Defined Contribution Plans Advisory Committee Meeting Minutes May 17, 2017 Page 1 of 8

Transcription

1 Page 1 of 8 The Defined Contribution Plans Advisory Committee met on May 17 th with the following members present: CALL TO ORDER AND WELCOME Brett Hayes, Chair The Honorable J. Brandon Bell, II Robert Carlson (by phone from Centreville, VA under (A)(1)) Shannon Irvin William Jackameit, Ed.D. Margaret Maslak Patricia Phillips Tracey Ray (by phone from Naples, FL under (A)(1)) Mitchell Nason, Chair, VRS Board of Trustees Also present were John Poma, College of William and Mary; Kimberly A. Sarte and Joseph M. McMahon, JLARC; Sarah Herzog, Virginia Senate Finance Committee; and Steven McGregor, ICMA-RC. Attending from VRS were Keela Butler, Sarah Carroll (intern), Steve Cerreto, Jeanne Chenault, Michael Cooper, Pam Elam, Joyce Gray, Kelly Hiers, KC Howell, Robert Irving, Rebecca Nicholas, Greg Oliff, Laura Pugliese, Michael Scott, Jillian Sherman, Jennifer Schreck, Peter Thompson, Bridgette Watkins, Cindy Wilkinson and Aaron Yarborough. Mr. Hayes called the meeting to order at 10:36 a.m. and welcomed the Committee and attendees. ADOPTION OF THE MINUTES FROM THE MARCH 23, 2017 MEETING On a motion by Mr. Hayes and a second by Dr. Jackameit, the March 23, 2017 meeting minutes were approved by the following roll call vote: Mr. Hayes: Aye Senator Bell: Aye Mr. Carlson: Aye Ms. Irvin: Aye Dr. Jackameit: Aye Ms. Maslak: Aye Ms. Phillips: Aye Ms. Ray: Abstain 1 of 8

2 Page 2 of 8 ADMINISTRATION Administrative Reports and Communication Update Kelly Hiers, VRS Defined Contribution Plans Administrator, provided the Committee with an administrative update of 1 st Quarter DC plans, including total assets and accounts under management across all plans. Ms. Hiers indicated that although there has been significant growth in accounts, there has not been as significant a growth in assets. Ms. Hiers provided an overview of unique participant counts for the unbundled plans and referenced the DCP logo branding initiative incorporated throughout the slide presentation. Ms. Hiers provided a recap of the annual relationship meeting with ICMA-RC conducted in April 2017 to review 2016 performance standards and initiatives. Ms. Hiers indicated a penalty fee for annualized average speed of answer (ASA) greater than 35 seconds was assessed to ICMA-RC this year for failure to meet the ASA performance standard. ICMA-RC s annualized ASA for the year was 39 seconds. Ms. Hiers shared with the Board the ongoing interest and adoptions of the COV 457 plan, with specific reference to the adoption and transition of assets by the Town of Vienna estimated at $7M in assets, and York County estimated at $21M in assets. 2 of 8 Ms. Hiers indicated a contract modification agreement was entered into and signed back in 2014 between VRS and ICMA-RC that established the terms and additional services in assisting employers with the transition of assets from the existing record keeper to the VRS DC platform, including website, communications and meetings. Ms. Hiers shared that although VRS and ICMA- RC would receive investment fund mapping instructions from the employer, neither party would assist the employer with investment mapping. Ms. Hiers provided an update on the ICMA-RC Realize Retirement Tour that occurred in Richmond, Tidewater and Northern Virginia in early May as part of Public Service Recognition Week, and shared that many employers expressed an interest in bringing the tour truck to their local areas. In addition to the DCP rebranding initiative and changes planned for Summer 2017, Ms. Hiers also provided an overview of the new DCP mobile app currently in development and that DC Plans would be able to leverage ICMA-RC s mobile app

