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2 APPEARANCES:
ACCURATE STENOTYPE REPORTERS, INC. 3
ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 4 2 (The agenda items commenced at 9:51 a.m.) 3 GOVERNOR BUSH: Board of Trustees. 4 MS. ARMSTRONG: Sir -- 5 GOVERNOR BUSH: Eva. 6 MS. ARMSTRONG: -- good morning. 7 Real quick, we had an item that was 8 scheduled to -- specifically for this Cabinet 9 meeting. It was a request from the Department 10 to revoke a submerged land lease, and we're 11 asking that it be deferred to January 29th, to 12 give our attorneys and his, a little more time 13 to see if they can come to an agreement to 14 resolve it. 15 TREASURER GALLAGHER: I make a motion on 16 the -- make a motion on the minutes first. 17 GOVERNOR BUSH: On the minutes? 18 MS. ARMSTRONG: I don't know -- I don't 19 think we have -- 20 TREASURER GALLAGHER: That -- 21 MS. ARMSTRONG: -- minutes on this one this 22 week. 23 TREASURER GALLAGHER: I'm in the wrong 24 place. 25 MS. ARMSTRONG: But thank you for being ACCURATE STENOTYPE REPORTERS, INC. TRUSTEES/INTERNAL IMPROVEMENT TRUST FUND 5 2 TREASURER GALLAGHER: I apologize. 3 Move to defer to November 27th? 4 MS. ARMSTRONG: January 29th. 5 TREASURER GALLAGHER: January 29th. 6 ATTORNEY GENERAL BUTTERWORTH: Second. 7 GOVERNOR BUSH: That's -- moved and 8 seconded. 9 Without objection, it's approved. 10 Thank you. 11 (The Board of Trustees of the Internal 12 Improvement Trust Fund Agenda was concluded.) 13 * * * 14 15 16 17 18 19 20 21 22 23 24 25 ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 6 2 can stay. 3 TREASURER GALLAGHER: Anybody that wants to 4 switch with me -- 5 GOVERNOR BUSH: Anybody that wants to 6 leave, can leave, too. 7 ATTORNEY GENERAL BUTTERWORTH: Watch it on 8 TV, Governor. 9 TREASURER GALLAGHER: Watch CNN. 10 GOVERNOR BUSH: It's riveting. 11 TREASURER GALLAGHER: I'm sure you will. 12 I bet you will. 13 COMMISSIONER BRONSON: We'll be thinking of 14 you. 15 GOVERNOR BUSH: Thank you. 16 (Commissioner Bronson and 17 Attorney General Butterworth exited the room.) 18 GOVERNOR BUSH: Item 1. 19 TREASURER GALLAGHER: Motion on minutes. 20 COMPTROLLER MILLIGAN: Second. 21 GOVERNOR BUSH: Moved and seconded. 22 Without objection, it's approved. 23 MR. HERNDON: Item Number 2 is approval of 24 a fiscal determination of an amount not 25 exceeding eleven million five hundred and ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 7 2 Housing Finance Corporation housing revenue 3 bond for Mission Bay Apartments in 4 Brevard County. 5 COMPTROLLER MILLIGAN: Move the resolution. 6 TREASURER GALLAGHER: Second. 7 (Commissioner Crist exited the room.) 8 GOVERNOR BUSH: Moved and seconded. 9 Without objection, it's approved. 10 (Secretary Harris exited the room.) 11 MR. HERNDON: Item Number 3 is 12 consideration of recommendations by the SBA 13 staff and by the SBA Advisory Councils 14 regarding the role of bundled providers in the 15 Public Employee Optional Retirement Program. 16 Governor, and members, as you'll recall, we 17 have been working diligently for the last year 18 or so, heading toward at least this one 19 destination, among others, in terms of trying 20 to resolve the question of the actual makeup of 21 the investment line-up in the Public Employee 22 Optional Retirement Program. 23 And before I get into the body of the 24 specific recommendations themselves, I thought 25 it might be worthwhile to give you a little bit ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 8 2 presented to the Aides, and to the joint 3 advisory councils the other day. So I think it 4 helps to set the stage a little bit. 5 And the first thing that we have for you is 6 a little chart that captures the experience of 7 Tony. And Tony is a twenty-five year old 8 parole officer. 9 He is a persona that was constructed, along 10 with five others, by Ketchum, our media firm, 11 and is based on the results of the research 12 that was done through the employee surveys. 13 If you'll recall, we did 5,000 employee 14 surveys, and we constructed six different 15 personas that are representative -- as you 16 might expect, there are still 17 generalizations -- but are representative of 18 our work force. 19 And we picked Tony because there's been 20 some questions about what happens to the 21 employee when he starts into the enrollment and 22 the education process. 23 So if we -- if you're willing, we'll follow 24 Tony along for a few moments. You'll recall in 25 the videotape that we showed you last time, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 9 2 that he was worried about what was -- he was 3 going to do this weekend, and that was as far 4 as he was thinking about. 5 And all the six personas were in the 6 videotape, and you'll see throughout the 7 literature that we're going to show you today, 8 the other personas as well. 9 But Step number 1, Tony receives in the 10 mail, from the Florida Retirement System, a 11 personalized benefit statement. It contains a 12 detailed brochure that provides him with his 13 estimated ABO; his PIN number to access the 14 websites and so forth; how to sign up for 15 workshops; and the form to make the choice, if 16 that's what he would like. 17 Now, that personalized benefit statement is 18 quite detailed. And, in fact, just last night, 19 was another one of the focus groups that we've 20 been running with the help of our media folks, 21 trying to get that benefit statement designed 22 and structured in such a fashion that it really 23 communicates the information in as -- as 24 powerful a way as possible. 