Retirement Plan Sub-Committee Regular Meeting November 13, 2014

Retirement Plan Sub-Committee
Regular Meeting Minutes

Thursday, November 13, 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, Lisa Heavner, Phil Schulz, Mike Wade 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 and Tyler Polk. MassMutual Financial Group was represented by Michael Scheetz and Megan Gibb.

II. Acceptance of Minutes

a. Special Meeting, October 7, 2014

Mr. Goman made a motion to approve the minutes of the Special Meeting on October 7, 2014. Mr. Mason seconded the motion and it passed with Mr. Wade and Ms. Heavner abstaining.

Mr. Askham made a motion to move the presentation from Mass Mutual forward in the Agenda. Mr. Mason seconded the motion and it passed unanimously.

V. Presentation from MassMutual

Mr. Scheetz presented a document entitled "Retirement Plan Overview" which addressed the performance levels of and employee participation in the Town of Simsbury’s Section 457 Deferred Compensation Plan. Mr. Scheetz noted that while total plan dollars were down on a year over year basis, this was largely a result of withdrawals from the plan as opposed to investment performance. He also noted that more than $500,000 in contributions were made to the plan, which currently has 114 participants. Mr. Scheetz pointed out that most participants have diversified their investments with approximately 75% holding two or more of the plan’s 15 investment options.

Mr. Scheetz reviewed data on plan participants by age, holdings by age and average contributions by age. The Overview included data that 3 plan participants have taken out loans and discussion ensued concerning the rules governing loans against plan assets, the terms of the loans and loan administration. Mr. Cooke noted that loans are re-paid by automatic paycheck deductions.

Ms. Gibb and Mr. Scheetz moved on to a discussion of the employee education process and MassMutual’s program for employee education. Ms. Gibb noted that she was preparing to offer a series of meetings with employees in the coming year to provide information about the plan and guidance with respect to appropriate investment goals. A discussion ensued concerning the importance of focusing on education and avoiding anything that could be construed as investment advice. Mr. Mason noted that it would be appropriate to recommend that plan participants consult with investment advisors for specific investment questions. Ms. Cook asked MassMutual to provide the Committee with samples of the materials that would typically be provided to employees and Ms. Gibb agreed to provide those materials.

III. Review of Pension Plan Performance, Third Quarter 2014

Mr. Kachmar proceeded to review portions of a document entitled "Town of Simsbury Defined Benefit Pension Plans Quarterly Investment Review – Third Quarter 2014." He noted that FIA was introducing a "Fiduciary Governance Calendar" which establishes an annual framework for discussing important plan management issues. Mr. Kachmar proceeded with an economic and market review, noting the divergence between improving economic growth in the United States (with the Federal Reserve in contraction mode) and slow international economic improvement (with overseas banks remaining in stimulus mode). He also noted that the strong U.S. dollar mitigated the value of those overseas investments where performance was improving. He concluded that while international equities were not performing as well as their U.S. counterparts investments in international equities still make sense.

Mr. Kachmar also reviewed fixed income performance, noting that experts were still expecting higher interest rates, perhaps in the second half of 2015.

Mr. Kachmar continued with a portfolio review, noting that the Town plan was trailing the "Town Hybrid" benchmark year-to-date. He pointed out that for 2014 and 2012, the Town plan performed better than the benchmark. The lag was in large part due to performance issues with PIMCO and Thornburg – investments that are no longer part of the benefit plan portfolio.

Mr. Askham asked Mr. Kachmar whether the 7% return assumption was still valid. Mr. Kachmar responded that it was, that it was below the average return assumption in the state and that it remained reasonable. He also suggested that the Town’s actuary, Milliman, could be invited to a Sub-Committee meeting to offer its opinion (which he expected would be consistent).

IV. Review of Defined Contribution Plan performance, Third Quarter 2014

Mr. Polk reviewed portions of a document entitled "Simsbury DC Quarterly Investment Review – Third Quarter 2014" beginning on a section entitled "Participant Focus: Best Practices." He discussed the possibility of an educational process which would identify specific users who might benefit from additional customized messaging. The process could include benchmarking to determine whether educational efforts were making an impact.

Mr. Polk discussed the challenge created by maintaining the "General Account" with a guaranteed 4% return, noting that the cost of the offering to MassMutual resulted in limitations on other potential fund offerings and that employees tend to overinvest in it, particularly in the 401(a) component of the defined contribution plan. Ms. Cook noted that there was very little participation in the BlackRock LifePath offering and asked Mr. Polk if this was unusual. He responded that it was and that most clients have participation of approximately 60% participation in target date funds. An extensive discussion ensued concerning the need for education and the possible use of default investment options to help employees achieve better diversified portfolios.

Mr. Polk noted that the plans that the T. Rowe Price target date fund was a potentially better performing target date fund and that the Committee should consider replacing the BlackRock LifePath funds with the T. Rowe Price equivalent. He noted that both funds were performing well and that BlackRock was not on FIA’s "watch list." Discussion ensued and the consensus of the Committee was that it should consider replacing BlackRock with the T. Rowe Price target date funds at its meeting in January. Mr. Cooke noted that this could coincide with an annual employee education campaign.

V. Adjourn

There being no further business, Mr. Schulz made a motion to adjourn the meeting. Mr. Goman seconded the motion and it passed unanimously. The meeting adjourned at 8:55 am.

Respectfully submitted,

Thomas F. Cooke II