State Universities Retirement System of Illinois

Transcription

1 State Universities Retirement System of Illinois Serving Illinois Community Colleges and Universities 1901 Fox Drive Champaign, IL (217) (217) (FAX) Investment Department To: Investment Committee From: Michael L. Sheppard, CRC, & Lou Ann Fillingham, CPA Date: February 27, 2009 Re: Self-Managed Plan Annual Review The Self-Managed Plan (SMP) celebrated its 10 th anniversary on April 1, To date, over 21,450 members have participated in the SMP. As of December 31, 2008, there were 15,524 members with assets in excess of $512 million, including the SMP forfeiture account of more than $8.5 million and a disability reserve of over $44 million. A summary section has been included at the end of this document that recaps the history of the SMP. During calendar year 2008: Two additions were made to the SMP staff: Becky Grove, as Member Service Representative and Michael Sheppard, as Assistant Deputy Director, Fidelity Growth and Income Portfolio was terminated, effective February 1, 2008, and funds not transferred by participants were reallocated to the Hartford Capital Appreciation Y Fund, effective May 1, 2008, State match for the SMP disability fund decreased from 1.0% to 0.5% of earnings; therefore, increasing match to participant accounts from 6.6% to 7.1%, effective July 1, 2008, Retirement Choice (RC) Annuity, TIAA-CREF s mappable product, was adopted for future contributions, effective August 1, Funds within the Group Retirement Annuity (GRA) remained intact unless transfer to the new RC product was requested by participants, Four additional TIAA-CREF funds were added: TIAA Real Estate Account, Lifecycle Fund 2045, Lifecycle Fund 2050 and the Lifecycle Retirement Income Fund, Fidelity Low-Priced Stock Fund was reopened to investors, effective December 16, 2008, Thirty-eight employers attended the first SMP Employer Seminars. These were conducted in October at various sites throughout the state, and SMP Member Website was revised to offer additional information and a more user friendly format including access to graphical account value history, all SMP forms, links to valuable websites and on-line calculators. Demographic Information SMP membership demographics have reflected a ratio of 47% male to 53% female over the past ten years ended December 31, This ratio remains unchanged as males account for 47% of participants and females represent 53% of participants at the end of SURS academic-to-

2 staff ratio over the same ten-year period consistently has reflected 70% academic to 30% staff. This ratio changed slightly for SMP to end the 2008 calendar year at 68% academic and 32% staff. As of December 31, 2008, there were 100 SMP annuitants receiving benefits, as well as 21 SMP participants receiving disability benefits. The average active SMP participant is 44.3 years of age, has 5.4 years of service credit and has an account balance of more than $29,600. As shown on the following graph, the average age has steadily increased from 39.0 years of age and the average years of service credit have risen from 1.5 since calendar year Average Participant Age and Years of Service Average Age Average Years of Service The growth in the number of participants and the average account balance since inception of the SMP is indicated in the following graph. The SMP Average Plan Return for the one year period ending December 31, 2008, was %, down significantly from 8.02% in calendar year 2007 and 12.61% in calendar year The decline in average balance in 2008 as well as decrease return is directly related to the decline in the market for the same period of time. SMP Average Balances and Total Participants 50,000 40,000 30,000 20,000 10, Avg Balance Participants

3 The following SMP Participation Level Graph indicates the number of participants in SMP as of each quarter-end since inception of the Plan. As of December 31, 2008, there were 15,524 participants in the Plan, of whom 10,911 are active. The decline in the number of participants during late calendar year 2004 was the result of a new mandatory distribution policy. SMP members who met the criteria received a distribution of their account. This mandatory distribution process is no longer in force SMP Participation Level April December /98 3/99 3/00 3/01 3/02 3/03 3/04 3/05 3/06 3/07 3/08 Member Election The SMP election rate has averaged 15% for new hires since the inception of the Plan although it shows signs of trending downward as shown by the SURS Plan Elections by Quarter graph below. During 2008, 12.1% of new hires elected to participate in the SMP compared to 15.3% in 2007, 14.5% in 2006 and 12.3% in Of the 1,292 new hires electing the SMP in 2008, 6.2% defaulted into the Fidelity lifecycle funds. While the SMP election rate decreased this year, the number of members defaulting into the Traditional DB Plan remains fairly constant at 50.7% in 2008, 50.8% in 2007 and 50.9% in 2006, which is in line with similar systems. If a new hire does not choose one of the three SURS retirement plan options (Traditional DB Plan, Portable DB Plan, or SMP) within six months of employment, the new hire automatically is placed in the Traditional DB Plan. SURS Plan Elections by Quarter 70% Default 60% 50% Portable Self-Managed Traditional Percentage 40% 30% 20% 10% 0% Year / Calendar Qtr

