Transcript Cover With Light Image (7.5” X 10”)

NSHE Retirement Plan
Defined Contribution
RecordKeeper Request for
Proposal
Presenters
Michelle Kelley
Business Center North
Benefits Manager/Chair of RPAC

Chair of the Retirement Plan Advisory Committee and a member of the Investment Management Sub-Committee
Kent Ervin
University of Nevada, Reno
Professor

Chair, Investment Management Subcommittee
Hank Stone
Nevada System of Higher Education
System Counsel/Director of Real Estate Planning

Advisor to the Chancellor on policy matters related to the Retirement Program and has been delegated authority to act on the
Chancellor’s behalf with regard to the Program’s day-to-day administration
The mission of the NSHE Retirement Program is to provide opportunities
for employees to accumulate a reasonable level of savings towards
retirement income through engagement, education, guidance, and
investment choices
1
NSHE Retirement Plan – Current Circumstances
As of December 31, 2011
NSHE
Total Assets
$1,735.6 million
Participants with Balance
14,323
Average Participant Balance
$121,174
Total Number of Investment Options
290
 Three different investment sponsors for investment of retirement savings (Fidelity, TIAA-CREF,
and VALIC)
– Two deselected vendors still hold participants assets (American Century and T. Rowe
Price)
 As of December 31, 2011, majority of the Plans assets (76.4%) held by TIAA-CREF
Asset Allocation
Fidelity Investments
Percentage of Total
$246.1 million
14.2%
TIAA-CREF
$1,326.0 million
76.4%
VALIC
$163.5 million
9.4%
$1,735.6 million
100.0%
Total Plan Assets
2
Complexity
 Existing multi-administrative model is confusing/overwhelming to
participants
– Three vendors with 289 investment choices to mine through
– Investment line-ups contain numerous redundancies
 Product and service levels are mixed, inconsistent between vendors,
and insufficient to meet NSHE community needs
 Vendors have upgraded their systems and can now “unbundle” their
recordkeeping services separate from their investment offerings
3
Request for Proposal
 NSHE has not done an administrative service provider
search for the Retirement Plans since the early 90’s
 Current fees are high - Employees are paying too much for
retirement management services (both on the investment
side and on the administration side)
 Simplification - The Retirement Plan structure is overly
complex for the majority of employees
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Fees
 Recordkeeping & administrative fees are currently “hidden” in fund expense
ratios
– Creates an environment that handicaps decision makers from acting
prudently to defray unreasonable expenses
 Total costs are significantly above similar size peers or institutions that have
recently restructured their defined contribution retirement programs
Expense
Current
Peer Benchmarking*
Potential Savings
Investment Costs
0.33% of assets
$406 / participant
0.23% of assets
$249 / participant
0.10% of assets
$157 / participant
Administration Costs
0.22% of assets
$270 / participant
0.07% of assets
$81 / participant
0.15% of assets
$189 / participant
Total Plan Costs
0.56% of assets
$676 / participant
0.30% of assets
$331 / participant
0.26% of assets
$345 / participant
*Based upon data from the 2011 Hewitt EnnisKnupp Defined Contribution Total Plan Cost Analysis
Potential savings of $4.7 million per year based on 14,323 participants
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Opportunity Knocks
 We can leverage our size to
negotiate lower investment and
administrative fees due to
economies of scale
Increasing the
System’s
contribution
 All savings will go directly back into
your pockets!
