The University of Oklahoma (Norman campus)
Regular session – January 24, 2011 – 3:30 p.m. – Jacobson Faculty Hall 102
office: Jacobson Faculty Hall 206 phone: 325-6789
e-mail: firstname.lastname@example.org web site: http://www.ou.edu/admin/facsen/
The Faculty Senate was called to order by Professor LeRoy Blank, Chair.
PRESENT: Adams, Asojo, Atiquzzaman, Ayres, Baer, Bergey, Blank, Bradshaw, Chang, Chapple, Chiodo, Cox-Fuenzalida, Deacon, Devegowda, Dial, Gramoll, Jean-Marie, Kimball, Kosmopoulou, Lauer-Flores, Leseney, Marsh-Matthews, McPherson, Minter, Morrissey, Morvant, Moses, Moxley, Muraleetharan, Natale, Palmer, Park, Remling, Sadler, Stock, Strauss, Tabb, Taylor, Vehik, Weaver, Williams, Wyckoff
Graduate College liaison: Griffith
ISA representatives: Cook, Hough
ABSENT: Gibson, Hahn, O’Neill, Ransom, Sandel, Verma, Xiao, Yi
TABLE OF CONTENTS
Faculty development awards
Online Faculty Handbook interactivity
UOSA course evaluations
Art museum spring events
Defined Contribution Plan (retirement fund record keeper)
The Faculty Senate Journal for the regular session of December 13, 2010 was approved.
The Faculty Senate sent out the call for proposals for the Ed Cline faculty development awards on November 12. Proposals are due to the Faculty Senate office on February 2. Up to $2500 is awarded. Further information is available at http://www.ou.edu/admin/facsen/facdev.htm.
The Provost office has added interactivity to the online Faculty Handbook -- http://www.ou.edu/provost/pronew/content/fhbmenu.html -- to allow for easy navigation between sections and subsections and make the handbook easier to use. The statement of purpose, table of contents and the 13 sections are linked along the left side bookmark section; each subsection is linked under the table of contents. Prof Blank commented that the revisions make the Faculty Handbook much more navigable, and he thanked the Provost’s office for doing a good job on that.
Prof. Blank read a memo concerning the UOSA course evaluation project:
"My name is Zach Lanier and I work with the UOSA Exec. Branch: Department of Academics. A major goal of the Academic Department this semester is to increase the number of evaluations filled out by students, as you might know that last semester we had the lowest completion rates of evaluations. We will submit articles to the OU Daily leading up to Finals Week which highlight stories of professors using student evaluations to make changes to their class. We believe if students realize that their evaluations are specifically being used in a tangible manner, they are more willing to fill these out. We need your help in identifying willing professors who would aid in allowing us to use their experiences/stories. The faculty support is key to making this goal a success. Thank you for your time and we are looking forward to hearing from you soon. Please email us any stories or recommendations to email@example.com or firstname.lastname@example.org."
The Museum of Art calendar of events for spring 2011 was distributed at the meeting.
The College of Business is sponsoring a seminar, Worry-Free Investing for Retirement, on Friday, February 4. Prof. Ayres announced that Prof. Svi Bodie, a Boston University investment scholar, author and consultant will discuss ways for individuals to determine if they are on target with respect to their investment goals. The Faculty Senate office sent the information by email to the senators on January 27. Prof. Ayres distribute fliers and encouraged the senators to share them with their colleagues. The seminar has no relation to what the University is doing, and nothing is being sold. Further information is available from Prof. Gary Emery (Finance).
Prof. Blank said the main purpose of the meeting was to discuss the current status of the retirement plan management. He noted that the Faculty Senate Executive Committee had had a number of meetings with the Retirement Plans Management Committee (RPMC) and a lot of input. Many of the issues have been addressed. A number of changes have occurred. Now that the plan is coming into the final format, it is time for the senators to get input from the faculty and bring it back to the next meeting.
Mr. Chris Kuwitzky (Associate Vice President for Administration and Finance and Chief Financial Officer), chair of the RPMC, asked the senators to send in questions before the next Faculty Senate meeting so he could have responses by the time of the next meeting. He introduced Charlie Waibel and Ben Taylor from RV Kuhns, who are ad hoc, non-voting members of the RPMC. Other members include Julius Hilburn, Human Resources director, and Nick Kelley, Human Resources assistant director and non-voting member. Prof. Muraleetharan, a faculty member and senator who was added to the RPMC about nine months ago, has been a great asset to the committee. Mr. Kuwitzky gave an overview of what he would discuss and said several changes had been made to the core lineup as a result of input from the faculty and staff. For example, two additional funds were added today. Approximately 80 percent of our assets are with TIAA-CREF, so one of topics will be about TIAA-CREF options. The slides from the presentation are available at http://www.ou.edu/admin/facsen/RPMC_FacSe_012411.pdf.
