DELAWARE DEFERRED COMPENSATION COUNCIL MEETING



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STATE OF DELAWARE

OFFICE OF STATE TREASURER

VELDA JONES-POTTER 820 SILVER LAKE BOULEVARD, SUITE 100 PHONE: (302) 672-6700

STATE TREASURER DOVER, DELAWARE 19904 FAX: (302) 739-5635

DELAWARE DEFERRED COMPENSATION COUNCIL MEETING

MINUTES

May 5, 2009

A meeting of the Delaware Deferred Compensation Council was held on Tuesday, May 5, 2009 at 2:00 PM in the Treasurer’s Office Conference Room, located at 820 Silver Lake Blvd, Dover, Delaware.

Attendees:

Council Member: Velda Jones-Potter, State Treasurer and Co-Chairperson

Robert Scoglietti for Ann Visalli, Director of OMB

Karen Weldin Stewart, Insurance Commissioner

Oliver Gumbs, Member at Large

Thomas Hurley, Member at Large

Others Present: Nick Adams, Deputy State Treasurer

Joshua Hitchens, Financial Investment Program Specialist

Elio Battista, Jr., Deputy Attorney General

Gary Scheidecker, Financial Investment Program Specialist

Sandy Condon, Investment Consultant, Fidelity Investments

Tim Ruggles, Senior Relationship Manager, Fidelity Investments

Joyce McCaffrey, Communications Consultant, Fidelity Investments

Chris Ray, Client Services Manager, Fidelity Investments

Elizabeth Heffernan, Fidelity Investments

Velda Jones-Potter called the meeting to order at 2:07 PM. After introductions were made, the minutes from the November 12, 2008 meeting were approved as presented.

Fidelity Investment Consultant Sandy Condon provided the investment review as of March 31, 2009 which looks at the performance of the Plan’s funds in the core line-up. Mr. Condon made note of the unprecedented volatile market conditions in 2008. Mr. Condon made note that U.S. stocks sank to new lows before recovering some losses in March, while foreign stock markets

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May 5, 2009

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declined. Emerging markets posted small gains, while developing countries registered steep losses. Mr. Condon also noted that fixed-income markets remained volatile but reported some positive returns. Specifically, TIPS and Municipal Bonds and High-yield bonds rebounded in the first quarter of 2008.

Mr. Condon turned his attention to the Fidelity Capital Appreciation Fund and the Alger Mid-Cap Growth Fund which have both underperformed and were up for review by the council. Mr. Condon also stated that the Fidelity Value Fund may warrant discussion as well. Noting recent market volatility in 2008, Mr. Condon stated, not pulling the trigger on recently falling funds that have been in the 4th quartile for awhile need to be looked at. Mr. Condon made note that 25% of assets in the plan are invested in Freedom Funds which is encouraging.

Mr. Condon commented that the Fidelity Capital Appreciation Fund may be successful in an up market. However, he stated that a fund of this style may have high turnover. He also stated that the fund is momentum driven, which can cause volatility. Oliver Gumbs asked if Mr. Condon he had any recommendations for this fund. Mr. Condon said he did have some suggestions. Mr. Condon stated that the council needs to determine how long underperforming funds will remain under review. Mr. Condon noted 4 quarters to be a sufficient amount of times for specific funds to be under review. He does not believe removing funds in less than 4 quarters to be a good idea. Mr. Gumbs recommended the review of underperforming funds for 4 quarters.

Mr. Condon also commented on the Alger Mid-Cap Growth Fund. He noted that the fund is coming off a negative year and has now turned positive. Also, he stated this fund is a single manager analyst driven solid fund. Mr. Condon posed the question of whether the council wanted a more long-term fund. Nicholas Adams asked if Mr. Condon had any replacements in mind.

Mr. Condon turned his focus to the Fidelity Value Fund. He stated that this is a mid-cap value fund and has had mediocre results. Mr. Condon believes there are better performing funds in this category. Mr. Condon stated that he would e-mail me substitutes for this fund and Josh Hitchens could disseminate this information to the council.

Mr. Condon stated that the Fidelity Freedom Funds have outperformed in the first quarter of 2009 compared to benchmark and Morningstar peers. He did not include quarterly fund profiles, but stated as they become available he could forward them to Josh Hitchens.

Mr. Condon finished his discussion by asking if there were any questions. He asked if we wanted to schedule a follow-up. Mr. Gumbs suggested that the council should search for replacement funds for the funds under review. Mr. Gumbs suggested that the funds under review should possibly be monitored for 3 quarters, instead of 4. Mr. Condon stated he would forward mid-cap fund search data which would include the information provided in the appendix of his May 5, 2009 presentation and search data for a mid-cap value fund. He stated the data would be available June 30, 2009. He would have all the information ready by late July or early August.

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May 5, 2009

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Velda Jones-Potter recommended reconvening. Mr. Gumbs stated that the council should not wait too long to reconvene. The council moved to reconvene in late July or early August.

Fidelity Senior Relationship Manager Tim Ruggles provided the 2009 Retirement Plan Strategic Discussion.

Mr. Ruggles stated there was a good response to mailings in 2008. In 2009 there has been a negative response and contributions have been stopped. He advised Fidelity would keep watching this trend.

Mr. Ruggles stated that Fidelity has introduced a comprehensive employee solutions program in 2009. This involves a multiple touch email approach that doubles response rate.

Mr. Ruggles stated employee contributions based on year-to-date numbers will meet or surpass 2008 contributions. Mr. Adams advised contributions may drop due to legislation to decrease state employee pay. Mr. Ruggles also stated our plan balance is one-third the size of our peers.

Mr. Ruggles stated that Fidelity offers a portfolio review program through their website. This program takes into account other assets outside of deferred compensation account. This program helps participants create custom portfolios. The program would involve a fee of 35 to 65 basis points.

Several questions were raised regarding this program. Oliver Gumbs stated he would like to see a disclaimer. He asked if there is any implied responsibility. He does not want it to seem as if advice is being given. Elio Batista stated he would want to make sure that the State of Delaware is protected. This program would incorporate funds that are both reviewed and not reviewed by the council. Mr. Ruggles advised he would send language and a disclaimer regarding this program.

Elizabeth Heffernan gave a presentation regarding an annuity option for the deferred compensation plan. She stated Fidelity has partnered with The Hartford to provide a lifetime income option. Ms. Heffernan stated that in the United States Defined Benefit plans are on the decline making it Defined Contribution plans the only option for retirement. She stated that if the State of Delaware has a good DB plan, an annuity option may not be needed. She stated there are many disadvantages to an annuity option from a fiduciary standpoint.

Due to the fact that the State of Delaware has a strong DB plan, Velda Jones-Potter stated that she was not in favor of adding an annuity option to the DC plan. Oliver Gumbs stated that there was much to consider and we should take a wait and see approach.

Thomas Hurley asked if it was possible to offer any type of insured option in the plan. He says that state employees are looking for a level of security given the current economic conditions. He stated that in the 1970’s a savings account option was offered. Mr. Ruggles stated that he would look into this.

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May 5, 2009

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At 4:00 p.m. Velda Jones-Potter adjourned the meeting. The council will reconvene in July or August.

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