New York State Deferred Compensation Plan, Albany, is overhauling many investment options in the $19.4 billion plan.
The plan's governing board approved the changes that will lead to replacing some investment options due to performance, consolidating some options, replacing some investments in favor of lower-cost products and renewing some investments for which lower prices were negotiated. Several mutual funds were renewed.
Throughout the year, the board issued RFPs covering all asset categories among the plan's mutual fund lineup valued at about $12.1 billion.
The board voted unanimously Dec. 2 to approve the changes with the dominant themes of improving performance and reducing expenses, said David Fischer, executive director, in an interview.
Each new contract is for eight years with the possibility of a pair of one-year extensions. Plan executives have not yet decided the starting date for new investments or termination dates for the other investments.
Although contracts for existing investments covered by the board's vote are scheduled to expire March 31, 2017, those contracts “are expected to be extended for one year,” Mr. Fischer said. The actual replacement dates could take place before the additional 12-month period, he added.
Nationwide Retirement Solutions is the record keeper. Its contract was renewed in April and will run for seven years. The lineup changes are unrelated to Nationwide.
The board voted to replace three small-cap equity funds and one large-cap equity growth fund for performance reasons.
For the small-cap funds, the Wells Fargo Small Cap Value Fund and Federated Clover Small Value Fund, totaling $296 million in current plan assets, will be replaced by the Delaware Small Cap Value Fund, managed by Delaware Investments. The Columbia Acorn USA Fund will be replaced by the T. Rowe Price QM Small Cap Growth Fund, giving it $249 million.
The Principal Large Cap Growth Fund will be replaced by the T. Rowe Price Blue Chip Growth Trust collective investment trust, representing $344 million in current assets..
Among other actions, the board voted to:
- Replace three domestic large-cap equity core mutual funds with a combined $1.97 billion in plan assets with a collective investment trust new to the plan: BlackRock's Equity Index Fund, which tracks the S&P 500. The plan has been offering two actively managed mutual funds — Davis New York Venture Fund A and Hartford Capital Appreciation HLS 1A Fund — and the passively managed Vanguard Institutional Index Plus Fund.
- Map the Vanguard Mid-Cap Index Fund Institutional and the Vanguard Small-Cap Institutional Plus Fund, with $686 million in combined assets, into a new offering, the BlackRock Russell 2500 Equity Index CIT. Also, the plan will add the Fidelity Institutional Asset Management Small/Mid Cap Core Fund collective investment trust to the small/midcap menu.
- Replace the Federated Total Return Government Bond Fund and the Vanguard Total Bond Market Index Fund Institutional Plus mutual funds, with $814 million in total assets, with the BlackRock U.S. Debt Index Fund (with securities lending), a collective investment trust. Also, in the plan's bond menu, the board voted to add another CIT — the Voya Core Plus Fixed Income Strategy, managed by Voya Investment Management.
- Switch the plan's target-date series to a collective investment trust portfolio from a mutual fund portfolio. T. Rowe Price will remain the provider of the target-date series.
- Switch the T. Rowe Price Equity Income fund, a mutual fund, to a CIT as part of the plan's large-cap value equity category. The board voted to add another CIT to this asset class — the Boston Partners Large Cap Value Fund.
- Merge the Vanguard Capital Opportunity Fund Admiral shares into the existing Vanguard PRIMECAP Fund Admiral shares in the large-cap growth category. Both are mutual funds.
When effective, the new lineup will have 19 options vs. the current lineup's 22 options. The target-date series counts as one option.