HomeMy WebLinkAboutHR12-170 - Other - City of Kent 457 Deferred Compensation Plan - 07/07/2015 II
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CONTRACT COVER SHEET
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Investment Policy Statement
For- the
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City of Dent
457 Deferred Compensation Plan
Amended July 7, 2015
Investment Policy Statement City of Kent 457 Plan
Table of Contents
I. Purpose........................................................................................................................................1
H. Responsibilities............................................................................................................................I
11I. Plan Objectives............................................................................................................................2
IV. Selection and Retention Criterion for Investment Managers.................................................3
V. Investment Guidelines................................................................................................................4
VI. Derivative Policy.........................................................................................................................7
VII. Investment Restrictions..............................................................................................................7
VIII. Proxy Voting................................................................................................................................8
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IX. Brokerage and Other Investment-Related Expenses ..............................................................8
X. Investment Manager Reporting................................................................................................8
XI. Investment Policy Changes........................................................................................................9
Investment Policy Statement City of Kent 457 Plan
I. Purpose
The purpose of this Statement of Investment Policy is to assist the City of Kent in effectively
supervising and monitoring the investment of the City of Kent 457 Deferred Compensation Plan
("Plan") assets.
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In the various sections or this policy document, the City of Kent Deferred Compensation Plan
Committee ("Committee") defines its investment program by:
• Stating in a written document Committee expectations and objectives in the investment of plan
assets and the duties and responsibilities of the various individuals and/or organizations responsible
for the management of these assets.
• Setting forth an investment "structure" for managing assets that includes various asset classes and
investment management styles that, in the aggregate, are expected to produce a prudent level of
diversification and a satisfactory investment return over time.
• Providing guidelines for each investment portfolio that control the level of risk assumed in the
portfolio and ensure that assets are managed in accordance with stated objectives.
• Stating how the performance results of the investment managers will be evaluated and monitored.
This Investment Policy Statement represents the current philosophy of the Committee regarding the
investment of plan assets. Although the Committee will utilize this Policy Statement in making
decisions concerning the plan, it shall not necessarily be bound solely by its contents.
II. Responsibilities
The Mayor of the City of Kent has created the Deferred Compensation Plan Committee and charged it
with fiduciary responsibility for the investment management of the Plan assets. Specifically, the
Committee is charged with the following responsibilities related to the management of the assets of the
plan:
• Manage the Plan's assets in compliance with applicable laws and regulations governing the
investment of the Plan's assets;
• Review, on a periodic basis, the current funds in the Plan's investment program and the Plan's
participants' use of such fiords to ensure that those funds continue to be appropriate;
• Undertake, on a periodic basis, a review of the Plan's overall investment program relative to the
types of investment programs then available in the marketplace to ensure that the current program
remains competitive and attractive (or to make changes,if appropriate);
• Develop, review (at least annually) and revise (when necessary) the guidelines established in this
Investment Policy Statement;
• Retain, at its discretion, third-party outside professionals to facilitate and assist with the
management of the Plan;
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Investment Policy Statement _ City of Kent 457 Plan
• Review regularly the performance of the Plan's service providers, and report on this periodically to
the Mayor; and
• As appropriate, establish specific guidelines and objectives for individual managers of the Plan's
assets.
The Plan's investment managers, trustee and other service providers will discharge their duties in
compliance with applicable laws and regulations. If there is any perceived conflict between these laws
or regulations and the guidelines set forth in this policy and/or other instructions to the service
provider, the service provider shall immediately bring this to the attention of the Committee. The
Committee will then seek appropriate advice to resolve the conflict promptly.
The Committee will maintain, separate from this document, a set of Plan Oversight Administrative
Guidelines that delineates the administrative processes governing how and when the Committee will
meet,how its meetings will be conducted and documented,how its activities will be reported to the
Mayor, and any other administrative steps deemed necessary to help maintain the effective execution
of the Plan oversight function.
III. Plan Objectives
The objective of the Plan is to provide a vehicle for accumulation of retirement assets. Investment of
the Plan assets will be made for the sole interest and exclusive purpose of providing benefits to
participants. The Plan's investment choices should be selected with the care, skill, and diligence that a
prudent person acting in a like capacity would undertake.
The Plan is a "participant-directed account plan" that provides individual accounts for Plan participants
and permits each participant or beneficiary to exercise independent control over the investments of the
assets in such individual's account. Each participant and beneficiary should be given reasonable
opportunity to give investment instructions and obtain written confirmation of the completion of such
instructions. Sufficient information should be provided in a timely manner so that participants and
beneficiaries may make intelligent and informed investment decisions. The Committee may rely on
information and materials developed and disseminated by investment advisers and managers, to the extent
appropriate, in fulfilling its responsibilities to the Plan participants and beneficiaries.
