Basic Policy for the Administration and Investment of Annuity Retirement Benefit
Association Reserve Fund
(Established on October 1, 2015)(Revised on March 9, 2018)(Last revised on March 31, 2020)
In accordance with Article 112-11, Paragraph (1), of the Local Public Service Mutual
Aid Association Act (Act No. 152 of 1962; the "Act"), the basic policy for administeringand investing the annuity retirement benefit (ARB) association reserve fund (the "Basic
Policy") for the National Federation of Mutual Aid Associations for Municipal Personnel(the "Federation") is established as follows.
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Basic policy for the administration and investment of the ARB association

reserve fund
1 Basic policy
The Federation shall manage the ARB association reserve fund with the objectiveof contributing to the stability of the ARB plan operations based on thecharacteristics of a cash-balance pension plan whose benefit level is linked togovernment bond yields, from a long-term perspective and in a safe and efficientmanner.
Accordingly, the Federation shall administer and invest the ARB association
reserve fund by establishing an asset mix from a long-term perspective (the"Benchmark Portfolio").
The Federation shall provide and publicly disclose a Basic Policy setting forth thematters related to the asset mix of ARB association reserve fund so as to ensure theappropriate administration and investment of the ARB association reserve fund. The
Federation shall also submit this Basic Policy to the Pension Fund Association for
Local Government Officials ("PAL"). In addition, if there is any revision to theadministration and investment policy of PAL as referred to in Article 112-10,
Paragraph (1) of the Act, or if the Federation determines it necessary, the Federation
shall review the Basic Policy and amend and publicly disclose it as necessary, andshall submit it to PAL.
2 Investment target
The investment of the ARB association reserve fund, which has the1characteristics of a cash-balance pension plan, shall be managed appropriately by
establishing the Benchmark Portfolio so that investment returns needed for the fund(i.e., assumed return (meaning the assumed return stipulated in Article 28,
Paragraph (5) of the Order for Enforcement of the Local Public Service Mutual Aid
Association Act (Cabinet Order No. 352 of 1962); the same applies hereinafter)) will
be generated with the minimum risk.
In so doing, the Federation shall pay attention not to distort, among other things,
price formation in the market and private sector investment activities.
3 Committees
The Federation establishes and utilizes the following committees:(1) Fund Management Committee
This is a committee consisting of members who possess academic
knowledge or practical experiences in areas such as economics, finance andfund management, which studies expert matters pertaining to the establishment
and revision of the Basic Policy and the administration and investment of the
ARB association reserve fund.
(2) Long-term Benefit Fund Committee
This is a committee also participated in by representatives of associations
constituting the Federation ("Member Associations"), which conducts researchand study relating to the Basic Policy for management of the ARB association
reserve fund and other important matters.
(3) Operational Management Committee
This is a committee also participated in by representatives of Member
Associations,

which

conducts

researchandmonitoringofbusiness

administration and fund management implemented by the Federation and theMember Associations, as well as assessment of business.
4 Fund management plan
For the management of the ARB association reserve fund, the Federation shallprepare an annual fund management plan at the beginning of each fiscal year and aquarterly fund management plan for each quarter, and shall manage the fundaccording to these plans. The Federation shall also submit these plans to PAL.
The fund management plan shall include the following.
(1) Outlook for cash flows
A Amount of short-term investment as of the end of the previous fiscal year2

B Expected revenues(A) Revenue from insurance premiums, etc.
(B) Refund of deposits with Member Associations(C) Return on short-term investment(D) Bond principal and interest, etc.
(E) Other revenues
C Expected expenditures(A) Benefit payment(B) Deposits with Member Associations(C) Payment to PAL(D) Money transferred to the administration accounting(E) Other expenditures
D Amount of short-term investment
E Amount of investment
F

Amount of short-term investment as of the end of the relevant fiscal period(2) Fund management policy
A In-house investment
B Investment of deposits by Member Associations
5 Risk management
With respect to the administration and investment of the ARB association reserve
fund, risk management shall be conducted for overall assets, each asset class, each
asset management institution, and in-house investments, by the below methods.
The implementation policy of this risk management shall be reported to the General
Assembly upon deliberation at the Fund Management Committee, and timely reportson the risk management status shall be made to the General Assembly and theFund Management Committee.
(1) Overall assets
In order to appropriately manage the Benchmark Portfolio, check the asset
mix of the ARB association reserve fund for any deviations from the Benchmark
Portfolio at least monthly, and take necessary actions.
Also, enhance necessary functions for understanding and analyzing market
trends.
Furthermore, check risks of overall assets and conduct the analysis andassessment of the degree of risk-taking and the analysis of factors for
deviations from the return needed for the fund.

