Investment Management Subcommittee of the
Retirement Plan Advisory Committee
May 14, 2012
A meeting of the Investment Management Subcommittee of the NSHE Retirement Plan Advisory Committee was held on May 14, 2012 at the System Administration Office in Reno.
Present: Kent Ervin, Chair; Michelle Kelley; and Pat LaPutt
Also Present: George Dombroski (NSHE) and Dan Pawlisch (Hewitt EnnisKnupp)
The meeting was called to order at 9:30 pm.
Dan Pawlisch reviewed the Investment Performance Report for 3/31/2012. The Committee asked that future quarterly reports include historical trends for the assets by vendors and plans (p. 3); a preface to the Review List explaining criteria with references to the Investment Policy Statement, Investment Fund Monitoring Guidelines, and the benchmarks listed in the performance section; that the Asset Allocation Manager pages be supplemented or replaced with graphical summaries and lists of top funds by assets and by current contributions; data on transfers among vendors; data on roll-in, roll-out, and in-service distributions; historical trend data on fees; and correct the TIAA-CREF plan credit.
Dan Pawlisch reviewed an updated version of the proposed Investment Fund Monitoring Guidelines. There was a lengthy discussion regarding the Guidelines and agreement that there needs to be more discussion before adoption. There was agreement that the adopted Guidelines will be posted to the NSHE website. Kent Ervin asked an explanation of the fund universes for the peer benchmarks and for a correction on page 3 of the Guidelines from “a red designation for both the quantitative and/or qualitative monitoring criteria” to “a red designation for both the quantitative and qualitative monitoring criteria”. For funds meeting these criteria, a formal recommendation from Hewitt EnnisKnupp in the form of a memo will provide the basis for consideration of action by the Committee.
Pawlisch reviewed the performance of the investment funds for the first quarter of 2012. There was discussion about recent underperformance of a number of funds including default target date funds from all three vendors. The Committee noted a reluctance to make major fund changes at this time in advance of the possible plan redesign process, but a desire to revisit this issue if an RFP is not launched by the fall of 2012. Pawlisch noted that it would be possible to conduct a competitive fund search specifically for the default target date funds.
There was lengthy discussion about when action should be taken when funds are underperforming. As an example of the process, Pawlisch reviewed his recommendation for closure of the Fidelity Magellan fund and Hewitt EnnisKnupp’s “Sell” recommendation for Magellan.
MOTION: Michelle Kelley moved that communication about underperformance should be directed to investors in funds that are indicated by Hewitt EnnisKnupp in the Review List either as Red for both quantitative and qualitative factors or as having been downgraded to a “Sell” recommendation. Pat LaPutt seconded. Motion passed unanimously.
Based on the Q1 2012 investment performance report, there was agreement that an e-mail communication from NSHE, with an initial draft to be provided by Pawlisch (by May 31), will be sent by the BCN and BCS Benefits Managers to investors in the following funds that meet the above criteria:
- Fidelity Magellan*
- Fidelity Blue Chip Value (pending further review of the recent manager change by Hewitt EnnisKnupp)
- Fidelity Stock Selector All Cap
- Fidelity Equity Income II
- Fidelity Value*
- Fidelity Value Strategies
- Fidelity Stock Selector Small Cap
The communication should include an explanation of the new process that generated the notification and the planned program review and links to the Aon Hewitt InBrief summary on the fund and the quarterly performance report (to be posted on the NSHE web site). George Dombroski was asked to request the list of participants who have assets in these funds from Fidelity. The target date for sending these communications is by August 1, 2012, to be coordinated with Fidelity for the communication look.
There was discussion about what investment performance information to post at the website as the performance monitoring discipline has still not been finalized.
MOTION: Michelle Kelley moved that the full performance report be posted absent the color indicators. Pat LaPutt seconded. Motion passed on a 2-1 vote.
Pawlisch was asked to modify the Investment Fund Monitoring Guidelines to include an AON Hewitt downgrade to a “Sell” recommendation as a qualitative trigger for a heightened level of review and consideration of a communication to participants or other action.
George Dombroski reviewed the status of a list of follow up items with the three vendors from the August 2011 and February 2012 meetings. Several items were added for agenda items for August: (1) TIAA-CREF loan administration, (2) TIAA-CREF northern Nevada office; (3) loan default monitoring; (4) TIAA-CREF update on incorporating personal rate of return on TIAA Traditional on quarterly statements; (5) TIAA-CREF response times for wealth management participants; (6)TIAA-CREF provide update on Plan Analyzer; (7) Fidelity process for handling lost/stale accounts. Dombroski was asked to keep the Subcommittee informed on the status of the follow up items.
Pawlisch reviewed the status of the new 408b2 regulations regarding disclosure of fees. He explained that there are separate rules for fee disclosures that service providers must make to plan fiduciaries and fee disclosures that fiduciaries must make to participants. There was agreement that fee disclosures from the service providers will be requested by August 1 to be discussed at the August meeting, and that the approach to be taken with regard to fee disclosures to participants will be discussed in August. Dombroski was directed to begin the process of requesting fee disclosures from covered providers, using the ERISA procedures as guidelines for best practices (Pawlisch to provide template for requests). It was agreed to defer the discussion of DOL participant fee disclosures to the August meeting.
There was discussion about the format for future semiannual vendor meetings. It was agreed to follow the traditional two-day format but focus on service issues and enhancements.
The meeting was adjourned at 12:35 pm.