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The Better Budget Process Initiative:
Strengthening the Budget Resolution
April 14, 2016
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The purpose of this guideline is to specify the conditions under which an Index- Linked Variable Annuity (ILVA) is
consistent with the definition of a variable annuity and exempt from Model 805 and specify nonforfeiture
requirements consistent with variable annuities.
A number of insurers have developed and are issuing annuity products with credits based on the performance of an
index with caps on returns, participation rates, spreads or margins, or other crediting elements. The current products
include a risk of loss throughout the life of the contract and include limitations on the loss such as a floor or a buffer.
These products are not unitized and do not invest directly in the assets whose performance forms the basis for the
credits. However, unlike traditional non-variable indexed annuities, these annuities may reflect negative index
returns.
There is no established terminology for these annuity products. These products go by several names, including
structured annuities, registered index-linked annuities (RILA), or index-linked variable annuities, among others. This
guideline refers to these products as index-linked variable annuities (ILVA).
The Better Budget Process Initiative:
Strengthening the Budget Resolution
Variable annuities are exempted from the scope of NAIC Model 805, Standard Nonforfeiture Law for Individual
Deferred Annuities, however, NAIC Model 805 does not define the term "variable annuity".
NAIC Model 250, Variable Annuity Model Regulation, defines variable annuities as “contracts that provide for
14,account”
2016Section 7B of NAIC Model
annuity benefits that vary according to the investment experience ofApril
a separate
250 provides that "to the extent that a variable annuity contract provides benefits that do not vary in accordance with
the investment performance of a separate account" the contract shall satisfy the requirements of the NAIC Model 805.
The application of the NAIC Model 250 to a traditional variable annuity with unitized values is straightforward. The
unitized feature provides an automatic linkage between annuity values and the investment experience of a separate
account. Daily values (market values of the separate account assets) are the basis of all the benefits, including
surrender values.
The fact that ILVA products are not unitized means they do not have values determined directly by the market prices
of the underlying assets. Therefore, this guideline sets forth principles and requirements for determining values,
including death benefit, withdrawal amount, annuitization amount or surrender values, such that an ILVA is
considered a
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The Better Budget Process Initiative:
Strengthening the Budget Resolution
Introduction
O
ne of the key elements of the Congressional
Budget Control and Impoundment Act of
1974 (Budget Act) was the provision to
adopt a budget resolution, which sets out
Congressional priorities on the budget and provides
a framework for legislation affecting spending and
revenues. The budget resolution is a concurrent
resolution, which means it is adopted by the
House and Senate but not signed by the President.
It establishes internal rules and procedures for
legislation that impacts spending and revenues. But
currently, the budget resolution mechanism has not
been an effective tool in providing a framework
for legislative action or imposing fiscal discipline.
Congress has repeatedly failed to pass budget
resolutions in recent years, and when it does adopt
a budget resolution it fails to follow through and
enforce the budget.
Change the process for adopting a budget
resolution
1. Make the Budget Committee a leadership
committee
2. Change to a joint budget resolution signed by
the President
3. Divide the budget resolution into two parts:
fiscal goals and an enforceable legislative
framework
4. Implement a biennial budget with off-year
amendments
5. Provide for more informed consideration of
amendments to the budget resolution
Strengthen enforcement of the budget resolution
6. Enforce deficit reduction assumptions in the
budget resolution through reconciliation
7. Make it harder to consider legislation violating
spending or revenue levels in the budget
As part of our Better Budget Process Initiative,
resolution
we have identified several potential changes to
the budget resolution mechanism to make it a Modify the contents of the budget resolution
more meaningful and effective tool. Our proposed 8. Include enforcement provisions in the text of the
budget resolution
options include:
9. Reinforce pay-as-you-go rules
10. Link the debt limit to the budget resolution
11. Include Social Security in the budget resolution
12. Provide for long-term savings targets
13. Limit the use of reserve funds
14. Show all budgetary resources in budget
functions and committee allocations
The Case for Strengthening the Budget Resolution
An effective budget process should provide policymakers with a method to set fiscal goals and a set of
mechanisms that allow for enforcement and implementation of those goals. The Budget Act of 1974 created such a system by requiring Congress to adopt a budget resolution each year before considering any
tax or spending legislation. The Budget Act was enacted in part to provide an overall framework for the
consideration of tax and spending decisions instead of considering legislation on an ad hoc basis without
regard to the impact on aggregate spending, revenue, and deficit levels. The adoption of a budget resolution sets such levels, which are enforced through points of order1 against legislation in violation. A budget resolution may also provide reconciliation instructions for expedited consideration of legislation that
would enact policy changes affecting the deficit called for in the budget resolution. In short, the current
budget process provides for a robust mechanism for setting and enforcing fiscal goals centered on adoption of a budget resolution.
However, Congress has repeatedly failed to pass a budget resolution, falling short of this goal six times
in the last decade. It also appears unlikely that a budget resolution will be adopted this year. Even when
Congress does pass a budget resolution, it often fails to implement or enforce the resolution. Budget
resolutions are increasingly viewed as “aspirational” documents that are disconnected from the rest of the
legislative process, with no expectation that the policies assumed in the resolution will be implemented
or the tax and spending levels will be enforced. For example, the Fiscal Year 2016 resolution adopted last
year assumed savings of $6 trillion over ten years to balance the budget, but there was only action on a
small portion of the savings, and the effect of legislation enacted in 2015 actually increased the deficit by
about $1 trillion over ten years.
In addition, the executive branch has no formal role in adoption of the budget resolution. As a result, in
times of divided government Congress often proceeds with tax and spending legislation based on priorities that are at odds with the administration and therefore are unlikely to be signed into law. This increasingly has resulted in ad-hoc negotiations at the end of the year and budget-busting omnibus legislation that
is put together without the discipline of an overall budgetary framework.
Adopting a budget resolution that does not result in action on the resolution's deficit reduction provisions
and is routinely waived to pass legislation that violates the budget is arguably worse than not passing a
resolution at all, as it undermines credibility of the budget process. Members of Congress are understandably frustrated with the amount of time and political pain devoted to a budget resolution when it appears
to have little bearing on final decisions and outcomes on fiscal policy.
Finally, the text of the budget resolution voted on by Congress focuses on functional totals for categories
of spending that are not enforced and do not fully reflect the cost of all policies within that budget function.
Making the budget resolution more meaningful and relevant would be an important step towards strengthening accountability and discipline in the budget process. Reforms should create a greater incentive for
Congress to adopt a budget resolution, encourage key actors to buy-in, and strengthen procedures to
implement and enforce the budget resolution.
1 A point of order is a parliamentary tool to enforce rules in the House of Representatives and the Senate. Any Member of
the House or Senate can raise a point of order against legislation (or amendments to legislation) for violating a procedural
rule. Some points of order apply to consideration of the entire bill, while others apply to specific provisions in legislation that
violates rules (surgical point of order). If a point of order is sustained against legislation or an amendment, consideration of
the legislation or amendment is blocked.If a surgical point of order is upheld, the specific provision in violation is struck.
2
Strengthening the Budget Resolution
Options for Strengthening the Budget Resolution
In this paper, we put forward fourteen options
that could improve the current budget resolution
mechanism. Among them include options to change
the process for adopting a budget resolution,
strengthen enforcement of the budget resolution,
and modify the contents of the budget resolution.
Many of them could be enacted together, though
they could also be enacted separately. Most of these
proposals envision amendment to the Budget Act,
though some could be achieved through changes in
House and Senate rules as well. While we do not
endorse any of these options as the right choice,
we believe they should all be on the table for
consideration.
The budget resolution is intended in part to set
priorities among the various committees. By
including representatives from the most relevant
committees on the Budget Committee – at a
minimum the Chairs and Ranking Members of
Appropriations, Ways and Means, and Finance
– these members would directly participate in
the decisions regarding relative priorities among
committees. Membership could also be extended
to include Chairs of Agriculture, Education and
Workforce/Health, Education, Labor and Pensions,
and Energy and Commerce Committees as well
as other major committees in years when major
fiscal policy legislation is being considered for
reauthorization.
Change the process for adopting a budget
Including key committee Chairs on the Budget
resolution
1. Make the Budget Committee a leadership
committee
Current process: Membership of the House
and Senate Budget Committees is composed
of rank-and-file members, often more junior
members because the committees are considered
less prestigious than committees with legislative
authority. Although there are seats on the House
Budget Committee reserved for representatives
of leadership and the Ways and Means and
Appropriations Committees, 22 of the 36 members
on the House Budget Committee are in their first
three terms in Congress.
Problem: Although the budget resolution is
intended to be the framework to guide legislation
on tax and spending policies, it is developed with
little formal input or buy-in from the Committee
Chairs who are responsible for tax and spending
legislation. The seats reserved for the Appropriations
and Ways and Means Committee tend to go to
more junior members of those committees because
it is considered a less prestigious assignment than
appointment to an Appropriations or Ways and
Means subcommittee.
Proposal: Include representatives of leadership
and Chairs and Ranking Minority Members of
all committees with significant spending or tax
legislation within their jurisdiction on the Budget
Committees.
3
Strengthening the Budget Resolution
Committee will give them a role in setting committee
allocations and potential reconciliation instructions
that are realistic and consistent with committee
plans and give them greater buy-in to the decisions
in the budget resolution. Likewise, including a
senior representative of leadership on the Budget
Committee will give leadership more buy-in to
the budget resolution, which is critical to passage
and enforcement of a budget resolution. Finally,
including a senior representative of leadership and
chairs of key committees on the Budget Committee
will increase the committee’s stature and send a
message that the budget produced by the Budget
Committee is a serious document that will be used
to guide legislative actions on tax and spending
policies.
2. Change to a joint budget resolution signed by
the President
Current practice: The budget resolution is a
concurrent resolution, which means it is adopted
by the House and Senate but not signed by the
President. Although it sets Congressional rules and
procedures, it does not have the force of law.
