Defined Contribution Plans Advisory Committee Meeting Minutes December 7, 2017 Page 1 of 7

Transcription

1 Page 1 of 7 The Defined Contribution Plans Advisory Committee met on December 7 th with the following members present: IN ATTENDANCE Brett Hayes, Chair The Honorable J. Brandon Bell, II Robert Carlson (by phone from Centreville, VA under (A)(1)) Shannon Irvin Rick Larson Margaret Maslak Patricia Phillips Tracey Ray (by phone from Naples, FL under ) David Winter Mitchell Nason, Chair, VRS Board of Trustees Also present was Joe McMahon, Joint Legislative Audit and Review Commission. Attending from VRS were Kelvin Allen, Erica Billingslea, Keela Butler, Steve Cerreto, Jeanne Chenault, Michael Cooper, Pam Elam, Josh Fox, Joyce Gray, Kelly Hiers, KC Howell, Robert Irving, Ciara Lawson, Rebecca Nicholas, Greg Oliff, Andrea Peeks, Laura Pugliese, Michael Scott, Jillian Sherman, Jennifer Schreck, Peter Thompson, Cindy Wilkinson and Aaron Yarborough. CALL TO ORDER AND WELCOME ADOPTION OF THE MINUTES FROM THE SEPTEMBER 8, 2017 MEETING Mr. Hayes called the meeting to order at 10:30 a.m. and welcomed the Committee and attendees. On a motion by Ms. Irvin and a second by Mr. Winter, the September 8, 2017 meeting minutes were approved by the following roll call vote: Mr. Hayes: Aye Mr. Bell: Aye Mr. Carlson: Aye Ms. Irvin: Aye Mr. Larson: Aye Ms. Maslak: Aye Ms. Phillips: Aye Ms. Ray: Aye Mr. Winter: Aye

2 Page 2 of 7 ADMINISTRATION Annual Review of DC Plans Administrative Expense Report for Fiscal Year 2017 Pam Elam, Business Performance Analyst, provided an overview of the Administrative Expense Report for the DC Plans for fiscal year 2017, as required annually by the DCPAC Charter. Ms. Elam provided an overview of the administrative expenses and a summary of expense detail to the Committee. Ms. Elam noted the indirect costs are allocated expenses related to support functions of VRS staff to the DC Plans unit as indicated on the time allocation sheets staff complete. She also provided an explanation of the primary functions and direct costs associated with administering the plan. Ms. Elam highlighted the various support functions and indirect costs, particularly as it relates to the ORPHE, which is higher than the prior fiscal year. A five year historical summary of administrative expenses for fiscal years 2013 through 2017 was also shared with the Committee. The Committee inquired as to how funds are allocated for primary and support functions associated with administering DC Plans, and the existence of a budget review and approval process. Staff communicated there has not been a budget review and approval process in the past, but discussions were underway to implement a formal review process of indirect variable costs in an effort to minimize volatility in required payments as well as fixed costs associated with administering the overall plan. Investment staff noted a portion of indirect variable costs depends on the quality of services delivered by the various provider companies. When quality of services are not meeting contractual obligations or below expections staff time needed to remedy the situation is beyond the normal scope of a typical budget review and approval process. For example, investment staff mentioned problems with Fidelity s reporting directly contributed to the increase of indirect costs for the ORPHE this past fiscal year. It was also shared that a five year estimated cost projecton was implemented for ORPHE employers in an effort to provide a more predictable cost for budgeting purposes.

3 Page 3 of 7 Administrative Reports and Communications Kelly Hiers, VRS Defined Contribution Plans Administrator, provided a brief update on the 3 rd Quarter Administrative Summary. Ms. Hiers provided an update of total assets under management across all DC plans, as well as an overview of unique participant counts for the unbundled plans as of 3 rd quarter Ms. Hiers shared communication initiatives, including the launch of the new DCP Mobile App. She also provided the Committee with an update on plan adoptions and transition of assets for the 3 rd quarter of Ms. Hiers reported back to the Committee the additional information for consideration of relaxing the self-directed brokerage minimum requirements as the requirements have not been reviewed since the option was implemented. She noted that the self-directed brokerage account is not a well utilized option among plan participants, with only an estimated $41 million (1.2% of total plan assets) in the brokerage window. Ms. Hiers provided findings and specific information related to some industry peer plans that offer a self-directed brokerage account and how plan participants utilize the self-directed brokerage account. She indicated minimum requirements and restrictions vary among industry peers. Staff shared other factors to be considered include record keeper operational risks and asset fund allocations in the core account and brokerage account related to required minimum distributions as well as other participant distribution options. Based on the additional findings and further discussion, Staff recommended no changes to current plan requirements be made at this time, and the Committee concurred. DC Plans and Hybrid Plan Update Ms. Hiers provided an update on total assets in the COV 457 and Virginia Cash Match plans, as well as new enrollments in the COV 457 and automatic enrollment snapshot for the 3 rd quarter Ms. Hiers updated the Committee on the Hybrid 457 voluntary participation rate, including the auto-escalation population and number of participants with maximum voluntary contributions for the 3 rd quarter She noted that the number of Hybrid members with an active election