The Plan's objective is to offer a broad range of no less than five (5) diversified investments, which
will enable a participant to construct a portfolio with aggregate risk and return characteristics within a
broad range normally appropriate for participants. The investments offered should provide the
participant the opportunity to diversify his or her account so as to generally reduce the risk of large
losses. Pooled funds (such as bank or insurance company pooled funds or mutual funds) may be used
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as the investment vehicles for the Plan.
The following four tiers of investment options have been included to facilitate investing for participants
and beneficiaries with different objectives and investment experience:
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Investment Policy Statement City of Kent 457 Plan
• Core Funds A selection of funds that provide broad coverage of the stock, fixed income,real estate
and cash asset classes.
• Asset Allocation Portfolios/Lifestyle Funds—A series (five to 10) of pre-mixed asset allocation funds
(ranging from conservative to aggressive, based on age/life-cycle). Each fund will normally be
comprised of a diversified blend of securities,including(as is appropriate for each fimd's respective
objective), domestic stocks, foreign stocks, domestic fixed income,foreign fixed income, and cash
equivalents.
• Minimum Guaranteed Withdrawal Benefit Fund—A financial product that is designed to provide
income to retired participants,with a guarantee of a minimwn amount of income payments that will
continue for the duration of the participant's (and possibly a spouse's)life. Assets in the fund are
typically invested in a portfolio of stocks and bonds.
• Self Directed Brokerage Option—A"window"tbrough which participants that wish to assume
complete responsibility for the selection and monitoring of the investments in their Plan portfolio may
access the services of an investment brokerage, specifically contracted to the Plan, for the purpose of
engaging these investments.
Given these three tiers of options, a participant has the flexibility to tailor his or her investment portfolio to
meet a wide variety of investment objectives.
IV. Selection, Retention and Termination Criterion for Investment Fund
Managers
A. Investment fund manager selection criteria:
• Performance Record — The manager should have a performance record that suggests investment
results will meet the investment goals of the Plans. The attributes of the manager's performance
record would be expected to include:
— GIPS compliant (in the case of separate accounts)
— A proven history of a reasonable investment approach
— A representative composite of investments similar in nature to current Plans
— Above average in investment returns over a 5 year trailing period relative to an appropriate
index and peer group
— Sufficiently long in track record to afford adequate assessment (longer track records ,at least 5
years, are desirable, but shorter records may be acceptable depending on the circumstances)
• Management — The manager should have worked within a stable corporate structure and shown
consistent tenure as a manager within current and past corporate structures.
• Investment Style & Process — The style should be consistent with the given asset class and the
process should be reasonable.
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Investment Policy Statement City of Kent 457 Plan
• Assets Under Management— The manager should have a reasonable client base in this investment
style and the level of assets under management should be appropriate given the specific product to
be managed.
B. investment fund manager retention and termination criteria
• Generally, all investment options are expected to remain true to their stated investment objectives and perform
as well as or better than their prescribed performance benchmarks, net of fees.
• A watch status may be initiated when a fund option trails its benchmark and peers for at least two consecutive
quarters on a trailing five-year basis.
• If the fimd's five-year trailing performance does not return above benchmark and above median versus same
style peers and/or its benchmark within two quarters of being placed on watch, the fund may be considered for
termination. Performance improvement in the most recent quarter will be noted and may be considered in the
decision to leave any fund on watch for a longer period of time,
• In any case,the Administrator,in consultation with the Plan Provider, reserves the right to terminate investment
fiord relationships at any time, for any reason. Further participant contributions to a fund may be frozen or the
fund may be replaced with or without transferring existing assets from the replaced fund. Once the decision to
terminate a fiord is made, asset transfer and liquidation, as appropriate to the action taken and as allowed by
established Plan policies and procedures, should be handled to the best advantage of the Plan, with due
consideration given to impacts on Plan participants.
• In the event that any fiord termination process would cause a participant to be unable to perform a transaction in
his or her account for 3 or more business days, it is the Administrator's intent to inform Plan participants of that
action at least 30 clays prior to the transaction.
V. Investment Guidelines
'fhe Plan may offer investment options in some or all of the asset categories described below.
Guidelines for each category are as follows. The investment performance for each option in the plan
may be assessed in a performance report provided by the investment consultant.