Problem: Currently, the President’s involvement in
the budget-writing process is advisory at best. The
White House proposes its own budget (which is of
a very different nature than the budget resolution) at
the beginning of the year, but this budget functions
more as a set of suggestions than anything else. The
President has absolutely no input when it comes to
Agreement on a joint budget resolution would
allow the appropriations process to move forward
with an agreement on the top line for spending,
Indeed, the first time the President has any formal providing more opportunity for consideration of
role in the budget process is when legislation individual issues in the appropriations bills through
following up on the budget resolution – typically the regular process.
appropriations bills but sometimes legislation that
results from reconciliation instructions – comes to Requiring that the President sign a budget resolution
the President’s desk for a signature or veto late in could delay adoption of a budget resolution by
the year.
requiring additional time for negotiations with the
administration. The process could be expedited
Because the President has veto power over by the creation of a joint budget committee that
individual tax and spending bills but no veto power produces a single budget resolution for consideration
over the aggregate levels outlined in the budget by the House and Senate. In addition, there may be
resolution, a Congress that follows through with a need for a fallback mechanism setting spending
its budget resolution is likely to pass policies the and revenue levels based on the joint resolution
President opposes, requiring ad hoc negotiations for purposes of internal enforcement to allow
revising spending and revenue levels at the end appropriations and other budget-related legislation
of the year. These end-of-year budget deals rarely to move forward if the President vetoes the joint
look at the impact of legislation on the entire budget budget resolution.
outlook as the budget resolution does, often leading
to deficits much higher than called for in the budget Changing the budget resolution to a joint resolution
resolution.
signed by the President would also make it possible
for the budget resolution to establish statutory
In addition, the concurrent resolution can only changes, including adjusting discretionary
be enforced through points of order prohibiting spending caps, increasing the statutory debt limit,
consideration of legislation that violates the budget and setting up an enforcement mechanism such as
resolution and other internal procedures and cannot sequestration that would take effect if Congress
establish statutory enforcement mechanisms. It is fails to meet the specified deficit reduction targets.
therefore often viewed as “non-binding” and not This improvement will cause lawmakers to take
the budget resolution more seriously and consider
taken as seriously as a law.
whether they are prepared to abide by the limits in
Proposal: Rather than a concurrent resolution the budget, especially if they were accompanied by
agreed to by both chambers of Congress, there statutory enforcement mechanisms.
could be a joint budget resolution agreed to by both
3. Divide the budget resolution into two parts: .fiscal
Congress and the President.
goals and an enforceable legislative framework
A joint budget resolution requiring a presidential
signature would bring the President into decisions Current practice: The budget resolution sets
about discretionary spending levels, other tax and out goals for fiscal policy over the next ten years
spending levels, and deficit reduction targets early along with spending and revenue levels necessary
in the process. This would lead to a more desirable to achieve those goals. The spending and revenue
outcome where negotiations occur at the beginning levels in the budget resolution are enforced by points
of the year before Congress moves forward with the of order that prohibit consideration of legislation
legislative process, rather than at the end of the year that would cause those levels to be breeched.
after legislation has already been written.
The resolution may also include reconciliation
instructions providing for action on legislation that
Having these negotiations early in the process changes laws regarding mandatory spending and
will allow discussions regarding the top line for revenues.
discretionary appropriations and other legislation
to occur within the context of an overall framework Problem: Recent budget resolutions have become
that considers the impact of individual decisions on viewed as “aspirational” documents expressing
the overall bottom-line. Resolving disagreements support for achieving a balanced budget within the
over the aggregate levels of spending and revenue ten-year window while relying on large, mostly
before filling in the details would be more efficient. unspecified, spending cuts that Congress has no
the allocation or levels of spending and revenue in
the budget resolution.
4
Strengthening the Budget Resolution
intention of enacting to achieve that goal. This leads
to a disconnect between the spending and revenue
levels in the budget that are supposed to be enforced
and the reality of the legislative agenda. As a result,
the budget resolution is not taken seriously and the
Budget Act is routinely waived for tax and spending
legislation. If the spending and revenue levels in
the budget resolution are viewed as aspirational
goals unrelated to the actual legislative agenda,
the budget resolution will not provide meaningful
budget discipline.
Proposal: Divide the budget resolution into
two separate pieces for goals and a budgetary
framework. This way, Congress can continue to lay
out its fiscal and budgetary goals while also putting
forward an enforceable framework for legislation
that will be considered during the rest of the year.
The “goals” component would set out the roadmap
for the budget over the 10-year window and possibly
beyond while the “budgetary framework” would
provide for concrete steps toward achieving fiscal
goals. The two components could be combined in
a single resolution or considered as two separate
resolutions. If the budget resolution is changed to
be a joint resolution as suggested above, Congress
could pass a concurrent resolution outlining broad
goals to stake out the Congressional position on
fiscal policy as a counter to the President's budget
and a joint resolution signed by the President to
govern actual legislative actions.
The resolution setting out fiscal goals could include
overall targets for revenues, spending totals and
priorities, deficits, and debt levels over the next
ten and twenty years. This resolution could also
call for consideration of major policy changes
that may not be ready for immediate action. The
enforceable budget framework would set the
discretionary spending top line for the upcoming
fiscal year, committee allocations for mandatory
spending and revenue levels for the next five
years, and reconciliation instructions that make
a down payment on deficit reduction necessary
to achieve long-term fiscal goals. The fiscal goals
resolution could set out more ambitious long-term
goals, while the budgetary framework would focus
on the concrete steps that can be taken to move
toward that goal. The fiscal goals resolution would
address the desire of Members of Congress to show
support for long-run fiscal policy goals that may be
unlikely to be achieved through enacted legislation
in the upcoming year, while the budget framework
5
Strengthening the Budget Resolution
resolution would set realistic targets for tax and
spending legislation that can be enforced.
4. Implement a biennial budget with off-year
amendments
Current process: Congress is supposed to pass a
new budget resolution every year, though it often
fails to do so.
Problem: Requiring adoption of a budget resolution
every year results in Congress having essentially the
same debate twice each Congress (each Congress
lasting 2 years). Since the partisan composition of
Congress is unchanged between the first and second
session of Congress, there is little to no reason to
expect a different outcome on major macro-budget
priorities such as the appropriate levels of spending,
revenues, and deficits. The budget resolution in the
second session of Congress is often much more
difficult to pass than the first since it must be passed
during an election year. Indeed, Congress has failed
to pass complete budget resolutions in seven of
the last nine election years. Work to develop two
resolutions each Congress delays consideration of
other important matters including actual legislation.
Proposal: Adopt biennial budgeting, where budgets
are passed every other year.
Under this proposal, Congress would pass a
comprehensive budget resolution setting all budget
totals and other budget policies in the first year of
the two-year Congressional cycle. There could be a
formalized process for expedited consideration of
amendments to the budget resolution in the second
year to accommodate any new legislative priorities,
achieve further deficit reduction, or otherwise
address changed circumstances without having
to rehash major fiscal policy issues settled in the
budget resolution adopted in the prior year.
A biennial budget could be accompanied by biennial
appropriations with a process for a supplemental
appropriations bill in the second fiscal year, adjusting
priorities consistent with the amended budget
resolution. Alternatively, annual appropriations
could be retained, with Congress being able to begin
work on individual appropriations bills earlier in
the second year of the cycle.
5. Provide for more informed consideration of
amendments to the budget resolution
Current practice: The Budget Act limits debate on
the budget resolution in the Senate to fifty hours.
However, the Budget Act allows an unlimited
number of amendments to be filed, even after the
fifty hours for debate time has expired.
Problem: The ability to offer amendments after
the time for debate has expired has led to a practice
known as “vote-a-rama” whereby numerous
amendments are offered and voted on at the end of
the process without any debate or time to review
the amendments. As a result, Senators vote on and
often approve amendments to the budget resolution
without a full understanding of the implications of
the amendment.
provided for a reduction in mandatory spending of
$15 trillion that was not allocated to any committees
in the Senate but rather included as “unassigned”
savings.
Proposal: Amend the Budget Act to require
reconciliation instructions for any changes in
mandatory spending or revenues assumed in the
resolution and prohibit “unassigned” spending
reductions.
Providing for action on legislation that implements
specific policy changes necessary to achieve all
of the deficit reduction assumed in the budget
resolution would increase the credibility of the
deficit reduction assumptions in the budget
resolution. Requiring all spending cuts assumed in
the budget resolution to be assigned to committees,
backed up by reconciliation instructions, would
Proposal: Institute a filing deadline requirement also discourage the reliance on assumptions of large
on amendments offered to the budget resolution unspecified or unrealistic savings. If the budget
and provide for a one day layover of amendments resolution were divided into separate fiscal goals and
before votes. For example, former Senator Robert legislative framework, the legislative framework
Byrd (D-WV) proposed requiring that first degree would have reconciliation instructions to provide
amendments be filed at the desk prior to the 10th for legislative action to implement savings assumed
hour of debate and second degree amendments in the framework while the fiscal goals would not
be filed prior to the 20th hour of debate and that include reconciliation instructions.
consideration of the budget resolution be set aside
for one calendar day prior to the 40th hour of debate 7. Make it harder to consider legislation violating
to allow amendments to be printed in the record and spending or revenue levels in the budget resolution
reviewed before they come to a vote in the Senate.
Current practice: The Budget Act establishes
Strengthen enforcement of the budget points of order against legislation that increases
resolution
spending above a committee’s allocation under
the budget resolution or reduces revenues below
6. En/orce de.ficit reduction assumptions in the the revenue level in the budget resolution. Budget
budget resolution through reconciliation
resolutions often include “reserve funds” allowing
committee spending and revenue allocations to
Current practice: The budget resolution may be adjusted prior to consideration of legislation
include reconciliation instructions that require meeting certain criteria, generally including deficit
authorizing committees to report legislation neutrality, to protect that legislation from being
changing mandatory spending or revenues within subject to a point of order for violating budget
their jurisdiction by a specified amount. The intent allocations. These points of order can be waived in
is to “reconcile” spending and revenue levels in the rule for floor consideration in the House. Major
current law with the levels provided in the budget Budget Act points of order can be waived by 60
resolution. The budget resolution conference report votes in the Senate; other points of order established
also provides for authorizing committee allocations in law and through rulemaking can be waived by a
of spending and revenues for legislation reported simple majority vote.
by the committee.
Problem: The House routinely waives budget
Problem: Recent budget resolutions have assumed points of order as part of the rules under which
large, unspecified savings without reconciliation legislation is considered on the floor. These rules
instructions directing committees to report often waive all points of order against legislation
legislation achieving those savings. The Fiscal without much debate or even awareness that budget
Year 2016 congressional budget resolution report points of order are waived. According to the House
6
Strengthening the Budget Resolution
Rules Committee Survey of Activities, the Budget
Act was waived a total of 60 times during the 113th
Congress. Seventeen of the waivers were to provide
new budget authority in excess of a committee’s
spending allocation. Another 14 waivers were to
allow total spending to be above the level in the
resolution or reduce revenues below the level in the
resolution.
In the Senate, Budget Act waivers are often included
in global waivers of all points of order, which avoid
debate on the merits of any Budget Act waivers.
The sixty vote threshold to waive the Budget Act
in the Senate is currently less significant because
the need for 60 votes to obtain cloture to proceed to
any legislation is common. Waiving the Budget Act
is viewed as yet another 60-vote procedural hurdle
and not a substantive vote on whether legislation
violating the budget should be considered. Often,
Budget Act points of order are not raised because
legislation has already received 60 votes on cloture,
and it is assumed that there would be the same
number of votes to waive the Budget Act.
Budget Act waivers in the rule for consideration of
legislation.
Strengthening enforcement of Budget Act points
of order in the Senate would entail providing for
an automatic vote on waiving Budget Act points of
order identified by the Senate Budget Committee
and prohibiting global waivers of Budget Act
violations. An even stronger step to strengthen
enforcement of the budget resolution would be to
require 67 votes in the Senate to waive a Budget
Act point of order for violating spending or revenue
levels in the budget resolution.