25 The second step for Tony then is to attend ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 10 2 recall that Ernst & Young is the independent 3 education firm that we've hired to provide both 4 employer and employee workshops. But the 5 employee workshops don't start until late in 6 February of next year. 7 I might add parenthetically, and some of 8 you may be aware of this, that the employer 9 workshops are underway now, and are going on 10 throughout the state of Florida. We have 11 30 workshops scheduled for employers. And 12 there's one here in Leon County today, as a 13 matter of fact, as there was yesterday 14 afternoon. 15 But the employee workshops that 16 Ernst & Young puts on, there are 3,000 of them 17 scheduled over the course of next year, where 18 Tony gets the details on both plans, he gets 19 information on investing, he gets information 20 on retirement planning basics, and he gets 21 quite a bit of information on how to use the 22 educational resources and tools. 23 He also has the opportunity, if the oppor-- 24 if the time permits, to talk with the 25 Ernst & Young staff that are there at that ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 11 2 Tony can then call the MyFRS Financial 3 Guidance Line, which is manned by Ernst & Young 4 financial professionals. These are 5 credentialed employees hired by Ernst & Young, 6 and has unlimited access, at any time that the 7 hot line is open, and as much time as they -- 8 as Tony would like, to talk to Ernst & Young 9 about the issues related to choice and 10 retirement planning and investing, and so on 11 and so forth. 12 He can certainly access at any point along 13 the way the MyFRS website, use software that is 14 being constructed by Financial Engines, you'll 15 recall the other vendor that we have hired in 16 this regard. 17 They have a tremendously powerful tool that 18 we'll look at a little bit -- in a little bit 19 of detail, because I think it's quite 20 informative. 21 It really allows you to do a lot of 22 personalized what-if modeling. You can move 23 the toggle switch that's on the software back 24 and forth, and you can change your salary 25 expectations, you can change your retirement ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 12 2 GOVERNOR BUSH: My salary -- 3 MR. HERNDON: -- if -- if that's -- if 4 that's your expectation is that you're going to 5 have a higher salary, you can do those kinds of 6 things, and it gives you different kinds of 7 outcomes based on your built-in set of 8 expectations. 9 You can at that point on the website also 10 use the website to sign up for the choice that 11 you make electronically, you can do it by hard 12 copy, you can also do it by phone. So you have 13 a fairly broad number of ways that you can make 14 those choices. 15 Now, if Tony decides at that point to stay 16 in the pension plan, he's essentially finished. 17 He doesn't really need to make any more 18 decisions about investment choices and 19 so forth. 20 But CitiStreet, the third party 21 administrator that has been hired, will mail a 22 confirmation letter to Tony; and notify the 23 Division of Retirement; and Tony's employer, 24 whomever that may be -- in this case, the -- 25 the parole system -- of his decision. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 13 2 plan, then he'll have an opportunity, again 3 through the use of Financial Engines software, 4 to start looking at individual products. And 5 those products will be presented to him, based 6 on the final selections that you all make as 7 Trustees for the system in an impartial, 8 nonsales related message. 9 And you heard the comment that 10 Maurice Helms from the Division of Retirement 11 made the other day, our purpose in this program 12 is to tell, and not sell. We're not trying to 13 sell any particular product or program, but 14 rather to give Tony, and all the rest of the 15 folks in the system, the best information that 16 we can provide them with. 17 Ultimately, Tony makes some decisions, he 18 makes an asset allocation decision, he makes a 19 decision about which particular product or set 20 of products he wants to invest his money in, 21 and communicates that. 22 Again, he can do it in written form, in 23 e-mail, and so forth, and CitiStreet starts to 24 execute those arrangements. And you'll see, as 25 we've outlined on Step 7, CitiStreet then ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 14 2 processes, the most critical of which are 3 certainly to notify his employer of Tony's 4 decision to make sure that the investment firms 5 themselves are aware that Tony has decided to 6 invest money with them, that -- how much money 7 is coming, sets up the accounts, and all the 8 rest of the administrative work that's 9 associated with that kind of ongoing process. 10 At the same time, the asset transition 11 broker that we are working with, 12 Morgan Stanley, and others, begin to put 13 together as people start to make these 14 decisions, what will be the first in a series 15 of nine separate movements of money, nine 16 separate tranches, starting each month. 