defined benefit plans

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1 The A corporate buck stops finance here: Vanguard approach to money managing market funds defined benefit plans Vanguard Research May 2015 Kimberly A. Stockton; Nathan Zahm, FSA n Of factors influencing a defined benefit plan s investment objectives and risk measures, the financial status of the sponsoring company is one of the most significant. As U.S. and international accounting and funding rules evolve, plan sponsors need more than ever to consider a pension plan s investment strategy in the context of company finances. n This paper offers guidelines for assessing a defined benefit plan s impact on the sponsoring company and vice versa, including effects on decisions about the plan s asset allocation. Integrating a corporate finance approach into the management of a defined benefit plan is an iterative process in which various asset allocations are proposed and their potential impact on financial statements is assessed. n We find that variations in plan funding can substantially affect the sponsor company s balance sheet and pension expense. Our study also reveals that a company s exposure to pension risk can be measured generally by comparing the size and cost of the pension plan to the size and earnings of the company. n A liability-driven investment strategy (LDI) can be a valuable tool for managing risk within a corporate finance holistic approach. Important risk metrics to estimate include: liabilities/ shareholder equity, adjusted pension expense, and plan liability/company market capitalization. 1 1 For a more comprehensive list of risk metrics, see Appendix Figure A-1.

2 Pension-plan asset management objectives have always varied with the health and constraints of the sponsor company. However, changes to U.S. and international pension accounting and funding rules over the past decade have raised awareness of the relationship between a company s pension plan and its bottom line. Current rules reflect more market-value-based approaches than was true previously. At the same time, increased plan-disclosure requirements have led to more transparent and immediate recognition of plan-metric variations on the company s financial statements. These changes make it all the more important for plan sponsors to both evaluate a pension plan s risk in the context of its impact on the sponsoring company and also take a corporate finance approach to managing plan assets. In such an approach, the pension plan is viewed as part of the sponsoring corporation, and the general objective of increasing shareholder value drives investment decisions in the plan. Risk measures are furthermore related to the company s financial statements. Generally speaking, a sponsoring company s exposure to pension risk can be measured by comparing the size and cost of the pension plan to the size and earnings of the company. It s also important to be aware of the way these relative measures vary over time and interact during different economic periods. 2 We suggest a holistic, corporate finance approach for plan sponsors, as opposed to the more common practice of viewing the plan as a separate entity. Instituting a corporate finance approach Using a corporate finance approach to achieve an investment solution is a straightforward, iterative process in which various asset allocations are proposed and their potential impacts on financial statements are assessed. The first step in the approach, asset-liability modeling (ALM), involves making projections about plan metrics, such as the expected variation in funding status, and about how these metrics could change with various asset allocations. The next step is to integrate these results into expectations for the sponsoring company s financial statements. For example, combining company projections for expected operating income with ALM projections for pension expense can help the sponsor company gauge its risk tolerance relative to the plan s expected impact on the company s income statement. This process should both link ALM results and company financial performance projections and include scenarios in which performance is poor for either the plan or the company, or both. Assuming the company has a typical beta to the economy, this will provide a truer sense of worst-case scenarios. Depending on the outcome of this process, either the sponsor selects the proposed asset allocations or the process begins again with new proposed allocations. Ultimately, the plan sponsor chooses an asset allocation that is expected to provide the dollar impact and risk to the company balance sheet, income, and cash flows that the company prefers. Impacts on the balance sheet U.S. and international accounting standards have moved toward mark-to-market accounting on the balance sheet. In the United States, standards issued in 2006 by the Financial Accounting Standards Board (FAS 158; codified in 2009 into ASC 715) moved recognition of the plan funding status formerly buried in the footnotes to the corporate balance sheet. ASC 715 requires that corporations recognize on their balance sheets the difference between the fair value (market value) of plan assets and their projected benefit obligation (PBO). 3 Likewise, in 2011 the International Accounting Standards Board revised its IAS 19 to require immediate balance-sheet recognition of all changes in pension liabilities and plan assets. Because funding deficits now have a more immediate impact on corporate financial balance sheets, they all but mandate that public sponsoring companies take a corporate finance approach to managing their plans. Notes on risk: All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future returns. Investments in bond funds are subject to interest rate, credit, and inflation risk. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. 2 Detailed descriptions of relevant metrics are provided in Appendix Figure A-1. 3 PBO, a pension liability measure used under U.S. accounting rules, is defined as the present value of future benefit payments attributable to current service and future salary levels. 2