4 Page 4 of 7 to the Hybrid 457 plan above the 0.5% auto-escalation percentage remains at 20% for the 3 rd quarter Ms. Hiers gave a review of the new SmartStep feature that launched in 3 rd quarter 2017 for Hybrid members. She also shared the new Acount Access messaging that utilizes the enhanced active choice concept that launched in November 2017 for those Hybrid members not making a full 4 percent voluntary contribution. The concept and messaging requires Hybrid members to take action before proceeding to their account information. ORPHE Update Ms. Hiers provided an update on total ORPHE assets by plan provider for the 3 rd quarter An update on ORPHE enrollment statistics and the 2017 ORPHE open enrollment period. Ms. Hiers also provided an update to the Committee on the College of William and Mary s opt-out process, including an estimate of the impacted population of participants and projected transfer of assets scheduled for TIAA and Fidelity, which represents about 15% of total ORPHE plan assets. She also provided an overview of the TIAA transition mailing issue related to the College of William and Mary opt-out and measures taken by William and Mary, VRS and other higher education institutions to address the issue. Ms. Hiers reviewed ORPHE employer outreach initiatives and updated resources completed in the 3 rd quarter 2017 related to changes implemented in myvrs, including the online plan and provider election enhancements in myvrs for ORPHE and ORPPA-eligible new hires launched December 1, ORPHE Annual Employer Report Mr. Rick Larson, DCPAC Committee member representing Higher Education, provided an update to the Committee on the ORPHE Annual Employer Update hosted by VRS Defined Contribution Plans on Thursday, September 21, 2017.

5 Page 5 of 7 INVESTMENTS Ms. Pugliese, Portfolio Manager, Defined Contribution Plans, provided an overview of the October 31, 2017 performance reports. Ms. Pugliese noted that the unbundled plans were performing as expected. She updated the Committee on a recent acquisition in the benchmark provider space and informed the Committee that this resulted in name changes to the high yield benchmark indices for high yield funds in the unbundled DC plans and bundled Fidelity ORPHE but no changes were made to the underlying components in either indices. Ms. Pugliese indicated that there has been some improvement in TIAA s performance. As it relates to Fidelity, Ms. Pugliese provided an update on recent Fidelity money market fund mergers, removal of short term trading fees on various funds and ongoing communications with Fidelity in an effort to correctly calculate and link Freedom K Fund returns to historical fund returns. She reminded the Committee because the pause mode remains in effect for the ORPHE, staff cannot make investment changes to the TIAA and Fidelity programs at this time. CEM Defined Contribution Plans Survey Ms. Pugliese presented to the Committee the 2016 CEM Defined Contribution Plans Survey results that were inclusive of the unbundled DC Plans supplemental 457 deferred compensation plan in addition to the bundled TIAA and Fidelity plans for ORPHE. CEM s total value added is a single measure of the average contribution or loss to a plan s participants average total return that resulted from active management. It equals the holdings weighted average of the net value added for all plan investment options. Net value added equals the total return for an investment option minus its benchmark return minus investment related and plan administration costs. To determine a plan s cost CEM includes expenses associated with investment fund management and plan administration (i.e. record keeping, oversight costs). Individual participant expenses are excluded from its

6 Page 6 of 7 calculation. In addition, to help plan sponsors determine if its costs are reasonable CEM calculates a plan s benchmark cost that adjusts for asset mix, and economies of scale due to plan size and average account balance. For the calendar year ending 2016 CEM deemed the following: The 457 Deferred Compensation Plan was ranked a high value added, low cost plan based on a total plan net value added of 0.10% and a plan cost of 0.24%, which was below CEM s calculated 457 plan benchmark cost of 0.48%. Staff noted the 457 plan predominantly uses passively managed index investment options. The TIAA ORPHE program was ranked a low value added, low cost plan based on a total plan net value added of -0.60% and a plan cost of 0.45%, which was slightly lower than CEM s calculated TIAA ORPHE benchmark cost of 0.48%. The Fidelity ORPHE program was ranked a low value added, high cost plan based on a total plan net value added of -1.9% and a plan cost of 0.60%, which was higher than CEM s calculated Fidelity ORPHE benchmark cost of 0.43%. Custom Target Date Project Update Ms. Pugliese provided an update of the Target Date Customization project, noting that customization provides the VRS as plan sponsor with the flexibility to determine what asset classes, investment strategies and underlying managers to use within the target date portfolio series. In addition, customization provides the flexibility to make improvements as needed to the underlying assumptions based on changes in VRS specific plan demographics or design features. She mentioned that the current use of whitelabeling also helps minimize the impact of making changes to plan communications. Ms. Pugliese stated that many offthe-shelf target date products are primarily designed for private sector plans based solely on a defined contribution plan model with no defined benefit pension plan. She reminded the Committee of the prior decision to use the

7 gvrrginia Retirement System Defined Contribution Plans Advisory Committee Page 7 of 7 Hybrid Plan for its custom glidepath modeling and that updated demographic data has been provided to BlackRock to provide updated modeling. Ms. Pugliese indicated plan sponsor interest in target date customization and guidance by the DOL to plan sponsors encouraging them to perform a target date customization exercise to determine its feasibility. She provided an overview of the current BlackRock target date portfolios used in the unbundled DC plans investment structure to evaluate if improvements should be made in the underlying investment funds, including different asset class offerings and the inherent impact on risk profiles. Staff continues to speak with peers and other industry experts to gather information related to a custom target date solution. OTHER BUSINESS Charter Approved Mr. Irving provided an update to the Committee that the DCP AC Charter revisions were approved by the VRS Board of Trustees at its November 16 th meeting. There was no other business to come before the Committee. NEXT MEETING ADJOURNMENT The next meeting of the DCPAC will take place March 29, The Committee adjourned at 12:24 p.m. \r-- Brett Hayes, Chair