Why redesign? The University is subject to the IRS code, which controls the limits of contributions, loans and withdrawals, as well as state statutes. Some things are not available now, such as loans and withdrawals, because we do not have the ability to track limits of the contributions, given the multiple record keepers. For 10,000 participants, we have over $1.2 billion in assets, four different plans, multiple providers, and over 1000 options with no oversight from the University. It is a huge issue for us from a fiduciary standpoint. In the industry, there is an evolution toward program changes similar to what is being proposed at OU. There is growing concern that ERISA requirements may become applicable to non-governmental plan sponsors like OU. More importantly, there are opportunities to lower fees, increase investment education, simplify the plans, and offer features such as loans and withdrawals.
RPMC actions taken to date. The process started in August 2006 when an RFP was issued for an investment consultant. RV Kuhns was selected in June 2006, and the RPMC was selected by the President in March 2008. An RFP for recordkeeping and administrative services was issued in July 2008. Five firms responded, two were interviewed (Fidelity and Great West), and Fidelity was selected. After many months working on what the lineup would look like, the RPMC disseminated information to the campus, met with various governance groups, and had a great deal of correspondence. Members of the RPMC will be at the February 14 Faculty Senate meeting to respond to questions and concerns and will meet with Employment Benefits Committee on January 28 and with the Staff Senate on February 16. The RPMC is trying to be open and responsive to issues and questions.
Proposed Core Investment Lineup. The passive options (typically index funds) have been separated from the actively managed funds into a Tier II and III instead of combined in one tier. Seven index options will be available in Tier II, including the two just added today (passive target date retirement funds and short-term bond index). Tier III has nine actively-managed options, including a traditional TIAA annuity option (retirement choice). Tier IV is the self-directed brokerage window, with over 190 investment families and over 1800 actual choices. Fidelity Freedom Fund (Tier I) is the default option for participants who fail to make an election. Over 30 percent of our participants make no election currently and are migrated to a money market that has a very low return. In summary, Tier I is an actively-managed Fidelity Freedom Fund and is the default option. Tiers II and III will offer active and passive options. The lineup is subject to change as time goes on if the RPMC finds that asset classes are underutilized or asset classes need to be included. As part of its fiduciary responsibility, the RPMC will do ongoing evaluations of how the funds are performing and how they compare to their peers, so there will be an active management of these funds by the committee. In Tier III, the fixed annuity option is important for people who prefer a traditional TIAA-CREF annuity option. Tier IV is the brokerage link.
Why Fidelity Freedom Funds? They are a top performer among target date retirement funds and have a good glide path, that is, how the asset allocation changes over time. The glide path for the Fidelity Freedom Funds is more conservative and offers lower risk and volatility to our participants. Fidelity was the most responsive, forthcoming, and transparent firm in the interview process and offers a long history of success as a record keeper. Questions have been raised as to whether there is a conflict of interest because Fidelity is the record keeper, is the vendor for Tier I, and is offering education to our participants. The RMPC does not believe there is since the client service representatives who will be doing the education are not commissioned and will only offer general education. If an employee wants investment advice, s/he can engage them as a consultant at the participant’s cost. As illustrated in slide 9, the Fidelity Freedom Fund target retirement fund asset allocation changes over time as the individual nears retirement. The portfolio becomes more conservative, less risky, and less volatile over time.
TIAA-CREF options. In the left column of slide 10 is what is currently available from TIAA-CREF. With the proposed plan, more options will be available with TIAA-CREF in Tier IV as mutual fund products. A comparison of expenses can be done across the board. The money that participants have with TIAA-CREF can stay there, or it can be migrated to the new platform over time. Participants can direct their new contributions to the TIAA traditional, to TIAA-CREF options in Tier IV, or to an option in Tier II or III. Each deposit through the brokerage window has a $5 fee. To review, the left column is what we currently have available, the center column is the TIAA-CREF options that would be available through the brokerage window (Tier IV), and the right column has the core menu (Tiers II and III) equivalents. The TIAA-CREF funds in Tier IV are not exactly the same as the funds currently available. TIAA-CREF is not an option in Tier I. Funds in Tiers II and III are actively managed and monitored by the RPMC. The funds in Tier IV will not be. Contributions to Tier IV have a fee of $5 per month per fund. There are no transaction fees for Tiers II or III. Many of the CREF products that are currently available are annuity-type products.