17 Throughout the nine-month period of 18 enrollment, we'll move money each month to fill 19 the bucket of the employees who've made their 20 investment choices. 21 And so we'll be buying and selling 22 nine different times over that -- that course 23 of time. And that's what Morgan Stanley will 24 be helping us to do. 25 And Tony's employer, of course, has ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 15 2 changing their payroll. We're very 3 appreciative of the Division of Retirement's 4 help in this regard. They are going to be on 5 the front end of this processing system. 6 It made very little sense to us it seemed 7 to have separate movement of money going for 8 the DB plan, or the DC plan, since we already 9 had one front-end processing system in place. 10 So the Division of Retirement is going to 11 continue to -- to do that. And -- and we're 12 pleased with the way that has worked out. 13 The investment providers, of course, get 14 their notification of Tony's decisions, and 15 start to get their money, and the Division of 16 Retirement starts to get the proper 17 notifications that all of these things have -- 18 have taken place. 19 Now, this is obviously a simplification, 20 but it's really intended to just give you a 21 sense of what happens to a typical employee as 22 they go through the course of this process. 23 I don't want to short-circuit any 24 questions, but I -- I am mindful of your time, 25 and I also want to spend a moment, if we can, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 16 2 is in front of you, and the color brochure and 3 on the screens, because I think it also tends 4 to reenforce some of the critical points that 5 need to be made with respect to the employer 6 and employee education. 7 And you can see across the top, a calendar 8 in -- in multicolors -- 9 GOVERNOR BUSH: Where -- where -- 10 I'm sorry. 11 MR. HERNDON: I'm sorry. 12 I beg your pardon. It's this form right 13 here. 14 TREASURER GALLAGHER: We didn't get that. 15 GOVERNOR BUSH: The little one. It's 16 underneath that -- 17 TREASURER GALLAGHER: Oh, that one. 18 Thank you. 19 MR. HERNDON: Sorry. 20 And it's also in the screen up in front of 21 you. I appreciate it's a little difficult to 22 read that. 23 But the employer education period is what I 24 mentioned. As you'll see in the calendar 25 across the top of the box is what we're in ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 17 2 800 employers out there to try and make sure 3 that they're educated about what it is that 4 we're asking them to do. 5 And in many respects, they are the 6 frontline troops. I mean, we recognize full 7 well, there an awful lot of employees that are 8 going to go to their HR offices and so forth to 9 talk to them about what to do. 10 In addition to that, they have the 11 day-to-day kind of mechanical side of things. 12 I don't mean to -- to minimize it, but the 13 payroll processing side of things that they 14 have to do. 15 So we want to make sure that they're 16 comfortable on both -- on both sides of those 17 things. And those are, as I indicate, going on 18 right now. 19 We also have available for the employers, 20 an Employer Briefing Kit, which we've put in 21 your packet for you to glance at at your 22 leisure, including a comparison of the pension 23 plans, the two -- pension plan and the 24 investment plan, frequently asked questions, 25 some additional guidance, and so on and ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 18 2 And I would just commend that to you at 3 your leisure. 4 And you will see, by the way, the -- the 5 same branding that we talked about earlier. 6 We've branded a new logo, new faces, a new 7 color scheme, and everything else for the FRS 8 that we think, based on the focus groups and 9 the research and everything that was done, is 10 really going to be quite popular and quite 11 readable by the -- by the members. 12 The employer portion of the MyFRS.com 13 website is up and running, and is available to 14 employers. It's up now, and is running now, 15 and is available to them to access at their 16 convenience, as -- as well as I mentioned, 17 the -- the seminars. 18 Now, starting in December, not very far 19 away actually, we will be mailing to every 20 employee essentially what amounts to an 21 awareness kit talking about the program itself, 22 what's coming, and a road map, somewhat similar 23 to the kinds of information that you're seeing 24 today, although obviously in -- in a more 25 condensed form, describing what's going to be ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 19 2 going to be made available to them. 3 The preview version of MyFRS.com website 4 for employees is also up and available now on 5 the site, and we're going to show you that in 6 just a moment. Unfortunately, this room 7 doesn't have the technology to let us go live 8 to the site, as we were able to do the other 9 day. 10 While we have some -- 11 TREASURER GALLAGHER: Semantics. 