It is important to remember that these procedures
would only apply to legislation that violates the
tax and spending levels in the budget resolution,
making such legislation more difficult to pass
than legislation that complies with the budget.
Hopefully, this would help to make the budget
resolution more meaningful and create an incentive
to rely on more realistic assumptions in the budget
resolution to accommodate likely legislation in the
budget framework so as to avoid the need to waive
Proposal: Make it harder to waive Budget Act the Budget Act.
points of order for violating spending or revenue
levels in the budget resolution.
Modify the contents of the budget resolution
This would involve a number of specific changes.
First, it would mean amending the Budget Act
and/or House and Senate rules to require the
Budget Committees to publish a report in the
Congressional Record at least one day prior to floor
consideration of the legislation certifying whether
or not legislation affecting spending or revenues
violates budget allocations so Members are aware
of Budget Act violations. The Budget Committees
already perform this review of legislation and
provide information to the parliamentarian to rule
on points of order, but publishing a statement about
Budget Act violations in the Congressional Record
would bring greater transparency to the process and
make Members of Congress aware of Budget Act
violations before consideration of legislation.
In addition, it would mean requiring a separate
vote to waive a budget point of order for violating
budget resolution allocations. This could operate
similarly to the unfunded mandates rule or
emergency spending rule in Statutory PAYGO,
which provide for a separate vote on whether to
proceed with legislation notwithstanding the point
of order. Alternatively, it could be accomplished
by providing for privileged amendments striking
7
Strengthening the Budget Resolution
8. Include enforcement provisions in the text of
the budget resolution
Current Practice: The text of the budget resolution
sets recommended spending levels divided among
19 budget functions (for example, function 050
for defense and function 400 for transportation).
These functional levels are non-binding and
have no connection to budget enforcement. The
budget is enforced through committee allocations
for spending and revenues that are set out in the
joint statement of managers accompanying the
budget resolution. The spending allocations for
committees are known as the 302(a) allocations.
The Appropriations Committee establishes separate
sub-allocations for Appropriations subcommittees
that are known as 302(b) allocations.
Problem: The focus on functional totals in the
budget resolution creates a misleading impression
about how spending would be divided as a result of
the budget resolution. While the spending totals in
the budget resolution appear to show how spending
is divided among various national priorities, it is
the committee allocations that actually determine
where spending will be increased or decreased as
a result of the budget resolution. The committee
allocations, which are the aspect of the budget that
is actually enforced, are not included in the text
of the resolution subject to a debate and vote. As
a result, the debate and decisions regarding budget
priorities reflected in consideration of the budget
resolution often have little bearing on how spending
is actually divided in the legislative process.
legislation increasing mandatory spending or
reducing revenues without corresponding offsets or
assuming a net increase in mandatory spending or
reduction in revenues that is not offset. Require a
budget resolution to include provisions enforcing
compliance with pay-as-you-go requirements,
including a prohibition against excluding costs
from the PAYGO scorecard.
Proposal: The spending and revenue allocations
for all committees should be included in the text
of the budget resolution voted on by the House and
Senate instead of including them in a joint statement
of managers or the conference report. Ideally,
the budget resolution would include the 302(b)
allocations for Appropriations Subcommittees, but
even including just the 302(a) allocations for all
committees in the resolution would be a positive
step. This would increase transparency of the
budget resolution and focus more attention on the
budget limits that will be enforced as a result of
adoption of the budget resolution.
10. Link the debt limit to the budget resolution
9. Reinforce pay-as-you-go rules
Current Practice: The Statutory Pay-As-You-Go
Act requires the net effect of all legislation enacted
during a session of Congress affecting mandatory
spending or revenues to not increase the deficit
over the five- and ten-year budget window. There
is a similar provision in Senate rules (established
by a budget resolution) prohibiting consideration
of legislation affecting mandatory spending or
revenues that increases the deficit over the five- and
ten-year budget window. The Budget Act provides
that a budget resolution may set out procedures
to effectuate pay-as-you-go in the House and also
provides that legislation which complies with payas-you-go requirements is not subject to points of
order for violating spending or revenue allocations
in the budget resolution.
Current practice: The budget resolution sets forth
recommended levels of debt subject to limit, but
those recommendations do not affect the actual
statutory limit on debt.
Problem: There is no connection between the
spending and revenue decisions made in the budget
resolution that result in debt and the statutory
limit on debt. Members may vote for a budget that
increases debt or policies that increase the debt
beyond the budget resolution and vote against
legislation increasing the debt limit necessary to
cover debts incurred as a result of those prior policy
decisions.
Proposal: Amend the Budget Act to provide for
a separate bill increasing the debt limit by the
amount of increased debt assumed in the budget
resolution for the upcoming fiscal year either as a
spin-off bill deemed to pass the House and Senate
upon adoption of a budget resolution or a separate
bill automatically voted on upon passage of the
budget resolution conference report. Also amend
the Budget Act or House and Senate rules to require
any legislation that violates allocations in budget
resolution to include an increase in the debt limit
equal to the amount of the violation.
While this proposal is usually discussed as a way
to facilitate action on the debt limit, it also has
potential benefits for the budget process in several
ways. First, it creates an incentive for Congressional
leaders to expend the political capital necessary to
pass a budget resolution in order to avoid the need
to pass separate legislation increasing the debt limit,
which is considered to be a difficult vote.
Problem: The pay-as-you-go principle does not
apply to the budget resolution, so it is possible
for a budget resolution to provide for legislation
increasing mandatory spending or reducing
revenues without providing for corresponding
offsets. Congress also routinely evades the existing
pay-as-you-go requirements by including language Linking an increase in the debt limit to the debt
in legislation excluding the costs from the PAYGO levels in the budget resolution would also create
scorecard.
an incentive for policymakers to ensure that the
actual increase in debt does not exceed the increase
Proposal: Apply pay-as-you-go requirements in the debt limit approved in conjunction with
to the budget resolution by prohibiting a budget the budget resolution. There will be an incentive
resolution from providing for consideration of to make realistic economic assumptions in the
8
Strengthening the Budget Resolution
budget resolution for purposes of projecting debt
levels. It also provides consequences for passing
laws violating the budget or failing to enact deficit
reduction legislation assumed in the budget. If
the budget resolution relies on overly optimistic
economic assumptions or Congress fails to enforce
the budget resolution, then the debt will exceed the
limit set by passage of the budget resolution and
require a separate vote to raise the debt limit further.
It still may be necessary to pass a separate debt
limit increase in response to unforeseen events, but
adopting a budget with realistic assumptions and
following through on enforcing the budget would
significantly reduce the potential need for separate
legislation increasing the debt.
11. Include Social Security in the budget resolution
Current process: Social Security revenues and
outlays are excluded from the spending and revenue
totals in the budget resolution. Reconciliation
instructions cannot provide for changes to Social
Security. The budget resolution does set out Social
Security revenues and outlays for purposes of
enforcing Senate rules prohibiting legislation
increasing Social Security outlays or reducing
Social Security revenues in a manner that harms
solvency.
Problem: Social Security represents a major
component of our fiscal position and budget. Social
Security is the largest government program and the
payroll taxes dedicated to the program are second
largest revenue source. Spending and revenues
for Social Security represent roughly one-quarter
of total federal spending and revenues. Excluding
Social Security from the budget resolution provides
an incomplete picture of federal fiscal policy. Social
Security was excluded from the budget when the
Social Security system was running a surplus and its
inclusion in the budget resolution masked the size
of the deficit in the rest of the budget, but the Social
Security system is currently paying more in benefits
than it collects in revenues. As a result, excluding
Social Security from the budget masks the true size
of the unified budget deficit. In addition, excluding
Social Security from the budget resolution prevents
the budget resolution from providing for any Social
Security changes, which means reconciliation
legislation cannot include any changes increasing
or decreasing Social Security revenues or benefits,
including cross-cutting policies which apply to
Social Security along with other parts of the budget
or even increase revenue or benefits.
9
Strengthening the Budget Resolution
Proposal: Include Social Security revenues and
outlays in budget resolution totals as well as
functional totals and committee allocations. This
will provide both a more complete presentation of
the budget and apply regular budget enforcement
rules to Social Security. This change should be
accompanied by language clarifying that increases
in Social Security revenues and reductions in
Social Security outlays should not be counted as
an offset for budget enforcement purposes to avoid
double counting savings for solvency of Social
Security trust fund and as an offset for increased
spending outside of Social Security. It would also
allow reconciliation instructions to assume changes
in Social Security and permit changes to Social
Security to be included in reconciliation.
12. Provide for long-term savings targets
Current Practice: Reconciliation instructions
require committees to achieve savings over the
budget window covered by the budget resolution,
usually ten years.
Problem: Reconciliation is a powerful tool to put
the U.S. fiscal house in order. However, it currently
has limited capacity to encourage policymakers to
address the county's largest fiscal challenges, which
are over the long run. By focusing reconciliation
instructions on short- and medium-term savings,
budget resolutions create an incentive for
committees to meet instructions through policies
that produce up front savings that don’t grow over
time and in some cases produce no savings beyond
the ten-year window.
Proposal: Amend the Budget Act to allow budget
resolutions to include reconciliation instructions
with a second-decade deficit reduction target.
Reconciliation legislation reported with a seconddecade savings target would automatically be subject
to a second-decade estimate by the Congressional
Budget Office. Because long-term estimates are
subject to more uncertainty, the instructions could
set savings targets as a percentage of Gross Domestic
Product and/or ranges rather than an exact dollar
amount. Allowing the budget resolution to set an
aggregate savings goal in the second decade or
another period of time beyond the ten-year budget
window could provide an incentive for committees
to enact structural reforms that produce savings that
grow over time. This reform could be helpful even
if the second decade instructions are only advisory
and not binding on committees.
13. Limit the use of reserve funds
Current process: Reserve funds are included in the
budget resolution to give the Chairman of the Budget
Committee authority to adjust budget allocations for
legislation meeting certain conditions. Generally,
this is for legislation that is deficit neutral with costs
in one area that are offset by savings elsewhere in the
budget. They are used by the Budget Committee to
provide useful flexibility in considering legislation
with budgetary effects that are uncertain when
the budget is put together. They also ensure that
legislation increasing spending is only allowed to
move forward if it is accompanied by offsets.
Problem: While reserve funds provide useful
flexibility for legislation with uncertain budgetary
effects, there has been a proliferation of floor
amendments creating reserve funds for legislation
with little or no budgetary impact. The Fiscal Year
2016 budget resolution conference report contained
120 reserve funds, 70 of which were added by Senate
floor amendments. These amendments essentially
use the creation of a reserve fund for certain
legislation as a “Sense of Congress” in support of
that legislation rather than the intended purpose of
accommodating budgetary effects of legislation.
