit-sharing) arrangement. Annual contributions to employees’ accounts under this plan ceased some years ago, when the company’s present tax-exempt defined benefit (pension) program was adopted. As a result, all participants in the profit-sharing plan are older U.S. employees who are also covered by PTC’s newer pension plan. Their profit-sharing interests are “frozen” in the sense that withdrawals are permitted only on their retirement or an earlier termination of PTC employment, and then only in lump-sum form. On review, BAG has discovered that the original investment policy statement for the
profit-sharing plan has not been updated since inception, despite the passage of time and changes in the company’s retirement program. The investment committee intends to adopt a new statement to recognize current circumstances and obligations and has requested your recommendations. It has been suggested that you use an objectives/constraints approach in your presentation.
a. Prepare and justify an appropriate investment policy statement for the PTC profitsharing plan.
b. Compare the elements in your part (a) profit-sharing policy statement to those of the PTC pension plan statement presented in Figure 26A and briefly comment on any major differences between the two. The chairman of the investment committee has proposed that an international securities component be added to the present U.S.-only securities portfolio in which the interests of the profit-sharing plan’s participants are invested. However, another member of the committee is strongly opposed to doing so, basing his objection on the fact that the profit sharing plan has only U.S.-dollar liabilities and all participants are U.S.-based.
c. Critique the opposing committee member’s position on this issue, including in your response specific reference to the grounds he has cited for his objection.