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Retirement committee hears plan performance, urged to consider switching OPEB ETFs to lower-cost mutual funds
Summary
Committee presenters said the town’s OPEB trust has grown to about $27 million and that replicating the current ETF allocation with institutional mutual funds could cut investment fees from roughly 18 basis points to about 6 bps, after an estimated ~$11,500 in one-time trading costs; presenters recommended discussing the idea with the Board of Finance in October.
The Simsbury Retirement & Benefits Committee was told on Sept. 2 that the town’s pension and OPEB investments posted a strong quarter and that a change in how the OPEB trust is executed could substantially lower fees.
Chris, the meeting’s investment presenter, said federal fiscal developments and persistent inflation remain themes shaping markets, but the near-term returns for the committee’s portfolios were positive. He told the committee the OPEB trust ‘‘is up in the mid upper $20,000,000 range now’’ and that the trust currently uses ETFs with an investment-expense run rate of about 18 basis points.
‘‘We can get that same allocation for a third of the price, 6 basis points,’’ Chris said, describing an illustration that rebuilt the OPEB allocation using institutional Fidelity mutual funds. He added the transition would incur transaction costs—‘‘on our estimate, about $11,500 of trading costs’’—and that the committee could expect to recover those costs in roughly two quarters on a run-rate basis.
Chris emphasized this was not an immediate action item for the retirement committee. He recommended that, if the committee has appetite, staff bring the comparison and recommendation to the Board of Finance for consideration in October.
The presentation also covered investment-related expense components for the pension plans. Chris reported the overall investment-related expense for the pension programs is roughly 40 basis points when manager fees, custody and other recurring costs are combined, and he characterized that level as ‘‘reasonable’’ given the program’s mix of active management and institutional solutions.
The committee received an update on active managers: Neuberger Berman’s small-cap strategy has lagged recently and accounted for a portion of shortfalls, while strategies at Hartford and Bearing were being monitored after portfolio-manager changes; Chris said the managers’ longer-term track records remained acceptable and no immediate changes were recommended.
Procedural business: the committee approved the prior meeting’s minutes earlier in the session and later moved to adjourn. The presenters are scheduled to present the OPEB fee analysis to the Board of Finance in October; the retirement-plan meeting previously set for Dec. 2 will be pushed back about a week, the chair said.
No formal action was taken at the Sept. 2 meeting to change the OPEB execution; staff will supply the Board of Finance with the illustrative analysis if the committee confirms that next step.
