Minutes of Regular Meeting - May 21, 2014 - APPROVED

Retirement Plan Sub-Committee

Regular Meeting

Minutes

Wednesday, May 21, 2014 at 7:30 A.M.

Board of Education Conference Room

Simsbury Town Hall – 933 Hopmeadow Street

I.  Call to Order

The meeting was called to order at 7:30 am.  Retirement Plan Sub-Committee members in attendance included Nicholas Mason, Michael Goman, Paul McAlenney, Philip Schulz, Lisa Heavner and Cheryl Cook.  Also in attendance were Burke LaClair (Business Manager, Board of Education), Joseph Mancini (Director of Finance/Treasurer) and Thomas Cooke (Administrative Chair and Director of Administrative Services).  Fiduciary Investment Advisors (“FIA”) was represented by Christopher Kachmar and Tyler Polk.

II.  Acceptance of Minutes

    a. Special Meeting, February 18, 2014

Mr. Mason made a motion to approve the February 18, 2014 Minutes of Special Meeting and Ms. Heavner seconded the motion.  There were no changes to the minutes and the motion passed unanimously.

III.  Presentation by Fiduciary Investment Advisors

   a.  Defined Benefit Pension Plans Quarterly Investment Review, Q1, 2014

Mr. Kachmar reviewed a document entitled “Town of Simsbury Defined Benefit Pension Plans – Quarterly Investment Review – First Quarter 2014.”  Mr. Kachmar began his presentation by noting that while the overall plan strategy was in a good position, three of the managers – PIMCO, Neuberger Berman Genesis Fund and Thornburg International Value R6 – performed poorly during the first quarter.  He also noted that, in general, low quality stocks had out performed high-quality stocks in the first quarter.

Ms. Heavner asked how the benefit plan performance compared to index funds and whether there was a demonstrable benefit from active management.  Mr. Kachmar noted that performance against index funds varied by class of investment.

Mr. Kachmar went through an economic and market review, noting that the Federal Reserve has continued to reduce their monthly bond purchases.   He noted that through the fourth quarter of 2013 the US gross domestic product softened and was growing at an annualized rate of 2.6%.  He went on to review international equity and fixed income performance, pointing out that interest rates had not increased as fast as expected by some of the managers.

Mr. Kachmar went through a “Market Viewpoints” summary showing asset allocation and investment preferences. He then moved to the portfolio review, which included considerable discussion of the funds on “watch,” including PIMCO, Neuberger and Thornburg.  Mr. Kachmar stated that he did not recommend making any immediate changes, but that he would present alternative managers to Thornburg at the next meeting of the Sub-Committee.

      i.  Discussion and possible action on configuration of fixed income investments

Mr. Kachmar went on to discuss his recommendation that a fourth manager be added to the Fixed Income investments at a 5% position and that the investment levels in Metropolitan West Total Return Fund and PIMCO Total Return be reduced proportionately to keep fixed income investments within the 28% target range.  He reviewed a document entitled “Unconstrained Bond Manager Search” which argued in favor of adding “unconstrained” managers in a format that can limit interest rate risk, add wide flexibility in terms of sector allocations and credit quality, and shorten duration.  Mr. Kachmar presented information on three potential “unconstrained” managers, including BlackRock Strategic Income Opportunities, J.P. Morgan Strategic Income Opportunities and PIMCO Unconstrained Bond and recommended that the Sub-Committee move forward with BlackRock at the 5% position previously discussed.  After further discussion, the following motion was made:

Mr. Mason made a motion to add BlackRock Strategic Income Opportunities to the Fixed Income portfolio at a 5% position as recommended by FIA.  Mr. Schulz seconded the motion and it passed unanimously.

   b.  Defined Contribution Plans Executive Summary for Q1, 2014

      i.  Discussion and possible action on proposed Investment Policy Statement

Mr. Polk stated that he had copies of the proposed Investment Policy Statement incorporating all of the changes previously proposed by Mr. McAlenney.  Mr. Cooke asked if there were any other proposed changes to the IPS.  Mr. Schulz recommended some additional changes to the first page of the IPS and the changes were added to the draft.

Mr. McAlenney made a motion to approve the Town of Simsbury Defined Contribution Plans Investment Policy Statement as revised by the Sub-Committee.  Mr. Mason seconded the motion and it passed unanimously.

Mr. Polk proceeded to review a document entitled “Town of Simsbury DC Plans, Executive Summary – First Quarter 2014,” beginning with a review of the Fiduciary Governance Calendar and the first quarter emphasis on administrative fees and expenses.  He reviewed recent fee disclosure guidance from the Department of Labor, recent fee litigation and potential fee pricing models. 

Mr. Polk reviewed the fees applicable to the Town’s 457 and 401(a) plans and noted that the fees were higher than the average fees of other plans where FIA serves as advisor.  Mr. Polk noted that the higher fees were largely a result of the “General Account” feature in both the 457 and 401(a) plans which guarantees participants a 4% annual return.  He pointed out that fully one-third of the 457 plan assets were in the General Account option which indicated that participants significantly value the option.  There was extensive discussion about the value of the option and the high level of the fees.  Mr. Polk stated that in view of the benefit provided by the plan the fees were not excessive.

The Sub-Committee discussed the pros and cons of considering a change in record-keeper.  Mr. Polk noted that the process of changing record-keepers is highly labor-intensive for staff and disruptive for employees.  He also stated that only the incumbent record-keeper – MassMutual – would provide the General Account 4% investment option and that this would likely not be included in an RFP response.  Discussion ensued on the merits and proper timing of an RFP.  The general view was that it did not make sense to issue an RFP at this time.

The Sub-Committee reviewed the funds with Mr. Polk, including the funds marked as “watch.”  Mr. Polk stated that a recommendation with respect to these funds within six months.  The Sub-Committee asked Mr. Polk to work with MassMutual to determine whether alternatives to the BlackRock lifepath funds might be available, such as T. Rowe Price.

   c.  Simsbury OPEB – Quarterly Investment Review, Q1, 2014

      i.  Discussion and possible action on next steps for OPEB investment policy

Mr. Kachmar reviewed the history of the OPEB Trust and pointed out that the investment guidelines were designed for long-term stability appropriate to a fund with minimal assets.  He explained that the guideline emphasized indexed funds and a 55% to 45% split between equity and fixed income.  The OPEB Trust is balanced quarterly and has been running at a steady return of 5.2%.  With assets now in excess of $8 million, FIA recommended that that the asset mix be changed to 60%/40% and that the Town consider mixing in some active management components.  Mr. Kachmar presented a document entitled “Town of Simsbury OPEB Trust – Potential Portfolio Reallocation” setting forth FIA’s recommendations. 

Mr. Mancini stated that the Board of Finance would be considering the status of the OPEB Trust at its next meeting.

Mr. Mason made a motion that the Sub-Committee recommend adoption of the proposed portfolio reallocation to the Board of Finance.  Mr. Goman seconded the motion and it passed unanimously.

IV.  Adjourn

Ms. Heavner made a motion that the meeting be adjourned.  Ms. Cook seconded the motion and it passed unanimously.

Respectfully submitted,

____________________________________

Thomas F. Cooke II

Administrative Chair