Monitoring Investments
Background
The Church Pension Fund (“CPF”) offers two defined contribution plans to assist clergy and lay employees of the Episcopal Church to save for their retirement: (1) The Episcopal Church Retirement Savings Plan (“RSVP”) for the clergy and lay employees participating in CPF-sponsored defined benefit plans and (2) The Episcopal Church Lay Employees’ Defined Contribution Plan (“Lay DC Plan”) for all other lay employees working in the Episcopal Church. Since early 2002, CPF has partnered with Fidelity Investments as the third party administrator of its defined contribution plans.
Investment Options
CPF periodically reviews the investment options and selectively adds and deletes options, and replaces investment firms managing the funds in those options when necessary, in order to better serve the needs of the participants, and to take advantage of opportunities in the financial markets.
Currently, there are twelve investment options, with the eleven target-date funds counting as one option. While many corporate defined contribution plans offer a very broad selection of options, other church plans generally offer a similar number of investment options in their defined contribution plans. The CPF Board of Trustees (“CPF Board”) engaged Buck Consultants, LLC (Buck) to perform a benchmarking study of the Lay DC Plan, and Buck found that “the Plan generally offers a comprehensive array of asset classes without overly complicating the choices available to participants with an excessive number of funds.”
While the selection and monitoring of managers for each option is the responsibility of the Investment Department, the plan design and selection of investment options is the responsibility of both the Policy, Education, Research and Church Relations and the Pension Services Departments. Investment Option changes are reviewed by both the Investment and the Retirement Programs Committees of the CPF Board.
Initial Due Diligence
When adding or replacing an investment option or investment firm, the Investment Department narrows the universe of potential investment firms to identify the most appropriate one for the option, utilizing both qualitative and quantitative measures.
On the qualitative side, a clear and consistent investment strategy is of paramount importance. Professional references and reputation in the marketplace are also key considerations. On the quantitative side, such factors as how well the investment firm has performed versus relevant investment benchmarks and peer universes are analyzed. The firm’s returns are also reviewed relative to the amount of risk taken in the strategy. Other important considerations include product fit, personnel, organizational structure, and fees.
Once an investment firm has been identified, the Pension Services Department is notified and a recommendation is presented by the Investment Department to the CPF Board’s Investment Committee for approval before the investment option can be included in the plans.
Ongoing Monitoring
The Investment Department monitors the investment firms on an ongoing basis. Part of the monitoring includes formally meeting with Fidelity representatives at least once a year to review the investment funds and their respective investment performance, including any organizational issues that may be relevant. If there are concerns from a performance or organizational perspective, the Investment Department will meet with representatives from the investment firm to further evaluate the issues and take action if necessary. Annually, the Investment Department provides a thorough review of the investment funds to the CPF Board’s Investment Committee.
Conclusion
CPF believes that its collaborative structure provides a highly responsible, professional, and responsive method of governance that helps ensure the participants have a diverse range of investments that best serve their retirement needs.