A meeting of the Governing Board of the Colorado Retirement Association was held on August 18, 2023 at 9:00 a.m.
The following were present at the meeting:
- Chris Felton, Chairperson
- Adam Ford, Vice Chairperson – Participated by Zoom
- Darius Allen, Board Member – Participated Zoom
- Jerry DiTullio, Board Member – Participated by Zoom
- Terri Schafer, Board Member – Participated by Zoom
- Tim Mullen, Executive Director
- Ed Krisor, Legal Counsel
- Denis Rice, Chief Financial Officer
- Mike Whalen, Retirement Plan Services Director
- Matt Evans, Communication Specialist
- Lois Kruse, Office Administrator
The following were not in attendance:
- Tobe Allumbaugh, Board Member
- Meghan Martinez, Board Member
Board Chairperson, Chris Felton, called the meeting to order at 9:01 a.m.
Mr. Felton asked members of the Board if they reviewed the minutes from the July 24, 2023 meeting and if there were any comments. There being none, a motion was made by Mr. Felton to approve the minutes as presented. Adam Ford seconded the motion and it passed unanimously.
Peter Mustian and Jared Martin from Innovest Portfolio Solutions LLC Inc., CRA’s investment advisor, began their presentation. Mr. Martin provided an overview of Innovest’s history with CRA regarding investment activities and fund changes.
Mr. Martin discussed the following:
- A Secure Act 2.0 provision requires age 50 catch-up contributions in the 457(b) plan, for highly compensated employees, to be made on an after-tax or Roth basis (versus a pre-tax basis). This provision is extremely complex and plan administrators, employers, recordkeepers, and payroll software providers are scrambling to adjust to this new requirement. Additionally, the IRS has provided very little guidance on this subject. This provision was to become effective January 1, 2024, however on August 25, 2023, the IRS granted a two-year extension on the effective date and provided additional guidance on the subject.
- The Secure Act 2.0 Auto-Portability provision allows for an automated transfer of a participant’s account to a new employer’s retirement plan. This provision is only for participants who have separated from service with their old employer and have an account balance of $7,000 or less. This is an optional provision and the participant can request to opt out of the automated process.
- Innovest’s Fiduciary Topics and Trends.
This quarter the focus is on Plan Withdrawals and Plan Leakage.
- Plan sponsors are exploring initiatives to reduce lump sum withdrawals at or in retirement.
- Plan leakage refers to early, pre-retirement withdrawals from participant’s accounts. The greatest sources of pre-retirement and/or at retirement withdrawal requests were identified as cash outs at termination, loans in default (not repaid to the account), Hardship/Unforeseen emergency withdrawals, and a myriad of new Secure Act 2.0 in-service distribution options.
- Roughly 22% of net contributions made by those 50 or younger leak out of the retirement savings system in a given year. Additionally, 89% of all leakage occurs at the time a participant leaves a job.
- Considerations to prevent lump-sum withdrawals at retirement and plan leakage for pre-retirees include:
- Create a strategy/philosophy to be retiree friendly
- Make the plan attractive to retirees by allowing for partial or installment distributions.
- Promote the value of the plan and the ability for retirees to stay engaged.
- Evaluate retirement income products as the marketplace evolves.
- Monitor vendors and advisors for conflicted interests regarding retiree withdrawals
- All participants generally benefit from higher plan asset balances
- Service fees are often determined on an average account balance basis. Retirees often have relatively high average account balances.
- Larger plan balances often allow access to better investment pricing.
- Create education around the impact of cashing out and explain how pre-retirement withdrawals can diminish participants’ accounts and delay their anticipated retirement dates.
- Create a strategy/philosophy to be retiree friendly
- Innovest presented graphics showing the impact of plan leakage on participants’ accounts.
- CRA’s 401(a) and 457(b) plan fees; noting they are in-line or less than plans of like size in the industry. Also discussed was the mutual fund menu coverage and total asset allocations for the 401(a) and 457(b) plans.
Peter Mustian began his portion of the presentation with an overview of the markets, current economic themes, headwinds, tailwinds, inflation, etc. and the impact all these factors have on the market. Overall, the markets have been very strong this year through June 30, 2023, especially when compared to 2022.
Mr. Mustian discussed the Manager Scorecard and Fund Watch List. No additional analysis or changes were recommended at this time. The performance of CRA’s funds were reviewed reflecting strong performance, particularly within the custom CRA Target Date Portfolios.
Investment Policy Statement (IPS) Review and Changes:
Mr. Mustian stated the IPS document is reviewed annually and updated for fund changes and other activities. This year’s changes included documenting investment fund changes and operational changes reflecting current contribution and trading practices.
Mr. Felton made a motion to approve the revised IPS as presented. Darius Allen seconded the motion and it passed unanimously.
The Innovest team exited the meeting at 9:47 a.m.
CRA Activity Updates:
Mr. Mullen noted the annual conference for Colorado Public Plan Coalition (CPPC) will be August 29 through September 1, 2023. The Special District Association’s (SDA) annual conference will be September 12 through September 14, 2023. Mr. Mullen, Mike Whalen, and Rick Chase will be attending the SDA conference.
Mr. Mullen discussed the continued interest in CRA’s plan offerings due the continued and consistent presence at conferences as well as a strong reputation with CRA’s current employer groups.
Mr. Mullen and Mike Whalen will be meeting with the Town of Idaho Springs on August 22, 2023 to explain CRA’s plan offerings and generate a plan design. CRA will also be meeting with Round Mountain Water and Sanitation District at the annual SDA conference to do the same.
Innovest and CRA will continue discussions with Voya and Empower focusing on operational functions.
Colorado Insurers Service, Inc., CRA’s insurance broker, has advised there will be significant increases in commercial insurance with the next policy renewal.
As part of CRA’s retirement series, a Medicare 101 seminar was held August 16, 2023 with 110 attendees.
Mr. Mullen briefly discussed several of the Secure Act 2.0 provisions with some clarification in the areas of Auto-Portability and over age 50 catch-up contributions for highly compensated participants.
Mr. Mullen also addressed “leakage” as presented by Innovest, informing the Board that CRA encourages participants to keep funds in CRA. It was also noted that CRA actively utilizes a majority of the considerations presented by Innovest.
Mike Whalen discussed the current Roth project to ensure all CRA entities provide a Roth option to their employees, as required by Secure Act 2.0. Client Service Managers will be working with their employers to update 457(b) Participation Agreements to execute this project.
Mr. Whalen noted Jefferson County is implementing a virtual new employee orientation program. CRA is creating a video presentation about CRA for this project. Mr. Felton suggested a follow-up in three months analyzing the success of this project.
Mr. Felton asked the members of the Board if there were any questions or concerns regarding the expense reports. There being none, the reports were accepted as presented.
The next meeting of the CRA Board of Directors will be held on September 15, 2023.
There being no further business to come before the Board, Mr. Felton adjourned the meeting at 10:16 a.m.