4 Provider Utilization The table below illustrates how participant contributions are divided between providers as of December 31, Including participants invested in one or both providers, Fidelity is utilized by 70.7% of the participants and TIAA-CREF is utilized by 47.7% of members. The majority, 81.6% of participants, utilized only one provider. In 2008, 193 participants reallocated their contributions, 71 by phone to the Call Center and 122 by Internet. Allocation Statistics as of 12/31/08 Active Members Terminated Members Total % of Total 100% Fidelity 5,777 2,341 8, % 100% TIAA-CREF 3,014 1,537 4, % Fidelity and TIAA-CREF 2, , % Total 10,911 4,613 15,524 Financial Status The Schedule of Self-Managed Plan Asset Allocation below indicates that the aggregated participant asset allocation has become more conservative than prior years. Allocating the balanced fund assets between the underlying investments (e.g., 60% equity and 40% fixed income), 63.2% of total SMP assets are invested in equities, down from 74.9% in 2007, and 36.6% invested in fixed income, up from 25.1% in 2007, with the remaining 0.2% in Real Estate. This allocation reverses the trend of more aggressive investing as equity allocations have decreased from 68% five years ago. Schedule of Self-Managed Plan Asset Allocation As of December 31, 2008 U.S Stocks Non-U.S. Stocks Fixed Income Real Estate Total Balanced Funds $58,111,832 $7,619,919 $41,358,457 - $107,090,207 All Other Funds 183,501,753 41,232, ,898, , ,560,554 Asset Totals $241,613,584 $48,852,062 $168,256,751 $928,364 $459,650,762 % Total 52.6% 10.6% 36.6% 0.2% 100% The Schedule of Self-Managed Plan Investment Allocation on the following page shows the amount of assets invested in each of the 52 investment options as of December 31, Plan assets totaled $459,650,762, which corresponds to an average account balance of $29,600 per participant. Assets decreased $110 million in the past year. Net contributions totaled more than $86 million, up from $76 million in 2007; therefore, assets actually depreciated by $196 million. This schedule also shows that Fidelity has accumulated 53.2% of the assets and TIAA-CREF 46.8%, a slight change from 2007 when Fidelity had accumulated 55.7% of the assets and TIAA- CREF 44.3%.

5 Schedule of Self-Managed Plan Investment Allocation as of December 31, 2008 U.S. Stocks Non-U.S. Stocks Fixed Income Balanced Real Estate Total Fidelity Funds Actively Managed Fidelity Managed Income Portfolio 11,353,931 11,353, % PIMCO Total Return 11,158,963 11,158, % Fidelity Puritan 68,581,847 68,581, % Ariel 5,447,237 5,447, % American Beacon Large Cap Value 592, , % Buffalo Small Cap 1,018,979 1,018, % Hartford Capital Appreciation Y 9,836,766 9,836, % Fidelity Growth Company 16,127,918 16,127, % Fidelity Contrafund 23,251,943 23,251, % Fidelity Low Priced Stock 10,598,126 10,598, % Fidelity Diversified International 14,108,998 14,108, % Fidelity Worldwide 7,936,924 7,936, % Fidelity Real Estate 717, , % Fidelity Freedom ,697 42, % Fidelity Freedom ,212 56, % Fidelity Freedom 2010 (1) 680, , % Fidelity Freedom 2015 (1) 755, , % Fidelity Freedom 2020 (1) 2,074,773 2,074, % Fidelity Freedom 2025 (1) 2,134,400 2,134, % Fidelity Freedom 2030 (1) 2,972,086 2,972, % Fidelity Freedom 2035 (1) 2,182,824 2,182, % Fidelity Freedom 2040 (1) 2,029,368 2,029, % Fidelity Freedom 2045 (1) 558, , % Fidelity Freedom 2050 (1) 545, , % Fidelity Freedom Income 383, , % Passively Managed Fidelity U.S. Bond Index 10,712,605 10,712, % Fidelity Four In One Index 2,946,343 2,946, % Spartan Extended Market Index 5,404,788 5,404, % Spartan Total Market Index 3,624,581 3,624, % Spartan U.S. Equity Index 23,187,020 23,187, % Spartan International Index 3,329,754 3,329, % Fidelity Total 99,090,130 25,375,677 33,225,500 85,944, , ,353, % 53.2% TIAA-CREF Funds Actively Managed CREF Money Market Account 16,176,109 16,176, % TIAA Traditional Annuity 44,814,857 44,814, % CREF Bond Market Account 21,544,383 21,544, % CREF Inflation-Linked Bond Account 11,137,445 11,137, % CREF Social Choice Account 17,592,376 17,592, % CREF Growth Account (2) 155, , % CREF Stock Account 43,793,975 43,793, % CREF Global Equities Account 15,856,467 15,856, % TIAA Real Estate 210, , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Fund ,526 13, % TIAA-CREF Lifecycle Fund , , % TIAA-CREF Lifecycle Income 9,271 9, % Passively Managed CREF Equity Index Account 19,588,306 19,588, % TIAA-CREF Large-Cap Growth Index 20,873,858 20,873, % TIAA-CREF Total 84,411,623 15,856,467 93,672,794 21,146, , ,297, % 46.8% GRAND TOTALS $183,501,753 $41,232,144 $126,898,294 $107,090,207 $928,364 $459,650, % 9.0% 27.6% 23.3% 0.2% 100.0% SMP Forfeiture Reserve (3) 8,696,457 SMP Disability Reserve (3) 44,207,079 Total SMP Investments 512,554, As of December 31, 2008, the Fidelity Freedom Fund (lifecycle) series is the default fund for members who have selected the Self-Managed Plan, but have not yet selected individual mutual/variable annuity funds. 2. CREF Growth Account is no longer an approved option for the Self-Managed Plan. Assets remaining in the Account were invested prior to termination of this option. 3. These assets are commingled with the SURS defined benefit plan investments and accrue interest equal to the overall annual rate of return of the fund, net of fees.