The proliferation of amendments creating reserve
funds is a major contributor to "vote-a-rama," or
numerous votes at the end of consideration of the
budget resolution in the Senate—a source of great
frustration with the budget process. The approval of
amendments creating reserve funds for various bills
unlikely to be considered also creates a misleading
perception of what the budget can accomplish,
further undermining the credibility of the budget
resolution.
Proposal: Preserve the ability to include reserve
funds to provide flexibility in budget enforcement,
but limit use of reserve funds as de facto “Sense of
Congress” amendments by limiting or prohibiting
floor amendments creating reserve funds, possibly
10 Strengthening the Budget Resolution
by requiring amendment sponsors to demonstrate
that a proposed reserve fund would apply to
legislation with budgetary effects.
14. Show all budgetary resources in budget
functions and committee allocations
Current process: The text of the budget resolution
sets out recommended levels of spending for each
function. The spending levels in the resolution
incorporate offsetting collections and receipts,
which are treated as negative spending. The budget
resolution report includes a list of tax expenditures
by function, but the budget resolution itself does not
include recommended levels for tax expenditures
by function.
Problem: Only showing net spending in each
function provides an incomplete picture of the
budgetary resources devoted to each function and
masks the true size of government. In many budget
functions, gross spending totals for programs within
that function are partially offset by user fees or other
collections credited to those programs. The budget
resolution does not show federal support for various
budget functions through tax expenditures, many of
which function similar to spending programs.
Proposal: Include recommended levels for gross
spending, offsetting collections and receipts, and
tax expenditure levels in the functional totals
of the budget resolution to show the full federal
commitment to the purpose of each budget function.
Provide allocations for gross spending and offsetting
collections and receipts for each committee.
Establish an enforceable allocation for total tax
expenditures similar to allocations for mandatory
spending, with reconciliation instructions requiring
a reduction in tax expenditures if the allocation is
lower than current law. Showing gross spending and
tax expenditures for each budget function would
represent a step toward portfolio budgeting to have
a full debate on the amount of budgetary resources
devoted to various policy goals.
Conclusion
The Budget Act provides lawmakers with several
tools to establish fiscal priorities and enforce fiscal
discipline, but these tools have become less effective
over time. Reform of the budget process should
begin by examining why the budget resolution is
not as effective in enforcing budget discipline as
it could be and by considering reforms to make it
more effective.
Ultimately, the effectiveness of a budget resolution
depends on the will of Members of Congress to
follow through and comply with the limits in the
budget resolution. However, the reforms set out in
this paper could make the budget resolution a more
meaningful document that provides a framework
that is followed in the legislative process.
About the Better Budget Process Initiative
There is a growing consensus that the budget process is broken. The Better Budget Process Initiative will put
forward specific options to reform and improve the budget process in a wide range of areas, including increasing
focus on the long-term fiscal outlook, improving the process for dealing with the debt limit, strengthening statutory
budget enforcement, revising the content and structure of the budget resolution, moving to biennial budgeting, and
addressing treatment of tax expenditures in the budget process.
Other papers:
The Better Budget Process Initiative: Strengthening Statutory Budget Enforcement
Improving the Debt Limit
Improving Focus on the Long-Term
The Budget Act at 40: Time for a Tune Up?
11 Strengthening the Budget Resolution
Your Investment Policy Statement
Introduction
Your Investment Policy Statement is a detailed investment plan customized to your personal circumstances.
The purpose of this document is to assist you and your financial advisor in effectively designing, monitoring
and evaluating this investment portfolio.
Developing a long-term investment policy and putting it in writing enables you and your financial advisor to
protect your portfolio from spur-of-the-moment revisions that may result from emotional reactions to
short-term market events.
Steps to Establish Your Investment Policy Statement
1. Establish your portfolio objectives
i. Goal(s)
ii. Income requirements
iii. Liquidity requirements
iv. Time horizon
2. Determine your tolerance for risk
3. Determine your recommended investment strategy
4. Implement and maintain your portfolio
Based on your responses in your Investor Profile Questionnaire, we have prepared the following
recommendations for the management of your assets in this portfolio. Should your circumstances or goals
change, your Investment Policy Statement can be updated to reflect your new requirements.
Page 1 of 20
Your Portfolio Objectives
The following considerations for designing your portfolio are based on the information provided as of
December 08, 2017.
Goal(s)
• Retirement
Income Requirements
You currently require a 0 - 2 percent annual withdrawal from this portfolio to fund your day-to-day expenses.
Liquidity Requirements
You do not require access to readily available cash from this portfolio for a major purchase or life event in
the foreseeable future.
Time Horizon
Based on the information you provided on 10/31/2017, your investment time horizon is 20 years or more.
Your investment time horizon—or the length of time you plan to keep the majority of your funds invested in
this portfolio—can have a significant influence on the recommended structure of your portfolio. The graph
below shows the historical range of returns for the Standard & Poor’s 500 Index for various time periods
since 1972. It demonstrates that as investment periods are lengthened, the variability in average returns is
reduced, as is the potential for negative returns.
The minimum expected investment period should be at least five years for any portfolio containing equity
securities. We suggest that any portfolio with less than a five-year time horizon should be comprised
predominantly of cash and shorter-term fixed income securities.
If your goals or circumstances change in the future, your portfolio can be restructured to reflect your
revised investment time horizon.
Page 2 of 20
Your Tolerance for Risk
Investment theory and historical data suggests that, over long periods of time, there is a relationship between
the investment risk assumed and level of return that can be expected. Generally, an investor must accept
higher risk to achieve higher returns over time. A fundamental step in developing your investment policy is
to determine the amount of risk you are willing to tolerate. Your comfort level with investment risk
influences how this portfolio will be invested.
To achieve long-term investment performance that is most likely to meet your objectives, it is important to
understand that your portfolio may experience declines in value at certain points along the way. Further, in a
severe market decline, the potential recovery could take a lengthy period of time.
This portfolio proposal has been constructed from the information you have provided us, factoring in your
risk tolerance, while considering your stated income and liquidity requirements, if any.
Based on your discussion with your financial advisor and your responses to the Investor Profile
Questionnaire, risk tolerance for this portfolio has been categorized as “Moderate”. Your portfolio
value would have to decline by more than 30 percent in a continuous time period before you would
lose confidence in your investment strategy and you would consider altering your portfolio asset
mix. Historically, hypothetical portfolios based on index data with the asset mix recommended for
this portfolio have experienced annual returns ranging from -25 to 32 percent from 1972 through
2016.* However, there is no guarantee that future results in this portfolio will be within this
historical range.
* Sources: CRSP, MSCI EAFE Index, NAREIT Composite Index, March 2017.
Page 3 of 20
Your Recommended Investment Strategy
Asset Class Allocation
Your recommended investment strategy considers this portfolio as a whole, without analyzing individual
holdings in isolation. It specifies an asset allocation—or the appropriate mix and percentage of asset classes
for your portfolio—that balances your income and liquidity requirements, investment time horizon and risk
tolerance.
Your recommended strategy is a portfolio designed with the objective of matching your stated personal
circumstances. The following combination of asset classes and target weightings seeks to maximize the
growth potential of your portfolio at an agreed upon level of risk.
Asset Classes and Target Allocations
International and Emerging markets involve additional risks, including, but not limited to, currency
fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. As
a result, they may not be suitable investment options for everyone.
Notes: The pie chart above represents an asset class allocation generated by your answers to the Investor
Profile Questionnaire or personal input determined by you and your financial advisor. It is meant to provide
a general idea of how this portfolio would be allocated among different asset classes; it does not represent
actual securities. For more information regarding actual funds used in this portfolio, please consult your
financial advisor to obtain the funds’ prospectuses. Actual performance results may vary from the historical
performance of these asset classes. Generally, this portfolio’s performance would reflect the performance of
these asset classes less management and transaction fees without taking into consideration the impact of cash
flows. Target weightings reflect the target allocation policy weightings as of the date of this Investment Policy
Statement. Allocations may not add to total due to rounding of asset class allocation percentages.
Page 4 of 20
Your Recommended Investment Strategy
This section outlines the historical range of returns for this portfolio.
Historical Returns
Because the average variability of market fluctuations tends to narrow significantly over time, remaining
focused on your long-term investment strategy is fundamental to achieving your goals. Investors who stay
invested through short-term market fluctuations are often rewarded with higher returns over the long-term.
Based on historical data from the various asset classes in this portfolio:
A hypothetical portfolio with your specified asset mix experienced an average compounded
annual return of 10 percent before fees and expenses for the period of 1972 to 2016.*
Downside Potential
Understanding the downside potential of this portfolio can help you avoid reacting to short-term investment
cycles and stay focused on long-term investing.
Based on historical returns from 1972 to 2016, the hypothetical downside potential of this portfolio
before fees and expenses is:*
-25 percent maximum loss in a single year
1 percent minimum gain in a five-year period (compounded annually)
4 percent minimum gain in a ten-year period (compounded annually)
Upside Potential
While it is important to be prepared for this portfolio’s potential downside, you also need to understand that
there will be short-term periods during which your portfolio will outperform your expectations.
Based on historical returns from 1972 to 2016, the hypothetical upside potential of this portfolio
before fees and expenses is:*
32 percent maximum gain in a single year
21 percent maximum gain in a five-year period (compounded annually)
18 percent maximum gain in a ten-year period (compounded annually)
It is important to recognize that this portfolio will be invested in a variety of securities; the actual weighting
of these securities can and will vary. Future returns of the individual securities and the overall portfolio can
be expected to vary from the historical returns referenced above. Indexes do not include any fees or expenses
that may be included when investing in specific securities. The actual returns of a specific portfolio may be
more or less than the index returns shown above. This Investment Policy Statement should not be construed
as offering any guarantee of performance results.
Page 5 of 20
Your Recommended Investment Strategy
*Below is a list of indexes used to represent each of the asset classes modeled in this portfolio.
Asset Class
Cash & Cash Alternatives
Short Term Fixed Income
U.S. Short Government Bonds
U.S. Short Investment Grade Bonds
U.S. Government Bonds
U.S. Investment Grade Bonds
U.S. Long Government Bonds
U.S. Long Credit Bonds
Global Short Bonds
Global Bonds
Municipal Bonds
U.S. High-Yield Bonds
U.S. Inflation-Protected Bonds
U.S. Stocks
U.S. Large Value Stocks
U.S. Large Neutral Stocks
U.S. Large Growth Stocks
U.S. Small Value Stocks
U.S. Small Neutral Stocks
U.S. Small Growth Stocks
U.S. Microcap Stocks
International Stocks (includes Int'l
Developed)
International Large Value Stocks
International Large Neutral Stocks
Disclosure
IA SBBI US 30 Day TBill TR USD (1972-1977). BofAML US
Treasury Bill 3 Mon TR USD (1978-2016).
