Retirement Plan Sub-Committee Regular Meeting Minutes September 10, 2014-Approved

Retirement Plan Sub-Committee
Regular Meeting
MINUTES

Wednesday, September 10, 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, Philp Schulz, Peter Askham, Mike Wade, 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, May 21, 2014 　

Mr. Schulz made a motion to approve the minutes of the May 21, 2014 Special Meeting and Ms. Cook seconded the motion. The motion passed with Mr. Askham abstaining.

III. Presentation by Fiduciary Investment Advisors

a. Defined Benefit Pension Plans Quarterly Investment Review, Q2, 2014

Mr. Kachmar presented the Defined Benefit Pension Plans Quarterly Investment Review for the second Quarter of 2014. He stated that on balance it was a good quarter based on modest economic growth. He noted that equities remained strong both in the United States and internationally. Fixed income performance was solid as well with interest rates still under control. Mr. Kachmar noted that it was a challenging quarter for domestic equity managers as managers focusing on "quality" investments did not fare as well compared to more aggressive and more risky stocks which performed better. A detailed discussion of investment options, including FIA’s relative expectations and asset allocations, followed.

Mr. Kachmar noted that changes since the end of the second quarter were de minimis with fund balances nominally higher due to Town contributions. He explained that there was a relative shortfall in the performance of the plans versus benchmark in part due to the performance of Neuberger Berman Genesis Fund (which has a "quality" stock orientation and lags in aggressive markets) in the domestic equity sector. He stated that the largest contributor to the shortfall was Thornburg International Value in the international equity sector and added that FIA was recommending a change in managers with respect to Thornburg. Mr. Mason asked whether FIA needed the Committee’s authorization to make the change and Mr. Kachmar replied in the affirmative.

Mr. Kachmar identified three options for replacing Thornburg, including American Funds EuroPacific Growth Fund ("EuroPacific Growth"), Harbor International Fund/Northern Cross: EAFE Equity ("Harbor") and Hartford International Opportunities/Wellington International Opportunities ("Wellington"). He stated that EuroPacific Growth managed significant funds and held approximately 260 different positions; that Harbor was smaller with a more concentrated portfolio (60 to 90 positions); and that Wellington had the smallest pool of assets (at $1.5 billion), utilized a "return on capital" strategy

and usually held between 70 to 120 positions. All three held positions in emerging markets with EuroPacific holding the most, harbor the least and Wellington in between. Mr. Kachmar stated that while all three were solid performers, FIA was recommending Wellington which was a good fit with the remaining international equity funds (Templeton and Aberdeen). Mr. Cooke asked why Mr. Kachmar considered this a good fit, and Mr. Kachmar responded that it brought the fund’s emerging market holdings to a desirable point.

Mr. Mason noted that Harbor’s long term performance appeared to be better than Wellington’s. Mr. Kachmar responded that Harbor had changed managers and that its best years could be credited to the prior managers. Ms. Cook asked about the fees related to each of the options and Mr. Kachmar stated that the fees were basically the same for all three. Mr. Schulz asked whether there was a greater volatility risk with respect to Wellington with the smallest asset pool. Mr. Kachmar responded that while there was some increased exposure to volatility, it was not meaningful.

Mr. Goman made a motion to amend the agenda to include action on changing the Town’s international equity managers. Mr. Wade seconded the motion and it passed unanimously.

Mr. Wade made a motion to accept the recommendation of FIA that the Pension Plan’s holdings in Thornburg International Value Instl be liquidated and invested in Hartford International Opportunities/Wellington International Opportunities. Mr. Goman seconded the motion. The motion passed with Mr. Mason voting against the motion and Mr. Askham abstaining.

b. Defined Contribution Plans Executive Summary for Q2, 2014

Mr. Polk proceeded with a review of the Defined Contribution Plans Executive Summary for the Second Quarter of 2014. He noted that, in accordance with the Fiduciary Governance Calendar, the second quarter goals were to focus on practice and policy. He provided a regulatory and legislative update and conducted a best practices review, noting that the Town’s practices and policies were up-to-date. Mr. Polk noted that the Investment Policy Statement had only been adopted in May, 2014 and recommended that it be reviewed again in May, 2015. Discussion ensued concerning whether the Investment Policy Statement itself should include an annual review requirement. Mr. Cooke stated that the Investment Policy Statement would be on the May, 2015 agenda for review.

Mr. Polk moved to a review of the funds available to employees. He noted that PIMCO, T. Rowe Price Growth Stock and AllianceBern Discovery Value A were all on watch, not for performance reasons but as a result of management changes which occasion closer scrutiny during a transition period.

Mr. Polk then discussed the plans’ target date fund options, noting that BlackRock LifePath was the preferred option of the available funds but was underperforming given its more conservative glide path. He added that with some pressure from FIA, MassMutual had added T. Rowe Price as an option and that T. Rowe Price, with more equity exposure, was currently performing better than BlackRock. A discussion ensued concerning the appropriate time for considering a change in target funds. Mr. Polk and Mr. Cooke noted that the current investment options have been in place for less than one year and that it made sense to consider the change in the next quarter. Mr. Polk noted that the expenses for the two funds were comparable.

c. Simsbury OPEB – Quarterly Investment Review, Q2, 2014

Mr. Kachmar stated that the OPEB plan had performed very well with its current index strategy. He added that he was working with Director of Finance Joe Mancini on blending in a more active management role for the OPEB.

IV. Adjourn

Mr. Goman made a motion to adjourn the meeting. Mr. Mason seconded the motion and it passed unanimously.

The meeting adjourned at 8:58 am.

Respectfully submitted,

Thomas F. Cooke
Administrative Chair