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(2) Asset classManage risks associated with each asset class, including market risk, liquidity
risk and credit risk.
(3) In-house investment
Establish a guideline on investment, and manage risks appropriately by, forexample, checking the investment and risk-taking status.
(4) Asset management institutions
Present guidelines on asset management to each asset management
institution (the "Asset Management Guidelines"), understand the asset
management status of each institution, and manage it appropriately.
In addition, manage the credit risk of each institution and pay attention to any
changes to asset management structures.
6 Investment methods(1) Basic approach
In principle, all the amount, excluding short-term assets necessary for benefit
payments, shall be invested in domestic bonds and such bonds shall be held
until maturity (excluding cases where holding them until maturity is impossible
due to such reasons as benefit payments). In doing so, efforts shall be made toincrease the return upon controlling risks by appropriately selecting the types
and maturities of domestic bonds.
In this case, from the standpoint of reducing investment costs, in-house
investment shall be made in principle.
(2) Specific investment methods
A Matters relating to in-house investment(A) Basic policy
In order to contribute to the safe and efficient investment of the ARB
association reserve fund, part of the fund shall be administered andinvested in accordance with the following long-term and short-term
investment policies.
a Long-term investment
For domestic bonds, strive to make favorable investments overthe long term, taking into account the interest outlook and otherpoints.

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b Short-term investment
A short-term investment is an investment of resource funds forpension benefit payment, and efforts shall be made for favorable
investment in accordance with a monthly fund plan while securingsafety and liquidity as the first priorities, considering the investable
period and short-term interest rate trends.
(B) Financial institutions
For the selection of a partner financial institution for in-house
investment(long-term

andshort-term

investment),

standards

separately stipulated by the Federation considering credit risks andother factors shall be observed.
(C) Investment assets
a Long-term investment
Investment assets shall be the following yen-denominatedsecurities.
(a)

Government bonds(b)Municipal bonds(c) Bonds

issued

by

the

Japan

FinanceOrganizationfor

Municipalities(d) Bonds guaranteed by the national or local government
However, for bonds issued by the Japan Finance Organization for
Municipalities without government guarantee or bonds guaranteed by
local governments, limited to those rated A or above by a qualified
rating agency ("Qualified Rating Agency") set forth in Article 2 of the"Rating Agencies Separately Designated by the Commissioner of the
Financial Services Agency and Categories Separately Designated as
Being Equivalent to Rating by Qualified Rating Agencies According toStandard for Determining Whether the Adequacy of Equity Capital ofa Bank is Appropriate in Light of Circumstances such as Assets, etc.
Held by the Bank Pursuant to Article 14-2 of the Banking Act" (Public
Notice of the Financial Services Agency No. 28 of 2007), and for
unrated bonds, limited to those issued by juridical persons rated A orabove).
b Short-term investment
Investment assets shall be short-term government bonds,
financingbills,

