Voluntary Investment Program (401(k) Plan), Deferred Compensation Plan (457 Plan), and Defined Contribution Retirement Plan (DC Plan) STATEMENT OF INVESTMENT POLICY Approved March 13, 2013 Approved November 16, 2017
TABLE OF CONTENTS Introduction... 2 Purpose... 2 Investment Objectives... 3 Responsibilities... 3 Trustees... 3 Executive Director and Chief Investment Officer... 3 Investment Advisory Committee (IAC)... 3 Underlying Portfolio Managers... 5 Custodian Bank... 5 Investment Consultant... 5 Plan Participants... 6 Selection of Investments Options (PERAdvantage Funds) and Underlying Portfolios... 6 Asset Allocation... 6 Criteria For Selection of Underlying Portfolios... 6 Criteria For Termination of Underlying Portfolios... 7 Performance Standards... 8 Evaluation And Review... 8 Investment Policy... 8 Investment Options... 8 Underlying Portfolios... 8 Definitions... 9 Appendix A Current Plan Investment Options (PERAdvantage Funds)...10 Appendix B Current Self-Directed Brokerage Service Provider And Default Investment Option...11 Appendix C Investment Policy Responsibilities Overview... 12 1
INTRODUCTION The Public Employees Retirement Association of Colorado (Colorado PERA) is the sponsor of three participant-directed plans (Plans): the Voluntary Investment Program (401(k) Plan), the Deferred Compensation Plan (457 Plan), and the Defined Contribution Retirement Plan (DC Plan). Colorado PERA and the three participant-directed plans are governed by a 16-member Board of Trustees (Trustees). The 401(k) and 457 Plans are supplementary plans and the DC plan is one of two primary retirement plan choices for eligible employees of particular employers in the State Division, with the other being a defined benefit plan. The Voluntary Investment Program (401(k) Plan) is an Internal Revenue Code Section 401(k) defined contribution plan administered by Colorado PERA. It was established in 1985 to provide supplemental retirement benefits to members of the State, School, Local Government, Judicial, and Denver Public Schools Division Trust Funds of Colorado PERA. The Plan is a voluntary participant-directed defined contribution plan. The Colorado PERA Deferred Compensation Plan (457 Plan) is an Internal Revenue Code Section 457 defined contribution plan administered by Colorado PERA. It was established by PERA on July 1, 2009, as a continuation of the State Deferred Compensation Plan to provide supplemental retirement benefits to employees of Colorado PERA employers affiliated with the Plan. The Plan is a voluntary participant-directed defined contribution plan. The Colorado PERA Defined Contribution Plan (DC Plan) is an Internal Revenue Code Section 401(a) defined contribution plan administered by Colorado PERA. It was established in 2006 for eligible new hires employed by the State who were allowed to make a retirement plan choice within 60 days of employment between the Colorado PERA Defined Contribution Plan, the State DC Plan, and the PERA defined benefit plan. Choice between the PERA DC Plan and the PERA DB Plan was extended to community college new hires as of January 1, 2008. As of July 1, 2009, the State DC Plan was transferred into the PERA DC Plan. The Plans participants and beneficiaries are expected to have different investment retirement objectives, time horizons, and investment risk tolerances. To meet these varying investment needs, participants and beneficiaries will be able to direct their account balances among a range of Investment Options and a self-directed brokerage window to construct diversified portfolios that can reasonably span the risk/return spectrum. Participants and beneficiaries alone bear the risk of investment results from the funds and asset mixes that they select. PURPOSE The purpose of the investment policy is to:» State the Trustees investment objectives for the Plans.» Define the roles of those responsible for the Plans investments.» Describe the criteria and procedures for selecting appropriate Investment Options and their Underlying Portfolio.» Describe procedures to address Underlying Portfolios that fail to satisfy established objectives.» Establish investment performance standards.» Establish objectives for monitoring and evaluating performance. 2
INVESTMENT OBJECTIVES The Trustees recognize the range of investment needs represented by the Plans participants and their individual retirement objectives; therefore a broad range of Investment Options must be provided. Investment Options offered under each plan shall be selected in order to (1) provide a wide range of investment opportunities in various asset classes so as to allow for diversification and to cover a wide risk/return spectrum; (2) maximize returns within reasonable and prudent levels of risk; (3) provide returns comparable to returns for similar investment options; and (4) control administrative and investment management costs to the plan and participants. RESPONSIBILITIES Trustees The Trustees shall be responsible for:» The fiduciary oversight of the Plans and assets;» Accepting or rejecting changes to each plan document;» Accepting or rejecting the investment policy and amendments thereto;» Accepting