50% IA SBBI US 1 Yr Trsy Const Mat and 50% IA SBBI US IT
Govt. (1972-1984), 50% IA SBBI US 1 Yr Trsy Const Mat and
50% Citi WGBI 1-5 Years (hdg) (1985-1986), 50% BofA ML
1-3 yr US Corp/Govt Index, and 50% Citi WGBI 1-5 Years
(hdg) (1986-2016)
IA SBBI US 1 Yr Trsy Const Mat TR USD (1972-1977).
BofAML US Treasuries 1-3 Yr TR USD (1978-1982). BofAML
US Trsy/Agcs AAA 1-3 Yr TR USD (1983-2016).
IA SBBI US 1 Yr Trsy Const Mat TR USD (1972-1986).
BofAML US Corp&Govt 1-3 Yr TR USD (1987-2016).
IA SBBI US IT Govt TR USD (1972-1972). Barclays US
Government TR USD (1973-2016)
IA SBBI US IT Govt TR USD (1972-1972). Barclays US
Govt/Credit TR USD (1973-1975). Barclays US Agg Bond TR
USD (1976-2016).
IA SBBI US LT Govt TR USD (1972-1972). Barclays US
Government Long TR USD (1973-2016).
IA SBBI US LT Corp TR USD (1972-1972). Barclays US Long
Credit TR USD (1973-2016).
IA SBBI US IT Govt TR USD (1972-1984). Citi WGBI 1-5 Yr
Hdg USD (1985-2016).
IA SBBI US IT Govt TR USD (1972-1984). Citi WGBI Hdg USD
(1985-2016)
IA SBBI US LT Corp TR USD (1972-1980). Barclays Municipal
TR USD (1981-2016).
IA Barclays US HY Corporate Bonds (1972-1983). Barclays US
Corporate High Yield TR USD (1984-2016).
IA SBBI US LT Govt TR USD (1972-1997). Barclays US
Treasury US TIPS TR USD (1998-2016).
CRSP Deciles 1-10 Index (1972-1978). Russell 3000 TR USD
(1979-2016).
Fama/French US Large Value Index (ex utilities) (1972-1978).
Russell 1000 Value TR USD (1979-2016).
S&P 500 Index (1972-1978). Russell 1000 TR USD
(1979-2016).
Fama/French US Large Growth Index (ex
utilities)(1972-1978). Russell 1000 Growth TR USD
(1979-2016).
Fama/French US Small Value Index (ex utilities)(1972-1978).
Russell 2000 Value Index (1979-2016).
CRSP Deciles 6-10 Index (1972-1978). Russell 2000 TR USD
(1979-2016).
Fama/French US Small Growth Index (ex utilities)
(1972-1978). Russell 2000 Growth Index (1979-2016).
CRSP Deciles 9-10 Index (1972-2000). Russell Micro Cap TR
USD (2001-2016).
MSCI World ex USA NR USD (1972-1994), MSCI World ex
USA IMI NR USD (1994-2016)
MSCI World ex USA NR USD (1972-1974). MSCI World Ex
USA Value NR USD (1975-2016).
MSCI World ex USA NR USD (1972-2016).
Page 6 of 20
Your Recommended Investment Strategy
Asset Class
International Large Growth Stocks
Disclosure
MSCI World ex USA NR USD (1972-1974). MSCI World Ex
USA Growth NR USD (1975-2016).
Dimensional International Small Cap Index (1972-1981).
International Small Value Stocks
Dimensional International Small Cap Value Index
(1981-1994). MSCI World Ex USA Small Value NR USD
(1995-2016).
Dimensional International Small Cap Index (1972-2000).
International Small Neutral Stocks
MSCI World Ex USA Small Cap NR USD (2001-2016).
Dimensional International Small Cap Index (1972-1989). S&P
International Small Growth Stocks
Developed Ex US Small Growth TR (1990-1994). MSCI World
Ex USA Small Growth NR USD (1995-2016).
MSCI
Pacific Ex Japan NR USD (1972-1987). MSCI EM GR
Emerging Markets Stocks
USD (1988-1998). MSCI EM NR USD (1999-2016).
FTSE NAREIT All Equity REITs TR USD (1972-1986). DJ US
Real Estate / REITs
Select REIT TR USD (1987-2016).
S&P GSCI TR USD (1972-1990). Bloomberg Commodity TR
Commodities
USD (1991-2016).
Other
S&P 500 (Price Return) (1972-2016)
80% IA SBBI US IT Govt TR USD, 20% MSCI World NR USD
Conservative Allocation
(1972-1972). 80% Barclays US Govt/Credit TR USD, 20%
MSCI World NR USD (1973-1975). 80% Barclays US Agg
Bond TR USD, 20% MSCI World NR USD (1976-2016)
50% IA SBBI US IT Govt TR USD, 50% MSCI World NR USD
Moderate Allocation
(1972-1972). 50% Barclays US Govt/Credit TR USD, 50%
MSCI World NR USD (1973-1975). 50% Barclays US Agg
Bond TR USD, 50% MSCI World NR USD (1976-2016)
20% IA SBBI US IT Govt TR USD, 80% MSCI World NR USD
Aggressive Allocation
(1972-1972). 20% Barclays US Govt/Credit TR USD, 80%
MSCI World NR USD (1973-1975). 20% Barclays US Agg
Bond TR USD, 80% MSCI World NR USD (1976-2016)
Global Developed Stocks (includes Int'l MSCI World NR USD (1972-1994), MSCI World IMI NR USD
Dev, U.S.)
(1994-2016)
Global Stocks (includes Int'l Developed, MSCI World NR USD (1972-1994), MSCI ACWI IMI NR USD
U.S., EM)
(1994-2016)
Page 7 of 20
Roles and Responsibilities
Advisor
Your advisor is expected to guide you through a disciplined investment process and manage your portfolio in
a manner that is consistent with this Investment Policy Statement and in accordance with state and federal
law and the Uniform Prudent Investor Act. As a fiduciary to you, the primary responsibilities of the Advisor
include, but are not limited to:
• Designing, implementing and maintaining an appropriate asset allocation plan consistent with the
investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement
• Advising you about the selection and allocation of asset classes
• Monitoring the performance of all selected assets
• Periodically reviewing the suitability of your investments
• Recommending changes to this Investment Policy Statement
• Avoiding prohibited transactions and conflicts of interest
• Controlling and accounting for all investment expenses
• Making recommendations to you and implementing investment decisions as directed by you
• Meeting with you to discuss your investment policy at appropriate intervals
• Recommending an appropriate custodian to safeguard your assets
Custodian
As the custodian of all securities for your investment accounts, your custodian's specific duties and
responsibilities include, but are not limited to:
• Holding in custody for safekeeping all cash, securities and other property delivered to your investment
account(s) and collecting and retaining income and other distributions credited to those account(s)
• Effecting transfers of cash and/or securities credited to or debited from your account(s), including transfers
incident to the settlement of purchase and sale transactions
• Providing monthly or quarterly reports showing receipts, disbursements and transfers in connection with
your account assets, trade settlements and balances
• Providing all tax-related reporting to the Internal Revenue Service for your account(s)
Investor
As an investor, your primary responsibilities may include, but are not limited to:
• Overseeing your advisor
• Granting your advisor discretionary control for purchases and sales of securities previously approved by
you. Your advisor shall have no authority to withdraw funds from your accounts, except to cover payment of
previously agreed to fees or at your specific written direction
• Approving the investment objectives and policies of the portfolio
• Directing your advisor to make changes regarding policy, guidelines, objectives and specific investments on
a timely basis
• Providing your advisor with all relevant information on your financial conditions and risk tolerances and
any changes to this information
• Reading and understanding the information contained in the prospectuses for your investment portfolio
• Exercising all rights, including voting rights, as are acquired through the ownership of securities
• Reviewing custodial statements and performance reports
Page 8 of 20
Portfolio Maintenance, Oversight, and Signatures of Acceptance
Reporting
On a quarterly basis you will receive a comprehensive, easy-to-read asset allocation and performance report
for this portfolio. This report will compare your current asset class mix to target weightings established by
this Investment Policy Statement. This report may also provide performance statistics by asset class and the
overall portfolio. Each year you will receive a supplemental report(s) for taxable accounts, which details
realized gains and losses.
You will receive monthly statements from your account custodian. These statements will show values for
each investment holding and details of all transactions and account activities, including additions and
withdrawals. The custodian also provides trade confirmations. Each year, for taxable accounts, your
custodian will send you and the IRS a 1099 tax report(s).
Rebalancing
From time to time, market conditions may cause certain asset classes in this portfolio to vary from the target
weightings. This portfolio will be monitored and rebalanced either systematically based on variance from the
target allocation or at the direction of you or your advisor to help ensure that the asset mix remains
consistent with the guidelines established by this Investment Policy Statement.
Communication
A key part of the investment process is for you and your financial advisor to communicate regularly to review
your investment objectives and evaluate the performance of your portfolio.
As a matter of course, your advisor will keep you apprised of any material changes in the advisor’s outlook,
recommended investment policy or strategy. Your advisor will also be available to address any questions,
concerns or needs you may have.
This Investment Policy Statement should be reviewed by you and your advisor annually at a minimum to
ensure it accurately reflects your life circumstances, financial situation, goals, risk tolerance, or expectations.
In the interim, it is imperative that you notify your advisor of any material changes to your financial situation,
goals, risk tolerance, or expectations.
Investment Policy Statement for Jim and Sandy Client
Signature(s) of Acceptance
Adopted by the below signed:
Date:
Investor(s):
Date:
Advisor(s):
Please read the disclosure section on following page for additional information.
Page 9 of 20
Disclosures
CRSP is the Center for Research in Security Prices. CRSP ranks all NYSE companies by market capitalization and divides
them into ten equally-populated portfolios. AMEX and NASDAQ National Market stocks are then placed into deciles
according to their respective capitalization, determined by the NYSE breakpoints. CRSP Portfolios 1–2 represent large-cap
stocks, Portfolios 3, 4 and 5 are mid-caps, Portfolios 6–8 represent small caps, and Portfolios 9–10 benchmark micro-caps.
Value is represented by companies with a book-to-market ratio in the top 30% of all companies. Growth is represented by
companies with a book-to-market ratio in the bottom 30% of all companies.
S&P 500 Index is the Standard & Poor's 500 Index. The S&P 500 Index measures the performance of large-capitalization U.S.
stocks. The S&P 500 is an unmanaged market value-weighted index of 500 stocks that are traded on the NYSE, AMEX and
NASDAQ. The weightings make each company’s influence on the index performance directly proportional to that company’s
market value.
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index) is comprised of more
than 1,000 companies representing the stock markets of Europe, Australia, New Zealand and the Far East, and is an
unmanaged index. EAFE represents non-U.S. large stocks. Foreign securities involve additional risks, including foreign
currency changes, political risks, foreign taxes and different methods of accounting and financial reporting.