deposits,

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negotiablecertificatesof

deposits,

commercial papers rated A or above by any of the Qualified Rating
Agencies, money management fund ("MMF") and free financial fund("FFF"). For assets other than deposits, MMFs and FFFs,
investment assets shall include those based on repurchaseagreements.
c Lending to other accounting
Lending to other accounting of the Federation shall be made inaccordance with a budget under the laws and regulations. However,no lending shall be made to the employees’ pension insurance
accounting or the transitional long-term accounting.
d Other investment
For the management of government and corporate bondinvestment trusts (excluding MMF and FFF), securities trusts, etc.,
the risks and returns related to investment instruments shall be fully
analyzed, and cancellation fees and other costs shall be considered
in a comprehensive manner.
e Considerations(a) Response to a credit rate cut of acquired bonds
For bonds other than government bonds, municipal bonds,
and bonds issued by juridical persons under special laws
(limited to those with a government guarantee), ratings shall bechecked on a regular basis, and shall be sold in principle if all
ratings fell below the designated level. However, if the salewould not be profitable, these bonds may be retained by paying
full attention to their credit risks and other factors.
(b) Time deposits
No new investment shall be made in instruments with apotential risk of loss of principal also considering fees at the timeof early cancellation.
(D) Entrustment of asset managementa The Federation may entrust a financial institution to manage its
in-house investment assets. The Federation shall ensure that theinstitution entrusted with asset management (an "In-house AssetManagement Institution") will perform the following:(a) Expressly provide in a contract, etc. that the financial institution
shall be bound to exercise its best efforts with loyalty, observing

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the duty of due care as an expert and solely for the benefit of theFederation as a principal in connection with the administrationand investment of the Federation's assets.
(b) Strictly administer and take custody of the Federation's assets,
clearly separating them from the financial institution's own
assets.
(c) Pay utmost care in securities delivery and settlement.
(d) Give sufficient consideration to credit risk, administrative
capability, costs, etc. when re-entrusting custody services or trust
assets.
(e) Submit data regarding the status of asset management at theend of every month and, on an as-needed basis, provide
necessary data and explanations.
(f) Observe laws, regulations, contracts, etc., establishing structures
to ensure the observance.
b If an In-house Asset Management Institution has engaged in any act
that violates laws and regulations, contracts, etc., the Federation
shall promptly request reporting and give instructions as necessary.
(E) Selection and evaluation of In-house Asset Management Institutions
a Selection of In-house Asset Management Institutions
In-house Asset Management Institutions shall be selected fromfinancial institutions that are engaged in trust services and meet thefollowing criteria.
(a) Business standing (e.g., capital, financial position, number of
employees, customers) is found to be stable.
(b) Asset management status is favorable.
(c) A structure for complying with laws and regulations is in place.
b Evaluation of In-house Asset Management Institutions
In-house Asset Management Institutions shall be evaluated in atimely manner through qualitative assessment with respect to theirasset management status and structures for complying with laws
and regulations, and their competence shall be determined.
c Addition or reduction of entrusted amountAn addition or reduction of entrusted amount, including thecancellation of a contract, shall be made based on the assessment
set forth in b, and in the case of an addition or reduction of the7amount of in-house investment due to the increase or decrease of
the balance of ARB association reserve fund, the entrusted amount
may be added or reduced giving priority to the policy decision of theFederation.
B Investment of deposits by Member Associations
Investment of deposits by Member Associations shall be made inaccordance with the following, and the necessary matters shall be
implemented after consultation between the Federation and Member
Associations according to the terms and conditions to be separately
determined by the Federation.
(A) Basic policy
Investment of deposits by Member Associations shall be made whileconsidering the purpose and nature of deposits and paying
consideration to safety and efficiency, in a manner contributing to theimprovement of the welfare of association members. In addition,
Member Associations shall make investment of deposits by fullyrecognizing that the fund for investment is a part of the entire fund forthe investment of ARB association reserve fund of all mutual aid
associations for municipal personnel.
(B) Responsibility of Member Associations
Member Associations are bound by the duty of loyalty and duty ofcare of a prudent manager, including careful management andinvestment, considering that they are investing funds for pensions ofassociation members and pension beneficiaries.
In particular, Member Associations shall not conduct transactions which
would be favorable for any accounting other than each Member
Association's accounting for the management of deposits (the "Annuity
Retirement Benefit Deposit Management Accounting") at the expenseof the profit of the Annuity Retirement Benefit Deposit Management
Accounting.
(C) Financial institutions, etc.
Partner financial institutions shall be selected in accordance withstandards to be separately provided by the Federation considering
credit risks and other factors.
(D) Investment assets
a Lending to other accounting