0.5%
Reducing
fees or
improving
performance
by
…has the same
value as…
of pay for a
full career
employee
25
basis
points…
Source: Aon Hewitt 2011 Universe Benchmarks
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Content of RFP
 No decisions have been made yet
 The Request for Proposal will ask for pricing on multiple scenario’s,
including but not limited to:
– keeping the status quo
– consolidating to one or two record-keepers;
– record-keeping with or without proprietary funds on the line-up
– expand the alternatives for lifetime income solutions
Your feedback is important and will help guide the
RPAC on the direction and outcome of the RFP
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Objectives for Request For Proposal
#1 Simplify the
participant
experience
Reduce the number of vendors and/or identify master recordkeeper
 Enhanced purchasing power and lower administrative fees
 Customized and consistent enrollment and education materials
 Consolidated account statements
 Facilitate compliance with federal regulations
#2 Maximize faculty
and staff
engagement
Align organizational goals and participant needs
 Transparent and equitable administrative fee
 Unbiased investment guidance and advice
 Enhanced retirement planning and lifetime income features
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Simplification
 Reduce the number of investment options to between 20-30
– Selection of investments will be guided by the Plans’ Investment
Policy Statement
 Use size of NSHE Retirement Plan assets to negotiate better share
classes with lower management fees
 Expand choice by offering a mutual fund window
 Investment “tiers” will help guide participants in their investment
decision making by categorizing the Plans investment options
 Open architecture will allow complete investment flexibility to
customize the fund line-ups based on the needs of participants
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Total Plan Costs by Provider
As of December 31, 2011
Expense
Fidelity
TIAA-CREF
VALIC
Total
Investment Management
$894,198
0.36%
$3,370,336
0.25%
$693,761
0.42%
$4,958,295
0.29%
Revenue Sharing
$487,464
0.20%
$2,476,388
0.19%
$98,627
0.06%
$3,062,479
0.18%
Other Admin. Expense
--
--
$852,322
0.06%
$755,698
0.46%
$1,608,020
0.09%
Investment Advisory Services
--
--
--
--
$375,124
0.23%
$375,124
0.02%
Plan Service Credit
($40,000)
(0.02%)
($200,000)*
(0.02)
($80,000)
(0.05%)
($320,000)
(0.02%)
Total Plan Costs
$1,341,662
0.55%
$6,499,046
0.49%
$1,843,210
1.13%
$9,683,918
0.56%
# of Participants
3,980
7,526
2,817
14,323
*The Plan Service Credit from TIAA-CREF may change prospectively or retroactively
 Total Plan Costs = 0.56% of assets or $676.11 per participant
 Investment Costs = 0.33% of assets or $405.68 / participant
– ($4,958,295 + $852,322) / 14,323
 Administrative Costs = 0.22% of assets or $270.43 / participant
– ($3,062,479 + $755,698 + $375,124 - $40,000 – $200,000 - $80,000) / 14,323
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Investment Performance
 In addition to high fees, many of our Plans’ current investment
managers have failed to outperform their respective market
benchmarks
– “Brand” loyalty has not provided the best returns
– Higher then average fees have detracted from managers’ results
P ercen tag e o f In vestm en t Altern atives M eetin g o r E xceed in g Th eir
R esp ective M arket B en ch m arks as o f 12/31/20112
F id elity
TIAA-C R E F
V AL IC
1-Y ear
49/174 (28% )
5/25 (20% )
17/90 (19% )
3-Y ears
110/172 (64% )
9/25 (36% )
39/88 (44% )
5-Y ears
85/159 (53% )
5/22 (23% )
26/87 (30% )
10-Y ears
73/136 (54% )
3/10 (30% )
19/71 (27% )
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Tiered Investment Structure
Tier
Characteristics
Target Retirement Funds
 Professionally managed solution that becomes more conservative as a
participant approaches retirement
Core Funds
 Limited number of broadly diversified funds that deliver the return of the
major asset classes
 Requires asset allocation decision
Specialty Funds
 Specialized funds that allow for representation of different levels of risk
and investment style
 Includes active and indexed fund options
Mutual Fund Window
 Provides access to thousands of mutual funds from hundreds of mutual
fund companies
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Tiered Investment Option Structure - Sample
 The Plans’ investment funds will be selected using procedural prudence
reflecting industry best practices in manager selection
Tier
Investment Structure
Target Retirement Funds
 Indexed Target Date Retirement Funds (20XX)
Core Funds
 Money Market
 Total Bond Market Index
 Total U.S. Equity Index
 Total Non U.S. Equity Index
Index Options:
Active Options:
 Short-term Fixed Income
 Stable Value / Guaranteed Interest
 Inflation Protected Fixed Income