12 MR. HERNDON: -- we have some capacity 13 problems, but -- but we'll be able to show you 14 a few of the slides just in snapshot form, just 15 to give you some sense of it. 16 And I would encourage you, if you get the 17 opportunity, to -- to go to the site and take a 18 look at it. I think you'll find it to be quite 19 worthwhile. 20 And we have the Employee Outreach Kit 21 that's going to be mailed starting at the end 22 of February, which is the kit that I mentioned 23 as the first step that tells him the -- which 24 is that personal benefit comparison that shows 25 him his accumulated benefit obligation, how ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 20 2 and the -- the choices are, and why they exist. 3 All the investment fund preview information, 4 you know, keys to successful retirement 5 planning, and so forth. 6 And one of the things that I really want to 7 stress here, because I think it's -- it's 8 especially critical, and you, and the 9 Legislature deserve a lot of credit for this, 10 prior to the existence of the defined 11 contribution plan, of course, the pension plan 12 didn't really have a choice built into it. It 13 was a -- you were a member of the defined 14 benefit plan, and that was it. 15 Well, now, with the choice, members will 16 get as part of the program, and as part of 17 being a member of the Florida Retirement 18 System, a very sophisticated and powerful 19 education program that teaches them about 20 investing, and about retirement planning. 21 And these are just wonderful tools for 22 employees to have. And they really don't exist 23 in an awful lot of -- of cases around the 24 country. 25 And it's something that I think the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 21 2 of, to be able to offer that service to our 3 employees. 4 So I would encourage you to take a look at 5 those websites at your convenience. 6 Well, you see the end of February and the 7 first part of March, the State employee 8 outreach period beginning. 9 Then the choice period begins for State 10 employees in June. And you'll recall, this is 11 kind of a rolling three-month process. You do 12 education, and then enrollment. 13 And while you're doing the enrollment, 14 you're doing the education of the second group, 15 and so on and so forth. And that goes on 16 through the spring of 2003. 17 Throughout this time, of course, you can 18 access the websites, you can access the 19 financial counselors through MyFRS Financial 20 Guidance hot line, the toll free line at 21 1-866-44, dash, MyFRS, and get as much 22 information as you would like on the choice 23 that is confronting you, and the investments, 24 and -- and so on and so forth. 25 Of course, concurrent with all of that are ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 22 2 described that will begin a little bit later on 3 in the spring. 4 And there again, it is an Ernst & Young 5 finance professional -- credentialed 6 professional who is providing that information 7 to you in the form of a one-on-- one to some 8 number -- 100 seminar in the way of -- of 9 information. 10 We are extending the service of 11 Financial Engines and Ernst & Young and 12 CitiStreet, and all of these organizations as 13 widely and as deeply into the employee pool as 14 we possibly can, because we think it is 15 absolutely essential that they have access to 16 this information. 17 And there's been quite a bit of discussion 18 about the fact that the program is going to 19 charge $200 per hour for financial counseling. 20 And I think it's important to take a moment and 21 clarify just exactly what is contemplated here. 22 Everything that you've seen up till this 23 point is free to the employee: Unlimited 24 access to certified and credentialed 25 Ernst & Young counselors; unlimited access to ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 23 2 workshops, however many they want to attend; 3 access to CitiStreet; and on and on. 4 What we're not providing in the program, 5 and I sus-- suspicion that very few 6 organizations anywhere in the world provide, is 7 personal financial planning, distinct from 8 making a choice about the DB/DC plan, or about 9 which investment options do they make within 10 the DC plan. 11 And that's what is being offered to the 12 employees at a $200 per hour fee. And it was 13 our belief that that's a very valuable service 14 to have. But an awful lot of our employees 15 don't want that, and will not pay for that. 16 And so why should we charge everybody in 17 the program for it. So it's set up on a fee 18 for service basis. 19 GOVERNOR BUSH: Commissioner -- 20 MR. HERNDON: And for those who wish it -- 21 Yes, sir. 22 TREASURER GALLAGHER: Can the payment of 23 this -- in other words, you get the service, 24 can this come from the pension money like other 25 services are being paid? Or do I have to pay ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 24 2 MR. HERNDON: It would come from after tax 3 dollars. I mean, it's your personal -- 4 TREASURER GALLAGHER: I have to write -- 5 MR. HERNDON: -- payment. 6 TREASURER GALLAGHER: -- a check. 7 MR. HERNDON: That's right. 8 TREASURER GALLAGHER: I can't make a 9 decision to go get that, and have it paid for 10 out of my pension money, because it's advice 11 about my pension. 12 MR. HERNDON: It's about your personal -- 13 TREASURER GALLAGHER: Isn't there a 14 window -- 15 MR. HERNDON: -- it's about your personal 16 financial situation in its -- in its totality. 