The NAREIT Composite Index is an unmanaged index consisting of approximately 200 Real Estate Investment Trust stocks.
The NAREIT Index excludes brokerage commissions and other fees. Investors cannot invest directly in an index.
Portfolios were developed using an asset allocation strategy similar to the one currently being used. Performance results do
not represent actual trading, but were achieved using backtesting with the benefit of hindsight; actual results may vary.
Hypothetical portfolios may not reflect the impact material economic and market factors might have had on decision making
if Loring Ward was actually managing clients’ money at that time. Assumes dividend and capital gain reinvestment. Returns
are before fees. All investments involve risk, including loss of principal. Foreign securities involve additional risks. Asset
allocation models may not be suitable for all investors.
Treasury bills and government bonds are guaranteed as to repayment of principal and interest by the U.S. government. The
indexes are unmanaged baskets of securities not available for direct investment. Returns assume dividend and capital gain
reinvestment. Smaller companies have additional risks, including greater volatility and less liquidity than stocks of larger
companies. Value companies have more risk than growth companies and may underperform when the market favors growth
companies.
“Expected return” is a term of specialized use. It is generally understood to mean the statistically achievable return (based on
historical data) over a sufficiently long time horizon. Expected returns are theoretical returns; they are not estimated returns.
“Risk,” as used in the asset allocation program, is defined as standard deviation. It is a measure of volatility, a statistical
calculation based on past performance. It describes how far from the mean performance numbers have varied in the past.
Past performance is not indicative of future performance. All investments involve risk, including loss of principal. Foreign
securities involve additional risks, including foreign currency changes, political risks, foreign taxes and different methods of
accounting and financial reporting.
For further disclosures concerning Loring Ward and its money management services, you may request a copy of the firm’s
most recent ADV Part 2. Call 1-800-366-7266 to request a copy of this disclosure form. If you would like a copy of your
individual advisor’s ADV, please contact him or her directly.
Securities offered through Loring Ward Securities Inc., member FINRA/SIPC. #06-187 (03/2017)
Page 10 of 20
Appendix
Variance to Benchmarks
The broad global diversification of this portfolio and its unique tilt towards small and value stocks will likely cause its
performance to vary significantly from commonly-tracked benchmarks. This variance is demonstrated in the table below using
a hypothetical diversified portfolio and the Standard & Poor’s 500 Index.
This portfolio or its U.S. equity component could underperform or outperform well-known benchmarks, such as the S&P 500
Index or Dow Jones Industrial Average, for certain periods.
Additionally, managers of structured asset class funds within your portfolio are not obligated to follow index benchmarks as
strictly as managers of pure index funds; this flexibility may offer trading advantages. This factor may also contribute to
benchmark variance.
Page 11 of 20
Appendix
Investment Philosophy
The development of this portfolio was guided by evidence from the world’s leading academics in the fields of economics and
finance. The widely-accepted principles of Modern Portfolio Theory and asset allocation are especially important, as asset
allocation methodologies based on Nobel Prize-winning Modern Portfolio Theory were used to determine which asset classes
are appropriate for this portfolio.
Modern Portfolio Theory
Modern Portfolio Theory will be the philosophical foundation for how this portfolio will be structured and how subsequent
decisions will be made. Unlike more traditional investment management, which focuses on predicting the movements of
individual stock prices, Modern Portfolio Theory looks at the portfolio of assets based on the combination of its risk and
return components.
Modern Portfolio Theory was developed by Harry Markowitz and Merton Miller at the University of Chicago and later
expanded on by Stanford professor William Sharpe. In 1990, the Nobel Memorial Prize for Economics was awarded to these
three economists for their work in developing Modern Portfolio Theory as an approach to portfolio management.
The underlying concepts of Modern Portfolio Theory include:
1. Investors inherently avoid risk.
In other words, investors tend to accept risk only when the level of return compensates them for that risk.
A primary goal of Modern Portfolio Theory is to achieve the greatest return for the amount of risk taken. Doing so
requires combining asset classes in the portfolio using structured asset class funds to help achieve effective diversification.
This can be accomplished by measuring the correlation between specific asset classes that demonstrate a historically high
rate of return and combining the asset classes in such a way that portfolio volatility is minimized.
2. Markets are efficient.
It is almost impossible to predict the future direction of any individual security or of the market as a whole. Therefore, it is
highly unlikely that any portfolio will succeed in consistently “beating the market.”
Traditional managers try to beat the market by attempting to predict the future and by targeting pricing errors. This
practice often proves to be both ineffective and costly. When manager predictions go unrealized, investors who hold the
wrong stocks at the wrong time often miss the strong returns that markets provide.
The historical performance depicted in the chart on the following page demonstrates how markets have compensated
higher-risk investments over time with greater return.
In addition, advanced technology and the abundance of freely available information help create an environment where
picking individual stocks does not guarantee superior performance. This futility of speculation means that assets are priced
fairly for investment purposes. While it is possible to outperform markets, it cannot be accomplished without taking on
increased risk.
Page 12 of 20
Appendix
3. Structure explains performance.
The design of the portfolio as a whole is more important than selecting individual securities. We believe that the key
determinant of portfolio performance is the appropriate allocation of assets to specific asset classes.
Investors can benefit by combining the different asset classes in a structured portfolio. A full range of asset classes includes
bonds, domestic and international stocks, real estate, small and large stocks, and value and growth stocks. Because each
asset class plays a different role in a portfolio, this gives investors the potential to achieve greater expected returns with
more consistency and less price fluctuation than a less structured approach.
*Academic research by leading financial analysts has provided evidence that an investor’s asset allocation selection—or the
choice of asset classes and the portfolio percentage allocated to each class—is the single most important element in a
portfolio strategy. *The 1991 study concluded that, on average, 91.5% of portfolio’s performance profitability over a given
ten-year period could be explained by asset class selection. As illustrated on the following page, this compares with 1.7%
for market timing and 4.6% for stock selection. Attempts to either select individual stocks or time market movements
contributed little to investor performance and, in many cases, had a negative effect.
The study also made clear the importance of investing over the long term, regardless of management style. An investment
policy’s success may not be fully realized until the underlying portfolio has gone through various economic and market
cycles over a long period of time.
*Data Source: Brinson, Singer, and Beebower. Financial Analysts Journal. May/June 1991.
Page 13 of 20
Appendix
4. There is an optimal combination of asset classes that will maximize returns for a given level of risk.
Numerous academic studies* have demonstrated that an investor’s return is dependent on the amount of exposure to the
various asset classes and the specific risks associated with each class. The goal is to maximize a portfolio’s expected return
based on an acceptable level of risk (or conversely, to minimize risk based on an acceptable expected return).
* Brinson, Hood and Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal, July/August 1986
Brinson, Singer and Beebower, “Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal,
May/June 1991
Ibbotson and Kaplan, “ Does Asset Allocation Policy Explain 40%, 60% or 100% of Performance,” Financial Analysts
Journal, April 1999
Page 14 of 20
Appendix
As shown below, the Efficient Frontier is a theoretical curve that illustrates the balance or tradeoff between risk and return.
It represents portfolios with an optimal asset mix, or portfolios that are expected to yield the highest return for a given
level of risk. At points below the Efficient Frontier, the level of risk is too high for the anticipated return. A lower-risk
asset mix could yield the same return.
Investors select portfolios along this curve that are consistent with their risk tolerance. An investor who can accept more
risk may choose a portfolio on the higher end of the curve, while a more risk averse investor would more likely select a
portfolio on the lower end of the curve.
By keeping your portfolio invested within the Efficient Frontier, you are positioned to maximize returns for your level of
risk. The challenge is to find the optimal combination of asset classes that will maximize returns while also taking your
personal circumstances and risk tolerance into consideration.
Asset Allocation
Long-term investment performance is, in large part, a function of asset class mix. A key part of choosing an investment
program is reviewing the long-term performance characteristics of broad asset classes, focusing on balancing their respective
risks and rewards.
Our approach to portfolio management focuses on managing a combination of asset classes within your portfolio, rather than
focusing on individual investments. Because each asset class in your portfolio has its own expected level of risk and return, it
is the combination of the various asset classes—together with periodic portfolio rebalancing—that allows your investments to
work in concert to help control the overall level of portfolio risk.
Page 15 of 20
Appendix
Asset Class Performance
The chart below illustrates the annual performance rankings of seven major asset class indexes and inflation from 2002 to
2016, each represented by a different color. The columns show the annual performance of different asset classes from highest
to lowest returns, while the rows display their positions in a given year.
By focusing on any color-coded asset class, you can see that its position tends to fluctuate randomly from one year to another.
This randomness suggests that there is no consistent pattern of performance in any of the asset classes. An asset class that is
at the top of a column one year may be at the bottom of the next year’s column. This performance unpredictability further
demonstrates the importance of and the need for diversification.
Page 16 of 20
Appendix
Dimensions of Risk and Return
Many prominent academics and investment professionals acknowledge that there are three primary factors that influence
portfolio returns:
• The “Market” Factor: The percentage invested in equities (stocks) versus fixed income investments (bonds)
• The “Size” Factor: The percentage invested in small company versus large company stocks
• The “Value” Factor: The percentage invested in value company versus growth company stocks
The greater the risk exposure, the greater the expected return. Over time, most investors expect to receive higher returns from
stocks than bonds because stocks are riskier. As illustrated below, leading economists believe that small company stocks and
value company stocks have greater expected returns because the market rationally discounts their prices to reflect underlying
risk. These lower prices provide investors with the potential for higher returns as compensation for bearing this risk.
Deciding the extent to which your portfolio will participate in each of the three factors is an integral part of asset class
investing. Rather than analyzing individual stocks, investing becomes a matter of deciding the proportion of stocks versus
bonds or the extent to which small, large, value and growth stocks should be represented in a portfolio. These asset class
strategies will be discussed further in the sections that follow.
The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased
volatility (up and down movement in the value of your assets) and loss of principal.
Page 17 of 20
Appendix
Equity and Fixed Income Investing
In developing your asset allocation strategy, we begin by determining how much of this portfolio should be invested in
equities and how much should be invested in fixed income investments. This combination of stocks and bonds in a portfolio
should impact its short-term downside potential.
Equities offer the potential for higher long-term investment returns than fixed income investments. Equities are also typically
more volatile in their performance. Investors seeking higher rates of return generally increase the proportion of stocks in their
portfolio, while also accepting greater variation in results, including occasional declines in value.
The addition of bonds to a portfolio is intended to reduce the portfolio’s volatility. However, given the higher historical rates
of return in the stock market, it is often difficult for investors to appreciate the importance of fixed income investments in
risk reduction.
The graph below shows that stocks have historically outperformed bonds, but with substantial volatility over certain periods
of time. In comparison, bonds have been significantly less volatile than stocks. Knowing how much short-term volatility is
acceptable in exchange for potentially higher returns helps to determine the percentage allocation between fixed income and
equity investments in this portfolio.