3 The reporting of unsmoothed market values and liabilities on the balance sheet results in larger swings in funding ratios than in the past, as variations in interest rates and market returns flow to the balance sheet annually through the funding status. The impact of funding ratio volatility on a corporation s balance sheet depends primarily on three factors: (1) the correlation and relative amplitude of pension asset performance and company earnings, (2) the strength of the company s financials irrespective of the pension plan, and (3) the size of the plan relative to that of the company. Company earnings that show a strong positive correlation with pension asset performance are problematic when earnings are negative, partly because plan performance compounds an already bad result in the financial statements. In addition, lower pension asset returns result in lower funding ratios, which could require the sponsor to make a large contribution to the plan when it can least afford it. Finally, a high positive correlation has a greater impact on the balance sheet over time, and results in higher volatility in balance-sheet metrics, because the plan and company earnings move together from period to period. The second factor determining impact on the balance sheet, the strength of the company s financials apart from the pension plan, is fairly clear-cut. Companies with weak financials will of course be less able than strong companies to weather negative changes in the pension plan s financials. For example, companies that are burdened with debt and have little shareholder equity could be in danger of violating their debt covenants if their pension liabilities increase significantly. Figure 1 illustrates the third factor, the size of the plan relative to the size of the company. The figure shows, for two different hypothetical companies, the impact of a drop in funded status on the company balance sheet. The plan assets and liabilities are the same in both cases, but because Company B is much smaller than Company A, the ratio of plan liability to company assets is much higher for Company B. Figure 1. Impact of drop in funded status on sponsor company s balance sheet Company A Today: Future: Plan 100% Plan 75% funded funded Current liabilities $1,900 $1,900 Liabilities for pension benefits Deferred income taxes Other long-term liabilities 16,750 16,750 Total liabilities 19,450 19,750 Common stock 1,500 1,500 Retained earnings 14,500 14,500 Accumulated other comprehensive income 7,250 6,950 Total shareholder equity 23,250 22,950 Total liabilities and equity 42,700 42,700 Reduction in shareholder equity 1.3% Financial leverage ratio Note: Data in this chart are based on hypothetical plan assumptions. Source: Vanguard. Company B Today: Future: Plan 100% Plan 75% funded funded Current liabilities $190 $190 Liabilities for pension benefits Deferred income taxes Other long-term liabilities 1,675 1,675 Total liabilities 1,945 2,245 Common stock Retained earnings 1,450 1,450 Accumulated other comprehensive income Total shareholder equity 2,325 2,025 Total liabilities and equity 4,270 4,270 Reduction in shareholder equity 12.9% Financial leverage ratio

