Retirement Plan Committee Meeting Minutes
ATTENDEES: Ms. Lauren Cosentino
(Listed alphabetically Ms. Michelle del Guidice
by last name) Mr. Michael Feltner
Mr. Paul Lasiter
Mr. Jack McManus
Mr. Grant Nelson
Mr. Jeff Pippin
Ms. Edna Powell
GUESTS: Mr. Chris Rowey, Benefit Funding Services Group
Ms. Tina Schackman, Benefit Funding Services Group
Opening: The regularly scheduled meeting of the Pepperdine University Retirement Plan Committee was called to order on September 3, 2010 at 11:10 a.m. in Malibu, CA and it was noted all Committee members were in attendance; therefore, a quorum was present.
Approval of prior meeting minutes: The Committee reviewed the minutes from the June 21, 2010 meeting and Michael motioned to approve the minutes noting the action items had been completed. Edna seconded the motion and the minutes were unanimously approved.
2nd Quarter 2010 Investment Review: Chris Rowey provided a brief overview of the market and economic conditions during the second 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, year-to-date, 1, 3, 5 and 10 year annualized basis. Paul inquired about why the 1 year percentile ranking did not appear on the Fund Performance Summary. Chris explained the 3, 5 and 10 year percentile rankings are included because they are incorporated into BFSG’s evaluation methodology; however, this report can be customized so BFSG will add the percentile ranking for the 1 year time period in future reports.
The Committee discussed the following funds in further detail:
Guaranteed Pooled Fund: Chris noted the expense ratio of the GPF will be increased 8 bps to 68 bps effective January 1, 2011 due to the increased cost of insurance on stable value fund products. The revenue sharing will not change; however, it is expected the crediting rate will decline at the next rate reset in January due to downward pressure on short term rates.
MainStay High Yield Bond: This fund has been placed on the watch list and will be discussed in more detail later in the meeting when the Committee reviews alternate options in the high yield bond category.
Munder Mid Cap Growth: This fund has been placed on the watch list and will be discussed in more detail later in the meeting when the Committee reviews alternate options in the mid cap growth category.
Perkins Small Cap Value T: This fund was closed to new investors in May 2010 but will not have any impact to participants in the Plan that want to continue to invest in the fund.
BlackRock International Opportunities A: This fund has moved into the foreign large cap equity category from the foreign small/mid category. The fund employs an all cap strategy that allows it to invest in companies of any market cap and has recently been purchasing larger cap companies. The Committee agreed they would like to offer a small/mid foreign equity in the Plan and requested to have BFSG prepare a fund search for this category to review at the next meeting.
The Committee reviewed the performance of the Portfolio Xpress models against the T. Rowe Price Retirement Date funds. The Portfolio Xpress models have slightly underperformed the T. Rowe Price funds on a 1 year basis, but have outperformed on a 3 and 5 year annualized basis. The glide paths were reviewed for both options and it was noted the T. Rowe Price funds are more aggressive near retirement with 30% in equities in the most conservative allocation vs. 20% for the Portfolio Xpress models. Michael suggested the performance comparison be illustrated in a graph, as well as the chart already included in the report. BFSG will include a graph for the performance comparison of the target date funds and Portfolio Xpress models over a 1, 3 and 5 year basis.
Based on BFSG’s evaluation methodology, the Diversified Plan as allocated at the end of second quarter 2010 continued to rank in the top 9th percentile, which indicates an “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 met or exceeded both the passive and active benchmarks on a 1, 3 and 5 year annualized basis and the weighted expense ratio of 61 bps is significantly less the custom benchmark at 92 bps.
Assets in the Diversified Plan exceeded $122 million at the end of the second quarter with 2,058 participant balances. There are currently 45 options offered in the plan, including 12 target date funds, of which 15 options have less than 1% each allocated to them by the participants. The Committee discussed the range of investment options and agreed to review any overlap among funds when due diligence reviews are being conducted to ensure a broad mix of options.
The Committee reviewed the asset allocation by age group for the Diversified Plan and noted more than 50% of participants age 29 and under have allocated their accounts into the T. Rowe Price target date funds. It was noted the target dates funds are the default option which would likely lead to higher participation for younger participants. Paul requested to add a page in the report that would show the asset allocation by age as a “look through” of the investment options so the Committee could see how much the participants have allocated in cash equivalents, fixed income, domestic and foreign equities based upon the underlying investment options’ allocation mix.
The Committee reviewed the relative performance of the investment options offered in the TIAA-CREF plan relative to their respective benchmarks. Out of the 6 funds that receive an evaluation methodology score, 2 ranked in the top quartile and earned a “Outperform” ranking and 4 ranked in the second quartile and earned a “Perform” ranking. The Plan weighted rank is in the top 22nd percentile. It was noted the expense ratios of all the investment options offered are below the category average and expense were lowered in 2009 by TIAA-CREF. Plan assets at the end of the second quarter were approximately $136 million, down from last quarter’s balance at $143 million, which is largely due to market fluctuation. Michelle will contact Cara Cantrell at Diversified to identify if any assets have been transferred out of the TIAA-CREF Plan into the Diversified Plan.
The Committee reviewed the investment options offered in the Prudential plan which had almost $3.2 million in assets at the end of the second quarter. Most of the assets are allocated to the Guaranteed Interest Account (58% of Plan assets) and the large cap growth options (27% of Plan assets). Out of the 7 funds that receive an evaluation methodology score, 2 ranked in the second quartile and earned a “Perform” ranking while the remaining 5 earned an “Underperform” ranking.
Fund Search Analysis: The Committee reviewed the Fund Search Analysis prepared by BFSG for the high yield bond and mid cap growth categories. In the high yield bond category, the Committee conducted a due diligence review of the existing option, MainStay High Yield Corporate Bond, against three alternate options: Fidelity High Income, PIMCO High Yield, and Putnam High Yield Advantage. Relative performance, risk characteristics, portfolio construction, management structure, investment strategy, style consistency and expenses were reviewed for each investment option. The MainStay fund has a more conservative strategy which has helped performance during down markets while the other options have a slightly more aggressive strategy. The Committee agreed to keep the MainStay fund on the watch list for another quarter since there were no compelling reasons to make a change at this time.
In the mid cap growth category, the Committee conducted a due diligence review of the existing option, Munder Mid Cap Core Growth, against three alternate options: Hartford Midcap, Morgan Stanley Instl Mid Cap Growth and Prudential Jennison Mid Cap Growth. The Committee reviewed the relative performance, risk characteristics, portfolio construction, management structure, investment strategy, style consistency and expenses for each investment option and agreed to keep the fund on the watch list for another quarter since the fund has demonstrated consistent rolling period returns similar to the other options considered. The Committee noted the expense ratio on this share class is above average and requested BFSG contact Diversified to request a lower cost share class for the Plan.
Participant Education: The Committee discussed current participation and noted 205 employees are not participating that are eligible for the match, of which 155 are staff personnel (15% of total staff). Michelle outlined the communication campaign that was developed in conjunction with Diversified to encourage participants to take a more active role in the retirement account, increase participant contribution levels, increase participant understanding of 403(b) Plan options and focus on the education needs of Spanish speaking employees.
Diversified Services: Due to time constraints, this topic will be discussed at the next meeting.
Automatic Enrollment: Due to time constraints, this topic will be discussed at the next meeting including the automatic deferral escalation feature.
Committee Membership: Due to time constraints, this topic will be discussed at the next meeting.
Adjournment: With no further items to address, the Committee meeting adjourned at 1:30 pm