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

Transcription

1 Page 1 of 8 The Defined Contribution Plans Advisory Committee met on September 8 th with the following members present: CALL TO ORDER AND WELCOME Brett Hayes, Chair The Honorable J. Brandon Bell, II Robert Carlson Shannon Irvin Rick Larson Margaret Maslak Patricia Phillips David Winter Mitchell Nason, Chair, VRS Board of Trustees Also present were Patrick Abelon and Steven McGregor, ICMA-RC; and Sarah Herzog, Virginia Senate Finance Committee. Attending from VRS were Stephen Adelaar, Kelvin Allen, Erica Billingslea, Patricia Bishop, Keela Butler, Steve Cerreto, Jeanne Chenault, Michael Cooper, Joyce Gray, Kelly Hiers, KC Howell, Jummai Sarki-Hurd, Ciara Lawson, Stephen McClelland, Rebecca Nicholas, Greg Oliff, Andrea Peeks, Laura Pugliese, Michael Scott, Jillian Sherman, Jennifer Schreck, Peter Thompson, Bridgette Watkins, Rachel Webb, Daniel Whitlock, Cindy Wilkinson and Aaron Yarborough. Mr. Hayes introduced and welcomed Mr. Rick Larson, Assistant Vice President for Human Resources, Training and Performance, James Madison University as a new member to the Defined Contributions Plans Advisory Committee (DCPAC). Mr. Hayes called the meeting to order at 10:29 a.m. and welcomed the Committee and attendees. ADOPTION OF THE MINUTES FROM THE May 18, 2017 MEETING On a motion by Mr. Hayes and a second by Mr. Carlson, the May 18, 2017 meeting minutes were approved. INVESTMENTS Ms. Pugliese, Portfolio Manager, Defined Contribution Plans, presented the Committee with the annual investments review in accordance with the duties and

2 Page 2 of 8 responsibilities outlined in its charter. She provided an overview of the DC Investment Belief Statements, DCPAC investment duties and responsibilities, DC investment trends and best practices, and annual investment review highlights based on the bundled DC plan structure for ORPHE and the unbundled DC plan structure for the other defined contribution plans administered by VRS. She emphasized there are two investment policy statements; one for a bundled plan structure and one for an unbundled plan structure. She stated staff did not have any recommended changes to the policy statements at this time. Ms. Pugliese reminded the Committee the investment belief statements serve as a framework for making investment decisions. She mentioned VRS administration staff s renegotiated contracts with TIAA and Fidelity included a self-directed brokerage window option, which provides ORPHE participants the opportunity to select investments beyond the core investment menu. As it relates to managing decumulation of retirement assets, Ms. Pugliese shared that the DC industry is trying to address how individuals can have financial security in their retirement years given longevity risk. She informed the Committee that research indicates most participants in private sector defined contribution plans take retirement assets out of the plan at retirement age as a lump sum distribution whereas participants in public sector defined contribution plans typically take periodic and/or partial distributions during the decumulation phase (assumes assets are not rolled over). The need to manage the decumulation phase is exacerbated by the number of baby boomers approaching retirement age. Ms. Pugliese communicated that VRS administration staff and its business partners are seeking ways to mitigate plan leakage by encouraging participants to leave account balances in the plan at retirement. The Committee inquired as to how providers have responded to the DOL Fiduciary Rule. Kelly Hiers communicated there would be no change to ICMA-RC and TIAA s level of service based on the DOL fiduciary ruling. Fidelity, however, changed how they determine what is considered education services based on the DOL ruling and, as such, moved VRS to an education-only model