4 With respect to Company A, because the plan is relatively small compared to the company, even with a dramatic change in funding status which could occur in a down equity market and a falling interest rate environment the impact of the plan on the company is not large. If the plan funding ratio drops to 75%, shareholder equity is reduced, but only by 1.3%. Now consider Company B, whose plan represents a relatively large portion of the company s liabilities and assets. As shown in Figure 1, the large drop in funded status to 75% results in a much bigger hit to shareholder equity, which declines by nearly 13%. Also, it s important to note for this example that we changed only the net pension liability and offsetting required entries. If company earnings were declining at the same time as pension earnings, the results could have been worse. Balance-sheet risk measurement With respect to risk measurement in general, downside risk, as well as expected pension outcomes, should be considered relative to the corporation. Pension plan risk can be assessed with stochastic asset-liability modeling (ALM). For example, a plan sponsor could begin with an ALM process that provides expected funded status (with returns in the 50th percentile of distributions) and downside funded status (reflecting the 5th percentile of return distributions). The next step would be to evaluate how both of these funding metrics affect the corporation s balance sheet and its relevant metrics, given the sponsor s estimates (expected and downside) for shareholder equity and liabilities. If changes in funded status are having an impact on shareholder equity and liabilities, they are also affecting the financial leverage ratios for the sponsoring company. Because leverage ratios are an indication of a company s ability to meet its financial obligations, it s a good idea to estimate the pension plan s potential impact on these ratios and to assess the company s risk tolerance with respect to changes in them. Returning to Figure 1, for Company B, the company with the most exposure to the pension plan, the financial leverage ratio in this case as measured by total liabilities divided by total equity increases about 32%, from 0.84 to 1.11, with a drop from 100% to 75% in plan funded status. This could have significant implications for the company s ability to manage its debt. The source of debt may also be an issue. To the extent that the sponsoring company wants to limit debt and focus on its core business, it may want to establish a threshold for the proportion of debt from the pension plan to debt from its core business. Although current U.S. and international accounting rules only require a net pension liability on the balance sheet, as just shown in previous examples, a sponsor may want to evaluate risk measures such as leverage ratios after integrating both pension assets and liabilities into the company balance sheet. Doing so may reveal a truer risk measure. Figure 2 provides an example of this. As the figure reveals, when only the net pension liability of $20 is considered, the leverage ratio of the company is 4.0. But with the consolidated balance sheet, which recognizes the entire pension liability, the leverage ratio jumps to 6.0. Figure 2. Consolidating pension assets and liabilities shows true leverage Balance sheet with pension consolidated Pension assets = $80 Pension plan Pension liability = $100 Corporate assets = $200 U.S. GAAP/IFRS balance sheet Equity = $40 Corporate liability = $160 (Pension liability = $20) Corporate assets = $280 (Pension assets = $80) Equity = $40 Corporate liability = $240 (Pension liability = $100) Funded status = ($20) Balance-sheet liability = $20 Financial leverage ratio = 4.0 Financial leverage ratio = 6.0 Notes: Data in this chart are based on hypothetical plan assumptions. U.S. GAAP (Generally Accepted Accounting Principles) accounting rules for pension plans are codified under ASC 715, and IFRS (International Financial Reporting Standards) are codified under IAS 19. Financial leverage ratios are measured here as total liabilities divided by equity. Source: Vanguard. 4

5 A final balance-sheet measurement to consider is the pension plan s liabilities relative to the company s economic value. This provides a general sense of the plan s potential impact on the company. Sponsors may want to quantify downside risk here by estimating the probability that the ratio of the plan liabilities to the company s market capitalization will rise above a threshold value for example, above 40%. A similar measure would be to consider a plan s funding deficit relative to company market cap, also setting a threshold of, for example, 10%. Again, this process would be a dual effort that considers plan-metric variation using ALM and sponsor-company projections for company financials. Should projections suggest that threshold levels could be breached, plan sponsors would need to take appropriate action. This could involve an increased contribution to decrease the plan-funding deficit followed by a revised asset allocation to lower downside risk around the improved funded status. Impact on the income statement From the corporate finance perspective, because shareholders are generally averse to earnings surprises and volatility (even if long-term expected returns and equity growth rates are high), sponsors will want to consider the potential impact of pension earnings on company operating income and assess their risk tolerance for variations in this metric. Under ASC 715, the expected return on assets is combined with estimates of interest cost, service cost, and amortization amounts to determine the pension expense or income reported in company financial statements. The delayed-recognition features in ASC 715 mitigate much of the volatility of pension earnings for most plans. These features include: Use of expected, rather than actual, returns to determine pension earnings. Expected returns are calculated by the sponsor and cover a long time horizon. As a result, they tend to be relatively stable. A stipulation that companies are not required to immediately recognize pension expenses or income to reflect short-term deviations between actual and expected returns for the assets or liability. Deviations beyond a certain range are recognized over time (amortized) in pension earnings. International pension accounting rules on pension income, in contrast to U.S. rules, have already moved more toward a market-based approach. In 2011, the International Accounting Standards Board published an amendment to the accounting standard for pension and employee benefits, the earlier-mentioned IAS 19, which removed some of its delayed-recognition features. With respect to pension expense, net interest, which is based on the plan discount rate, replaced expected returns and interest cost. Thus, for plans adhering to IAS 19 that had returns assumptions higher than the discount rate they had been using for liability present values, pension expense (income) went up (or down). (See the summary of revisions to IAS 19 in the box below). Despite delayed recognition or smoothing, pension income does flow directly through to the company s operating income in the United States and to the profitand-loss statement under international rules. So, pension expense can still have a meaningful impact on the corporate bottom line. In addition, analysts evaluating public companies typically adjust pension expense to account for actual plan returns. Therefore, we suggest that plan sponsors evaluate the impact of the pension plan s expense not only using the current rules but also using unsmoothed asset returns. Summary of substantive IAS 19 revisions implemented as of January 1, 2013 All actuarial gains and losses are recognized immediately on the balance sheet. This conforms to ASC 715 and generally adds more volatility to the balance sheet. Companies are no longer able to use expected returns above that of AA corporate bond yields. This has increased pension expense for most companies reporting under prior rules. Interest cost and expected return on assets are now combined in pension expense on the profit and loss statement as net interest. Net interest is calculated by applying the AA corporate bond yield discount rate to the difference between the fair value of plan assets and liabilities, as reported on the balance sheet. Source: See perspectives/Pages/pension-accounting.aspx. 5