or rejecting the recommendations of the Executive Director and Chief Investment Officer with regards to policy, objectives, and Investment Options;» Accepting or rejecting the recommendations of the Executive Director and Chief Investment Officer with regards to the self-directed brokerage service provider and default Investment Option; and» Accepting or rejecting the recommendation of the Executive Director and Chief Investment Officer regarding the investment consultant. Executive Director and Chief Investment Officer The Executive Director and Chief Investment Officer shall be responsible for:» Accepting or rejecting the Investment Advisory Committee s recommendations with regards to policy, objectives, standards, guidelines, and specific Investment Options;» Accepting or rejecting the Investment Advisory Committee s recommendations with regards to the self-directed brokerage service provider and default Investment Option;» Accepting or rejecting the Investment Advisory Committee s recommendations with regards to specific investment portfolio managers, their benchmarks, the target mix of Underlying Portfolios within each Investment Option;» Accepting or rejecting the Investment Advisory Committee s recommendations with regards to the investment consultant;» Accepting or rejecting the Investment Advisory Committee s recommendation regarding the establishment and maintenance of a rebalancing policy for each Investment Option; and» Communicate annually to the Trustees on the suitability of the investments for the Plan. Investment Advisory Committee (IAC) The Investment Advisory Committee (IAC) shall be a committee of Colorado PERA internal staff and shall consist of:» The Director of Equity Investments» The Director of Fixed Income Investments» The Chief Financial Officer 3
» The Chief Benefits Officer» General Counsel designee» The Deputy Chief Investment Officer or Chief Investment Officer designee» Chief Investment Officer designee Recommendations of the IAC are presented to the Executive Director and Chief Investment Officer. Upon concurrence of the Executive Director and Chief Investment Officer, the recommendations of the Executive Director and Chief Investment Officer are presented to the Trustees for consideration if required by this policy. With respect to the investment management of the Plans, the IAC is responsible for the following with the understanding that all recommendations are made to the Executive Director and Chief Investment Officer:» Complying with all aspects of each plan document, pertinent state and federal laws, regulations, and rulings that relate to the investment process;» Designing, recommending, and implementing an appropriate asset category mix, which considers changes in markets, new product availability, fees, and participant needs and input, which are consistent with the investment objectives outlined in this statement;» Recommending investment options/asset classes and style allocation within investment options/asset classes;» Recommending Underlying Portfolios and their managers from appropriate investment management organizations to implement the Investment Options designated by the asset category mix chosen;» Recommending distribution options for Colorado PERA Plan participants;» Recommending the default Investment Option for Plan participants;» Recommending and evaluating the self-directed brokerage service provider;» Recommending an investment consultant;» Monitoring the suitability of the investments for the Plans and rreporting to the Executive Director and Chief Investment Officer as needed; on the suitability of the investments for the Plans;» Monitoring and reporting to the Executive Director and Chief Investment Officer the investment objectives, policies, and actions of the Underlying Portfolios and their fit to the Investment Options that they implement;» Recommending benchmarks for evaluating performance;» Monitoring and reporting to the Executive Director and Chief Investment Officer the investment performance of the Investment Options and the Underlying Portfolios through regular reviews to assure that objectives are being met, including appropriate monitoring by internal investment staff and an objective third party;» Monitoring the actions and performance of the custodian bank;» Recommending appropriate action if the Underlying Portfolios objectives, policies, and actions are not appropriate for the Investment Option;» Ensuring that all rights acquired through the purchase of securities are exercised;» Recommending the Underlying Portfolios mix and ranges for each Investment Option;» Recommending and maintaining a rebalancing policy for each Investment Option. In performing these responsibilities, the IAC shall meet at least quarterly. 4
