IDAHO DEFERRED COMPENSATION BOARD
May 21, 2018 – 1:00pm – 3:00pm
Nationwide, Boise, Idaho
The meeting of the Deferred Compensation Board was called to order at 205 N. 10th Street, Suite 540, Boise, Idaho, at 1:12 p.m. by order of the chair.
The following board members were present: State Controller Brandon Woolf, Brian Kane representing the Office of the Attorney General, Tim Hurst representing the Office of the Secretary of State, and Ben Ysursa representing the Governor’s Office.
Others present were: Jake O’Shaughnessy, Sage View; Rob Torres, Sage View; John Lamm, Nationwide; Katja Stringfield, Nationwide; Thomas Rey, CliftonLarsonAllen by phone; and Renee Holt, State Controllers Office.
State Controller Brandon Woolf called the meeting to order at 1:12 p.m.
1. Committee questions or additions to agenda
2. Approval of minutes from February 26, 2018 – Action Item
Mr. Hurst moved to approve the minutes from the February 26, 2018 meeting. Mr. Kane seconded the motion. The motion carried on a unanimous voice vote.
3. Audit Results for the 2017 CY audit by CliftonLarsonAllen – (Thomas Rey) by phone
Mr. Rey indicated that it was a good year for investment rate of return perspective. There was a healthy increase in active participants. More people are recognizing the value of this deferred comp plan to supplement pension they may have. There was nothing new in the financials or to point the board to. No new accounting policies were adopted, and the application of existing policies were not changed during 2017. No transactions were entered into by the Plan during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. No significant difficulties in dealing with management in performing and completing the audit were encountered. No disagreements with management arose during the audit. Management representation letters were signed by Controller Woolf and Mr. O’Brien from Nationwide.
4. Q4 Quarterly Performance Review and Market Recap – (Jake O’Shaughnessy)
5. Recent Developments (regulatory or market place) – (Jake O’Shaughnessy)
February marked the sixth time the market has seen a pull back over 10% in the last eight years. A couple of the reasons for this are the trade tensions and wage and salary inflation. The unemployment rate is under 4%, there is a lack of workers and a growing economy. Interest rates have moved up to around 1.5 to 1.75. Higher interest rates makes the dollar stronger, and stronger dollar means less jobs in America. Global growth is strong; there is positive signs from all markets. Inflation is at about 3.8%, we have not seen it over 4% in the last 5 years. Higher inflation rates makes stocks less attractive and bonds more attractive. The equity market was driven by growth. The tech names did better than value. Consumer staples, energy, and materials did not fare as well in the first quarter of 2018. Values for the S & P 500 index continued to get richer. S & P 500 total operating earnings are forecasted to rise to $156 per share by the end of 2018, which is 25% above their levels in 2017. If the companies do not show this type of increase then stocks are likely to sell off. If we do not see a 20% correction in the market this year, it will be the longest bull market in US history. Bull market ends when there is about a 20% correction. We have seen about six times we have had a 10% pull back. This market will not last forever. It is important to know your risk tolerance and rebalance your portfolio to targets. Short-term bond yields in U.S. moved higher as the Federal Reserve hiked interest rates for the first time in 2018. There is a lot of healthy stability in the bond market. People are not worried about a slowdown. Interest rates on 10 year are about 2.74 % look to see them rise to a next stop of 3.5%.
Fiduciary Rule-DOL version was struck down. The court claimed DOL exceeded the authority granted to it by Congress and applied a different definition to the term “fiduciary” than Congress intended under ERISA, in particular to IRA’s. The court ruled that DOL had no jurisdiction to legislate IRA’s. The court would like to see the SEC oversee IRA’s and not have them under the ERISA mandate. There was also a suit dealing with proprietary funds. Allegation was that higher-fee versions of proprietary actively managed funds were being selected to increase fee revenue. Claim was that index funds had high fees and a “history of poor performance.” It is suggested that the Board look at the Nationwide Target Date Funds relative to some of the other products out there at the next meeting. In Q4 it is apparent that Cybersecurity is becoming more defined as a fiduciary duty. The Nationwide local office is in the process of scanning all participant files electronically and are no longer keeping a paper file; the paper files are being shredded. The plan is responsible for protecting participant information. This quarter saw $200 million in the retiree fixed which accounts for about 40% of the plan. Last meeting two stocks were changed out, Neuberger Berman Socially Responsible was changed with Calvert Index Fund and American Century Heritage was replaced with Carillon Eagle Mid Cap Growth R5. The Nationwide Destination funds, target date funds do not have many assets in them, less than 5% of the plan is in here. Next meeting the Board should look at other target date options to possibly replace the Destination funds. Another fund that is under performing that should be watched for the future is the Templeton Foreign A fund. The Dreyfus Small Cap Stock is showing as underperforming but the reason for this is that it is a more expensive fund. A change should not be made here because the plan needs the revenue sharing to pay for the plan expense.
6. Quarterly Board Report – (John Lamm)
7. Fixed Account Contract – (John Lamm) - Action Item
Q4 saw an ending balance in the plan of $476.3 million, with 192 new participants to the plan, 300 participants increased their contributions, and 29,522 participant interactions took place by in person meetings and website use. The ProAccount saw 73 additional participants enroll. There are 478 employees not contributing to the plan and 1,557 employed are contributing $50 or less. The number that are contributing less than $50 rose in this quarter. Nationwide is working on a campaign to those individuals who are contributing less than $50. The City of Cottonwood is new to the plan in this quarter.
8. HB 606 Update
Interest on fixed account is tied with NACO and NACO’s contract with Nationwide is potentially scheduled to change in 2019. NACO is talking about dropping 5 basis points per quarter on the rate. Mr. Lamm inquired whether Idaho wants to draft their own contract with Nationwide for this or stay with how it is written currently. If the Board takes no action then it will stay with the NACO rate, which is 3.5%. Mr. O’Shaughnessy asked when would Nationwide need notice of a decision. Mr. Woolf asked when the contract is up. Mr. Lamm stated that the contract rolls for another 2 years June 30th and they have 90 days prior to June 30th to make a change. He indicated that the fixed rate is tied more to long term rates not short term rates. Mr. O’Shaughnessy asked what the board could do at this point since they are already bound to that NACO rate. Mr. Lamm stated that they could stay with NACO or draft their own contract with Nationwide.
Mr. Kane made a motion to have Sageview review their options with the Nationwide board and report back to this board in the next meeting with a recommendation. Mr. Hurst seconded the motion. The motion carried on a unanimous voice vote.
This bill states that any commissions, boards or councils created by Governor’s executive order must comply with the open meeting laws effective July 1, 2018. This committee has some of its formation from executive orders therefore must comply.
9. HB 611 Update
10. Recap action items
This bill states that notices for meetings and agendas shall be posted electronically if the entity maintains an online presence through a website or social media platform. Also requires that any agenda item that needs a vote by the governing entity must be clearly identified as an action item on the agenda. Mr. Kane stated that we should be sure that we are looking at the action item designation carefully so we be sure to flag them correctly if there could possibly be an action needed on the topic. Mr. O’Shaughnessy stated that Sageview would be happy to assist in the agenda process to designate the actionable items. For this meeting today the agenda and the notice were posted on the State Controllers website. These will continue to be posted to that website with a link to the website on the Nationwide website.
Review Nationwide Target Date Funds
Mr. Kane motioned to adjourn the meeting. Mr. Hurst seconded the motion.
Sageview will look into the NACO contract
The meeting adjourned at 2:43 p.m.