Stable Value Fund
The investment objective of the stable value fund is to allow Participants the opportunity to invest in a
fund that offers relatively stable annual returns without principal fluctuation. Stable value fiords are
expected to invest in a diversified mix of Guaranteed Insurance Contracts (GICs) and Flank Investment
Contracts (minimum rating of AA by Standard & Poor's (S&P)), Synthetic GICs (which are in turn
invested in portfolios of investment grade corporate bonds, mortgage backed securities and U.S.
government obligations, with minimum average credit ratings of investment grade or better by
Standard and Poor's) and cash or near-cash investment grade debt instruments. All investments
(except for U.S. government obligations) should be well diversified by the issuer such that no more
than 30% of the total portfolio is invested with any one issuer.
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Investment Policy Statement City of Kent 457 Plan
Investment Grade Bond Fund
The investment objective of the investment grade bond fund is to provide a rate of return reflective of
the overall bond market. Fixed income funds are expected to invest predominantly in domestic debt
securities, including corporate and government bonds and mortgages. Foreign debt securities (defined
as debt issued by entities that report in non-dollar currencies) may also be purchased in lesser
quantities. The average credit rating of the portfolio should be investment grade (as rated by Standard
and Poor's and/or Moody's). Normally, the fund's duration should approximate that of an appropriate
market Index. All investments (except for US government obligations) should be well diversified by
issuer.
High Yield Bond Fund
The investment objective of the high yield bond fund is to provide high current income and capital
appreciation through investment in an actively managed and well-diversified portfolio of non-
investment grade fixed income securities, the majority of which are issued by US domestic
corporations. The fund may also hold a portion of assets in cash and investment grade bonds, at the
portfolio manager's discretion.
Inflation Protected Bond Fund
The investment objective of the inflation protected bond fund is to provide inflation protection and
income consistent with investment in inflation-indexed securities, through investment in inflation-
indexed bonds issued by the US Treasury and government agencies, as well as US domestic
corporations. The fund may also hold a portion of assets in cash and investment grade bonds, at the
portfolio manager's discretion.
Domestic and International Fqutty Index Funds
The investment objective of the index funds is to offer participants the opportunity for participation in
various, broad portions of the U.S. and international equity markets, utilizing a passive investment
strategy with minimal cost. These investments will, on a month-by-month basis, achieve results nearly
identical to their respective investment benchmarks. These results may be accomplished through
sampling, full replication, or a combination of both techniques to track the results of their respective
benchmark indexes. This alterative may also use derivatives to enhance the fund's tracking.
Domestic Equity Funds
The objective of the Domestic Equity Funds is to offer participants the growth and diversification
opportunities available from investments in the domestic equity market. The Committee expects that
fiords with an identified asset class or category (examples: Large Cap Growth, Small Cap Value, etc.)will
be managed so as to be in general 'alignment with their respective asset class or category. In general, the
Committee expects that these portfolios may include any or all of the following:
• Equities traded on the domestic exchanges or in the Over-The-Counter (OTC) market. This
includes rights,warrants and issues convertible to stock.
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Investment Policy Statement City of Kent 457 Plan
• American Depository Receipts (ADRs) and foreign equities (defined as equities issued by firms
that report in non-dollar currencies) may also be included as a minority portion of these
portfolios. Foreign exchange contracts may be held to the extent that the use of such contracts
is limited to hedging currency exposure existing in the portfolio.
• Fixed income securities and preferred stock. These issues should not forma significant portion
of any of domestic stock portfolio, but the Committee recognizes that at times, the use of these
instruments may be consistent with a portfolio's objectives.
• Stock index futures and/or options may be used to control a portfolio's asset allocation, to reduce
transaction costs, or to simulate full investment while maintaining cash to meet expected
withdrawals.
• Cash equivalents may also be held as a hedge against anticipated down markets or to meet other
liquidity needs, although the Committee expects that the domestic stock options will normally
maintain a fully invested status. Safety is the primary consideration for cash equivalent
investments. Cash equivalent investments should be well diversified and of high quality.
Developed Markets International Stock Funds
The investment objective of developed markets international stock funds is long-term growth of
capital. Developed markets international stock funds should be well diversified across the foreign
equity markets with a primary emphasis on the more established companies in "developed" countries
and markets unless the fund has a regional or emerging market objective. Generally, it is intended that
no more than 40% of the fund should be held in any particular country. All investments should be well
diversified by issuer such that no more than 8% of the total market value of the portfolio, at time of
purchase, is invested with any one issuer. In the case of Global Stock Funds, equity securities of U.S
issuers may also be held.
Target-Date Lifecycle Portfolio Funds
The objective of target-date Lifecycle portfolio fiords is to allow participants the opportunity to invest
in a single investment option that will reflect their risk tolerance and time horizon. These funds shall
be invested in various asset classes based on the fund's stated objectives and target maturity date.
These asset classes shall include domestic and international equity investments, and a diversified array
of fixed income investments.