U.S. Market and International Investing
Incorporating both international and domestic elements into a portfolio is a means of achieving increased diversification, just
as combining different patterns of performance serves to lower the volatility of the overall portfolio.
While the U.S. stock market is one of the world’s largest, more than half of the world’s stocks are located outside of the
United States. International investments include developed markets with well-established companies and listing standards
similar to the U.S., as well as more speculative emerging markets in companies with rapid but volatile economic growth.
Page 18 of 20
Appendix
Over time, international markets and asset classes within those markets have not always moved in unison with the U.S.
market. The graph below shows periods when U.S. stocks have outperformed international stocks and periods when
international stocks have outperformed U.S. stocks. Historically, investing a portion of a portfolio in international stocks and
bonds has demonstrated the potential to increase returns while reducing volatility. However, investing in international markets
also has particular risks, including foreign currency fluctuations, political changes and market factors.
Large and Small Company Investing
Research and historical data indicate that over a long period, investing in the stocks of smaller, less-established companies has
often provided higher returns than investing in the stocks of larger companies. Investing in a cross-section of small companies
in the U.S. and major international markets helps to deliver the “size effect” and the added benefit of diversification.
Page 19 of 20
Appendix
Generally, small listed companies have a market value that falls within the smallest 10% of the market universe. Large
company stocks are typically represented by the Standard & Poor’s 500 Index (S&P 500) and include well-established
companies with relatively high stock market value.
The previous chart displays the years when small company stocks outperformed large company stocks and when large
company stocks outperformed small company stocks. Despite historically higher expected returns, there are higher risks
associated with less-established companies because such investments may underperform the market for certain periods of
time. Historical data indicates that a combination of large and small stocks may increase returns while also reducing risk due to
the different movements among the two asset classes.
Value and Growth Company Investing
Another asset class strategy that may potentially provide higher expected return is the “value” factor. Value companies
generally experience slow growth, difficult business conditions, and or declining revenues and profits. In contrast, growth
companies are typically well-known companies that experience rapid growth in revenues and profits. Long-term capital
appreciation may be achieved through value company investing, as lower priced value stocks have historically outperformed
higher-priced growth stocks.
Our value strategy targets stocks with high book values in relation to their market values. Historical data suggests that these
lower-priced value stocks typically have higher expected returns than higher-priced growth stocks because there are higher
risks associated with investing in value stocks. While the stocks of value companies may be likely to outperform the market
over the long term, such investments are also likely to underperform the market for certain periods of time. The chart below
shows the years when value company stocks outperformed growth company stocks and when growth outperformed value.
Page 20 of 20
INTRODUCTION
The purpose of this Investment Policy Statement is to establish a clear understanding
between the investor SAMPLE CLIENT and the investment advisor Jay D. Ahlbeck,
CLU, ChFC as to the investment objectives and policies applicable to the Investor's
investment portfolio. This Statement will:
•
•
•
•
establish reasonable expectations, objectives, and guidelines in the
investment of the Portfolio's assets.
set forth an investment structure detailing permitted asset classes, normal
allocations and permissible ranges of exposure for the Portfolio.
encourage effective communication between the Investor and the Advisor.
create the framework for a well diversified asset mix that can be expected
to generate acceptable long term returns at a level of risk suitable to the
Investor.
The Statement has been developed from an evaluation of many key factors which impact
the Investor's specific situation and investment objectives. This Statement is not a
contract. It is intended to be a summary of an investment philosophy that provides
guidance for the Investor and the Advisor.
THE PORTFOLIO
The Portfolio will maintain an active asset allocation strategy. The Portfolio will be
invested exclusively in mutual funds. As a result, assets held in the Portfolio will be
highly liquid.
The Board of Trustees of each mutual fund is ultimately responsible for selecting and
monitoring investment managers to advise each fund. Investment managers are selected
and monitored on the basis of the following criteria:
•
•
•
the manager's specification of and adherence to a clearly articulated and
appropriate investment philosophy and process.
material changes in the manager's organization and personnel.
comparisons of performance results to appropriate indices that take into
account asset class and investment style.
Each investment manager is responsible for managing the assets of a particular mutual
fund in accordance with the stated objectives and policies of that fund as set forth in each
prospectus. The Investor should read this information carefully before investing.
INVESTMENT OBJECTIVES
The portfolio seeks to provide current income exempt from federal taxes, with long-term
capital appreciation on an after-tax basis as a secondary goal.
GUIDELINES AND POLICIES
Time Horizon
The portfolio is suitable for investors with a minimum time horizon of five years. Capital
values do fluctuate over shorter periods and the Investor should recognize that the
possibility of capital loss does exist no matter what the Investor's investment time horizon
may be. However, historical asset class return data suggest that the risk of principal loss
over a holding period of three years or longer can be minimized with the long-term
investment mix employed by the Portfolio.
Risk Tolerances and Performance Expectations
The Investor recognizes that the objectives of the Portfolio cannot be achieved without
incurring a certain amount of principal volatility. The Portfolio is comprised of a 60%
allocation to global fixed income securities and a 40% allocation to U.S. and international
securites. There is no exposure to emerging markets securities in the Portfolio. The fixed
income portion of the Portfolio provides current income exempt from federal taxes and
has a moderating effect on the fluctuation of portfolio returns. The Portfolio invests in
intermediate-term municipal bonds with maturities ranging between three and ten years.
In addition, an allocation to high yield bonds and international fixed income provide
additional diversification and the potential for further return enhancement. The U.S
equity portion of the Portfolio consists primarily of an actively managed U.S. large cap
component. This actively managed large cap allocation will employ tax-management
strategies at several levels.
No guarantees can be given about future performance and this Statement shall not be
construed as offering such guarantee. For illustrative purposes solely, historical results of
a portfolio of assets combined in a manner consistent with their normal weightings of the
Portfolio for four time periods are provided below and on the following page.
Recommended Portfolio: Historical Annual Return
Note: The Annualized Return History above are based on historical asset class returns using a variety of market
indicators, including among others the following indicators: U.S. stocks – S&P 500 Index; Ibbotson U.S. Small Cap;
Developed International stocks – MSCI EAFE Index; Emerging Markets Equity – IFC Investable Index; U.S. Bonds – U.S.
Intermediate-Term Government; U.S. Short-Term Government, U.S. Long-Term Government, Lehman 3-10 Year Index,
U.S. Long-Term Corporates, Mortgages – NAREIT; International Bonds – Salomon WGBI Index; High Yield Bonds –
CSFB High Yield Index; Emerging Markets Debt – J.P. Morgan EMBI+; Fixed Annuities – U.S. Long-Term Corporates;
Real Estate – Real Estate Composite; Cash – Ibbotson 30 Day T-Bill. Based on Historical Returns there is a 95% chance
of realizing a return that is greater than the 5th percentile return. And, there is a 5% chance of exceeding the 95th
percentile return. Individual asset allocation portfolios may perform better or worse than the representative asset class
indicated.
These performance results do not reflect the deduction of advisory fees. Actual returns
will be reduced by advisory fees and any other expenses the account may incur in the
management of the account. Advisory fees are described in Part II of the Advisor’s Form
ADV.
Asset Allocation
Academic research suggests that the decision to allocate total account assets among
various asset classes will far outweigh security selection and other decisions that impact
portfolio performance. After reviewing the long-term performance and risk
characteristics of various asset classes and balancing the risks and rewards of market
behavior, the following asset classes were selected to achieve the objectives of the
Portfolio.
To implement the recommended Asset Allocation, the Portfolio will invest in numerous
mutual funds which focus on specific segments of each asset class.
Item
HA0744
HA0715
HA0714
HA0674
HA0561
HA0644
C5967
Split Price Case Qty
Split Qty
27.5
12
3
34
6
1
34
6
1
15
12
6
57.5
6
1
63
6
1
16.5
12
2
Rebalancing Procedures
From time-to-time, market conditions may cause the Portfolio's investment in various
mutual funds to vary from the established allocation. To remain consistent with the asset
allocation guidelines established by this Statement, each mutual fund in which the
Portfolio invests will be reviewed on a quarterly basis and rebalanced back to the normal
weighting if the actual weighting varies by 3% or more from the recommended
weighting.
DUTIES AND RESPONSIBILITIES
Investment Advisor
Jay D. Ahlbeck, CLU, ChFC is responsible for assisting the Investor in making an
appropriate asset allocation decision based on the particular needs, objectives, and risk
profile of the Investor. The Advisor will be available on a regular basis to meet with the
Investor and periodically review the Portfolio for suitability based on information
provided by the Investor. The Advisor should provide the Investor with the current
prospectus for each mutual fund in the Portfolio selected.
Investor
SAMPLE CLIENT must provide the Advisor with all relevant information on financial
condition, net worth, and risk tolerances and must notify the Advisor promptly of any
changes to this information. The Investor should read and understand the information
contained in the prospectus of each mutual fund in the Portfolio selected.
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The TOE identified in this Validation Report has been evaluated at a NIAP-approved CCTL
using the Common Methodology for IT Security Evaluation (Version 3.1, Rev. 5) (CEM) for
conformance to the Common Criteria for IT Security Evaluation (Version 3.1, Rev. 5) (CC)
and the Evaluation Activities (EA) of the aforementioned Protection Profiles. This Validation
Report applies only to the specific version of the TOE as evaluated. The evaluation has been
conducted in accordance with the provisions of the NIAP Common Criteria Evaluation and
Validation Scheme (CCEVS) and the conclusions of the testing laboratory in the evaluation
technical report are consistent with the evidence provided.
The validation team monitored the activities of the evaluation team, reviewed testing activities,
provided guidance on technical issues and evaluation processes, and reviewed the individual
work units and successive versions of the ETR. The validation team found that the evaluation
showed that the product satisfies all the functional requirements and assurance requirements
stated in the Security Target [ST]. T
a a
a
a
ab a
findings are accurate, the conclusions justified, and the conformance results are correct. The
conclusions of the testing laboratory in the evaluation technical report are consistent with the
evidence produced.
The atsec information security corporation CCTL evaluation team concluded that the CC
requirements specified by:
x
PP-Configuration for General Purpose Operating Systems and Bluetooth, Version 1.0, 2021-04-15;
(CFG_GPOS-BT_V1.0)
1
VIDError! Unknown document property name. Validation Report, Version1.0
o
o
February 6, 2024
Base PP: Protection Profile for General Purpose Operating Systems. Version 4.2.1, 2019-04-22,
(PP_GPOS_V4.2.1)
PP Module: PP-Module for Bluetooth, Version 1.0, 2021-04-15, (MOD_BT_V1.0)
have been met.
The technical information included in this report was obtained from the Apple macOS 13
Ventura Security Target, Version 1.1, 1/12/2024
2 Identification
The CCEVS is a joint National Security Agency (NSA) and National Institute of Standards and
Technology (NIST) effort to establish commercial facilities to perform trusted product
evaluations. Under this program, security evaluations are conducted by commercial testing
laboratories called Common Criteria Testing Laboratories (CCTLs) using the Common
Evaluation Methodology (CEM) for Evaluation Assurance in accordance with National
Voluntary Laboratory Assessment Program (NVLAP) accreditation.
