Pepperdine University Retirement Plan Committee Meeting 08 ...



ATTENDEES:Ms. Lauren Cosentino(Listed alphabeticallyMr. Michael Feltnerby last name)Mr. Paul LasiterMr. Jack McManusMr. Grant NelsonMs. Edna PowellGUESTS: Mr. Chris Rowey, Benefit Funding Services GroupMs. Tina Schackman, Benefit Funding Services GroupMs. Cara Cantrell, Diversified Investment AdvisorsABSENT: Ms. Michelle del GuidiceMr. Jeff PippinOpening: The regularly scheduled meeting of the Pepperdine University Retirement Plan Committee was called to order on June 21, 2010 at 1:30 p.m. in Malibu, CA. ADMINISTRATIVE AGENDADiversified Annual Plan Review: Cara Cantrell reviewed Plan statistics as of 3/31/2010, such as assets, participant balances, participation rate, average account balance, cash flows and participant allocation mixes. It was noted there was $3.7 million in total contributions for the past 12 months with $2 million of employer matching contributions and $1.7 million in employee deferrals. The overall participation rate for the Plan is 65%; however, the participation rate for those employees eligible for the employer match is 83%. There are currently over 400 employees not participating in the Plan. The Committee requested an outline of the communication campaign at the next meeting to review strategies for targeting certain employee groups, specifically those not participating in the Plan.The Committee discussed automatic features that could be added to the Plan, such as automatic enrollment and automatic deferral escalation as methods to increase participation and deferral rates. Cara explained there is a feature called Save Xpress that allows participants to manually select to increase their deferral rates at regularly scheduled intervals (e.g. annually); however, the Plan could elect to automatically increase deferral rates across all participants. Paul suggested an employee communication should be sent out to coincide with raises which are typically in August. Cara will provide additional information to the Committee on establishing automatic enrollment. Lauren and Cara will incorporate communications about the automatic deferral escalation in conjunction with upcoming raises. There were 184 participants utilizing Portfolio Xpress and 4 participants enrolled in the Managed Accounts option at the end of the first quarter which are both features available to help participants allocate their accounts. As of 3/31/2010, 30% of participants were invested in one fund and 50% of those participants were invested in short term stable value or money market options. Of those participants invested in just a stable value or money market fund, 30% are under the age of 50. The average number of investment options utilized by active and terminated participants was 6.6 and 3.2 respectively, compared to the industry average of 5.3. The Committee reviewed the allocation by age group of the T. Rowe Price target date funds and noted most participants were invested in the appropriate target date with a few outliers with participants in the 40 – 59 age groups. The most notable transfer activity during the quarter was net transfers out of the money market fund and net transfers into the Guaranteed Pooled fund which is likely due to participants interested in getting a higher yield on their fixed option. Cara reviewed the utilization of services by participants and noted there were 258 participants that visited the website during the first quarter for a total of 3,779 times which equates to approximately 25% of participants accessing the website. Of those participants using the website, 8.3% enrolled in Portfolio Xpress, 28% signed up for e-statements, 19% used the Retire Track planning module and less than 2% enrolled in Save Xpress. Grant inquired about the amount of assets that have transferred over from the TIAA-CREF plan. Cara will research whether this is information Diversified is tracking, and if so, provide the data to the Committee on a ongoing basis. Jack commented he received a call from a Diversified representative requesting he contact them about his account. The rep informed Jack that he may not need to take a required minimum distribution if he transferred his outside accounts into the Diversified plan. Diversified is not supposed to solicit participants to transfer their accounts from TIAA-CREF into Diversified so Cara will investigate further into the calls being made to participants. Cara reviewed the expenses being paid by the Plan and Diversified’s revenue requirement of 18 bps. There was a revenue shortfall in 2009 of approximately $12,500 which was paid directly by Pepperdine University. This amount is measured quarterly and an invoice is submitted for payment if the revenue falls below the 18 bps requirement. Michael requested to have employee classification included in the Diversified reports that reflect those participants not currently participating in the Plan. Cara was not sure whether this information was being included in the payroll file and will work with Michelle to incorporate classification information.Diversified Managed Account (DMA) Fee Charge: Cara explained that due to legislative changes Diversified needs to change their account fee arrangement for Managed Accounts. The new legislation requires the custodian to report fees directly to the Plan Sponsor; however, State Street, the current custodian, is not able to provide this information. Therefore, Diversified has discontinued charging fees to the participant’s accounts and will impose a $3,000 per year flat fee to offer the service. The Committee reviewed current participation and Michael motioned to discontinue the Managed Account service for all retirement plans. Paul seconded the motion and the motion was unanimously passed. Committee Membership: It was noted Connie James has resigned from the Committee and the members discussed adding a staff representative to fill her position. The Committee discussed reaching out to the University Faculty Counsel (“UFC”) to see if there would be any volunteers. Michael will follow up with UFC and report back to the Committee on potential candidates. FIDUCIARY AGENDASocially Responsible Funds: Michael requested to reopen the topic of adding a socially responsible fund to the Plan. The Committee discussed the possibility of adding the TIAA-CREF Social Choice fund which is similar to the CREF Social Choice fund currently offered in the TIAA-CREF plan; however, several members expressed their concerns that selecting one social fund could infer the University is representing a specific set of social values. Paul commented that the mutual fund window does allow participants to select these types of funds on their own that would be more aligned with their own personal set of values. The Committee agreed to keep this topic open and address if a perceived need persists among participants. Approval of prior meeting minutes: The Committee reviewed the minutes from the 2/25/2010 meeting and Michael motioned to approve the minutes. Jack seconded the motion and the minutes were unanimously approved. 