Funding Plan Costs. Plan expenses will cost about $1 million a year, with about $800,000 payable to Fidelity for serving as record keeper and for providing education. The remainder is for consultant and legal costs. The Fidelity costs are fixed for five years. As assets grow, the fees and/or revenue sharing will decline. The RPMC looked at three different options to pay the costs. A pure explicit fee (the model Purdue is using) of $78 per year would unduly burden participants with lower plan assets. Pure revenue sharing would unduly burden participants with higher plan assets. The RPMC went with a hybrid approach: a $48 explicit fee ($4 per month) and a revenue sharing fee. This is not a profit center for the University. Every dime that is generated goes to pay plan costs. The expectation is that costs will go down over time as plan assets grow. The amount of money we need to recover to pay plan costs is fixed, at least for five years. The trend over the last two decades has been decreasing plan costs because of technological efficiencies. Costs have been recovered up until now through revenue sharing. Administrative costs have been embedded in the fee structure. Fidelity has agreed to follow the same disclosure requirements as ERISA standards. Periodic reports will be made to participants of the revenues going into the fund and how the money is being spent.
Estimated participant costs. On average a participant is currently paying $920 per year in administrative and investment fees. With the proposed plan, the estimate is the participant would pay $758 for Tier I, $191 for Tier II, and $890 for Tier III. The $48 charge is included in the estimates. On average, participants will save $400 per year or $20,000 over 25 years if invested at five percent.
Other Active Considerations. The RPMC is investigating the ability to offer Roth options for the 403 and 457 plans. The committee also wants to improve the understanding of the process, due diligence, and fiduciary responsibility. One of the ways to do that is to make available the RPMC Charter and the retirement plans investment objectives and policy guidelines. A task force will be formed to design statements that are participant friendly. Anyone who has been with Vanguard will be able to sign up for a brokerage window, and all of the existing funds with Vanguard can be reregistered into the brokerage window without paying a fee. It is possible because they are mutual funds. However, ongoing contributions in a brokerage window will have a $5 monthly transaction fee per fund. Five Vanguard funds, though, will be available in the core lineup. Employees will not have to pay a transition fee to move existing TIAA-CREF funds to the new platform. There is a fee that applies if they want to purchase a transaction fee fund in the brokerage window. The RPMC is urging Fidelity and TIAA-CREF to work toward an arrangement whereby participants who want to put money in TIAA-CREF funds in Tier IV could do that on a no-charge basis.
Benefits to the participant include lower costs across all plans, which will mean greater assets at retirement for participants; online enrollment and account administration; loans and hardship withdrawals; onsite education and guidance; a record-keeper with a clean, unqualified audit and compliance record; access to managed investment options; simplified choices; and active oversight of Tiers I-III.
In conclusion, Mr. Kuwitzky listed the members of RPMC and supporting staff and encouraged the senators to route questions through Prof. Blank so the committee could respond to them at the next meeting. The plan is to take the proposal to the OU regents in March, have an implementation process of about six months, and make the redesign effective October 1. There will be a 2-3 week window for Vanguard participants to reregister.
When asked whether someone will be available to provide advice on how to get better returns, Mr. Kuwitzky said client service representatives will be on site for 90 days to offer education. They will not say where individuals should put their money (unless they pay a fee), but they will educate people on their options. A lot depends on someone’s particular needs. Another senator said his colleagues wanted to know how this would affect OTRS. Prof. Kuwitzky said this would have no effect on OTRS. Prof. Hofford asked for a way to let people know if something new is added to the information. Prof. Kuwitzky said he would communicate any changes to Prof. Blank.
Prof. Chapple noted that many faculty members have had their investments in TIAA-CREF. She said the faculty needed more education on whether to leave the funds alone or roll them into a new fund. Mr. Kuwitzky said he would put together a white paper and make it available. Prof. Baer asked if he could walk through it now. Mr. Waibel said option one is to do nothing. Existing investments can stay with TIAA-CREF. Contributions going forward will be in the new plan. Mr. Kuwitzky added if the participant does nothing, new contributions default to Tier I. Participants can make an active choice to be in Tier II, III, or IV. Prof. Chapple pointed out that those are separate pockets of money. She asked if participants could have their investment in one fund. Mr. Waibel answered that the old investments could stay in TIAA-CREF, but new investments would be in the proposed investment lineup. Admittedly, participants would have two pools of money. Prof. Tabb pointed out the only way to accomplish that would be to choose TIAA-CREF in Tier IV. Mr. Waibel said a second option would be to move TIAA-CREF into the new plan. Money in the traditional annuity, which has limited liquidity, can be migrated gradually over a period of nine years and one day. Non-annuity options may be moved in bulk. The only fee for migration is for purchases in the brokerage window. A number of funds in the brokerage window do not even have a purchase fee.