17 TREASURER GALLAGHER: And -- 18 MR. HERNDON: It would include your pension 19 information. 20 TREASURER GALLAGHER: So you don't -- 21 there's not a way that you could have this be a 22 pension cost so it would be a -- 23 MR. HERNDON: Well, if the program wanted 24 to bear the cost of making that service 25 available for everybody, then I think we ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 25 2 But it was our suggestion that it made more 3 sense to do it on a fee for service basis for 4 those individuals who wanted to avail 5 themselves of that service. 6 TREASURER GALLAGHER: I'm between the two. 7 MR. HERNDON: Right. 8 TREASURER GALLAGHER: I'm a fee for 9 service, but it comes out of my pension 10 money -- my personal pension money, instead of 11 me writing a check. 12 MR. HERNDON: Right. 13 TREASURER GALLAGHER: Is there -- 14 MR. HERNDON: I -- I don't know of any way 15 that that can be done. I mean, we could 16 certainly look into it. 17 I don't know if the folks who are here, 18 who've had experience doing this may have an 19 answer. And we'll -- we'll let them think 20 about it and give you an answer in a moment if 21 they've -- if they've got any-- 22 But I'm not aware of any way that that 23 could be done to draw it out of your personal 24 account. And that -- 25 TREASURER GALLAGHER: Well, it would be ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 26 2 MR. HERNDON: Yeah. I mean, it's -- it's a 3 distribution out of a tax deferred account. 4 Presumably it would be taxable at your point of 5 receipt -- 6 TREASURER GALLAGHER: Well, it's a ser-- 7 I guess because it's an individual service, I 8 have a problem. 9 MR. HERNDON: Yeah. Exactly. 10 TREASURER GALLAGHER: If it was a service 11 that would -- that everybody would get, it 12 wouldn't matter. 13 MR. HERNDON: I think that's right. And 14 I'm -- 15 TREASURER GALLAGHER: And I don't think 16 it's probably very fair to -- 17 MR. HERNDON: -- I don't know if -- 18 TREASURER GALLAGHER: -- have everybody pay 19 for the few people that are going to go and 20 want to do this -- 21 MR. HERNDON: Right. 22 TREASURER GALLAGHER: -- when you're going 23 to get -- be able to do almost all of it 24 on line. 25 MR. HERNDON: Right. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 27 2 Ernst & Young, I mean, they may have a -- an 3 answer to your question more directly. 4 I'm not aware that there's a way that it 5 could be done as you suggest. But -- but 6 perhaps there is. 7 GOVERNOR BUSH: You don't charge them 8 200 bucks per hour, does it -- do they do it 9 like lawyers? If it's 15 minutes, it's 10 200 bucks, or -- 11 TREASURER GALLAGHER: That's a good 12 question. 13 MR. HERNDON: I don't know the answer. 14 We -- we'll ask Ernst & Young to give you an 15 answer to that. I think -- 16 GOVERNOR BUSH: Sorry, Jim. 17 TREASURER GALLAGHER: You're right. With 18 my assets, I wouldn't need more than 19 15 minutes. 20 GOVERNOR BUSH: Exactly. I mean -- 21 MR. HERNDON: Remember, this is full 22 financial -- 23 GOVERNOR BUSH: I'm curious -- 24 MR. HERNDON: -- counseling. 25 GOVERNOR BUSH: -- about the question. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 28 2 GOVERNOR BUSH: I mean, is it -- 3 MR. HERNDON: -- this is about, you know, 4 insurance, home mortgages, autos. I mean, this 5 is a full financial counseling -- 6 GOVERNOR BUSH: Do they charge by the -- do 7 they -- does anybody know? 8 MR. HERNDON: Bill -- Bill Arnone is here 9 from -- 10 MR. ARNONE: It's the -- it's the price per 11 session. It's been our experience, Governor, 12 everyone takes full advantage of the time for 13 the -- 14 GOVERNOR BUSH: So -- 15 TREASURER GALLAGHER: You get an hour. 16 MR. ARNONE: You -- 17 GOVERNOR BUSH: You get an hour if you 18 spend 15. 19 MR. ARNONE: We haven't had anyone to spend 20 15. 21 TREASURER GALLAGHER: It's hard to spend 22 15, unless you're me. 23 MR. HERNDON: Well, that -- that briefly 24 walks you through the education program. I 25 don't want to again give short shrift to any of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 29 2 questions that you might have. 3 But I know you've got a lot of -- of 4 territory to cover today. And I thought it 5 would be worthwhile to give you that. 6 We do have -- 7 TREASURER GALLAGHER: Let me -- let me just 8 clarify something. 9 MR. HERNDON: Yes, sir. 10 TREASURER GALLAGHER: That's to go in the 11 office and talk to a financial advisor. 12 MR. HERNDON: That's correct. 13 Face-to-face. 14 TREASURER GALLAGHER: You can talk to them 15 as much as you want free any time -- 16 MR. HERNDON: That's correct. On the 17 phone. 18 TREASURER GALLAGHER: And -- and get your 19 questions answered, or anything else. 20 MR. HERNDON: That's right. 21 TREASURER GALLAGHER: Okay. 22 MR. HERNDON: Yes, sir. 23 I -- I appreciate you making that point, 24 because that's an important point. 25 I mentioned the -- MyFRS.com website. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 30 2 facts about it being open to employers on 3 November 1st, and open to employees on 4 November 1st. 5 Here are some of the web pages. This is 6 the preview version of the MyFRS.com website 7 for employees. 