6 Self-Managed Plan Performance December 31, 2008 Returns Inception Date Quarter 1 Year 3 Year 5 Year 10 Year Expense Ratio Fixed Rate Funds Bond Funds Balanced / Life Cycle Funds Real Estate CREF Money Market Account Apr % 2.4% 4.0% 3.2% 3.3% 0.54% imoney Net Money Fund Average 0.3% 2.0% 3.7% 2.9% 3.1% Fidelity Managed Income Portfolio Sep % 3.8% 4.1% 4.0% 4.7% 0.55% TIAA Traditional Annuity Jan % 5.3% 4.9% 4.7% 6.1% 0.45% EK&A Guaranteed Investment Contract Index 1.2% 4.7% 4.5% 4.2% 4.9% CREF Bond Market Account Mar % 1.2% 3.8% 3.5% 5.0% 0.58% Fidelity U.S. Bond Index Mar % 3.8% 4.5% 4.0% 5.3% 0.48% PIMCO Total Return Fund 3 Sep % 4.6% 5.7% 4.9% 6.0% 0.68% Barclays Capital Aggregate Bond Index 4.6% 5.2% 5.5% 4.7% 5.6% CREF Inflation Linked Bond Account May % -1.8% 2.9% 3.8% 6.5% 0.56% Custom Benchmark 1-3.5% -2.4% 3.1% 4.1% 6.8% Fidelity Real Estate Investment Portfolio Fund Nov % -38.2% -13.6% -0.1% 7.2% 0.88% DJ Wilshire Real Estate Securities Index -40.4% -39.8% -12.4% 0.6% 7.3% TIAA REA reported one quarter in arrears: TIAA Real Estate Account (5) Oct % 1.0% 9.9% 10.8% 9.0% 0.84% REA Composite Index (4) 2.5% 10.6% 12.5% 11.0% 10.4% CREF Social Choice Account Mar % -23.5% -4.0% 0.2% 1.5% 0.59% Custom Benchmark % -22.2% -2.8% 1.0% 2.2% Fidelity Four-in-One Index Jun % -32.6% -6.2% -0.3% N/A 0.23% Custom Benchmark % -33.0% -6.2% -0.2% N/A Fidelity Puritan Apr % -29.2% -4.8% -0.3% 2.0% 0.61% Custom Benchmark % -21.5% -2.7% 1.6% 3.5% Fidelity Freedom 2000 Oct % -14.0% -1.1% 1.0% 2.8% 0.51% Custom Benchmark 1-5.1% -9.4% 1.1% 2.4% 3.3% Fidelity Freedom 2005 Nov % -24.5% -4.0% 0.0% N/A 0.64% Custom Benchmark % -19.5% -1.7% 1.5% N/A Fidelity Freedom 2010 Oct % -25.3% -4.2% -0.1% 2.2% 0.65% Custom Benchmark % -20.5% -2.1% 1.4% 2.6% Fidelity Freedom 2015 Nov % -27.2% -4.7% 0.1% N/A 0.67% Custom Benchmark % -22.4% -2.4% 1.6% N/A Fidelity Freedom 2020 Oct % -32.1% -6.3% -0.6% 1.5% 0.72% Custom Benchmark % -27.8% -4.3% 0.7% 1.6% Fidelity Freedom 2025 Nov % -33.7% -6.9% -0.8% N/A 0.73% Custom Benchmark % -29.3% -4.8% 0.6% N/A Fidelity Freedom 2030 Oct % -36.9% -8.0% -1.3% 0.7% 0.76% Custom Benchmark % -33.3% -6.3% -0.2% 0.6% Fidelity Freedom 2035 Nov % -37.8% -8.4% -1.5% N/A 0.77% Custom Benchmark % -34.0% -6.6% -0.3% N/A Fidelity Freedom 2040 Sep % -38.8% -8.8% -1.6% N/A 0.78% Custom Benchmark % -35.3% -7.1% -0.6% N/A Fidelity Freedom 2045 Jun % -39.2% N/A N/A N/A 0.78% Custom Benchmark % -35.8% N/A N/A N/A Fidelity Freedom 2050 Jun % -40.6% N/A N/A N/A 0.80% Custom Benchmark % -37.3% N/A N/A N/A Fidelity Freedom Income Oct % -12.1% -0.7% 1.1% 2.8% 0.49% Custom Benchmark 1-4.0% -7.2% 1.6% 2.6% 3.5% TIAA-CREF Lifecycle 2010 Fund Oct % -23.6% -3.3% N/A N/A 0.62% Custom Benchmark 1-9.1% -19.1% -1.7% N/A N/A TIAA-CREF Lifecycle 2015 Fund Oct % -26.9% -4.4% N/A N/A 0.63% Custom Benchmark % -22.6% -2.7% N/A N/A TIAA-CREF Lifecycle 2020 Fund Oct % -30.3% -5.7% N/A N/A 0.64% Custom Benchmark % -25.9% -4.0% N/A N/A TIAA-CREF Lifecycle 2025 Fund Oct % -33.5% -6.9% N/A N/A 0.65% Custom Benchmark % -29.2% -5.3% N/A N/A TIAA-CREF Lifecycle 2030 Fund Oct % -36.5% -8.1% N/A N/A 0.65% Custom Benchmark % -32.4% -6.6% N/A N/A TIAA-CREF Lifecycle 2035 Fund Oct % -38.2% -8.6% N/A N/A 0.66% Custom Benchmark % -34.1% -7.2% N/A N/A TIAA-CREF Lifecycle 2040 Fund Oct % -38.1% -8.3% N/A N/A 0.66% Custom Benchmark % -34.1% -6.9% N/A N/A TIAA-CREF Lifecycle 2045 Fund Nov % -38.9% N/A N/A N/A 0.68% Custom Benchmark % -34.1% N/A N/A N/A TIAA-CREF Lifecycle 2050 Fund Nov % -38.9% N/A N/A N/A 0.67% Custom Benchmark % -34.1% N/A N/A N/A TIAA-CREF Lifecycle Retirement Income Fund Nov % -17.5% N/A N/A N/A 0.61% Custom Benchmark 1-5.7% -13.1% N/A N/A N/A