3 Page 3 of 8 technology for online enrollments, videos, calculators, and text access, among other features. Ms. Hiers shared preliminary results from the recent COV 457 postcard mailing campaign to increase COV 457 contributions. The campaign targeted the population of active salaried state agency employees who were eligible to participate in the COV 457 Plan, as well as those eligible employees with no COV 457 plan balance and who were also not Hybrid Retirement Plan members. The postcard was sent to eligible employees in three demographic age groups: under age 37, ages 37-52, and age 53 and above. Ms. Hiers indicated that currently the only way to communicate directly to eligible state employees is direct mail, which is less effective than . Ms. Chenault alluded to the fact that it is anticipated the address population would likely increase as VRS migrates more tools and resources to the myvrs application, including the use of messaging to targeted populations of members. DC Plans and Hybrid Plan Update 3 of 8 Ms. Hiers provided an update on auto-escalation and indicated the number is likely to decrease given the rate at which members are leaving covered employment versus the rate at which new employees are being enrolled. Mr. Bell, in an effort to set expectations about the way forward based on where we are today, referenced the fact that auto-escalation appears to have inflated the variance of employees making voluntary contributions as opposed to taking active control of their accounts to make voluntary contribution elections above the auto-escalation increase amount of 0.5%. It was suggested the issue could be fixed by having the General Assembly modify the auto-escalation schedule and percentage increase, with a mention of the legislation that was introduced during the last General Assembly session that would have made tweaks to the auto-escalation structure. Ms. Hiers made mention of the fact that our peer groups do not have a voluntary contribution component with the same characteristics and structure of the Hybrid Retirement Plan, and the fact that the Hybrid plan introduced other elements of retirement plans that do not exist in traditional defined benefit plans. Ms. Hiers informed the Committee that DC Plans would make a

4 Page 4 of 8 concerted effort to partner with ICMA-RC and employers to communicate the value of making voluntary contributions and is also exploring ways to use the principles behind active choice. Ms. Hiers also indicated that getting employees to enroll sooner has been a constant challenge. However, the overarching goal is to get employees to make a voluntary contribution sooner, and data indicates that those employees who do take active control generally make the full 4% maximum voluntary contribution. DC Plans will continue to monitor the auto-escalation population. ORPHE Update Ms. Hiers advised the Committee that ORPHE has over $1B in assets under management. Ms. Hiers informed the Committee the annual fee disclosure notice for Selected and Deselected providers was scheduled for mailing in the second quarter Request for Board Action (RBA) The College of William and Mary Application to Opt-Out of the VRS-administered Optional Retirement Plan for Higher Education (ORPHE) Mr. Irving introduced to the Committee the Request for Board Action (RBA) regarding the application submitted by the College of William and Mary (CWM) to opt-out of the VRS-administered Optional Retirement Plan for Higher Education (ORPHE) that would be effective January 1, Mr. Irving indicated that as part of the approval process a Memorandum of Understanding (MOU) would be entered into between CWM and VRS related to payment of ORPHE-related administrative costs incurred, including the deferred amount for fiscal year 2016, the full cost of fiscal year 2017 and the first 6 months of fiscal year Mr. Irving shared with the Committee that CWM has agreed to the MOU in principle. Dr. Jackameit moved to approve adoption of the RBA with a second by Mr. Hayes. The Committee discussed that the Board would consider the recommendation of the Committee, with additional discussion if necessary. 4 of 8 Ms. Phillips inquired as to the impetus for the decision by CWM to opt-out. Mr. Poma of CWM indicated that CWM

5 Page 5 of 8 began to explore the decision to opt-out based on the selection of ICMA-RC as record-keeper for the DCP, and took measures to establish an investment committee to perform due diligence. Mr. Poma indicated the decision was not solely driven by CWM faculty, but the faculty decision was paramount. He conveyed that the decision to opt-out was made not because CWM thought it would be a better plan, but better aligned to the interests of the CWM population. Mr. Poma also shared their decision to move to TIAA as the sole record keeper effective January 1, 2018, and maintain Fidelity for current employees only in an effort to minimize disruption to those employees who have elected Fidelity as their provider of choice. Mr. Poma shared that the decision was made to structure the plan with a single provider based on the recommendation of counsel and the CWM investment committee given recent plan lawsuits. Ms. Phillips inquired as to what percentage of the ORPHE population CWM constitutes. Staff indicated that CWM represents 15% of the ORPHE population, and two-thirds of CWM faculty participants have selected TIAA as provider. INVESTMENTS Recommendation of the Request for Board Action (RBA) regarding the College of William and Mary application to opt-out of the VRS-administered Optional Retirement Plan for Higher Education (ORPHE) was approved by the following roll call vote: Mr. Hayes: Aye Senator Bell: Aye Mr. Carlson: Aye Ms. Irvin: Aye Dr. Jackameit: Aye Ms. Maslak: Aye Ms. Phillips: Aye Ms. Ray: Aye The motion unanimously passed to recommend the RBA to the Board. 5 of 8 Ms. Pugliese, Portfolio Manager, provided a status update on the DOL s Fiduciary Rule. She explained the DOL