8 As you'll see, we have 112 days left till 9 countdown as it -- as it ticks off. And we're 10 not going to belabor this. 11 We have some of these screen shots 12 available for you. And, again, the -- the site 13 is up and running, and you can access it live 14 if you'd care to -- 15 TREASURER GALLAGHER: And you go -- can you 16 go in and begin to log in and get the 17 information that you have -- that's available 18 now on your FRS employment, and the things that 19 I see in here, your -- what if you stay in a 20 pension plan type things, and what if -- is 21 that -- 22 MR. HERNDON: Some of the -- 23 TREASURER GALLAGHER: -- there -- 24 MR. HERNDON: -- information is in there 25 and loaded. But an awful lot of it is not yet. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 31 2 live in the full sense, and giving you all of 3 that employee specific information till later 4 on in the spring. 5 TREASURER GALLAGHER: Okay. 6 MR. HERNDON: You'll see here, employee 7 log-in. Remember, every employee's getting a 8 PIN number. Passwords, those are things that 9 are being communicated to them. 10 And here is where they -- the program 11 actually -- the software actually splits at 12 this point, and moves over to the 13 Financial Engines side of things, which now 14 starts to say, all right, you know, we've -- we 15 know what the investment choices are, which is 16 one of the major missing links, Commissioner, 17 that -- that you're concerned about. 18 We don't have those decisions made at this 19 point, so we really can't fill in a lot of 20 these blanks. And -- and here's how you start 21 to evaluate the relative merits and so forth of 22 these various choices that are available to 23 you. 24 And descriptions about what if you stay in 25 the pension plan. And you'll see the estimates ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 32 2 the plan experience is over time. 3 And as I mentioned before, I think it may 4 be the -- the next slide that shows it -- 5 perhaps it's a little bit further on -- there 6 are in one of these slides a series of toggle 7 switches, as I mentioned before, that allows 8 you to toggle back and forth and change the 9 assumptions -- and maybe this is it coming up 10 here -- that lets you set specific choices for 11 compensation and years of service and so on and 12 so forth. 13 Again, I don't want to spend a lot of time 14 on this. I think the website is -- is quite 15 interesting, and -- 16 There's -- there's the toggle switches that 17 I was talking about. Creating your own 18 strategy -- 19 TREASURER GALLAGHER: That's cool. 20 MR. HERNDON: -- listing some of the 21 information that's available on the site. 22 It's a very, very powerful tool, and it'll 23 be highly useful. And, again, recognize that, 24 Commissioner, where you were talking about 25 being able to access this information on the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 33 2 Ernst & Young counselors, and they will have 3 access to the same information that you see in 4 the Financial Engines website, and can walk you 5 through it. 6 If you're not comfortable understanding the 7 website, they can walk you through it so that 8 you understand just exactly what you're seeing, 9 and what it's telling you, so that it's clear. 10 TREASURER GALLAGHER: Let me ask you a 11 question. 12 If -- this is probably as powerful and as 13 good as there is out there. I know you spent a 14 lot of time trying to find it. 15 If we end up with bundled providers that 16 are going to also provide an educational 17 service, are we going to mandate that they take 18 advantage of this for -- for individuals when 19 they go talk to them? 20 MR. HERNDON: The law is very clear that -- 21 and it says that the bundled providers are 22 limited to providing education about their 23 investment products. 24 I mean, it specifically uses -- I think the 25 word "its" investment products, meaning it -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 34 2 So it's our expectation that almost all of 3 this generic information is the branded FRS 4 educational information and program and 5 so forth. 6 Now, we don't want to stop a bundled 7 provider who has good investment planning 8 information, or retirement planning 9 information, from providing that kind of 10 generic information. 11 I think you have to be very careful not to 12 get conflicting messages impacting the members, 13 and also not getting information that is -- 14 that one vendor is -- is espousing about 15 another vendor's products and so forth. 16 And the -- 17 TREASURER GALLAGHER: Right. 18 MR. HERNDON: -- and the law is very clear 19 that you can't do that. 20 GOVERNOR BUSH: Tom, I mean, if -- 21 TREASURER GALLAGHER: I understand that. 22 But I'm nervous that now what the law says is 23 that the only thing a vendor can do is go in 24 and tell -- tell our employees that -- about 25 their products. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 35 2 TREASURER GALLAGHER: Well, some of them 3 aren't going to have a full range of products. 4 So -- 5 MR. HERNDON: Well, we don't know that. 6 But -- but -- 7 TREASURER GALLAGHER: I mean, I know -- 8 MR. HERNDON: -- I mean -- 9 TREASURER GALLAGHER: -- some have 10 different offerings, and some have a wide 11 variety, and some have a few less -- 12 MR. HERNDON: That's correct. 