7 Self-Managed Plan Performance December 31, 2008 Returns Inception Date Quarter 1 Year 3 Year 5 Year 10 Year Expense Ratio CREF Stock Account Aug % -39.7% -8.6% -1.5% -0.7% 0.62% Custom Benchmark % -38.5% -8.2% -0.9% -0.2% Fidelity Contrafund May % -37.2% -5.7% 2.3% 2.8% 0.89% Hartford Capital Appreciation Y Fund 3 Jul % -45.9% -9.8% 0.1% 6.5% 0.72% Spartan Total Market Index 3 Nov % -37.2% -8.4% -1.8% -0.7% 0.10% Wilshire 5000 Stock Index -22.9% -37.2% -8.4% -1.7% -0.6% CREF Equity Index Account Apr % -37.5% -9.0% -2.3% -1.1% 0.56% Russell 3000 Stock Index -22.8% -37.3% -8.6% -2.0% -0.8% Fidelity Low-Priced Stock Fund % -36.2% -8.1% 0.6% 8.0% 0.99% Russell 2000 Value Stock Index -24.9% -28.9% -7.5% 0.3% 6.1% U.S. Equity Funds CREF Growth Account 2 Apr % -39.8% -9.5% -3.6% -4.9% 0.63% TIAA-CREF Large-Cap Growth Index Fund Oct % -38.7% -9.4% -3.8% N/A 0.34% Custom Benchmark % -38.4% -9.1% -3.4% -4.1% Fidelity Growth Company Jan % -40.9% -8.1% -0.2% 1.6% 0.94% Russell 3000 Growth Index -23.2% -38.4% -9.1% -3.3% -4.0% American Beacon Large Cap Value Plan Ahead 3 Jul % -39.6% -9.6% -0.7% 1.7% 0.84% Russell 1000 Value Index -22.2% -36.8% -8.3% -0.8% 1.4% International/ World Equity Funds Ariel Fund 3 Nov % -48.3% -17.5% -7.1% 1.5% 1.03% Russell Midcap Value Index -27.2% -38.4% -10.0% 0.3% 4.5% Buffalo Small Cap Fund 3 Apr % -29.8% -7.3% 1.2% 10.9% 1.00% Russell 2000 Growth Index -27.4% -38.5% -9.3% -2.4% -0.8% Spartan Extended Market Index 3 Nov % -38.5% -9.2% -0.6% 1.5% 0.10% Wilshire 4500 Stock Index -26.5% -39.0% -9.5% -0.8% 1.6% Spartan U.S. Equity Index 3 Feb % -37.0% -8.4% -2.3% -1.5% 0.10% S&P 500 Index -21.9% -37.0% -8.4% -2.2% -1.4% CREF Global Equities Account May % -42.3% -8.9% -1.2% -1.0% 0.66% Fidelity Worldwide May % -40.2% -6.0% 1.2% 3.0% 1.04% MSCI World Index -21.8% -40.7% -8.1% -0.5% -0.6% Fidelity Diversified International % -45.2% -8.0% 1.8% 5.3% 0.93% Spartan International Index 3 Nov % -41.4% -6.5% 2.2% 1.1% 0.20% MSCI EAFE Index -20.0% -43.4% -7.4% 1.7% 0.8% GENERAL NOTES: A. The total returns shown represent past performance and are not intended to portray future returns. Total returns and the principal value of investments in the accounts will fluctuate; therefore, upon redemption, your account value may be worth more or less than its original amount. Investment results are after all investment, administrative, and distribution expenses have been deducted. Funds invested are neither insured nor guaranteed by the U.S. Government. B. Benchmark indices do not take into account any fees or expenses of the individual securities that they track, and individuals cannot invest directly in any index. FOOTNOTES: 1. Custom Benchmarks are a composite blended return of market indices in the same proportion as the fund s current investment strategy. The table below displays the custom benchmark composition used to evaluate the respective SMP fund. A detailed explanation of custom benchmarks is available under SMP on the SURS website at 2. The CREF Growth Account is no longer an approved investment option for the SMP. The account was closed to new investors and contributions on July 30, This fund is available to SMP participants through Fidelity Investments. 4. An explanation of the TIAA Real Estate Account composite benchmark index may be found at 5. The TIAA Real Estate Account returns are calculated as of 10/1/1998, not the Account's official inception date of 10/1/1995, in order to be comparable with the inception timeframe of the REA Composite Index.