Underlying Portfolio Managers The Underlying Portfolio managers will be responsible for the following:» Determining the investment strategy;» Implementing security selection and timing;» Supplying periodic reports of investment performance results to the IAC and/or to the investment consultant;» Communicating organizational or ownership changes to the IAC and/or to the investment consultant;» Complying with investment guidelines established in Investment Management Agreements or other relevant investment agreements; and» Being a fiduciary to the Plans where permitted by account structure. Custodian Bank The custodian bank shall be responsible for the following as well as other agreed upon activities:» Safekeeping of assets, timely settlement of securities transactions, timely crediting of all income and principal realizable by the Plans, the daily sweep of excess cash from manager accounts into a suitable cash management vehicle, and timely calculation of net asset value for unitized separate accounts;» Distributing promptly all proxy materials or other corporate actions received by the Custodian;» Initiate monthly and quarterly rebalancing transactions as instructed by the Plans rebalancing policy;» Coordinating asset transfers as requested by the IAC and/or PERA staff;» Provide fund accounting for Investment Options. Services included but are not limited to calculating net asset value (NAV), posting securities trades and analyzing funds relative to target allocations. Investment Consultant The Trustees will retain an investment consultant to advise and assist the Trustees and staff in the overall supervision of the plans investments. In this role, the investment consultant will offer resources for additional due diligence as well as independent third-party analysis. Consultants are fiduciaries and shall discharge their duties with respect to this fund solely in the interest of the participants and benefit recipients with the care, skill, prudence, and diligence under the circumstances prevailing. Qualified consultants include those professionals with the background, expertise, and demonstrated success as institutional investment consultants for at least five years, and with have research/data base access the resources necessary to assist in providing investment program advice. The investment consultant shall be responsible for the following as well as other agreed upon activities: Make recommendations regarding investment option design, investment and performance objectives, guidelines, and this Policy; Conduct portfolio manager searches; Conduct periodic due diligence visits with portfolio managers; 5
Develop monthly and quarterly investment evaluation reports; Perform investment monitoring functions; Assist with implementation of new investments and investment related products/services; and Report to the Committee and/or its designees on current investment trends and issues Plan Participants Participants in the plans are authorized to direct the investment of assets in their accounts, selecting from the Investment Options offered under the plan as they deem appropriate to meet their own retirement savings and income objectives. Investment Options offer daily liquidity (subject to restrictions applicable to the fund or investment vehicle, if any) so that Pparticipants may exchange and transfer amounts in Investment Option on a daily basis as needed to implement their specific investment objectives(subject to restrictions applicable to the fund or investment vehicle, if any). Plan participants bear the risks associated with their investment decisions. SELECTION OF INVESTMENTS OPTIONS (PERADVANTAGE FUNDS) AND UNDERLYING PORTFOLIOS Asset Allocation An appropriate range of Investment Options will be offered. The range will span the risk/return spectrum to allow participants to diversify their investments. Further, the Plans Investment Options will allow Plan participants to construct portfolios consistent with their unique individual circumstances, goals, time horizons, and tolerance for risk. The Investment Options selected should be able to be implemented at a reasonable cost to the Plan and/or participants in terms of management, custody, and other costs, and have investment characteristics that can be successfully communicated to participants. Information relative to Investment Options and their characteristics will be communicated to participants and potential participants. The Investment Options to be offered in the Plans are shown in Appendix A. The Investment Options offered should be monitored quarterly and formally reviewed periodically annually by the IAC for any possible additions and/or deletions. If the IAC deems it appropriate to recommend termination of an Investment Option, an alternative Investment Option should be considered. Communication should be provided to participants regarding the relevant characteristics of the Investment Option and the impact of the termination of the Investment Option on potential diversification. In the event of a termination of an Investment Option and there is no similar option provided, participants will be provided a transition period to reallocate their accounts among available Investment Options. If a participant does not reallocate out of a terminated Investment Option by the end of the transition period, those assets will be reallocated to the Default Investment Option. As markets move over time, the actual asset mix of each Investment Option s Underlying Portfolios may diverge from the target allocations. In order to meet the Investment Options objectives, the IAC shall review and maintain rebalancing guidelines and procedures. Criteria for Selection of Underlying Portfolios 6