6 Page 6 of 8 delayed its originally scheduled applicability date of April 10, 2017 to June 9, 2017 due to the President s memo requesting an investigation into the rule s potential impact. She informed the Committee that the phased implementation for the Best Interest Contract Exemption and Principal Transactions Exemption ends January 1, Ms. Pugliese also indicated financial institutions and service providers have spent a lot of resources in an effort to comply with the new rules and that service providers were taking different approaches as it relates to plan participant interactions and communications. She reminded the Committee that as a public plan sponsor VRS is not subject to DOL rules but typically considers the rules as a best practice, where applicable. 6 of 8 Ms. Hiers communicated to the Committee that TIAA and ICMA-RC conveyed to her that the new rule will have minimal impact on the VRS DC plans relationship. She informed the Committee that TIAA intends to use the Best Interest Contract Exemption as it relates to ORPHE distributions and rollovers out of the plan on an as needed basis. She told the Committee that Fidelity made a business decision to make wholesale changes to their service model for ERISA and non-erisa clients like VRS. She explained Fidelity decided to discontinue its guidance services (currently used by the VRS ORPHE) and offer a new service model based on advice or education. Because the education service model will be employed the change will have a significant impact on Fidelity s services to the VRS ORPHE. Fidelity informed staff that various services under its guidance model will no longer be offered under its education model. Ms. Hiers referenced the fact there are service level agreements (SLAs) related to site visits in the current contract provisions, which will require a new contract amendment to remove from the agreement. Fidelity further informed staff they made a business decision not to carve out a service model for non-erisa clients based on its current guidance services. Ms. Hiers communicated to the Committee that Fidelity s services under education are much more limited than those found under education with ICMA-RC or TIAA. She explained VRS has a vested interest in how this is communicated to participants and employers given the recent changes to the Fidelity contract in January She stated staff is currently

7 Page 7 of 8 working with Fidelity on communication materials. Ms. Hiers mentioned the fact that VRS is not the only non- ERISA plan in this situation with Fidelity. Dr. Jackameit inquired as to whether there has been any consideration to a potential migration away from Fidelity to other providers based on the limitations and restrictions of the new service model. Ms. Hiers mentioned it is very likely fees will need to be renegotiated with Fidelity based on the College of William and Mary s opt-out of the VRS ORPHE. Ms. Pugliese shared the findings of the PIMCO 2017 DC Consulting Support and Trends Survey Highlights with the Committee. She reported that the unbundled DC plans already employ many of the survey recommendations, including flat dollar administrative fees, investment options with no revenue sharing, auto-enrollment and auto-escalation, a self-directed brokerage window and use of target date funds as a qualified default investment alternative (QDIA). Ms. Pugliese reminded the Committee the ORPHE TIAA and Fidelity programs include investment funds with revenue sharing. She stated once the pause mode for the ORPHE is lifted staff will have the opportunity to explore potential changes to the TIAA and Fidelity investment menus to address the situation. Ms. Pugliese communicated investment staff continues to work on its target date portfolio customization project, and will share their findings as part of the annual investment review discussion at the September 8, 2017 meeting. 7 of 8 Ms. Pugliese shared the investment performance reports for the period ending March 31, She informed the Committee she added another line item for the Traditional Annuity on the TIAA performance report to address return differences driven by TIAA s variances in their crediting and guaranteed rates between the legacy GRA/RA contracts and the newly adopted RC contract. Ms. Pugliese updated the Committee about the problem she was having with Fidelity regarding linking returns of different share classes for the same fund. She communicated after having numerous conversations with Fidelity and speaking with representatives from a federal regulator Fidelity determined they could link returns of

8 Virginia Retirement lliliillaiiiirzi System Defined Contribution Plans Advisory Committee Page 8 of 8 different share classes for the same fund as originally requested by VRS. OTHER BUSINESS NEXT MEETING ADJOURNMENT There was no other business to come before the Committee. The next meeting of the DCPAC will take place September 8, Mr. Hayes made a motion to adjourn with a second from Dr. Jacka me it. The Committee adjourned at 12:22 p.m. Brett Hayes, Chair 8 of8