8 Current Initiatives Socially Responsible Investment Funds Several socially responsible investment (SRI) funds are being investigated for possible addition to the SURS SMP fund lineup. At this time only one socially responsible fund is available, the CREF Social Choice Account. Retirement Education seminars Several Retirement Education seminars have been scheduled for spring and fall of this year. Account maintenance, insurance options, estate planning, Social Security and Discovering What s Next in Your Life will be discussed. TIAA-CREF and Fidelity staff will provide education on asset allocation and rebalancing as well as answers to specific fund questions. Webinars Webinars addressing the same topics as the Retirement Education seminars are being scheduled throughout the year and will be recorded for discretionary playback by participants and employers. Providing advice to our participants January 16, 2009, The Department of Labor (DOL) finalized a rule to make investment advice more accessible for participants. Several congressmen have threatened to block the investment advice regulation and have stated, As we transition to a new administration, we will use every tool at our disposal to block implementation of this harmful regulation. Acting per request of the new administration, the most recent DOL proposal calls not only for public comment about the proposed rule implementation delay from March 23 to May 22, 2009, but about the policy issues in the rule itself. Consequently it is suggested the choice to offer increased education and advice be delayed pending clarification and possible future action. Administrative Issues The providers and SURS staff continue to work well together. With the adoption of the TIAA- CREF Retirement Choice Annuity, there was a great deal of correspondence and coordination between SURS, TIAA-CREF and our participants. The adoption process went smoothly with very few exceptions. Participant feedback was minimal. Fidelity continues to provide excellent service and has been very responsive to any SURS request or concern. Detailed reviews of each provider will be provided later in the year. The TIAA-CREF review will be presented in April and the Fidelity review will be presented in October. Consultant Comments In general, the level of sophistication and knowledge among defined contribution (DC) participants has increased over time. A trade-off exists between flexibility and complexity in determining the appropriate number of options for a plan. When combined with an effective communication/education program, participants typically favor a higher number of investment options. Consequently, the average number of investment options in DC plans has also increased