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Lending to other accounting of each Member Associations shallbe made in accordance with the standards to be separately provided
by the Federation.
b Short-term asset investment(a) The amount of short-term asset investment of each Member
Association shall be the minimum amount necessary forfacilitating lending to other accountings, and shall comply withthe terms and conditions separately provided by the Federation.
(b) Investment assets shall be deposits and negotiable certificates ofdeposits, and partnership financial institutions shall be allocatedin an appropriate way.
(c) No investment shall be made in instruments with a potential riskof loss of principal also considering fees at the time of earlycancellation.
(E) Administration and management considerations
Structure for the verification of compliance with laws and regulations
shall be developed.
(F) Discussion and reporta Member Associations shall consult with the Federation on investment
plans for each fiscal year.
b Member Associations shall summarize the results of investment andreport them to the Federation once a year.
c Member Associations shall provide explanation on the status ofmanagement, investment activities, etc. upon the request from theFederation, and the Federation shall give instructions on investment
as deemed necessary.
d Member Associations shall submit to the Federation a report on thestatus of fund management and investment as of the end of eachmonth, and the Federation may request the Member Associations tosubmit documents.
e In cases of any act in violation of laws and regulations, agreements,
etc., a Member Association shall immediately report it to theFederation and follow its instructions.
7 Investment considering non-financial elements
With respect to the investment of the ARB association reserve fund, the9necessary initiatives shall be implemented, based on a case-by-case analysis, witha view to promoting investment considering non-financial elements including ESG(environment, social and governance) in addition to financial elements based on theapproach that the sustainable growth of investee companies and the entire market isnecessary for the increase of return on investment portfolio over long time so as tosecure long-term return for the benefit of members..
8 Pooled investment
The Federation may manage the ARB association reserve fund by depositing itwith PAL.
II Matters to be observed in administering and investing the ARB association
reserve fund
1 Ensuring fiduciary responsibility
Thorough observance of the duty of care of a prudent expert and duty of loyalty
shall be ensured for all persons involved in the investment of the ARB association
reserve fund. This shall be stipulated in contracts, etc. with respect to contracts withasset management institutions, etc.
2 Consideration to impact on the market and private sector activities
In managing the ARB association reserve fund, the Federation shall, in light of themarket size, strive not to be excessively impacted by the market and not to distort,
among other things, price formation in the market and private sector investment
activities, especially by avoiding concentration in specific time periods for investingand exiting funds.
3 Securing liquidity for pension benefit payment
Based on the outlook of pension financing and the profit and loss status, theFederation shall secure liquidity (e.g., cash) necessary for the payment of pension
benefits, etc., and conduct cash management efficiently.
In doing so, necessary functions, such as for understanding and analyzing market
trends shall be enhanced so that funds will be secured without shortfalls by, forexample, smoothly selling assets, taking into consideration price formation in themarket.
4 Coordination among the Federation and other administration and investment

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institutions
In addition, the Federation shall cooperate with PAL and other administration andinvestment institutions in collaboration with each other with respect to the investment
operations of ARB association reserve funds by, for example, providing necessary
information.
III Matters concerning asset mix from a long-term perspective in administeringand investing the ARB association reserve fund
1 Basic approach to the Benchmark Portfolio
The Benchmark Portfolio, which shall have an asset mix in line with the investment
targets, shall be established from the long-term perspective in consideration ofgenerally accepted expert knowledge on asset administration and investment as wellas economic trends in and outside Japan, based on forward looking risk analyses.
The Federation shall report on the establishment of the Benchmark Portfolio to
the General Assembly upon deliberation at the Fund Management Committee, etc.
2 Benchmark Portfolio
The asset mix of the Benchmark Portfolio shall be as follows.
Domestic bonds
Asset mix

(Note) (1)100%

Short-term assets may be held to the extent necessary for pension
payment, etc.

