NSHE Retirement Plan

Defined Contribution RecordKeeper Request for

Proposal

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Michelle KelleyBusiness Center NorthBenefits Manager/Chair of RPAC

Chair of the Retirement Plan Advisory Committee and a member of the Investment Management Sub-Committee

Kent ErvinUniversity of Nevada, RenoProfessor

Chair, Investment Management Subcommittee

Hank StoneNevada System of Higher EducationSystem 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

Presenters

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

NSHE

Total Assets $1,735.6 million

Participants with Balance 14,323

Average Participant Balance $121,174

Total Number of Investment Options 290

Asset Allocation Percentage of Total

Fidelity Investments $246.1 million 14.2%

TIAA-CREF $1,326.0 million 76.4%

VALIC $163.5 million 9.4%

Total Plan Assets $1,735.6 million 100.0%

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As of December 31, 2011

NSHE Retirement Plan – Current Circumstances

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

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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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Request for Proposal

Fees

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Expense Current Peer Benchmarking* Potential Savings

Investment Costs0.33% of assets$406 / participant

0.23% of assets$249 / participant

0.10% of assets$157 / participant

Administration Costs0.22% of assets$270 / participant

0.07% of assets$81 / participant

0.15% of assets$189 / participant

Total Plan Costs0.56% 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

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

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!

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Reducing fees or

improving performance

by

25basis

points…

…has the same value as…

Increasing the System’s

contribution

0.5% of pay for a

full career employee

Source: Aon Hewitt 2011 Universe Benchmarks

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

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#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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Objectives for Request For Proposal

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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

Simplification

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Expense Fidelity TIAA-CREF VALIC TotalInvestment 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

As of December 31, 2011

Total Plan Costs = 0.56%0.56% of assets or $676.11 per participant$676.11 per participant

Investment Costs = 0.33%0.33% of assets or $405.68 / participant$405.68 / participant

– ($4,958,295 + $852,322) / 14,323

Administrative Costs = 0.22%0.22% of assets or $270.43 / participant$270.43 / participant

– ($3,062,479 + $755,698 + $375,124 - $40,000 – $200,000 - $80,000) / 14,323

*The Plan Service Credit from TIAA-CREF may change prospectively or retroactively

Total Plan Costs by Provider

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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

Investment Performance

5/22 (23% )

110/172 (64% )

10-Y ears 19/71 (27% )3/10 (30% )73/136 (54% )

TIAA-C R E F

9/25 (36% )

1-Year 49/174 (28% )

Fidelity

P ercentage of Investm ent Alternatives M eeting o r E xceeding Th eir R espective M arket B ench m arks as o f 12 /31 /20112

V ALIC

26/87 (30% )

5/25 (20% ) 17/90 (19% )

39/88 (44% )

5-Years 85/159 (53% )

3-Years

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

Tiered Investment Structure

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Tier Investment Structure

Target Retirement Funds Indexed Target Date Retirement Funds (20XX)

Core Funds Money Market Total U.S. Equity Index

Total Bond Market Index Total Non U.S. Equity Index

Specialty Funds Index Options: Short-term Fixed Income Inflation Protected Fixed Income Large Cap U.S. Equity Small/Mid Cap U.S. Equity Developed Non-U.S. Equity Emerging Non-U.S. Equity

Active Options: Stable Value / Guaranteed Interest Diversified Fixed Income High Yield Fixed Income Large Cap Growth U.S. Equity Large Cap Value U.S. Equity Small/Mid Cap U.S. Equity Non-U.S. Growth Equity Non-U.S. Value Equity Global Equity Real Estate

Self-Directed Window Mutual Fund Window

The Plans’ investment funds will be selected using procedural prudence reflecting industry best practices in manager selection

Tiered Investment Option Structure - Sample

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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What’s Not Being Reviewed

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

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Peer Institutions Who Are Enacting Change Based on Best Practice

We Are Not Alone…

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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

Areas of Employee Concern

We are soliciting your input and concerns today

Timeline of future communications to the NSHE community are as follows:

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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)

What Happens Next?

RPAC committee members include:

– Robb Bay, CSN

– Vacant, UNLV

– Kent Ervin, UNR

– Carla Henson, Retiree

– Patricia Hughes, DRI

– Michelle Kelley, Chair, BCN

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– 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

RPAC Committee Members

http://tinyurl.com/retirementenhanceprogram OR

www.nevada.eduAdministration

Human ResourcesRetirement Plan

Current Initiatives to Enhance Program

Need More Information?

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Please ask questions now or submit via email to george_dombroski@nshe.nevada.edu

pat.laputt@unlv.edukelleym@unr.edu

Discussion, Feedback, and Questions