9 over time. The average number of investment options has increased from six in the early 1990s to approximately 18 in the most recent survey (according to PSCA s 51st Annual Survey of Profit Sharing and 401(k) Plans). It is interesting to note, however, the increasing trend in the number of investment options has appeared to level off over the last few years. The SURS Self-Managed Plan currently offers 32 investment options (counting each set of target retirement date funds as one option), which is well above the average number. As far as types of investment options, SURS is also offering a similar array of funds as peer plans. Investment Options Commonly Offered Relative to PSCA Survey Plans with 5,000+ Fund Type SURS SMP Participants All Plans Actively Managed U.S. Stock Fund Yes 75% 77% U.S. Stock Index Fund Yes Company Stock N/A Real Estate Fund Yes Other Sector Fund No 8 13 Actively Managed International/Global Stock Fund Yes International Stock Index Fund Yes Bond Fund Yes Indexed Bond Fund Yes Stable Value Fund Yes Cash Equivalents Yes Balanced Fund Yes Target Retirement Yes Other Lifestyle Funds No Self-directed No The only types of investment options that SURS is not offering compared to some peer plans are other sector funds, lifestyle funds, and a self directed window. Since SURS does offer lifecycle funds, we believe the addition of lifestyle funds would be redundant. We do not advocate adding sector funds or self directed windows to most DC plans because we believe they can add unintended risk to a portfolio. Also, a self directed window can be expensive and difficult to monitor. EnnisKnupp believes it should be the goal of DC plan sponsors to provide the central tools and features that DB investors expect today, such as reduced costs, streamlined investment programs, and automatic investing features, to help DC participants be more successful in their retirement financial planning. SURS has been successful in many of these regards. The Self Managed Plan offers low-cost investment vehicles, including an array of very low-cost index funds. The addition of the target retirement funds in 2005 was also a strong benefit. These funds help combat one of

10 the biggest problems in DC plans; the inability of participants to implement an asset allocation strategy that meets their needs. By allowing automatic rebalancing based on a participant s expected time horizon, target-date retirement funds help ensure that participants are setting an appropriate asset allocation strategy. As the overall asset allocation decision has by far the largest impact on a portfolio s performance over time, this automatic feature provides a tremendous advantage to participants who are invested in these funds. The SURS SMP is a well structured and serviced retirement plan for participants. Both of the SMP providers, Fidelity and TIAA-CREF, are large, committed players in the recordkeeping market.

11 SELF-MANAGED PLAN HISTORY April 1, 1998 Retirement choice election begins for all SURS employees and employees of select institutions. Each institution must elect to participate in the SMP prior to employees of that institution becoming eligible to choose one of the retirement options. Initial enrollment procedure allows members to select a retirement plan. If the member selects the SMP, another packet of information is mailed which allows the member to allocate funds to the three providers - Aetna, ICMA-RC, and TIAA-CREF. In addition to serving as an investment provider, ICMA-RC serves as the record keeper for the SMP. The service providers and their respective investment options are shown below. Aetna ICMA-RC TIAA-CREF Aetna Stable Value ICMA-RC Plus Fund CREF Money Market Acct. Aetna Bond Fund ICMA-RC U.S. Treasury Securities Fund TIAA Traditional Annuity Evergreen Foundation ICMA-RC Core Bond Index CREF Bond Market Acct. MFS Total Return PIMCO Total Return Fund CREF Stock Acct. Neuberger Berman Socially Responsible ICMA-RC Conservative Growth Fund CREF Equity Index Acct. Aetna Growth and Income Fund ICMA-RC Traditional Growth Fund CREF Growth Acct. Aetna Index Plus Fund ICMA-RC Long-Term Growth Fund CREF Global Equities Acct. MFS Mass. Investors ICMA-RC International Fund CREF Social Choice Acct. Aetna Growth Fund Vanguard Wellington Fund MFS Research Fund Fidelity Growth and Income Fund Aetna Small Company Fund Vanguard Index 500 Ariel Fund ICMA-RC Growth Stock Fund Neuberger Berman Genesis Trust Fidelity Contra Fund Aetna International Investment Company of America Janus Worldwide Mid/Small Cap Index American Century Ultra Investors Templeton Global Smaller Company Fund March 11, 1999 Approved adding the CREF Inflation-Linked Bond Account as an SMP investment option beginning July 1, March 9, 2000 Retained TIAA-CREF as Investment Provider for the Self-Managed Plan and exercised the first one-year option on the contract. Retained ICMA-RC as Investment Provider and Service Agent for the Self-Managed Plan and exercised the first one-year option on the contract. Retained AETNA as Investment Provider for the Self-Managed Plan. Approved the Aetna Balanced Fund as an investment option (default fund for Aetna) for the Self-Managed Plan and approved the TIAA-CREF 60% CREF Stock/40% CREF Bond fund as an investment option (default fund for TIAA-CREF) effective July 1, Approved the termination of Evergreen Foundation Fund as an investment option for the Self-Managed Plan.

