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NSHE Retirement Plan

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

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NSHE Retirement Plan

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  1. NSHE Retirement Plan Defined Contribution RecordKeeper Request for Proposal

  2. 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

  3. NSHE Retirement Plan – Current Circumstances As of December 31, 2011 • 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 2

  4. 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

  5. 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 4

  6. 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 *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 5

  7. Opportunity Knocks We can leverage our size to negotiate lower investment and administrative fees due to economies of scale All savings will go directly back into your pockets! Increasing the System’s contribution0.5%of pay for a full career employee Reducing fees or improving performance by25basis points… …has the same value as… Source: Aon Hewitt 2011 Universe Benchmarks 6

  8. 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 Content of RFP Your feedback is important and will help guide the RPAC on the direction and outcome of the RFP 7

  9. Objectives for Request For Proposal 8

  10. 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 9

  11. Total Plan Costs by Provider As of December 31, 2011 *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 10

  12. 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 11

  13. Tiered Investment Structure 12

  14. Tiered Investment Option Structure - Sample • The Plans’ investment funds will be selected using procedural prudence reflecting industry best practices in manager selection 13

  15. 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 14

  16. 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 line-up We Are Not Alone… Peer Institutions Who Are Enacting Change Based on Best Practice 15

  17. 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 16

  18. We are soliciting your input and concerns today Timeline of future communications to the NSHE community are as follows: What Happens Next? 17

  19. RPAC Committee Members • RPAC committee members include: • Robb Bay, CSN • Vacant, UNLV • Kent Ervin, UNR • Carla Henson, Retiree • Patricia Hughes, DRI • Michelle Kelley, Chair, BCN • Spencer Stewart, NSC • Mike Hardie, WNC • Pat LaPutt, BCS, UNLV • Hank Stone, Delegated Authority, NSHE • Steven Streeper, TMCC • 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 18

  20. Need More Information? http://tinyurl.com/retirementenhanceprogram OR www.nevada.edu Administration Human Resources Retirement Plan Current Initiatives to Enhance Program

  21. Discussion, Feedback, and Questions Please ask questions now or submit via email to george_dombroski@nshe.nevada.edu pat.laputt@unlv.edu kelleym@unr.edu 20

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