6 Figure 3. Comparing pension expense: Current U.S. and international rules versus economic value Pension expense (U.S. rules ASC 715) Service cost $135 Interest cost $125 Expected return on plan assets ($225) Unrecognized prior service cost $15 Unrecognized actuarial loss $35 Net periodic benefit (income) expense $85 Company net operating income $800 Company net operating income after pension expense $715 Pension income/operating income 11% Pension expense (international IAS 19) Service cost $135 Net interest income $0 Pension (income) expense $135 Company net income $800 Company net income after pension expense $665 Pension income/company income 17% Pension expense (economic value) Downside Based on: Actual return risk Service cost $135 $135 Interest cost $125 $125 Actual return on assets $155 $355 Adjusted pension expense $415 $615 Company net operating income $800 $800 Company net operating income after pension expense $385 $185 Pension income/operating income 52% 77% Notes: Calculations in this chart are based on hypothetical plan assumptions. Net interest income under IAS 19 is zero because we assumed this plan was 100% funded. (See explanations of service cost and interest cost in footnote 4.) Source: Vanguard. Figure 3 compares pension income for a hypothetical plan under both current U.S. and international rules and using adjusted pension expense. These examples are juxtaposed to illustrate the impact of a smoothed, delayed-recognition approach versus a current-marketvalue-based approach. As explained, U.S. pension expense is smoothed to the point of bearing little resemblance to market-based reality. International rules, by contrast, are a step toward market-based valuation, because the plan discount rate is applied to the current plan funding deficit, and this replaces interest cost and an assumed long-term return on assets. Finally, adjusted pension expense, as used by equity analysts regularly, is the unsmoothed, market-value-based calculation of pension expense, which attempts to capture the full income and cost for the period. It includes service cost, interest cost, and actual returns for the current period. 4 As shown in Figure 3, pension expense under the smoothed rules permitted by ASC 715 was only $85. When we applied international rules to the pension expense valuation, pension expense was closer to market reality, at $135, because the sometimes unrealistic return assumption was replaced with the plan liability discount rate. 5 But, when actual returns for the period (which we assumed were negative) 6 were reflected, pension costs exceeded returns by a wide margin, at $415. Figure 3 also details the impact of pension expense on income for this hypothetical plan. For the U.S. example, we focused on operating income because pension income flows through to it and because it is a critical part of income for corporate valuation. In this hypothetical case, the company net operating income was reduced from $800 to $715 when pension expense was included under the current ASC 715 (smoothed) rules. When adjusted (marked-to-market) expense was used, operating income after pension expense dropped to $385. In either case, the point is that plan sponsors must account for this risk metric and determine how comfortable they are with potential changes in pension income relative to company income. As with the balance sheet, we also suggest that a downside risk measure be considered. 4 Service cost is the actuarial present value of the projected benefits attributable to employee service in the current year. Interest cost is the increase in the benefit obligation associated with the passage of time during the year. 5 Net interest income in this case is zero because we assumed this plan was 100% funded. 6 Because pension return assumptions are long-term, it is not uncommon in the United States, particularly during bear markets for equities, for return assumptions (ROA, return on assets) to be positive when actual returns on plan assets are negative for the period. 6