12 SELF-MANAGED PLAN HISTORY The one-step enrollment process was implemented in May The one-step process requires SURS staff to record all SMP participants investment choices at the time they enroll. Legislation signed by Gov. Ryan on July 6, 2000, provides new hires six months (vs. 60 days) to choose between SURS' three retirement options: Traditional, Portable, or Self-Managed Plan. In a related amendment, employees hired since April 1998 who previously had 60 days to choose, but failed to do so and thus defaulted into the Traditional Benefit Package, were given a new sixmonth window to an election. Employees who have already made an election will continue with that option since retirement option choices, once made, are irrevocable. June 8, 2000 Approved SURS assuming the service agent functions of the Self-Managed Plan. March 22, 2001 Retained TIAA-CREF as Investment Provider for the Self-Managed Plan with a new 3-year contract to be negotiated. Retained ICMA-RC as Investment Provider for the Self-Managed Plan with a new 3-year contract to be negotiated. Retained ING/AETNA as Investment Provider for the Self-Managed Plan with a new 3-year contract to be negotiated. July 1, 2001 SURS assumes the service agent role. March 28, 2002 Retained ING Aetna as an investment provider for the Self-Managed Plan. Retained ICMA-RC as an investment provider for the Self-Managed Plan. Retained TIAA-CREF as an investment provider for the Self-Managed Plan. Approved the termination of Aetna Growth & Income Fund as an investment option for the Self-Managed Plan. June 6, 2002 Approved the termination of the ING Small Company Fund as an investment option for the Self- Managed Plan with contributions to be redirected to the Neuberger Berman Genesis Trust. September 26, 2002 Replaced ICMA Retirement Corporation with Fidelity Investments as a Service Provider in the SMP. Target date for transition to occur is April 1, Initial Fidelity fund line-up is shown below. Fidelity Managed Income Portfolio Fidelity U.S. Bond Index Fund PIMCO Total Return Fund Fidelity Four-in-One Index Fund Fidelity Puritan Fund Spartan U.S. Equity Index Fund Spartan Total Market Index Fund Fidelity Growth & Income Portfolio Fidelity Magellan Fund Fidelity Contrafund Spartan Extended Market Index Fund Fidelity Growth Company Fund Fidelity Low-Priced Stock Fund Spartan International Index Fund Fidelity Diversified International Fund

13 SELF-MANAGED PLAN HISTORY March 20, 2003 Retained ING as an investment provider for the Self-Managed Plan. Retained TIAA-CREF as an investment provider for the Self-Managed Plan. Approved the following mapping schedule from ICMA to Fidelity on April 1, Fixed Rate Funds Vantage Trust Plus Fund Fidelity Managed Income Portfolio Bond Funds Vantage Trust U.S. Gov t Securities Fidelity U.S. Bond Index Fund Vantage Trust Core Bond Index Fidelity U.S. Bond Index Fund Total Return Fund Institutional Shares PIMCO Total Return Fund (Administrative) Balanced Funds Vantage Trust Conservative Growth Portfolio Fidelity Puritan Fund Vantage Trust Traditional Growth Portfolio Fidelity Puritan Fund Vantage Trust Long-Term Growth Portfolio Fidelity Puritan Fund SURS Wellington Fidelity Puritan Fund U.S. Equity Funds VT Fidelity ContraFund Fidelity Contrafund VT Fidelity Growth & Income Fund Fidelity Growth & Income Fund America Fund Fidelity Growth & Income Fund VT American Century Ultra Fund Fidelity Growth Company Fund Vantage Trust Growth Fund Fidelity Growth Company Fund Vantage Trust Mid & Small Cap Index Spartan Extended Market Index Fund VT Calvert Social Investment Fund Spartan U.S. Equity Index Index 500 Fund Spartan U.S. Equity Index International Equity Funds Vantage Trust International Fund Fidelity Diversified International Fund Global Smaller Companies Fund Fidelity Diversified International Fund June 19, 2003 Authorized the termination of ING as a service provider pending the Governor s signing of HB3183. July 24, 2003 Governor Blagojevich signed legislation eliminating the restriction requiring at least two of the SMP Service Providers be insurance companies, thus allowing SURS to reduce the number of Providers. August 1, 2003 In an effort to reduce administrative costs, investment costs, and improve overall plan efficiencies, SURS terminated its relationship with ING as an SMP Service Provider. The termination is effective December 8, ING will not be replaced. The SMP will continue with two Service Providers (Fidelity and TIAA-CREF).