(2) Short-term assets and loans are classified into domestic bonds.
3 Review of the Benchmark Portfolio
The Federation shall appropriately manage risks based on market trends, annually
verify the Benchmark Portfolio and, if it is considered necessary in specific cases,
such as that the investment environment assumed at the time of establishing theBenchmark Portfolio deviates from reality, examine the Benchmark Portfolio andrevise it as necessary. Any change to the Benchmark Portfolio shall be reported to
the General Assembly upon deliberation at the Fund Management Committee, etc. If
the Federation finds it necessary in consideration of market impact and other factors,
it shall establish a transition portfolio (meaning a transitional asset mix up until therealization of the Benchmark Portfolio) in order to smoothly transition to the revised

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Benchmark Portfolio.
IV Othernecessarymatters

concerning

appropriate

administrationandinvestment of the ARB association reserve fund
1 Framework for responsibility of Federation(1) Responsibility of Federation
For the investment of the ARB association reserve fund, the Federation shallestablish structures for the administration and investment and clarify the
structure of responsibilities according to the following.
A Committees
The Federation shall establish the Fund Management Committee,
Long-term Benefit Fund Committee, and Operational Management
Committee as set out in I.3 and shall manage them according to theguidelines on establishment of committees to be separately provided.
B Organizational structure for business administration
The Federation shall ensure the accuracy in execution of businesses withutmost care, and shall make efforts for the improvement of structure forbusiness administration by such way as strengthening the check andbalance function and documenting the details of business administration.
C Organizational structure for decision making
Decision-making shall be made according to the following processes.
Efforts shall be made for the improvement of an organizational structure fordecision-making.
(A) Gather and share necessary information.
(B) Any issues related to investment shall be sufficiently discussed at theorganizational level and recorded in the minutes of meetings, etc.
D Audit and internal control systems
The Federation shall have an auditor conduct a monthly audit, and, inparticular, make efforts for strengthening business audit and improving
internal control systems, including compliance.
(2) Responsibilities of persons in charge of investment management
For the investment of the ARB association reserve fund, especially keeping in
mind that the fund is a valuable resource for funding the long-term benefits ofassociation members, the Federation shall clarify its structure of responsibilities
and ensure that all persons engaged in the management of the ARB
association reserve fund fulfill fiduciary responsibilities (duty of loyalty and duty12

of care of a prudent manager).
2 Enhancing transparency
Regarding the administration and investment of the ARB association reserve fund,the Federation shall devise ways to make disclosure documents easier to understandby promptly publishing the status of administration and investment performance,such as investment returns and risks for each fiscal year by leveraging its website on
an annual basis (on a quarterly basis for quarterly status of administration andinvestment performance).
The Federation shall report on these matters to the General Assembly and FundManagement Committee, etc. in a timely manner.
When making such publication, attention shall be paid to market impacts.
3 Retaining and leveraging highly skilled and specialized talents
The Federation shall, if necessary, examine in detail the operations that require
advanced and specialized skills as well as the expertise required for such operations,and strive to retain highly skilled and specialized talents who have such expertise.
In addition, training shall be conducted by leveraging highly skilled andspecialized talents with the aim of enhancing performance of its staff.
The enhancement and development of specialized talents shall be promoted
actively, with reporting on the status made to the Fund Management Committee asnecessary and their opinions taken into consideration
4 Strengthening risk management
Necessary risk management systems shall be established. In addition, theFederation shall strive to enhance risk management by, for example, strengthening
forward-looking risk analysis functions, establishing risk management analysis tools,
and enhancing information collection and investigation functions as necessary.
5 Enhancing research and study operations
When conducting research and study operations, besides commissioning the work
to think tanks and other similar institutions, engaging staff including highly skilled andspecialized talents in the work shall be considered so that know-how on theadministration and investment of the ARB association reserve fund will be
accumulated within the Federation. If highly skilled and specialized talents are
employed, the establishment of a structure for expanding internal research and study

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activities by leveraging the talents shall be considered to accumulate know-how
obtained from the research and conduct the administration and investment of the
ARB association reserve fund safely and efficiently in the future.
In the case of commissioning the research, measures to prevent information leakshall be taken thoroughly.
6 Provision on necessary matters
Any necessary matters not provided for in this Basic Policy shall be separately
provided.
Supplementary Provisions
This Basic Policy comes into force from October 1, 2015.
Supplementary Provisions (March 9, 2018)
This Basic Policy comes into force from April 1, 2018.
Supplementary Provisions (March 31, 2020)
This Basic Policy comes into force from April 1, 2020.

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