13 TREASURER GALLAGHER: So -- 14 MR. HERNDON: And some -- some may have a 15 full range, and some may have less than a full 16 range -- 17 TREASURER GALLAGHER: Right. 18 MR. HERNDON: -- of offerings, that's 19 right. 20 But the program -- 21 GOVERNOR BUSH: So the Financial Engine -- 22 the -- the Financial Engine they use will be 23 designed for the offerings that they receive. 24 I mean, if -- 25 TREASURER GALLAGHER: Well, let me ask you ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 36 2 GOVERNOR BUSH: Isn't that right? 3 MR. HERNDON: Yes, sir. 4 GOVERNOR BUSH: And would those 5 Financial Engine results -- if you said, I 6 needed -- you know, I'm -- I'm making 40,000, 7 and I aspire to make 80,000, and I'm 8 forty-eight years old, and I intend to work 9 another 12 years, or 20 years, or whatever it 10 is, you give them all the information, and 11 they -- will the FRS Financial Engine come out 12 with more or less the same suggestions on asset 13 allocation as the -- as the financial 14 institutions that will be selling a bundled 15 product? 16 MR. HERNDON: Not necessarily. And that's 17 one of the concerns that I think everybody has, 18 is that you do find yourself in a situation 19 where some asset allocation models, and some 20 overall investment models are more or less 21 sophisticated than others. And so you can get 22 different results. 23 GOVERNOR BUSH: Marginally different or -- 24 MR. HERNDON: Dramatically different in 25 some cases. I mean, you can -- you can clearly ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 37 2 that you get. 3 And that's one of the concerns that -- that 4 we have, and one of the things that we're 5 proposing to talk to the bundled providers 6 further about, is to try and make sure that 7 there is at least some consistency of message 8 where it's appropriate; and where there's 9 appropriate divergence, that you also cultivate 10 that as well. 11 GOVERNOR BUSH: Tom? 12 TREASURER GALLAGHER: Can the -- well, I 13 don't know how to -- I -- can the educator from 14 a bundled provider bring up Financial Engines 15 for the individual retirement person's account, 16 and sort of show them how it works? 17 MR. HERNDON: I'm not sure. I don't know 18 the answer to that question. 19 Let me -- let me ask -- 20 MR. ARNONE: Yeah. I'm not -- 21 MR. HERNDON: -- Bill -- 22 MR. ARNONE: -- not with Financial Engines. 23 I'm with Ernst & Young. 24 But clearly the Financial Engines tool, 25 just as Ernest & Young, could use it to counsel ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 38 2 to anyone who wants to use it in that capacity. 3 GOVERNOR BUSH: Could you say who you are, 4 just for the -- 5 MR. HERNDON: Yeah. This is Bill Arnone 6 with Ernst & Young. 7 Jim -- Dr. Francis is here, and has been 8 involved in an awful lot of the education 9 program. 10 Would you comment on that question, too? 11 TREASURER GALLAGHER: You know, I'm -- I'm 12 sort of looking at it that it -- they may want 13 to do it if they run some scenarios and find 14 out that their product's the one that it 15 recommends, and they may not want to do it if 16 it recommends somebody else's. 17 So -- but I don't know whether it would 18 even go that far to recommend individual 19 products. 20 DR. FRANCIS: The -- the tool definitely 21 does recommend individual products, and -- 22 and -- and that is, I -- I think, ultimately 23 the issue. 24 The -- the tool may not recommend a high 25 cost product. The tool may well not recommend ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 39 2 another. 3 So it's a question of whether we have an 4 accord on both sides, whether the bundled 5 provider is willing to use this tool, and 6 explain this tool in the first instance. 7 The second interest -- instance is, I -- I 8 don't have the answer. I will go back and 9 check the contract. 10 We simply have to make sure that 11 Financial Engines is in agreement that it's 12 appropriate for these parties to use that 13 particular tool. 14 TREASURER GALLAGHER: Now, remember, 15 they're using the tool with one of our 16 employees sitting there. So it's the employee 17 using it. This person's basically -- 18 DR. FRANCIS: Right. 19 TREASURER GALLAGHER: -- with it is the way 20 I -- 21 DR. FRANCIS: Under -- 22 TREASURER GALLAGHER: -- understand it. 23 DR. FRANCIS: -- those circumstances, sure, 24 it's -- it's -- 25 TREASURER GALLAGHER: Yeah. I'm not sure ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 40 2 up everybody's stuff -- 3 GOVERNOR BUSH: They've got to have -- 4 TREASURER GALLAGHER: -- before they -- 5 GOVERNOR BUSH: -- the call number. So -- 6 TREASURER GALLAGHER: Right. 7 They should -- well, they will after they 8 sit down with them once. 9 DR. FRANCIS: Right. I -- 10 GOVERNOR BUSH: No. 11 TREASURER GALLAGHER: Well, they shouldn't 12 be using it. But -- 13 Okay. So there may not be an advantage -- 14 DR. FRANCIS: Yeah. I thought you were 15 speaking of the -- 16 TREASURER GALLAGHER: -- to the -- 17 DR. FRANCIS: -- the bundled provider 18 saying, we offer this service from 19 Financial Engines. You know, we -- we -- 20 TREASURER GALLAGHER: No. I was thinking 21 that -- Financial Engines is there. And if you 22 want us to go through it with you, we can. 23 MR. HERNDON: Yeah. 24 COMPTROLLER MILLIGAN: Let me, if I may, 25 Governor, follow up on that a little bit. And ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 41 2 here, which you didn't talk much about. 