Voluntary Retirement Contribution Plan 403(b) Task Force Recommendations for Investment Options and Providers June 30, 2012 A Report to the University Provost & USFFA President

2 Joint Task Force Charge The leadership of the University of San Francisco (USF) and University of San Francisco Faculty Association (USFFA) created a joint task force to review providers and investment options for the Voluntary Contribution Retirement Plan 403(b). The mandate was presented as “The Task Force is charged with a review of 403(b) retirement providers and investment options and to recommend to the parties possible changes to Article 30.12, with 4 members (2 USFFA, 2 Administration). A report will be submitted to the USFFA President and USF Provost by June 30, 2012.”

3 Joint Task Force Charge, Continued The four members serving on the Voluntary Contribution Retirement Plan 403(b) Task Force:  Stephen Huxley, Co-Chairman, USFFA Member  Thomas Cavanaugh, USFFA Member  Stacy Lewis, Administration  Vivian Murphy, Co-Chairman, Administration.

4 Recommendation #1: Eliminate VALIC as a 403(b) Provider  VALIC investment management fees are nearly triple those of TIAA-CREF and Fidelity Investments; such fees, as verified by the Task Force’s own calculations, can reduce retirement savings by tens, even hundreds of thousands of dollars.  VALIC investment portfolio, as a whole, has historically trailed their benchmark index as well as the category average, mainly due to the high expense levels of the funds.  VALIC contracts appear to lack critical provisions of a modern group contract such as a group termination feature.  VALIC is used minimally by USF employees, with less than 25 making contributions, currently. Employee disruption would be minimal.

5 Recommendation #1: Eliminate VALIC as a 403(b) Provider  USF Human Resources will work with Labor Relations and employees to sunset contributions to VALIC.  USF Human Resources will work with Fidelity Investments and TIAA-CREF to educate and to counsel affected employees.

6 Recommendation #2: Retain TIAA-CREF and Fidelity Investments  TIAA-CREF and Fidelity Investments, though not without shortcomings, are ranked #1 and #2 respectively in the 403(b) marketplace; they both provide consistently low fees relative to services provided, and they both have an acute understanding of the higher education industry.  Both vendors can effectively implement the Task Force’s recommendation for a “best-in-class” investment array as provided in Recommendation #3. VALIC, by comparison, cannot.  The two vendors are fiercely competitive, which will provide USF with a tremendous opportunity to reduce fees and enhance services and investments offerings.  If desired, USF would retain the right to consolidate to a single vendor at a later date.

7 Recommendation #3: Offer a Best-In-Class Investment Lineup At this point, a primary drawback with both TIAA-CREF and Fidelity Investments vendor arrangements is that neither is able to offer the others investment funds, nor is any other single investment manager in the industry able to provide a best-in-class diversified family of investment options. In addition, Fidelity Investment offers hundreds of investment options, which are difficult for the average plan participant to digest. Participants can become overwhelmed during the analysis of the fund selection process and take no action. Simplification of investment options will help optimize the participant experience. USF is charged by federal guidelines with monitoring fund selections and investment performance.

8 Recommendation #3: Offer a Best-In-Class Investment Lineup By selecting a manageable number of the best investments in each asset class from multiple fund families, participants are provided with the best opportunity to construct a diversified portfolio of investments that will maximize their retirement savings. A “best-in-class” lineup, appropriate to cover various asset classes to the extent possible, should be offered by EACH vendor, in order to avoid a scenario of participants being required to enroll with both vendors in order to prudently diversify their portfolios (most participants have enough difficulty enrolling with one vendor, so a two enrollment process would be a considerable barrier.)

9 Recommendation #3: Offer a Best-In-Class Investment Lineup Consistent with the best-in-class philosophy, USF will work with Fidelity Investments to convert the investment contracts from individual to the more modern group contract that is liquid at the plan level. Communication and education in a two vendor environment is still difficult, but more limited options present the ability to also provide more focused education on the offerings.

10 Recommendation #4: Education/Communications Create a comprehensive communication campaign with the vendors to roll out the recommended changes as a positive “event” for employees, with the goal of increasing awareness of the 403(b) and increasing employee utilization. Create a robust ongoing retirement education calendar with the vendors to identify opportunities and increase investment education for members of the University of San Francisco employee community throughout each year. Establish campaigns to engage employees who are not participating in making voluntary contributions to begin saving for their future retirement. Target communications with specific messages to engage participants with unique circumstances, such as those whose investments are not diversified sufficiently to maximize their retirement outcomes.

11 Additional Recommendation from the USFFA Representatives  Submitted by Dr. Stephen Huxley and Dr. Thomas Cavanaugh -  The scope of the Retirement 403(b) Task Force as established jointly by the leadership of the University of San Francisco and USFFA was to study only the 403(b) portion of the USF retirement benefit.  Task Force members representing the USFFA express the desire to study the 401(a) portion as well because most faculty regard retirement as a single entity rather than two separate pieces. Failure to study the 401(a) might appear to be doing only half the job, thereby casting doubt on the prior 403(b) recommendations.  The Task Force members representing the USFFA thus recommend that the 401(a) be added to the scope or that a new task force be established to study the 401(a) in light of the recommendations made regarding the 403(b).