3 Page 3 of 8 when the ruling became effective this past June. Committee members posed questions as to whether participants had expressed any concerns or complaints resulting from this change, and if VRS was evaluating the option to offer investment advice. Kelly Hiers reported she has not received any complaints from the change. Ms. Pugliese informed the Committee about VRS history of exploring the option to make available investment advice. She stated any decision would be contingent upon VRS and the DCPAC rigorously vetting an investment advice provider s product offering. She reminded the Committee that VRS is the fiduciary for all plan services. She shared her concern that there are currently three different record-keepers each with thier own investment advice product offering and that it is possible various participants can have accounts with all three record-keepers. Thus, if VRS allowed these record-keepers to offer their respective investment advice product offering it could result in these participants getting conflicting and different investment advice. Although VRS is not in a position to offer investment advice at this time, the consensus among Committee members and VRS staff was that directionally, offering investment advice could occur at some time in the future contingent upon Board approval; however, VRS and the DCPAC will need to be methodical in exploring such an option. It was emphasized that, although not investment advice, VRS new financial education and literacy tools were being added to the VRS public website and better educational resources would be needed to increase participant knowledge and understanding on the target date portfolio structure, which has an implicit advice model. In regards to DC investment trends and best practices, Ms. Pugliese shared there is increased interest in the use of Collective Investment Trusts (CITs) and white labeling of funds; further efforts to unbundle investment management from plan administration; movement away from using a record-keeper s proprietary funds, including target date funds; use of a tiered investment structure to communicate investments; and continued efforts to improve fee transparency. Ms. Pugliese apprised the Committee that VRS began using CITs as an investment vehicle for the unbundled DC plans structuredecades ago, started using a tiered investment structure and began

4 Page 4 of 8 white labeling funds in She mentioned VRS subsequenttly transitioned to using a pathway investment structure to communicate investments in Ms. Pugliese shared with the Committee highlights from the annual investment review of the unbundled DC plan structure, noting all funds were performing as expected. She reviewed with the Committee the operational differences between the use of an investment manager s net of fee fund versus the use of a gross of fee fund. She reminded the Committee VRS uses the services of State Street Bank and Trust to accrue an investment manager s fee for a gross of fee fund so the record-keeper receives a daily fund net asset value that is net of all investment related fees and fund performance is calculated on a net of fee basis. She highlighted investment staff s ability to negotiate a more competitive investment management fee under the unbundled plan structure than it can under the bundled ORPHE structure because almost all investment options under the ORPHE bundled providers include fees for plan-record-keeping and administration within fund expense ratios. Ms. Pugliese provided an update on the TIAA and Fidelity bundled programs and noted many funds are underperforming. She informed the Committee even with the renegotiated TIAA and Fidelity contracts that have flat dollar record-keeping fees with revenue credit offsets, most investment options still have embedded record-keeping and plan administration fees built into fund expense ratios. Staff noted that TIAA participants could transfer funds from the GRA/RA contracts in place prior to the new TIAA RC contract in order to take advantage of the flat dollar record-keeping fee structure, which includes a revenue credit. Staff stated participants with funds remaining in the GRA/RA contracts would not receive any revenue credits. Ms. Pugliese stated TIAA and Fidelity informed staff that because the new contracts include a flat dollar record-keeping fee it s no longer necessary to offer funds that contain embedded record-keeping and plan administration fees with a revenue sharing component. She told the Committee she looks forward to making improvements to the ORPHE bundled plan structure once the pause mode is lifted. Ms. Pugliese updated the Committee on the status of the Custom Date Portfolio project and the decisions to select

5 Page 5 of 8 the Hybrid Retirement Plan as the basis for determining a custom glide path; continue to use a flat rather than sloping glide path in retirement; and continue to use age 65 as the retirement age. She mentioned asset growth in the Hybrid plan would eventually outpace balances in the supplemental 457 plan. Kelly Hiers confirmed the number of participants in the Hybrid 401(a) plan has already surpassed the number of participants in the supplemental 457 plan by an estimated 10,000 participants. There was interest in seeing projections comparing different demographics and retirement ages. Staff advised there is not a significant amount of data to seek such projections on Hybrid retirees as the plan is still fairly new, having been implemented in Staff mentioned current decisions today may change over time due to changes in trends/data (i.e. retirement age of 65). Ms. Pugliese provided an overview of the next steps in the project and referenced the appendix of information compiled as part of this initiative. ADMINISTRATION Self-Directed Brokerage Account Requirements Kelly Hiers, VRS Defined Contribution Plans Administrator, provided the Committee with an administrative update of 2 nd Quarter DC plans. She shared with the Committee a review of the current requirements of the self-directed brokerage account option available to plan participants, including the minimum core fund balance, minimum balance for transfer and one-time setup fee. She provided an overview of the number of participants using the brokerage window by plan and considerations for relaxing the current requirements. Ms. Hiers also shared feedback that was solicited from other public sector DC plans on brokerage window usage and current requirements. She noted that based on initial outreach, it was interesting to see that plans are implementing changes to make participation in SDBA more conservative. The Committee inquired as to whether there was interest in the brokerage window from Hybrid members and if there was any data on fund performance and where funds are being invested in the brokerage window. Ms. Hiers indicated the change in current requirements would apply to Hybrid and the other DC plans. The Committee also presented questions on the disadvantages or downside of relaxing the current requirements and being less