 Diversified Fixed Income
 Large Cap U.S. Equity
 High Yield Fixed Income
 Small/Mid Cap U.S. Equity
 Large Cap Growth U.S. Equity
 Developed Non-U.S. Equity
 Large Cap Value U.S. Equity
 Emerging Non-U.S. Equity
 Small/Mid Cap U.S. Equity
Specialty Funds
 Non-U.S. Growth Equity
 Non-U.S. Value Equity
 Global Equity
 Real Estate
Self-Directed Window
 Mutual Fund Window
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What’s Not Being Reviewed
There are several things that are not being reviewed:
 Contributions to Social Security
 Benefits provided to classified employees through the Public Employees
Retirement System (PERS)
 Current benefit levels
– Contribution rate set by the Nevada legislature, matching the PERS
contribution
– Participants are always 100% vested
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We Are Not Alone…
Peer Institutions Who Are Enacting Change Based on Best Practice
 Arizona University System – Consolidated from three to two administrative
service providers and a three-tiered investment option line-up
 Caltech – Consolidated to a single administrative service provider with an
expanded choice of mutual fund and annuities
 Stanford University – Consolidated to a single master administrator with five
index funds, three annuities, and a self-directed window
 Pepperdine University – Moved from four incumbent service providers to a new,
single administrative service provider with a streamlined investment option line-up
 Purdue University – Consolidated from five to a single administrative service
provider with a four-tiered investment option line-up
 University of Oklahoma – Consolidated to single master administrator and a
tiered investment option line-up
 University of Washington – Consolidated from four administrative service
providers to a single master administrator with a four-tiered investment option lineup
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Areas of Employee Concern
 Faculty/staff may become upset if their vendor is eliminated
– A “best-in-class” investment line-up, complemented with clear education and
planning tools, and a competitive fee arrangement typically mitigates or eliminates
the majority of these concerns
 Service providers may aggressively campaign towards decision makers on
each campus
– Effective communications and a thorough competitive bid process (RFP) provides
each service provider with the opportunity to fairly compete for NSHE’s business
 Local financial planners may try to take advantage of “money in motion”
– A well articulated, multi media communication plan typically mitigates or eliminates
the majority of the confusion regarding approved service providers
A significant number of other higher education institutions have made similar
changes and the majority of participants have embraced these actions
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What Happens Next?
 We are soliciting your input and concerns today
 Timeline of future communications to the NSHE community are as follows:
Timing
Activities
May – June 2012
Meetings with the Board of Regents, Chief Financial Officers,
Chief Human Resource Officers, and Chairs of Faculty Senates
to discuss the proposed enhancements and plans to roll out to
faculty and staff
July – October 2012
Meetings with the Faculty Senates to discuss the proposed
enhancements and plans to roll out to faculty and staff
October – December 2012
Town Halls at all institutions to provide faculty, professional staff,
retirees, etc. with additional information and provide a forum for
feedback. Participant Survey to solicit input on service
enhancements and investment options
January 2013
Administrative search to establish optimal relationship between
cost and services provided by service provider(s)
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RPAC Committee Members
 RPAC committee members include:
– Robb Bay, CSN
– Spencer Stewart, NSC
– Vacant, UNLV
– Mike Hardie, WNC
– Kent Ervin, UNR
– Pat LaPutt, BCS, UNLV
– Carla Henson, Retiree
– Hank Stone, Delegated Authority, NSHE
– Patricia Hughes, DRI
– Steven Streeper, TMCC
– Michelle Kelley, Chair, BCN
– Alan Schlottmann, Faculty Senate Rep
The mission of the NSHE Retirement Program is to provide opportunities
for employees to accumulate a reasonable level of savings towards
retirement income through engagement, education, guidance, and
investment choices
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Need More Information?
http://tinyurl.com/retirementenhanceprogram
OR
www.nevada.edu
Administration
Human Resources
Retirement Plan
Current Initiatives to Enhance Program
Discussion, Feedback, and Questions
Please ask questions now or submit via email to
[email protected]
[email protected]
[email protected]
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