14 SELF-MANAGED PLAN HISTORY September 18, 2003 Approved the retention of Fidelity as a service provider for the SMP. Approved the addition of Fidelity Worldwide Fund and Ariel Fund as options provided by Fidelity. Approved the following mapping schedule of ING to Fidelity to occur on December 10, Fixed Rate Funds ING Stable Value Fidelity Managed Income Portfolio Bond Funds ING Bond Fund Fidelity U.S. Bond Index Balanced Funds ING Balanced Fund Fidelity Puritan MFS Total Return (A) Fidelity Puritan U.S. Equity Funds ING Index Plus Fund Spartan U.S. Equity Index MFS Mass. Investors (A) Fidelity Growth & Income ING Growth Fund Fidelity Growth Company MFS Research Fund Fidelity Contrafund Ariel Fund Ariel Fund Neuberger Berman Genesis Trust Fidelity Low-Priced Stock Fund International Equity Funds ING International Growth Fund Fidelity Diversified International Janus Worldwide Fidelity Worldwide December 10, 2003 Approximately $30.8 million and 3,926 member accounts transferred from ING to Fidelity. Updated investment options by provider are shown below. Fidelity Fidelity Managed Income Portfolio Fidelity U.S. Bond Index PIMCO Total Return (Administrative) Fidelity Four In One Index Fidelity Puritan Ariel Fund Fidelity Contrafund Fidelity Growth & Income Fidelity Growth Company Fidelity Low-Priced Stock Fund Fidelity Magellan Fund Spartan Extended Market Index Spartan Total Market Index Spartan U.S. Equity Index Fidelity Diversified International Spartan International Index Fidelity Worldwide TIAA-CREF TIAA Traditional Annuity CREF Money Market Account CREF Bond Market Account TIAA Inflation Linked Bond CREF Social Choice Account CREF Stock Account CREF Equity Index Account CREF Growth Account CREF Global Equities Account

15 SELF-MANAGED PLAN HISTORY May 6, 2004 Retained TIAA-CREF as a service provider for the Self-Managed Plan. Terminated the CREF Growth Account and added the TIAA-CREF Large-Cap Growth Index Fund. August 1, 2004 Fidelity Low-Priced Stock Fund closed to new investors. Fidelity s decision to close the fund to new contributions was based on the need to help its manager deal with the large cash position in the fund. September 23, 2004 Retained Fidelity Investments as a service provider for the Self-Managed Plan. Approved the removal of Fidelity Magellan Fund from the SMP with assets mapped to the Fidelity Contrafund. Approved the appointment of Principal Financial Group as an annuity provider for the SMP. Approved the inclusion of Fidelity s LifeCycle Funds as an investment option for the SMP; these funds became effective December 7, Fidelity Freedom 2000 Fund Fidelity Freedom 2005 Fund Fidelity Freedom 2010 Fund Fidelity Freedom 2015 Fund Fidelity Freedom 2020 Fund Fidelity Freedom 2025 Fund Fidelity Freedom 2030 Fund Fidelity Freedom 2035 Fund Fidelity Freedom 2040 Fund Fidelity Freedom Income Fund December 1, 2005 Principal Financial Group became an annuity provider for the SMP. July 5, 2006 Fidelity Freedom Fund series became the SMP default fund, replacing the Fidelity Puritan Fund and the TIAA-CREF default allocation of 60% CREF Stock Account and 40% CREF Bond Account. Fidelity Freedom 2045 and 2050 Funds were added as investment options for the SMP. July 8, 2006 TIAA-CREF implemented its new platform for SURS SMP. September 18, 2006 TIAA-CREF lifecycle funds became an investment option for the SMP. TIAA-CREF Lifecycle 2010 Fund TIAA-CREF Lifecycle 2015 Fund TIAA-CREF Lifecycle 2020 Fund TIAA-CREF Lifecycle 2025 Fund TIAA-CREF Lifecycle 2030 Fund TIAA-CREF Lifecycle 2035 Fund TIAA-CREF Lifecycle 2040 Fund

16 SELF-MANAGED PLAN HISTORY October 1, 2006 The Fidelity per participant quarterly administrative fee was eliminated. December 8, 2006 Approved three additional funds as investments for the SMP, effective February 1, 2007: American Beacon Large Cap Value Plan Ahead Fund, Buffalo Small Cap Fund, Fidelity Real Estate Investment Portfolio Fund. September 21, 2007 Approved as amended the revised SMP Investment Policy. October 25, 2007 Approved the termination of the Fidelity Growth and Income Portfolio as an investment option for the Self-Managed Plan with contributions to be redirected to the Hartford Capital Appreciation Y Fund, effective February 1, February 1, 2008 Assistant Deputy Director of SMP was hired. May 1, 2008 Funds remaining in the Fidelity Growth and Income Portfolio were reallocated to the Hartford Capital Appreciation Y Fund. June 13, 2008 Approved the transfer of TIAA-CREF funds currently in the SMP to new investment options, corresponding to the existing TIAA-CREF funds, that grant mapping authority to SURS through the Retirement Choice Annuity product. Approved the expansion of the TIAA-CREF Lifecycle Fund series to include the 2045, 2050, and Retirement Income Funds as well as the addition of the TIAA Real Estate Account upon implementation of the Retirement Choice product. July 1, 2008 State contributions for the SMP Disability fund decreased from 1.0% to 0.5% of participant earnings. August 1, 2008 Retirement Choice Annuity, TIAA-CREF s mappable product, was adopted for future contributions and four additional funds were added: TIAA Real Estate Account, Lifecycle Funds 2045, 2050 and Retirement Income. September 12, 2008 Approved the revised SMP Investment Policy. December 16, 2008 Fidelity Low-Priced Stock Fund was reopened to investors.