6 Page 6 of 8 conservative. The Committee expressed concern that not having enough funds in the participant s core account for distribution could be a potential issue. Ms. Hiers indicated she did inquire of ICMA-RC whether VRS could restrict requirements to a percentage of assets versus a flat amount since the plan is no longer in an asset-based fee structure. It was recommended that the current requirements would remain in place until additional information and data could be obtained and evaluated by the Committee before a decision could be made. Ms. Hiers agreed to revisit the topic once the requested data had been obtained, and agreed to present at the next DCPAC meeting. Administrative Reports and Communication Update 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. Mr. Larson inquired as to the cost structure and ICMA-RC s ability to commit additional resources given the significant growth in unique participants over the past several years. Ms. Bishop conveyed the cost structure was front loaded as part of contract negotiations with ICMA-RC at the time provided the potential growth opportunity and increased revenue generation resulting from the adoption of the Hybrid Retirement Plan. Ms. Hiers shared with the Committee the communication campaign being developed as part of National Retirement Security Week and provided an update on total results of the ICMA-RC Realize Retirement Tour as well as the new Realize Retirement Gateway Tour currently in testing for She also provided the Board with an update on plan adoptions and transition of assets for the 2 nd quarter of DC Plans and Hybrid Plan Update Ms. Hiers communicated to the Committee that DC Plans met its Hybrid 457 voluntary participation goal of 20%. Ms. Hiers shared with the Committee that VRS was awarded the Communicator Award of Distinction from the

7 Page 7 of 8 International Academy of Interactive and Visual Arts as recognition for its Auto-escalation Campaign. ORPHE Update Ms. Hiers advised the Committee that ORPHE has over $1B in assets under management. Ms. Hiers informed the Committee that the annual fee disclosure notice for Selected and Deselected providers was scheduled for mailing in the second quarter OTHER BUSINESS Motion-DCPAC Charter Changes Ms. Bishop provided the Committee with an overview of the proposed changes to the DCPAC Charter. Ms. Wilkinson reviewed substantive changes. The following motion was made by Senator Bell, seconded by Mr. Winter, and approved by the Committee: The Defined Contribution Plan Advisory Committee approves the changes to its charter submitted at this meeting, with such ministerial changes as may be necessary, and recommends that the Board approve such changes. ICMA-RC Contract Renewal Ms. Hiers advised the Committee of the intent to exercise the first of two three-year renewals with ICMA-RC. Ms. Hiers indicated that staff are satisfied with the level of service provided under the current contract terms, and advised of the limited window of opportunity to undertake a formal bidding process prior to the existing contract termination date of December 1, Ms. Hiers shared that a bidding process would require significant agency resources and would add an additional layer of risk given the current agency-wide efforts to migrate away from a mainframe to a client-server technology platform.

8 gvrrginia Retirement System Defined Contribution Plans Advisory Committee Page 8 of 8 NEXT MEETING The next meeting of the DCPAC will take place December 7, The ORPHE Annual Employer Update is scheduled for September 21, 2017, but is not a meeting of the Committee. Staff will poll for potential 2018 meeting dates. There was no other business to come before the Committee. ADJOURNMENT The Committee adjourned at 1:24 p.m. r:-- Brett Hayes, Chair