Real Estate Investment Trust (REIT) Fund
The objective of the Real Estate Investment Trust (REIT) fund is to seek capital appreciation and
current income through investment in a diversified portfolio of real estate investment trusts and real
estate investment equity. REITs are companies that own interests in real estate, real estate related loans
or other interests, and their revenues primarily consist of rent from income-producing real estate
properties and capital gains from the sales of such properties.
Minimum Guaranteed Wilkdrawal Benefit Fund
The objective of the Minimum Guaranteed Withdrawal Benefit (GMWB) fund is to seek both
moderate capital growth and current income while providing a guaranteed lifetime income feature that
protects retirement income against market downturns. GMWBs typically consist of a balanced
portfolio of stocks and bonds in which an insurance company guarantees, for a fee, that an investor in
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Investment Policy Statement City of Kent 457 Plan
retirement may periodically withdraw a percentage of their initial investment plus any gains from
market appreciation and/or additional contributions.
VI. Derivative Policy
The Plan's investment managers may use derivative instruments. However, in no case may a
derivative instrument be used that would cause the Plan to:
• Be leveraged in any way, or
• Be exposed to risks that would not inherently be encountered by investing directly in a portfolio of
securities allowed by this policy.
VIL Investment Restrictions
It is the policy of the Committee to allow the Plan's investment advisors discretion within their area of
expertise. It is expected that the majority of the Plan's investment funds will be mutual funds or other
commingled fund vehicles. As such, the Committee, and its advisors as appropriate, clearly
understands that any investments in any commingled funds are governed solely by the guidelines as
stated in the fund's prospectus or similar charter. The guidelines and objectives in this Investment j
Policy Statement are solely for the Committee's use in evaluating the continued appropriateness of an
investment in the given commingled fund. The Committee, and its advisors as appropriate, will
monitor the funds for adherence to these guidelines and objectives, recognizing that a fund change may
be necessary il'such parameters are not met.
VIII. Proxy Voting
The investment and/or fund manager is responsible for voting the proxies, and other decisions
regarding rights, which may be connected to investments in individual securities held by the funds in
the plan. The investment and/or fund managers will provide the Committee with their written proxy
voting policies upon the request of the Committee and keep the Committee updated with any changes
to these policies. The Committee will review the policy statements and ensure they provide
satisfactory guidelines for voting proxies. The Committee should also ensure that these policies
provide that proxies be voted and rights exercised exclusively in the best interest of the Plan's
participants and beneficiaries.
The Committee, or an agent appointed for this purpose, is responsible for voting proxies, and other
decisions regarding rights, with respect to mutual fund shares held by the Plan (or by Plan
participants). Proxies should be voted and rights exercised exclusively in the best interest of the Plan's
participants and beneficiaries. The Committee should maintain, or have access, to a record of bow
such proxies were voted for at least a 5-year period.
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Investment Policy Statement City of Kent 457 Plan
IX. Brokerage and Other Investment-related Expenses
Brokerage commissions, incurred in the normal course of trading securities, are expenses to the plan.
The plan's investment and/or fund managers will have discretion to select brokers and negotiate
commissions. In executing this responsibility, the investment and/or fund managers should seek "best ,
execution" services. The Committee at its discretion may from time to time review the brokerage
practices of the Plan's investments.
In addition to brokerage commissions, total find operating expenses (including investment
management fees, 12b-1 fees, etc.) should be reviewed periodically to ensure that such expenses are
competitive and being managed in the best interest of the Plan's participants and beneficiaries.
X. Investment Fund Manager Reporting
The investment fund managers should promptly notify the Committee should any changes occur in
manager's organization or investment philosophy or process.
The plan service provider, plan vendor, and/or record-keeper will ensure that all data necessary for the
appropriate execution of plan oversight will be provided to the plan sponsor. This information is
generally expected to include:
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• A quarterly summary of contributions, withdrawals, income and expenses by fund
• Quarterly investment returns, net of fees, and the current expense ratio of the fund.
The Committee shall meet at least annually to review the investment performance of each fund and to
review the Plan's objectives and guidelines. In addition, the Committee intends to provide participants
with sufficient information to make informed decisions with regard to investment alternatives available
under the Plan. This information, which may be provided by the Plan's service provider, will be
provided in a timely manner so as to enable participants to make informed investment decisions.
XI. investment Policy Changes
Any changes to this Statement of Investment Policy, or exceptions to the guidelines herein, whether
recommended by the investment managers, or initiated by the Committee, should be documented in the
Committee meeting minutes.
The City of Kent 457 Deferred Compensation Plan Investment Policy was amended by the City of
Kent Deferred Compensation Plan Committee during a regular scheduled meeting.
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Derek Matheson Date
Chief Administrative Officer
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