Pepperdine University Retirement Plan Committee Meeting 08 ...
Committee Meeting Minutes
DATE: February 25, 2010
2:30 pm
Mr. Paul Lasiter Mr. Grant Nelson
Mr. Michael Feltner Ms. Michelle del Giudice
Ms. Lauren Cosentino Ms. Connie James
Ms. Edna Powell Mr. Marc Goodman
Mr. Jack McManus
GUESTS: Mr. Chris Rowey, Benefit Funding Services Group
Ms. Cathy Christ, Benefit Funding Services Group
Ms. Christine Hannick
Mr. Ken Iga, Pepperdine University
ABSENT: Mr. Jeff Pippin
SUBJECT: Pepperdine University Retirement Plan Committee Meeting
The Committee unanimously approved the minutes of the 12/10/09 meeting. It was noted that Mr. Marc Goodman would be leaving the Committee.
FIDUCIARY AGENDA:
Evaluation Methodology Update: Mr. Rowey reviewed BFSG’s new evaluation methodology and report layout. The new methodology was developed in conjunction with BFSG’s transition to Morningstar Direct, an analytic and reporting software tool. The revised methodology employs similar criteria for the evaluation; however, many of the statistics are measured on a 3, 5 and 10 year basis, where the prior methodology had more emphasis on the 3 year period. One of the biggest benefits is the ability to provide a precise percentile ranking of funds within their peer group. BFSG also adjusted the evaluation scale so that any investment with a ranking below 25% is considered “outperform, anything ranked between 25-50% is scored “perform” and anything ranked 50% or higher is scored “underperform,” which is more stringent that the previous rankings. The new methodology evaluates the same criteria as in the past but illustrates a more precise ranking. The Committee will discuss the evaluation methodology further at its next meeting.
Fourth Quarter 2009 Retirement Plan Investment Report: Mr. Rowey provided a brief economic and market overview commenting that the U.S. economy has moved into the recovery stage with two consecutive quarters of positive GDP growth. The early estimate for GDP for the fourth quarter was 5.7%, following a 2.2% GDP growth rate in the third quarter. There is still uncertainty in the labor market with the unemployment rate hovering around 10%. Interest rates remained low in the fourth quarter, which impacted the shorter end of the yield curve. The 10-year Treasury yield increased from 3.31% to 3.86% during the fourth quarter. Technology, Healthcare and Consumer Discretionary sectors led the market during the quarter while Financials lagged with a loss of 3.3%. Growth stocks continued to outpace value stocks during the quarter with large cap returns leading small cap returns.
The major market indices ended the fourth quarter as follows: bonds, as measured by the Barclays Aggregate Bond index, were up 0.20%; the broad domestic market, as measured by the S&P 500 index, was up 6.04%; and the international market, as measured by the MSCI EAFE index, was up 2.18%.
The Committee then reviewed the performance of the funds in the Diversified, TIAA-CREF and Prudential Plans.
4th Quarter Investment Review - Diversified Plan: Mr. Rowey reviewed the funds in the Plan. Funds of Note included:
Vanguard Prime Money Market Instl: The Committee discussed the fact that 9.5% of the Diversified Plan is in the money market fund and found it interesting that this money had not moved to the guaranteed pooled fund which had a higher yield of 4%. This is probably due to the fact that many participants were looking for the perceived safety of treasuries and once participants moved into the money market they did not move back out. BFSG will look at the amount of assets that moved from the Inflation Protected Securities Fund to the money market in the last year.
MainStay High Yield Bond I: The fund lagged the index for the quarter and the year, which is also affecting its 3 year performance. Some of this is due to the fact that it is a more conservative high yield fund and that riskier issues performed better in 2009.
Fidelity Contrafund: This fund did well against its index and peers for the quarter but still lagged for the year. It became conservative and is still more defensive right now than other large cap growth managers.
Perkins Mid Cap Value T: The fund lagged its index and category for the year, although it outperformed during the time period from the bottom of the market through March of 2009. Its managers focus on compounding returns over time rather than topping the charts on a year-in, year-out basis. The plan’s investment changed to a T share, as all investors in the J share class were moved to the T share class.
Lord Abbett Small Cap Value A: The fund outperformed its index and category for the quarter. The Committee will leave this fund on the watch list due to the recent manger change. The Perkins Small Cap Value Fund T will be added to the Plan in the Small Value Category as the Lord Abbett Small Cap Value Fund was moved by Morningstar to the small blend category.
Mutual Global Discovery Z: The fund continued to lag the index and its peers due to its higher than average cash position, although it has outperformed over the long term. The fund did experience a recent manager change and its cash level has continued to decrease from a high of about 50% in early 2009 to a bit less than 30% at year end. The Committee will continue to keep this fund on the watch list.
Quantitative Analysis: Based on BFSG’s evaluation methodology, the Diversified Plan as allocated at the end of 2009 ranked in the 7th percentile, which places it in “outperform” status. Twenty two of the twenty four funds in the plan were rated “outperform” with two funds rated “perform.”
Portfolio Return vs. Custom Benchmark: The Committee noted that the Diversified Plan outperformed both the passive and active benchmarks for the 4th quarter, 3 year and 5 year time periods, and it was in-line with the passive benchmark for the year while slightly below the active benchmark. The Plan expense ratio of .60% is significantly less than that of the custom benchmark at 0.89%.
