Retire Plan Sub-Committee Special Meeting October 7, 2014

Retirement Plan Sub-Committee
Special Meeting Minutes

Tuesday, October 7, 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. Sub-Committee members Peter Askham, Nick Mason, Cheryl Cook, Phil Schulz, Paul McAlenney and Michael Goman were present. Burke LaClair (Board of Education Business Manager), Joseph Mancini (Director of Finance/Treasurer) and Thomas Cooke (Administrative Chair and Director of Administrative Services) were also present. Fiduciary Investment Advisors ("FIA") was represented by Christopher Kachmar.

II. Acceptance of Minutes

a. Regular Meeting, September 10, 2014

Mr. Goman made a motion to approve the minutes of the Regular Meeting on September 10, 2014. Mr. Askham seconded the motion and it passed with Ms. Heavner abstaining.

III. Review of and possible action on recommendation of Fiduciary Investment Advisors concerning replacement of PIMCO holdings in Town retirement plans

Mr. Kachmar presented his understanding of the circumstances of Bill Gross’s resignation from PIMCO. He stated that FIA was assured by Mr. Gross in May that PIMCO’s strategy was working well and that Mr. Gross gave no indications that there were management issues at PIMCO. He noted that PIMCO held a total of $2 trillion in assets, that the Total Return fund run by Gross had $300 billion at its height and that it was now down to $200 billion with a number of investors departing after Mr. Gross’s resignation. Mr. Kachmar added that PIMCO had been on FIA’s "watch" list since January and that, with this additional surprise management change, FIA’s investment committee had elevated the "watch" status to "terminate." Mr. Kachmar discussed the uncertainty associated with the experience of the remaining management team. He also noted that the departure of Mr. Gross had not had an immediate effect on the performance of the Total Return fund.

On questioning from Mr. Schulz, Mr. Kachmar confirmed that the share price had not suffered as a result of the management change. In response to a question from Ms. Cook, Mr. Kachmar stated that other municipalities (including West Hartford, Glastonbury and Hartford) were moving out of PIMCO Total Return. Mr. Mason pointed out that Mr. Gross had made some miscalculations in recent years, and Mr. Kachmar agreed noting that Mr. Gross’s long-term performance had been very good. In response to a question from Ms. Heavner, Mr. Kachmar stated that there would be no cost to liquidating the investments in the PIMCO Total Return fund. A discussion ensued concerning the potential positives and negatives of moving into an index fund. Ms. Heavner asked that in the future a 20-year performance timeline be included. Mr. Schulz asked if any municipalities were remaining in the PIMCO Total Return fund and Mr. Kachmar responded that he was not aware of any, at least amongst FIA’s clients. He also confirmed, in response to a question of Mr. Askham, that the Town could return to the fund but recommended that at least 18 months to 2 years pass before considering such a move.

Referring to a document entitled "Town of Simsbury Defined Benefit Plans PIMCO Update – Termination Recommendation, October, 2014" Mr. Kachmar noted that each of the three pension plans held close to 9% of their assets in PIMCO and that collectively the plans had approximately $5 million invested in PIMCO. A discussion ensued concerning possible replacements for PIMCO, including Metropolitan West (MetWest) Total Return (which is currently held at 9% in all three of the plans), Prudential Total Return Bond Fund and Western Asset Core Plus Bond Fund. was a consensus that the Town should not increase its holdings in MetWest to 18% of the total in each plan, but should consider the other options, including the possibility of including an index fund. Mr. Kachmar stated that Western Asset was similar to PIMCO in terms of its overarching economic strategy, and that Prudential was more like MetWest, taking a more "bottom up" valuation approach to their investment strategy.

After further discussion concerning the investment styles and fees of Western Asset and Prudential respectively, Mr. Mason made a motion to liquidate the plan holdings in PIMCO Total Return and to invest the funds in Western Asset Core Plus Bond Fund. Mr. Askham seconded the motion and it passed unanimously. Ms. Heavner asked for a longer time period for comparison of fund performance in the future.

Mr. Kachmar stated that PIMCO Total Return and PIMCO Real Return were also investment options for participants in the Town and Board of Education defined contribution funds. He reviewed actual participant holdings in the fund as reflected in a document entitled "Historical Balances by Investment," noting that relatively small amounts were invested in PIMCO. He noted that MassMutual limited the number of options available to replace PIMCO and stated that Western Asset would likely be offered but perhaps at a different grade. Mr. Kachmar proposed that PIMCO Real Return be eliminated as an option and that funds in PIMCO Real Return be mapped to the General Account. He stated that FIA was awaiting information from MassMutual concerning the Western Asset option. A discussion ensued concerning the potential fees associated with PIMCO and Western Asset in the defined contribution plans. After an on-line review of fees Mr. Kachmar concluded that the fees were similar and it appeared that the fees for Western Asset were lower than the existing fees for PIMCO. Further discussion ensued concerning the nature of the notice to be given plan participants concerning the fees and the reasons for making the change from PIMCO to Western Asset.

Mr. Goman made a motion to direct MassMutual to replace the PIMCO investment options in the defined contribution plans with a Western Asset investment option. Mr. Askham seconded the motion and it passed unanimously.

IV. Adjourn

There being no further business, Mr. Goman made a motion to adjourn the meeting. Ms. Cook seconded the motion and it passed unanimously. The meeting adjourned at 8:30 am.

Respectfully submitted,

Thomas F. Cooke II