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: facsen@ou.edu 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
Announcements:
Faculty development awards
Online Faculty
Handbook interactivity
UOSA course evaluations
Art museum spring events
Retirement seminar
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 zlanier@ou.edu
or samantha_z_ali@ou.edu."
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