Minutes of Special Meeting - February 18, 2014 - Final
Retirement Plan Sub-Committee
Minutes of Special Meeting
Tuesday, February 18, 2014 at 7:30 a.m.
Board of Education Conference Room
Simsbury Town Hall – 933 Hopmeadow Street
I. Call to Order
The following Sub-Committee Members were in attendance: Peter Askham and Nick Mason from the Board of Finance; Lisa Heavner and Cheryl Cook from the Board of Selectmen; Michael Goman Michael Wade from the Board of Education; and Paul McAlenney, member-at-large.
Also in attendance were: Thomas Cooke, Administrative Chair and Director of Administrative Services; Burke LaClair, Business Manager, Board of Education; and Christopher Kachmar and Tyler Polk from Fiduciary Investment Advisors, LLC
Mr. Cooke called the meeting to order at 7:30 a.m.
I. Acceptance of October 3, 2013 Minutes
Mr. Mason moved for the acceptance of the draft minutes of October 3, 2013. Ms. Heavner seconded the motion. The motion passed with Ms. Cook, Mr. Askham and Mr. Wade abstaining.
II. Defined Contribution Plan Investment Review
Mr. Polk reviewed a document entitled “Simsbury 457 Plan – Executive Summary – Fourth Quarter 2013.” Consistent with the Fiduciary Governance Calendar (p. 1) Mr. Polk stated that FIA would focus on an investment and administrative fee review, and would conduct an investment expense analysis during the first quarter of 2014.
Mr. Polk noted that too many investment options in a plan has been shown to discourage participation and explained that the 457 and 401(a) plans had been designed with significantly fewer options than previously offered. A discussion ensued concerning simplification of the plan and roll-out of the new plan options to employees and current plan participants. Mr. Cooke noted that MassMutual and FIA had conducted introductory sessions which were well attended, and that MassMutual’s representative has been on-site numerous times for individual and group meetings.
Mr. Polk turned next to the Qualified Default Investment Alternative review. Mr. Polk discussed the performance of Black Rock LifePath Investor target date options and noted that while FIA was recommending that the plans maintain Black Rock as an investment option, there potentially better options which were not available through MassMutual’s platform. A discussion ensued concerning potential issuance of an RFP for recordkeeper services. Mr. Polk noted that the maintenance of the General Account four percent (4%) option by MassMutual was a positive aspect of the current recordkeeper arrangement and would not likely be replicated.
Mr. Polk and Mr. Kachmar explained that two of the fund managers – PIMCO and T. Rowe Price were on “watch” status as a result of management-level changes in personnel. Mr. Kachmar explained that FIA would scrutinize these managers over the coming months to determine whether or not the management changes might result in a qualitative change in performance. FIA was not recommending any change at this time, noted that changes would be recommended when necessary, and that historically it was unusual to make more than one to three changes in a year.
III. Capital Market Review Q4 2013 and Review of Pension Plan and OPEB Performance
Mr. Kachmar proceeded with a review of a document entitled “Town of Simsbury Defined Benefit Pension Plans – Quarterly Investment Review – Fourth Quarter 2013” beginning with an “Economic & Market Review.” Mr. Kachmar noted that the S&P 500 Index had its strongest year since 1997 and rose over 32%, and pointed out that equities had significantly out-performed bonds. He also noted that inflation remained low and that international markets were performing better although still behind domestic equity performance. Mr. Kachmar noted that investors remain concerned about a potential increase in interest rates.
Mr. Mason asked about the cash position of the three retirement plans and noted that this might be a good time to have a larger percentage of assets in cash. Mr. Kachmar responded that the plan’s cash position was consistent with the Plans’ Investment Policy Statement and that he recommended sticking with the inflation protection options which he would discuss later in the meeting.
Mr. Askham asked Mr. Kachmar if the 7% investment assumption used for the plans was reasonable. Mr. Kachmar confirmed that the assumption was indeed reasonable and that many towns were moving from 8% to 7.5%. The Town’s 7% assumption is conservative. Mr. Kachmar added that active management does appear to provide a benefit of about 50 basis points.
Mr. Kachmar noted that the plan was outperforming its benchmarks. FIA started in its current role with respect to the retirement plans in 2012.
Mr. Kachmar moved next to a discussion of Treasury Inflation Protected Securities (TIPS) which are designed to provide protection against inflation. He noted that plans have used TIPS which are based on bonds which periodically reset based on levels of inflation as measured by the consumer price index. Mr. Kachmar stated that the advantage of principal adjustments for longer duration TIPS options could be offset by the impact of a rise in interest rates and that shorter duration TIPS should be considered to limit interest rate risk. Mr. Mason stated that he believed a stronger cash position was a better alternative. Mr. Kachmar replied that the advantages of active management and the shorter duration provided both protection against interest rate increases and the benefits of the underlying product.
Mr. Kachmar accordingly recommended that the plans swap out the longer duration TIPS (Vanguard Inflation Protected Securities and PIMCO Commodity Real Return) for shorter duration alternatives (Vanguard Short-Term Inflation-Protected Securities Index Fund and Credit Suisse Commodity Return Strategy Fund).
Ms. Heavner made a motion that the Retirement Plan Sub-Committee accept FIA’s recommendation that Vanguard Inflation Protected Securities be replaced with Vanguard Short-Term Inflation-Protected Securities Index Fund and that PIMCO Commodity Real Return be replaced with Credit Suisse Commodity Return Strategy Fund. Mr. Askham seconded the motion. The motion passed with Mr. Mason voting against acceptance of the recommendation.
Mr. Kachmar moved on to a discussion of the OPEB, referring to the fourth tab in the document. He noted that the plan was automatically rebalanced on occasion (with a 55% equity and 45% fixed income split) and that the case could be made for more active management. Discussion ensued concerning the Board of Finance’s oversight role for the OPEB.
IV. Executive Session: Review of attorney-client privileged communications concerning pension plan contributions made by retired police officers and possible recommendation based upon advice of counsel.
At 8:55 a.m. Mr. Goman moved that the Sub-Committee move into executive session. Mr. Mason seconded the motion, the motion passed without opposition and the Sub-Committee moved into executive session with Mr. Cooke and Mr. LaClair present as pension plan administrators. At 9:15 a.m. Mr. Mason moved that the Sub-Committee adjourn from Executive Session. Ms. Cook seconded the motion, it passed unanimously and the Sub-Committee adjourned from Executive Session.
Mr. Mason made a motion that the Retirement Plan Sub-Committee recommend to the Board of Selectmen that any and all claims based upon the actual over-withholding of employee contributions into the Town of Simsbury – Police Retirement Income Plan by retired plan participants be settled with advice of counsel. Mr. Goman seconded the motion. The motion passed unanimously.
Mr. Wade made a motion that the Town of Simsbury issue a Request for Proposal seeking a firm to conduct a compliance audit of the three pension plans to ensure compliance with plan terms and conditions. Ms. Heavner seconded the motion. The motion passed unanimously.
IV. Adjourn
At 9:17 a.m. Mr. Mason made a motion to adjourn the meeting. Ms. Cook seconded the motion. The motion passed unanimously.
Respectfully submitted,
Thomas F. Cooke II
Director of Administrative Services