7 Another factor to consider is how changes in pension income over time affect earnings volatility. A relevant measure of variation for pension and company operating income is standard deviation, which measures the dispersion of values around the mean. For example, if the (expected) standard deviation of pension expense is $40 and the mean pension expense is $90, a rough rule of thumb is that pension expense can be expected to fall between $50 and $130 roughly two-thirds of the time for the period estimated. 7 Finally, another way to measure the downside of volatility is simply to calculate the probability that future pension expense, or the ratio of pension expense to company operating income, will exceed a threshold level that is meaningful to the sponsoring company. For example, if the plan sponsor considers a pension expense/company operating income ratio of 30% to be too high, it could estimate the probability of exceeding that level at any time over the ten years following, based on the plan s given asset allocation. Other risk measures Corporate cash flow may also be at risk for pension plan sponsors, particularly given the more market-based funding requirements of the U.S. Pension Protection Act of 2006 (PPA). 8 It is advisable to evaluate future plan contributions under both expected and worst-case (downside) scenarios, as well as their potential impact on projected company cash flow. Also, because adjusted pension expense does not provide the accrual and delayed-recognition features allowed under accounting rules, it captures the actual cash changes related to the plan each year. As such, it is meaningful to compare it with company cash flow. Capital budgeting can also be affected by the pension plan s cash-flow needs. Thus, the impact of expected contributions on planned capital expenditures should also be considered, particularly for plan sponsors with many large projects. 9 Finally, plan sponsors may want to evaluate the implications for company profitability by examining mixed ratios, particularly those that combine items from the balance sheet and the income statement. Changes in plan expense or funding status could have an impact, for example, on a company s return on assets (ROA) or return on equity (ROE) ratios Assignment of a specific probability of outcomes depends on the actual statistical distribution of the random variable. This rule of thumb is roughly correct for normally distributed variables. 8 Federal funding relief has been provided post-ppa under MAP-21 (Moving Ahead for Progress in the 21st Century Act of 2012) and HATFA (Highway and Transportation Funding Act of 2014), each of which provides sponsors with the option of using longer-term averages for discount rates. This raises the discount rate and decreases liabilities for the period. This relief, however, often simply delays contributions as opposed to reducing them in total, thus effectively transferring the cash-flow risk to a later period. 9 We refer here to capital expenditure as an outlay of cash for a project expected to generate future cash inflows. Examples include investments in property; plant and equipment; research and development projects; and advertising projects. 10 ROA = net income/assets; ROE = net income/shareholder equity. 7

8 Mitigating risk through asset management Sponsors can mitigate plan risk and the impact of the plan on company finances through liability-driven investing (LDI) and portfolios designed to hedge liability duration. To illustrate the risk-reduction potential of an LDI strategy, we return to Company B. Assuming a decline in equity market returns of 20%, declining interest rates of 50 basis points, and two different asset allocations, we evaluated the impact on the Company B balance sheet, as shown in Figure 4. One allocation assumes a hedge on pension liability duration with 80% allocated to long-term bonds and 20% to broad-market equity. The other is a more typical allocation for a total-return portfolio: 60% broadmarket equity/40% broad-market bonds. The durationhedged portfolio would result in assets moving fairly closely with liabilities, and even with declines in both equity returns and interest rates, plan-funded status drops only 5% (as shown in Figure 4, from 100% to 95%). Plus, the company s leverage ratio in this case is basically unchanged. Compare this to the expected change in funded status for the 60% broad-market equity/40% broad-market bonds allocation. Funded status is expected to drop to 81% if rates decline 50 basis points and equity markets 20%. As a result, company shareholder equity decreases 9.8% (and its leverage ratio increases 23.8%, from 0.84 to 1.04). Note that although we are holding the rest of the company balance sheet static, in events that are negative for pension assets, the company performance and balance sheet may be suffering in other ways simultaneously. It s also important to consider that for sponsors using LDI, actual return (or expected return) is offset with interest cost consistently, and the pension-expense component, like the balance sheet, becomes very stable. This example illustrates how critical an LDI strategy can be, particularly for companies with relatively large plans. Conclusion As this paper has discussed, evolving rules for pensionplan accounting and funding can dramatically affect both the plans themselves and the sponsoring company financials. Increased transparency to improve stakeholders understanding of plan metrics, as well as more immediate recognition of market and rate volatility, are causing plan sponsors to rethink their asset allocation decision-making process. Because a pension plan now may be more likely to affect sponsors bottom line, the impact on the company will need to be given larger consideration in plan decisions. It is advisable to consider how the pension plan s assets and liabilities could affect the company s income, balance sheet, and cash flow, as well as metrics related to the company s financial statements. As this paper has emphasized, asset allocation decisions using such a corporate finance approach are made via an iterative process in which the plan sponsor chooses potential asset allocations and assesses the impact that each allocation is expected to have on the company s financial statements. Risk tolerance is then determined relative to that impact, to ultimately arrive at an allocation with projected and downside risks that the sponsor company is willing and able to accept. An LDI strategy for plan asset allocation can help a sponsor mitigate the increased risk to the company s financial statements as accounting rules continue to evolve toward a marketbased reality that more closely reflects total income and costs. Figure 4. Liability-driven investing mitigates plan and company risk Company B 80% long-term bonds/ 60% equity/ 20% broad-market equity 40% broad-market bonds Today: Plan 100% funded Future: Plan 95% funded Future: Plan 81% funded Total liabilities $1,945 $2,005 $2,173 Total shareholder equity $2,325 $2,265 $2,097 Total liabilities and shareholder equity $4,270 $4,270 $4,270 Reduction in shareholder equity 2.6% 9.8% Financial leverage ratio Note: Data in this chart are based on hypothetical plan assumptions. Source: Vanguard. 8