After determining the Investment Options to be used, the IAC must evaluate and recommend the Underlying Portfolios and their managers to meet the specific investment characteristics of each Investment Option. Vehicles considered for Plan assets may include separately managed accounts, mutual funds, collective investment trusts, and insurance company separate accounts, or any other investment vehicle approved in accordance with this policy, which may include funds managed by Colorado PERA staff. Each Underlying Portfolio should meet the following criteria at the time of selection and continue to fulfill the criteria during retention. Failure to maintain the criteria below may qualify the Underlying Portfolio for termination. Internally managed funds may be created that do not meet some of the criteria below. Underlying Portfolios are generally expected to:» Fulfill all or a portion of the Investment Options that have been defined for the Plans;» For actively managed investment managers, have absolute and risk-adjusted performance equal to or greater than the median return for an appropriate, style-specific benchmark and peer group over a reasonable time period;» For indexed investment portfolio managers, have gross of fees performance equal to the individual fund s benchmark with minimal relative tracking error over a reasonable time period;» Have a reasonable tenure of managing the portfolio to ensure that its past performance is attributed to the particular manager or management team;» Have an investment strategy and supporting investment process likely to achieve investment results expected for the role within the Investment Option it will implement;» Have competitive fees compared to similar investments;» Be able to provide to the Plans all performance, attribution of returns, holding, and other relevant information in a timely fashion;» Operate in good standing with regulators and clients, with no material pending or adversely concluded legal actions;» Provide detailed information on the history of changes to the firm s investment philosophy and investment process;» Provide detailed information on the firm s approach, its principals, clients, locations, fee schedules, and other relevant information;» Have substantial assets under management in a particular (or similar) strategy, generally defined as a minimum of $500 million except where the nature of the particular mandate makes that asset level difficult to achieve;» Maintain appropriate investment diversification;» Have management and/or oversight by an investment advisor registered with the SEC or by a bank or insurance company with appropriate investment powers. Criteria for Termination of Underlying Portfolios An Underlying Portfolio may be recommended for termination when the IAC has lost confidence in the strategy and its management s ability to:» Achieve performance and risk objectives;» Comply with investment guidelines;» Comply with regulatory requirements;» Comply with reporting requirements;» Maintain a stable organization and retain key relevant investment professionals;» Or any other reason the IAC may deem appropriate. 7
Any recommendation to terminate an Underlying Portfolio will be treated on an individual basis, and need not be made based solely on quantitative data or on any one factor. An Underlying Portfolio to be terminated shall be handled using one of the following approaches:» Be removed and replaced with an alternative portfolio or portfolio manager;» Be frozen with existing assets managed by the terminated portfolio manager with new assets directed to a replacement portfolio manager;» Be phased out over a specific time period;» Be removed without providing a replacement portfolio manager if other portfolios in the same option are available and appropriate. PERFORMANCE STANDARDS Underlying Portfolio performance will be reviewed versus appropriate benchmarks and comparative manager universes. Performance will be analyzed over relevant time periods which will include three years, five years and market cycles. EVALUATION AND REVIEW Investment Policy The IAC shall review the investment policy annually periodically to determine if amendments are appropriate based on changed circumstances such as the market environment or changes to the Plans plan documents. Investment Options The IAC shall review annually periodically the Investment Options provided by the Plans for appropriateness in light of participant needs and the current market environment and industry trends. Underlying Portfolios Each Underlying Portfolio is expected to achieve the performance and investment objectives specified by the IAC and will be reviewed on a quarterly basis. From time to time, the fund(s) may not achieve one or more of these objectives, but will be expected to achieve them over the long-term. Long-term is typically defined as a market cycle, or a three- to five-year period. Periodic monitoring of the Underlying Portfolio should utilize the same criteria that were used for the selection of the portfolio manager. At a minimum, the evaluation of the investment and performance objectives should include the following comparisons:» Evaluation of relative performance by comparison with an appropriate style-specific benchmark for the last quarter, year-to-date, one year, three years, five years, and ten years or inception to date;» For actively managed investment portfolio managers, evaluation of relative performance by comparison with the performance of funds with similar investment objectives for the last quarter, year-to-date, one year, three years, five years, and ten years or the inception to date; 8