Plan Statistics: Total assets in the plan at the end of the 4th quarter of 2009 were approximately $117.7 million, up from approximately $80.6 million at the end of the 1st quarter of 2009. Currently 8 of the 2,014 plan balances are in the Personal Choice self directed account mutual fund window.
Fund Search: Mr. Rowey presented a fund search analysis of real assets/commodities funds and funds which provide an inflation hedge. The funds reviewed included the BlackRock Natural Resources I, the Prudential Jennison Natural Resources Z, the T. Rowe Price New Era, the Van Eck Global Hard Assets, the PIMCO All Asset Admin, and the Van Eck Global Assets I. After an in-depth discussion of the portfolios, strategies and performance of all these funds, the Committee made the decision that the Van Eck Global Hard Assets A Fund was the best choice to be added to the plan. Van Eck is a specialist in this category and the fund provides a smoother ride as well as substantial exposure to the natural resources sector, and based on the evaluation methodology the fund was rated “outperform,” ranking in the top 2% of its category. Ms. Christ will follow up with Diversified to begin the process of adding this fund to the plan.
Diversified Plan Annual Report: Cara Cantrell, the relationship manager for the Pepperdine Plan at Diversified, will be invited to the next committee meeting to present an annual plan review. Another area of interest that the Committee would like Diversified to address is what exactly constitutes an “expression of interest” on the part of a participant after which Diversified would follow up with a call to the participant. The Committee believes that such follow up would not occur in a case where a participant merely speaks with a Diversified representative on campus. Diversified will also be asked to provide the number of times phone calls have been made to participants in 2009.
4th Quarter Investment Review – TIAA-CREF Plan: The plan performed as expected for the quarter, at or near the market performance. The Plan had 5 funds which rated “outperform,” one fund rated “perform” and one fund rated “underperform.” The plan weighted score placed the plan as a whole in the 14th percentile, which ranks the plan as “outperform.” The Plan was in-line with its benchmarks for the quarter and outperformed both benchmarks for all other time periods measured. The plan expense ratio of 0.52 is below that of the custom active benchmark of 0.75.
4th Quarter Retirement Plan Investment Review –Prudential Plan: The plan weighted score of the Prudential Plan as allocated was in the 36th percentile, which places the plan in the “perform” category. The growth funds and the intermediate bond fund were the best performers, and they hold a total of approximately 33% of the assets in the plan. Again, four of the funds received an “underperform” ranking for the quarter according to the evaluation methodology, and three of the funds were ranked “perform.” One of the funds did receive an “outperform” ranking. The plan outperformed the passive and active custom benchmarks for the 4th quarter during all measured time periods other than the 3 year period, during which the plan was in-line with both benchmarks. The plan expense ratio of 0.56 was below that of the active benchmark at 0.75.
Fund Addition: The Perkins Small Cap Value Fund Class T will be added to the Diversified Plan on April 9th, 2010.
Socially Responsible Fund: The Committee again revisited the topic of socially responsible funds. The UFC continues to ask why there is no socially responsible fund in the core plan line-up. A suggestion was made to ask the UFC to define the criteria that they would use to choose a socially responsible fund. Again, the Committee expressed the concern that it does not want to give the impression of endorsing a particular set of criteria as embodying the values of the University. It was mentioned, as at previous committee meetings, that one solution is to have participants interested in investing in a socially responsible fund invest in one of their choosing through the mutual fund window. One issue raised regarding that approach is that an investment through the mutual fund window must be initiated manually by the participant at the time of each deferral. Ms. Christ will follow-up with Diversified to see if there is any way to solve for this issue.
ADMINISTRATIVE AGENDA
Diversified Annual Revenue Reconciliation: The plan revenue fell short of the Diversified annual administration expense for the 2009 plan year. Diversified is asking the University to choose to either pay the expense or debit it from participant accounts. The standard Diversified process is to receive semi-annual payment based on plan assets at the end of each 6 month period in 2010. The Committee decided that they wish to pay this upfront in one lump sum payment and will go back to Diversified to request this option.
Fund Name Changes: The Mutual Discovery Z Fund changed its name to Mutual Global Discovery Z on 11/11/09. The name change was made to more closely reflect the fundamental investment policy of the fund, which did not change. The recent management change was not related to the fund name change. The management change was a result of current managers who resigned from Mutual Series voluntarily to join another fund management company. Mutual Series acted to replace the mangers with other senior, long tenured mangers at Mutual Series. Mutual Series is owned by, and is part of, the Franklin Fund Family.
The Fidelity Spartan U. S. Equity Index Inv merged with the Fidelity Spartan 500 Index on 1/22/10. Upon the merger of these two funds, the fund will be renamed the Fidelity Spartan 500 Index Fund. Fidelity believes the "Fidelity Spartan 500 Index" name is more descriptive of the highly recognized S&P 500 Index that the fund currently tracks. The name change will not affect the combined fund's investment policies or how the fund is managed going forward.
Fund Share Class Changes
The Perkins Mid Cap Value J share has changed to a T share, as all J shares were moved to T shares by the fund manager. The Perkins Small Cap Value J share, which is scheduled to be added to the plan on 4/1/2009, will also be a T share. Although there will be no change in ticker symbols, the funds’ expenses will increase slightly.
With no further business, the Committee meeting adjourned at 5:30 pm
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