Mr. Hilburn said it would be six months from adoption before implementation. The RPMC can respond to questions broadly, but during the transition period, most people will want to meet with the client services representatives in individual or groups sessions to find out how this will impact them. Prof. Moses commented on how much he appreciated the way the RPMC listened to feedback.
Prof. Gramoll said his colleagues wanted to know why they could not have the option of continuing TIAA-CREF. Mr. Waibel replied that having a single record keeper is key to having participant loans and efficiencies. The way it is currently handled costs approximately $5.5 million for administration of the plan, partly because of redundancy. The proposed plan costs about $1 million. Most record keepers cannot put all of TIAA-CREF’s products on their platform. Prof. Gramoll asked for an explanation of the current cost of $5.5 million. Mr. Waibel said the identifiable record-keeping costs associated with the funds amount to $5.5 million; the costs are embedded in expenses. In answer to why we are doing this now, Prof. Muraleetharan commented that universities are being asked to take more and more fiduciary duties for participants. Prof. Hofford remarked that the savings are coming back to the participants, and so the University is taking a fiduciary responsibility in that sense. Prof. Muraleetharan said the University can negotiate an even lower cost because of the asset size. Mr. Waibel said in the current structure, where TIAA/CREF has contracted with employees individually, participants have no ability to negotiate a lower fee. When all of the assets are rolled together, the RPMC can go to a manager and negotiate lower management fees, primarily in Tiers I-III. Mr. Taylor said the way it is currently structured, it is like OU has 5-6 different small plans.
When asked whether the fees will be made transparent, Mr. Kuwitzky said they could make the fees available. Mr. Waibel noted that the proposed lineup has exceptionally low fees. Prof. Muraleetharan explained that we have no influence over Tier IV. Mr. Waibel said individuals should think of it as going to a broker. Prof. Adams asked if Tier IV was still part of the centralized record keeping and would have a loan provision. Mr. Waibel said individuals could have all of their money in Tier I and then decide to buy a fund in Tier IV. It is still the same platform and fee structure. Prof. Tabb asked whether all of the embedded fees would disappear and be replaced by transparent fees. Mr. Taylor said some funds have a revenue-sharing amount, but that will be transparent. Mr. Kuwitzky said with the hybrid approach, participants will pay $48 per year plus revenue sharing. In time, as assets grow, the university will reduce the explicit fee or revenue sharing component. Mr. Hilburn said that would be done on an aggregate, plan basis, not on an individual basis. Mr. Taylor said the challenge is mutual funds are not required to disclose all fees until the end of 2011. Prof. Muraleetharan explained that revenue sharing is part of the fund fees now. Mr. Waibel said if any revenue is generated that exceeds the plan costs, then we can decrease the $48 or the types of revenue sharing that can be controlled. The important thing is we are capping the cost at $1 million, not $5 million.
Prof. Strauss asked whether the $5 million was coming out of what the University is giving the employee or whether the University was paying some of it. Mr. Kuwitzky said it was coming out of fees charged to the investor. Prof. Strauss said his colleagues think this is a way for the University to get more money. Mr. Kuwitzky said every penny of savings will go to employees. Employee assets now have higher expense ratios than necessary.
Prof. Bergey commented that people who actively manage funds think they will pay more. Mr. Kuwitzky said for most participants, costs will go down, whether they are passive or active investors. Mr. Waibel said he could not guarantee that every single person will have a less costly plan. The RPMC was trying to find the best path for the most people. Investors will have access to exchange-traded funds that have no fees. Prof. Muraleetharan urged the participants to look at the plans that are being offered and compare them with what they already have. One advantage is the funds are going through a lot more rigorous analysis than an individual investor can do.
Prof. Ayres pointed out that the Faculty Senate Executive Committee had been talking about this for quite some time and had been meeting with the RPMC. The RPMC has been very responsive and added some funds. Most people will be able to find funds that are close to what they currently have and probably at a lower cost. Some of the changes have been really positive. It would be almost perfect if people could continue with the same CREF. Prof. Blank said he would send the slides by email and have the senators share them with the general faculty. Mr. Hilburn said presentations would be made to the other governance groups. Until then, he hesitated to put something on the web page that did not have supporting information and might be changing. Prof. Blank asked the senators to be sure to talk to the individuals they represent. The issue will be discussed at the next Faculty Senate meeting.
The meeting adjourned at 4:50 p.m. The next regular session of the Faculty Senate will be held at 3:30 p.m. on Monday, February 14, 2011, in Jacobson Faculty Hall 102.
Sonya Fallgatter, Administrative Coordinator
Amy Bradshaw, Faculty Secretary