» Measures of specific risk and risk-adjusted return within a reasonable range relative to an appropriate, style-specific benchmark and peer group for the last quarter, year-to-date, one year, three years, five years, and ten years or inception to date;» Analysis of investment objectives, policies, and actions for consistency with the Investment Option and consistency over time;» Review of the investment process including any personnel changes;» Review of management fees and other expenses compared with similar funds. Parties not involved in the management of any of the underlying portfolio managers should provide the evaluation of performance. DEFINITIONS Benchmark A market index or blend of market indices that are selected to serve as the performance measurement criterion for an investment fund. Investment Option (PERAdvantage Fund) One of the individual investment selections that may be chosen by a participant. Participant An employee or former employee of the State, School, Local Government, Judicial, and Denver Public Schools Division Trust Funds who has an account in the Plans. Underlying Portfolio One of the funds or portfolios used to build a particular PERAdvantage Fund. 9
APPENDIX A CURRENT PLAN INVESTMENT OPTIONS (PERADVANTAGE FUNDS) Capital Preservation Fund The Capital Preservation Fund seeks to provide consistent investment income with a stable net asset value primarily by investing in a portfolio of high quality, medium term fixed income securities as well as a wrap contract offered by one or more high quality insurance companies to provide a more stable return and participant withdrawal capability. Fixed Income Fund The Fixed Income Fund seeks to generate income, preserve capital and provide long-term capital appreciation by investing in a diversified portfolio of fixed income instruments of varying maturities. Real Return Fund The Real Return Fund seeks to provide broad exposure to real assets and Treasury Inflation Protected Securities (TIPS) and to produce a return over a full market cycle that exceeds the rate of inflation. The total portfolio is comprised of a basket of real return oriented funds investing in asset classes such as commodities, REITs, natural resource stocks as well as Treasury Inflation-Protected Securities. U.S. Large Cap Stock Fund The U.S. Large Cap Stock Fund seeks to provide long-term capital appreciation and dividend income primarily by investing in U.S. large capitalization stocks International Stock Fund The International Stock Fund seeks to provide long-term capital appreciation and dividend income primarily by investing in non-u.s. stocks U.S. Small and Mid Cap Stock Fund The U.S. Small and Mid Cap Stock Fund seeks to provide long-term capital appreciation and dividend income primarily by investing in U.S. small and mid capitalization stocks. SRI Fund The Socially Responsible Fund is designed for investors who wish to invest in securities of companies that comply with multiple social investment criteria. This is a balanced fund and is expected to hold both equity and fixed income investments. Target Retirement Date Funds The Target Retirement Date Option (TRD) funds seek to achieve maximum total return with a risk level that may be appropriate for the fund s particular timeframe. As each of the funds move closer to its respective key retirement date year, the funds gradually transition to become more conservative with time, and eventually transition to an income fund. 10
APPENDIX B CURRENT SELF-DIRECTED BROKERAGE SERVICE PROVIDER AND DEFAULT INVESTMENT OPTION Self-Directed Brokerage Service Provider TD Ameritrade Default Investment Option BlackRock LifePath Index Target Retirement Date Funds 11
APPENDIX C INVESTMENT POLICY RESPONSIBILITIES OVERVIEW X = Review R = Recommends A = Accepts or Rejects Policy & Guidelines IAC ED and CIO Trustees Approval of Proposed Policy/Guidelines R A A Investment Options (PERAdvantage Funds) Approval of Investment Option Structure R A A Ongoing Monitoring X X Quarterly Performance X X Annual Performance X X X Underlying Portfolio Managers Evaluation X X Manager Selection R A X Fee Negotiation X A Ongoing Monitoring X X Quarterly Performance X X Manager Termination R A X Yearly Manager Compliance X X Yearly Performance X X X Rebalancing Policy R A X Establishing Underlying Portfolio Manager Benchmarks R A X Self-Directed Brokerage Service Provider Selection of SDB Provider R A A Termination of SDB Provider R A A Consultants Selection of Consultants R A A Termination of Consultants R A A 12