The NIAP Validation Body assigns Validators to monitor the CCTLs to ensure quality and
consistency across evaluations. Developers of information technology products desiring a
CCTL
. Upon
successful completion of the evaluation, the product is adde
NIAP P
Compliant List.
The following table provides information needed to completely identify the product, including
the following.
x
The Target of Evaluation (TOE): The fully qualified identifier of the product as evaluated
x
The ST: Describing the security features, claims, and assurances of the product
x
The conformance results of the evaluation
x
The Protection Profile (PP) to which the product is conformant
x
The organizations and individuals participating in the evaluation
Item
Identifier
Evaluation
Scheme
United States NIAP Common Criteria Evaluation and Validation
Scheme
TOE
Apple macOS 13 Ventura
PP
x
PP-Configuration for General Purpose Operating Systems and
Bluetooth, Version 1.0, 2021-04-15; (CFG_GPOS-BT_V1.0)
o Base PP: Protection Profile for General Purpose
Operating Systems. Version 4.2.1, 2019-04-22,
(PP_GPOS_V4.2.1)
2
VIDError! Unknown document property name. Validation Report, Version1.0
Item
ST
February 6, 2024
Identifier
o PP Module: PP-Module for Bluetooth, Version 1.0,
2021-04-15, (MOD_BT_V1.0)
Apple macOS 13 Ventura Security Target [ST], Version 1.1, dated
2024-01-12
ETR
Evaluation Technical Report for a Target of Evaluation Apple macOS
13 Ventura, Version 1.1, dated 2024-01-12
CC Version
Common Criteria for Information Technology Security Evaluation,
Version 3.1, Revision 5
Conformance
Result
CC Part 2 extended, CC Part 3 extended
Sponsor
Apple Inc.
Developer
Apple Inc.
CCTL
atsec information security corporation, Austin, TX
CCEVS
Validators
Jim Donndelinger
Patrick Mallett, Ph.D.
Mike Quintos
Fernando Guzman
3 Architectural Information
Note that the following architectural description is based on the description presented in the ST.
The TOE is the Apple macOS 13 Ventura general purpose operating system which is tightly
integrated with hardware and runs on Apple iMac, MacBook Air, MacBook Pro, Mac mini, Mac
Pro, and Mac Studio computers. The macOS Ventura operating system is a Unix-based graphical
operating system. The macOS core is a POSIX compliant operating system built on top of the
XNU kernel with standard Unix facilities available from the command line interface. The TOE
includes Bluetooth communication both Bluetooth Basic Rate/Enhanced Data Rate (BR/EDR)
and Low Energy (LE). A portion of the TOE's Bluetooth functionality is implemented in
hardware.
The tested version of the TOE is Apple macOS 13.2.1.
3.1 TOE Evaluated Configuration
The evaluated configuration consists of the following hardware and software, when configured
in accordance with the documentation specified in Section 6. The TOE hardware consists of two
: A e c Mac a d I e
T2 Mac . T e A e c Mac
ea A e
c S e
aC
(S C) a d e I e
T2 Mac
ea I e
ce
A e
3
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February 6, 2024
T2 Security Chip. The evaluation covers the following Apple silicon and T2 systems running
macOS 13.2.1 operating system as detailed in Table 1. Apple silicon processors start with the
letter M and the Intel processors start with either Core or Xeon. Bluetooth is abbreviated as BT.
Table 1: Devices Covered by the Evaluation
Marketing Name
Model #
Model
Identifier
Processor
microArch
Security Chip
BT
BT
Chip
A2780
Mac14,6
M2 Max
ARMv8.6-A
SEP v2.0
5.3
4388
Mac14,10
M2 Pro
ARMv8.6-A
SEP v2.0
5.3
4388
Mac14,5
M2 Max
ARMv8.6-A
SEP v2.0
5.3
4388
Mac14,9
M2 Pro
ARMv8.6-A
SEP v2.0
5.3
4388
2023
MacBook Pro (16-inch, 2023)
MacBook Pro (14-inch, 2023)
A2779
Mac mini (M2 Pro, 2023)
A2816
Mac14,12
M2 Pro
ARMv8.6-A
SEP v2.0
5.3
4388
Mac mini (M2, 2023)
A2686
Mac14,3
M2
ARMv8.6-A
SEP v2.0
5.3
4388
MacBook Pro (13-inch, M2,
2022)
A2338
Mac14,7
M2
ARMv8.6-A
SEP v2.0
5.0
4378
MacBook Air (M2, 2022)
A2861
Mac14,2
M2
ARMv8.6-A
SEP v2.0
5.0
4387
Mac Studio
A2615
Mac13,2
M1 Ultra
ARMv8.5-A
SEP v2.0
5.0
4387
A2615
Mac13,1
M1 Max
ARMv8.5-A
SEP v2.0
5.0
4387
A2485
MacBookPro
18,2
M1 Max
ARMv8.5-A
SEP v2.0
5.0
4387
MacBookPro
18,1
M1 Pro
ARMv8.5-A
SEP v2.0
5.0
4387
MacBookPro
18,4
M1 Max
ARMv8.5-A
SEP v2.0
5.0
4387
MacBookPro
18,3
M1 Pro
ARMv8.5-A
SEP v2.0
5.0
4387
A2438
iMac21,1
M1
ARMv8.5-A
SEP v2.0
5.0
4378
A2439
iMac21,2
M1
ARMv8.5-A
SEP v2.0
5.0
4378
2022
2021
MacBook Pro (16-inch, 2021)
MacBook Pro (14-inch, 2021)
iMac (24-inch, M1, 2021)
A2442
4
VIDError! Unknown document property name. Validation Report, Version1.0
February 6, 2024
Marketing Name
Model #
Model
Identifier
Processor
microArch
Security Chip
BT
BT
Chip
Mac mini (M1, 2020)
A2348
Macmini9,1
M1
ARMv8.5-A
SEP v2.0
5.0
4378
MacBook Air (M1, 2020)
A2337
MacBookAir
10,1
M1
ARMv8.5-A
SEP v2.0
5.0
4378
MacBook Pro (13-inch, M1,
2020)
A2338
MacBookPro
17,1
M1
ARMv8.5-A
SEP v2.0
5.0
4364
MacBook Air (Retina, 13-inch,
2020)
A2179
MacBookAir
9,1
Core i5-1030NG7
Core i7-1060NG7
Ice Lake
T2
5.0
4377
MacBook Pro (13-inch, 2020,
Four Thunderbolt 3 ports)
A2251
MacBookPro
16,2
Core i5-1038NG7
Core i7-1068NG7
Ice Lake
T2
5.0
4377
MacBook Pro (13-inch, 2020,
Two Thunderbolt 3 ports)
A2289
MacBookPro
16,3
Core i5-8257U
Core i7-8557U
Coffee Lake
T2
5.0
4377
iMac (Retina 5K, 27-inch, 2020)
A2115
iMac20,1
iMac20,2
Core i5-10500
Core i5-10600
Core i7-10700K
Core i9-10910
Comet Lake
T2
5.0
4364
MacBook Air (Retina, 13-inch,
2019)
A1932
MacBookAir
8,2
Core i5-8210Y
Amber Lake
T2
4.2
4355
MacBook Pro (13-inch, 2019,
Four Thunderbolt 3 ports)
A1989
MacBookPro
15,2
Core i5-8279U
Core i7-8569U
Coffee Lake
T2
5.0
4364
MacBook Pro (13-inch, 2019,
Two Thunderbolt 3 ports)
A2159
MacBookPro
15,4
Core i5-8257U
Core i7-8557U
Coffee Lake
T2
5.0
4377
MacBook Pro (15-inch, 2019)
A1990
MacBookPro
15,1
MacBookPro
15,3
Core i7-9750H
Core i9-9880H
Core i9-9980HK
Coffee Lake
T2
5.0
4364
MacBook Pro (16-inch, 2019)
A2141
MacBookPro
16,1
MacBookPro
16,4
Core i7-9750H
Core i9-9880H
Core i9-9980HK
Coffee Lake
T2
5.0
4377
Mac Pro (2019)
A1991
MacPro7,1
Xeon W-3223
Xeon W-3235
Xeon W-3245
Xeon W-3265M
Xeon W-3275M
Cascade Lake
T2
5.0
4364
2020
2019
5
VIDError! Unknown document property name. Validation Report, Version1.0
February 6, 2024
Marketing Name
Model #
Model
Identifier
Processor
microArch
Security Chip
BT
BT
Chip
Mac Pro (2019 Rack)
A2304
MacPro7,1
Xeon W-3223
Xeon W-3235
Xeon W-3245
Xeon W-3265M
Xeon W-3275M
Cascade Lake
T2
5.0
4364
MacBook Air (Retina, 13-inch,
2018)
A1932
MacBookAir
8,1
Core i5-8210Y
Amber Lake
T2
4.2
4355
Mac mini (2018)
A1993
Macmini8,1
Core i5-8500B
Core i7-8700B
Coffee Lake
T2
5.0
4364
MacBook Pro (15-inch, 2018)
A1990
MacBookPro
15,1
MacBookPro
15,3
Core i7-8750H
Core i7-8850H
Core i9-8950HK
Coffee Lake
T2
5.0
4364
MacBook Pro (13-inch, 2018,
Four Thunderbolt 3 ports)
A1989
MacBookPro
15,2
Core i5-8259U
Core i7-8559U
Coffee Lake
T2
5.0
4364
A1862
iMacPro1,1
Xeon W-2140B
Xeon W-2150B
Xeon W-2170B
Xeon W-2190B
Skylake
T2
5.0
4364
2018
2017
iMac Pro (2017)
3.2 Physical Scope of the TOE
The TOE includes both hardware and software running on the Macs listed in Appendix A.1
Hardware Platforms Covered by this Evaluation of the ST. These Macs are organized into the
following two groups:
x
Apple silicon Macs
x
I
2
The Apple silicon Macs group represents all systems listed in Appendix A.1 of the Security
Target as well as the table above
A
C
(
).
I
2
ystems listed in Appendix A.1 that use an Intel processor
with the Apple T2 Security Chip. These groups have implementation differences as indicated in
the ST.
The TOE also includes the TOE documentation providing information for installing, configuring,
and maintaining the evaluated configuration titled:
x
Apple macOS 13 Ventura Common Criteria Configuration Guide, Version 1.1
6
ADOPTION OF INVESTMENT POLICY STATEMENT
I (we) have reviewed, approved and adopted this Investment Policy Statement
prepared with the assistance of Jay D. Ahlbeck, CLU, ChFC.
SAMPLE CLIENT
Date
Jay D. Ahlbeck, CLU, ChFC
JDA & Associates
Date