1st Quarter 2010 Investment Review: Chris Rowey provided an overview of the market and economic conditions during the first quarter outlining growth as measured by GDP, unemployment, inflation, interest rates and market sector returns. The Committee reviewed the relative performance of the investment options offered in the Diversified Plan against their respective peer groups on a quarter, 1, 3, 5 and 10 year annualized basis. The following funds were discussed in further detail:Guaranteed Pooled Fund: This stable value fund has a current declared rate of 3.5% with a market-to-book value ratio of 101%. The portfolio has an average credit quality of AA+ and has been returning over 4% over the past 1, 3, 5 and 10 year annualized periods. MainStay High Yield Bond: This is a very conservative high yield bond fund with an average credit quality of B and only 21% of the portfolio is invested in fixed income securities with credit ratings below B. Due to the fund’s quality bias, returns are below average on a 3 and 5 year annualized basis as of 3/31/2010 and the Committee agreed to place this fund on the watch list. BFSG will prepare a fund search for the high yield category for the Committee’s review at the next meeting. Munder MidCap Growth: This fund loaded up on cyclical and financial companies in 2008 and suffered steep losses (-43.6); however, its growth-at-a-reasonable-price (GARP) investment strategy wasn’t rewarded in 2009 and the fund landed in the bottom 72nd percentile. As a result, the fund has generated below average returns on a 3 and 5 year annualized basis, but still carries a strong 10 year performance record. Due to recent volatility and below average returns, the Committee agreed to place the fund on the watch list. BFSG will prepare a fund search for the mid cap growth category for the Committee’s review at the next meeting. Lord Abbett Small Cap Value A: This fund experienced a manager change in 2009, but the current manager employs the same investment strategy as the previous manager and the fund continues to provide above average returns in this category. Chris Rowey suggested this fund be removed from the watch list and the Committee unanimously agreed to have it removed. Mutual Global Discovery Z: This fund came under new management in the third quarter of 2009 as the previous management team left to join PIMCO. The current management team has begun reducing the large cash position that the previous managers built up in 2009 which was as high as 50% but now stands at approximately 12% of the portfolio. The portfolio still remains rather defensive but the investment strategy has not changed, so while the short term performance is below average, long term performance over a 3, 5 and 10 year period still remains top quartile. Chris Rowey suggested this fund be removed from the watch list and the Committee agreed to have it removed. Van Eck Global Hard Assets: This fund is scheduled to be added to the Plan on July 12, 2010. Chris commented that while this fund holds natural resources companies, the portfolio does not own any British Petroleum stock. Michael requested to have ticker symbols added to the investment reports for quick access when researching the funds. BFSG will add ticker symbols to the Fund Performance Summary section of the reports. The Committee reviewed the performance of Diversified’s Portfolio Xpress models vs. the T. Rowe Price Retirement Date funds. Due to a more conservative glide path, the Portfolio Xpress models outperformed the retirement date funds on a 3 and 5 year annualized basis, but slightly underperformed on a 1 year basis as of 3/31/2010. Based on BFSG’s evaluation methodology, the Diversified Plan as allocated at the end of first quarter 2010 ranked in the 9th percentile, which places it in “outperform” status. Out of the 25 funds that receive an evaluation score, 22 scored in the top quartile and earned an “Outperform” ranking and 3 scored in the second quartile and earned a “Perform” ranking. There are currently no funds in the Plan with an “Underperform” ranking.The Committee noted the Diversified Plan outperformed both the passive and active benchmarks on a 3 and 5 year annualized basis and the weighted expense ratio of 61 bps is significantly less the custom benchmark at 92 bps.The Committee reviewed the investment options offered in the TIAA-CREF plan which had approximately $143 million in assets at the end of the first quarter. It was noted that the options offered in the Plan are enhanced index funds so they receive high scores in style consistency and expenses, but below average scores in performance and risk statistics. On a plan-weighted basis, the TIAA-CREF funds outperform their active and passive benchmarks on a 3 and 5 year basis which is primarily due to the large allocation of assets in the TIAA Traditional account. The Committee reviewed the investment options offered in the Prudential plan which had almost $3.4 million in assets at the end of the first quarter. Most of the assets are allocated to the Guaranteed Interest Account and the large cap growth options which are the only options in the Plan that receive an “Outperform” ranking. Michael suggested adding plan-weighted ranks on the Quantitative Analysis Summary for each of the Plans in addition to the average ranks. BFSG will add the plan-weighted ranks to the summary pages for each plan. With no further items to address, the Committee meeting adjourned at 4:00 pm ................
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