Retirement Plan Advisory Committee
February 1, 2013
A meeting of the Retirement Plan Advisory Committee (RPAC) was held on February 1, 2013 via video conference between the Las Vegas System Administration Office and Great Basin College.
Present: Michelle Kelley, Chair, Benefits Manager BCN; Kent Ervin, UNR Faculty Representative; Pat La Putt, Benefits Manager BCS; Spencer Stewart, NSC Faculty Representative; Mike Hardie, WNC Faculty Representative; Paul Thistle, UNLV Faculty Representative; Robb Bay, CSN Faculty Representative; Frank Daniels, Great Basin College Faculty Representative; Patricia Hughes, DRI Faculty Representative; Carla Henson, Retiree Representative
Also Present: George Dombroski and Hank Stone (NSHE); Dan Pawlisch (Hewitt EnnisKnupp)
The meeting was called to order at 8:40 am.
Hank Stone shared his experience at a recent Fidelity Advisory Board meeting, and commented that NSHE is the last employer represented on the Board to go through a plan consolidation.
Daniel Pawlisch led a discussion on fund options for the proposed Tier II investment lineup. He began by describing the redundancy of funds in the various style categories in the plan’s current form.
There was a discussion about default funds. Hank Stone expressed an interest in getting some sense of how designation of Fidelity as the default vendor has affected the flow of funds into TIAA traditional. HEK was asked for a comparison of the cash inflow into TIAA traditional and CREF stock funds for the last five years vs the cash inflow into those funds during the last five years that TIAA was the default fund.
Dan Pawlisch described the typical fund offerings in defined contribution plans and also the prevalence of passive vs active funds.
Mike Hardie expressed concern for the large number of account holders of TIAA Traditional. He indicated that in his opinion they need to be well served by the new plan structure. There was a general acknowledgement that whatever structure NSHE ends up with, TIAA traditional is going to be a significant factor in the fund lineup for a long time.
There was a discussion about the multiple structural options to be a part of the RFP and how complicated the RFP is likely to be. HEK will be responsible for the evaluation and analysis of the RFP responses and will present to the RPAC.
Kent Ervin observed that at the start of the plan review process, a small set of core funds was appealing to him but that he would find comfort in validation of that position by market data. HEK was asked to look at recent studies.
Pawlisch led a discussion on money market and index fund options. Rebecca Chow from HEK fixed income group joined by phone and led a discussion about three recommended government money market managers: JP Morgan, State Street and Vanguard. She reviewed the strengths and weaknesses of the three managers. There was a long discussion about the use of repurchase agreements by some of the managers as a means of boosting yield.
It was observed that some government money market funds have been rebating management fees to avoid negative returns. HEK reported that it is not clear whether rebates will be recouped in the future from fund returns when interest rates rise.
Rebecca Chow led a discussion about prime money market fund offerings from the same three recommended money market managers. She described the varying sector positioning of the three managers. She said the positioning of the funds is not static and is subject to change based on the managers’ judgment. She said that Vanguard tends to be a more static fund.
There was a discussion about safety. Chow said the funds focus on liquidity. She said HEK prefers larger companies with deeper pockets to cushion returns in the event of problems with some issues n the funds.
Chow was asked if any of the three funds were impaired during the recent credit crisis. She responded that some prime money market funds had experienced volatility but not the three recommended funds and that had there been a problem HEK believes the parent company would have come to the rescue.
There was a discussion about the relative merits of money market, stable value and guaranteed interest funds. Pawlisch observed that money market funds are more conservative but stable value funds offer a higher return. Hank Stone recommended that the committee choose a money market fund and a stable value fund and decide at a later point whether to offer both as core funds.
Motion: Mike Hardie moved to select Vanguard Prime Money Market Fund in the new investment structure as one of the core/tier 2 funds. Carla Henson seconded.
There was a discussion about the wisdom of possibly ending up with more Vanguard funds in the lineup than the committee is comfortable with. It was agreed that later in the process, the RPAC will take a look back at the entire portfolio and possibly make changes to earlier fund choices. The motion passed unanimously.
Dan Pawlisch led a discussion about broad index funds. There was a long discussion about the challenges presented by the lack of cooperation between Fidelity and TIAA CREF.
Rebecca Chow presented six recommended fixed income manager candidates, none of which exactly replicated the Barclays Aggregate Bond Index.
Motion: Kent Ervin moved that we use the Vanguard Total Bond Market Index Fund in the new investment structure as one of the core/tier 2 funds. Robb Bay seconded. The motion passed 7 to 1, Mike Hardie dissenting. Fidelity was a strong second choice.
Pawlisch led a discussion about US equity index funds. Corey Schier from HEK’s equity
group joined by telephone and reviewed/recommended passive equity manager candidates.
There was a long discussion about how broad of an index fund to use.
Motion: Mike Hardie moved to pick the Fidelity Spartan Total Market Index Fund in the new investment structure as one of the core/tier 2 funds. Pat LaPutt seconded. The motion passed unanimously. It was noted that the Vanguard Total Stock Market Index Fund was a strong second choice and when the Committee revisits the overall portfolio prior to roll-out this fund could be substituted if necessary.
Pawlisch led a discussion on non-US equity funds.
Motion: Kent Ervin moved to select Vanguard Total International Stock Index Fund in the new investment structure as one of the core/tier 2 funds. Pat LaPutt seconded. The motion passed unanimously. Fidelity Spartan Global ex-US Index Fund was a strong second choice and when the Committee revisits the overall portfolio prior to rollout this fund could be substituted if necessary.
Ruth Schau led a discussion about the upcoming RFP process. The Committee agreed to hold a special meeting in March to discuss a guaranteed income option and how to structure administrative fees.
In addition to the current three vendors, it was agreed that the RFP will be advertised and open to all qualified bidders. It was agreed that consideration would be given to large providers with some level of 403(b) business.
There was a discussion about the formation of an RFP subcommittee. It was agreed that the full committee would engage in the RFP process instead of a subcommittee.
It was agreed that there would be a second special meeting in March to discuss the Tier III investment lineup. George Dombroski was asked to coordinate the meeting dates in March. Dan Pawlisch was asked to have material out to the Committee 5 days in advance of the meetings so that those that can’t attend in person can provide input via email.
The meeting was adjourned at 4:00.
Prepared by: George Dombroski, Retirement Plan Alternative Manager