9 References Financial Accounting Standards Board of the Financial Accounting Foundation, Accounting Standards Codification Topic 715; available at Inglis, Evan R., and Jeffrey Sparling, Pension Derisking: Start with the End in Mind. Valley Forge, Pa.: The Vanguard Group. International Financial Reporting Standards Foundation and International Accounting Standards Board, International Accounting Standard 19; available at default.aspx. Stockton, Kimberly A., Fundamentals of Liability-Driven Investing. Valley Forge, Pa.: The Vanguard Group. 9

10 Appendix Figure A-1. Corporate finance risk metrics for pension plans Pension plan metric Description Purpose Balance sheet Expected and downside impact on shareholder equity Liabilities/shareholder equity Assets/shareholder equity Plan liability/company market cap Plan assets/company assets Probability of plan/company assets above threshold An estimate of expected and downside changes in plan liabilities and assets and how this affects company estimates of shareholder equity. An estimate of potential changes in liabilities and shareholder equity, given asset and liability projections for the plan and company estimates of shareholder equity. An estimate of potential changes in assets and shareholder equity, given asset and liability projections for the plan and company estimates of shareholder equity. Present value of plan-liability projections to company market-cap projections. Plan asset projections relative to company asset projections. For a given asset allocation, an estimate of the probability of the plan/company market cap beyond level that is acceptable to sponsor. To measure shareholder equity at risk. To assess financial leverage. To assess financial leverage. To assess balance-sheet vulnerability to pension plan. To assess balance-sheet vulnerability to pension plan. To assess downside risk and balancesheet vulnerability. Income statement Adjusted pension expense Expected and downside impact on operating income Standard deviation or coefficient of variation of pension expense Alternate measure of pension expense (not reported), calculated as: current period service cost + interest cost + actual returns. Unsmoothed. Attempts to capture full income and cost for the period. Estimates of expected and downside changes in pension earnings and how they will affect company estimates of operating income. Variability in pension expense, measured as dispersion from the mean. To measure earnings at risk in marked-to-market environment. To measure operating earnings at risk. To assess potential impact on earnings volatility. Mixed ratios Return on assets (ROA) Return on equity (ROE) An estimate of change in pension expense or funding status and its influence on company ROA (net income/assets). An estimate of change in pension expense or funding status and its influence on company ROE (net income/shareholder equity). To assess potential impact on company profitability ratio. To assess potential impact on company profitability ratio. Other Contributions/corporate cash flow Expected and downside impact on planned capital expenditures Source: Vanguard. Estimates of expected and downside contribution requirements and potential impact on company cash flow. Estimates of expected and downside contribution requirements and potential impact on project plans. To assess company cash flow at risk. To assess impact on capital budgeting. 10

11 Connect with Vanguard > vanguard.com For more information about Vanguard funds, visit vanguard.com or call to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. CFA is a registered trademark owned by CFA Institute. Vanguard Research P.O. Box 2600 Valley Forge, PA The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. ISGCFA