Retirement Plan Advisory Committee
May 19, 2011
A meeting of the Retirement Plan Advisory Committee (RPAC) was held on May 19, 2011 via conference call.
Present: Michelle Kelley, Co-Chair; Henry Stone, Co-Chair; Kent Ervin; Pat LaPutt, Judy Stewart, Nasser Daneshvary, Carla Henson, Robb Bay, Irene Tucker, and Steven Streeper
Also Present: Bart Patterson and George Dombroski
The meeting was called to order at 8:05 am.
Michelle Kelley welcomed new members and thanked them for their willingness to serve. She gave a brief overview of the charge of the Committee. She said that the Committee would serve as a policy advisor to the Vice Chancellor Administrative & Legal Affairs and that meetings would provide a forum for discussing campus issues related to the Retirement Program.
Kent Ervin presented a recap of the scorecards provided by each of the three vendors summarizing their investment performance in 2010. He said the scorecards represent the RPAC’s effort to review performance on a consistent basis. Hank Stone observed that because a large portion of the assets under TIAA-CREF’s and VALIC's management is in the separate guaranteed accounts, it is difficult to make apples-to-apples investment performance comparisons with the other vendors. The RPA Manager was asked to communicate to TIAA-CREF and VALIC the Committee’s desire to receive next year's performance results both with and without the guaranteed accounts.
Mr. Ervin summarized that the five-year history shows real differences in performance among the vendors that is not fully explained by differences in expense ratios. He observed that higher expenses have not translated to better performance.
The Committee agreed that an annual review of scorecards is appropriate. There was discussion about disclosure of information to plan participants. It was agreed that dissemination of information about expense ratios is probably the most information that would be useful to participants. Pat LaPutt volunteered to send to the RPA Manager a draft expense ratio chart that had been developed previously.
There was a discussion about orientation of new members. Hank Stone suggested that it might be helpful to provide information on the Committee’s recent initiatives. Michelle Kelley said she will work in collaboration with the RPA Manager on a paper.
There was a brief discussion about the need for a long-term plan for the RPA. It was agreed that because of the large number of first-time participants on the Committee, serious discussion about a strategic direction should be postponed to a future meeting after everyone has been brought up to speed.
George Dombroski reviewed the progress achieved to date against the RPAC’s 2011 calendar year goals.
Hank Stone described the 1 ½ year history of RPAC efforts to drive expenses out of the retirement program for participants and negotiate revenue sharing arrangements with the vendors. He documented that almost $1 million in expense reductions and revenue sharing has been achieved so far.
George Dombroski reviewed the RPA Administration budget for FY 2011 that is being funded by revenue sharing arrangements with the vendors. He also presented a projected budget for the 2012-2013 biennium.
George Dombroski reported to the Committee that the Vice Chancellor Administrative & Legal Affairs was of the opinion that a portion of the RPA Administration budget could be allocated to the campuses and the System Office to cover administrative and personnel expenses incurred by the UNLV/BCS Benefits Manager, the BCN Benefits Manager and RPAC Co-Chair, and the System Counsel and RPAC Co-Chair to dedicated to Retirement Program administration. There was a discussion about how much of the RPA Administration budget to allocate. It was agreed that whatever the allocation, it should be dedicated exclusively to Retirement Program administration and not diverted to other purposes. Carla Henson made a motion to recommend to the Vice Chancellor that $20,000 or $25,000 be allocated, at his discretion, with the stipulation that the funds be specifically directed towards Retirement Program activities and with the request that the Committee receive an annual report on how the funds were spent. Nasser Daneshvary seconded the motion. The motion passed unanimously.
George Dombroski reviewed the status of the Request for Qualifications for an investment management consultant. He said that three finalists are being interviewed on June 13 and a recommendation should be ready by the August meeting.
George Dombroski reported to the Committee that following the January meeting, a letter of direction was presented to Fidelity instructing them to prospectively discontinue honoring requests for advisor fee billing arrangements while continuing to honor arrangements already in place but that Fidelity had reported back that it was unable to comply with the letter due to system limitations. According to Fidelity, fee billing must be either universally available or not available at all. The Committee was advised that Vice Chancellor’s signature on the letter of direction had been conditioned on the continuation of existing arrangements.
There was discussion about the pros and cons of fee billing arrangements. Mr. Patterson joined the meeting at this time and was asked about his conditional approval of the letter of direction. He explained that the participants who are using the service seem to find value in the service and he was not comfortable discontinuing the service. However, upon hearing that Fidelity is unable to comply with the letter of direction, he indicated his support for a prohibition of advisor fee billing arrangements.
Mr. Patterson welcomed the new Committee members and thanked them for their willingness to serve.
Mr. Patterson addressed two subjects:
1. Allocation of RPA Administration funds to the campuses and system office.
He indicated his support for an allocation of funds from the RPA budget but was undecided on the amount of the allocation but would be influenced to some extent by the amount of the reserves the RPA budget would likely accumulate based on projected revenues and expenses. He indicated that he had spoken with Mark Stevens, Vice Chancellor of Finance, about the subject of reserves and that Mr. Stevens was of the opinion that no more than 6 months of reserves should accumulate. The Committee relayed to him the motion it had adopted earlier on this subject and he indicated his support of that motion.
2. RPA contributions on Overload Compensation
He informed the Committee that he had been asked to address the inconsistency that exists within the System regarding treatment of overload compensation as eligible compensation for purposes of contributions to the RPA. He acknowledged that the issue is complicated by inconsistencies in terminology from campus to campus and by imprecision in the language in the plan document. He indicated that he is likely to issue next week an opinion that clarifies and affirms previous the previous legal opinion on this subject which allows institutions to permit RPA contributions for summer salary by moving those faculty members that they feel are performing work in the summer, which is clearly an extension of their full-time faculty regular responsibilities, to a temporary "A" contract in the summer months.
The Committee had a discussion about the difficulty it has been experiencing for some time in educating VALIC clients on the subject of the costs and benefits of the death benefit embedded in the annuity platform. Hank Stone presented a background on the subject and explained that VALIC had agreed in concept to create a set of additional funds to parallel the current annuity fund lineup which would be identical to the current lineup except that they would contain no death benefit. He indicated that the intention was to offer this parallel set of funds only to current annuity platform participants who might wish to continue their current investments but without incurring the expense of the death benefit.
There was an acknowledgement by the Committee that there is no appetite to attempt to compel current annuity participants to move their money out of annuities. Kent Ervin moved to require that as of January 1, 2012 all new contributions from new and continuing participants be directed to the mutual fund platform and prohibit any further contributions to the annuity platform. Hank Stone seconded the motion. In discussion following the motion Carla Henson observed that the subject is very complicated, that she was not comfortable voting on the subject, and suggested that other new members might not be comfortable.
Nasser Daneshvary moved that the subject be discussed in greater detail at the August meeting. Hank Stone seconded the motion. The motion passed by a vote of 9-1, Kent Ervin opposed.
The Committee listed the following topics for discussion at the August 19 meeting:
1. Continue discussion begun on May 19 about migrating VALIC annuity participants to mutual funds,
2. Review paper to be prepared by Michelle Kelley and George Dombroski on recent RPAC initiatives,
3. Discuss employee assessments,
4. Review the Retirement Program website,
5. Review a recommendation for an investment management consultant.
The meeting was adjourned at 11:05.