3 And in particular, the second choice tool 4 to help members considering changing plans. 5 How will that piece be activated? 6 If, for example -- for example, now 7 we're -- we're years into this process -- 8 MR. HERNDON: Uh-hum. 9 COMPTROLLER MILLIGAN: -- and one of the 10 members is investing in a -- in a low 11 performing product, and -- and the second 12 choice tool, he or she can obviously try to 13 determine that. Or is there some obligation in 14 terms of ongoing support for the FRS, or 15 someone, to -- to bring that to the person's 16 attention? 17 DR. FRANCIS: Yes, indeed. We -- we will 18 certainly be bringing the second choice to 19 people's attention early on in the process. 20 The second choice tool becomes available to any 21 participant at the close of their initial 22 election window. 23 So, for example, for -- 24 COMPTROLLER MILLIGAN: Well, yeah. 25 I -- I understand that. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 42 2 process now, and -- and there's a low performer 3 out there, and -- who will -- who will alert 4 this person, if anyone, the investor, to this 5 low performance? 6 DR. FRANCIS: There'll be at least two 7 ways, and we're hoping three ways that that's 8 going to happen. 9 Number one, if the person has used the tool 10 at least once, and that person has entered 11 their e-mail address into the system, which 12 they're asked to do, they will get an automatic 13 e-mail from Financial Engines whenever 14 Financial Engines has new advice for that 15 person, new information on how they can better 16 arrange their asset allocation and their 17 choices of investment. 18 COMPTROLLER MILLIGAN: Okay. 19 Good. 20 Now, does that apply to someone who has 21 opted -- if we have bundled providers, does 22 that apply to someone who has opted to invest 23 through a bundled provider? 24 DR. FRANCIS: Yes, indeed. It -- it 25 covers -- this tool covers all the choices -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 43 2 contracts that may be evolving with the bundled 3 provider would be the proviso that some 4 independent third party can recommend to an 5 investor in the bundled provider's product pool 6 that that's a bad product, and they ought to 7 change. 8 DR. FRANCIS: Yes, indeed. 9 TREASURER GALLAGHER: Let -- let me just 10 add one other thing to that. 11 If you had your own mutual fund that was in 12 there, and it was starting not to perform 13 right, it's going to send you an e-mail about 14 that, too. 15 DR. FRANCIS: Indeed. If you've -- 16 TREASURER GALLAGHER: So it's going to be 17 any investment you have that it -- 18 COMPTROLLER MILLIGAN: Yeah. I -- well, 19 I -- I -- I wanted to clarify particularly if 20 there were bundled providers -- 21 TREASURER GALLAGHER: Well, remember now, 22 we're -- most everybody has -- and I guess 23 we're going to have to make a decision here. 24 But what pretty much everybody's done at 25 this point -- and we haven't finalized it one ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 44 2 But I know the State Board of 3 Administration staff and the Advisory Board has 4 basically said, no -- no longer are they really 5 bundled in the manner that they are the 6 recordkeepers. Pretty much the recordkeeping 7 by the bundled providers has been removed -- 8 COMPTROLLER MILLIGAN: Well, I understand 9 that. 10 TREASURER GALLAGHER: Okay. So with that, 11 then -- 12 COMPTROLLER MILLIGAN: Well, I -- I just 13 wanted to clarify. You know, there's a lot of 14 legal ramifications here of telling someone who 15 has invested in Bundle Provider A, that A has 16 got you in a bad product, and you ought to 17 change. 18 TREASURER GALLAGHER: Well, I don't think 19 it's going to do that. It's just going to say 20 that it's performing lower than other options 21 that you would have. 22 COMPTROLLER MILLIGAN: Well, any way you 23 want to couch it. 24 MR. HERNDON: Well, and let me make -- let 25 me make one other comment with respect to -- to ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 45 2 We committed, and -- and it is built into 3 our policy document that guides this plan, that 4 on an annual basis, we will evaluate -- 5 stepping back from an individual member point 6 of view, but on an annual basis, we will look 7 at the performance of products in the 8 aggregate, and make sure that they are not only 9 performing up to expectations, but they're 10 performing in a manner that is consistent with 11 the basis for which -- 12 COMPTROLLER MILLIGAN: Okay. And that 13 includes if there were bundled providers. 14 MR. HERNDON: Absolutely. 15 COMPTROLLER MILLIGAN: And -- 16 MR. HERNDON: Absolutely. 17 COMPTROLLER MILLIGAN: -- and then what 18 action could you take, if you had bundled 19 providers, and they weren't performing at a -- 20 at a specific -- or a considered level? 21 MR. HERNDON: Well, there's the rub. As 22 you -- as I suspect you're very well aware. 23 COMPTROLLER MILLIGAN: That's what I'm 24 trying to get to -- 25 MR. HERNDON: Right. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 46 2 MR. HERNDON: You have some limited choices 3 in that respect. 4 And Commissioner Gallagher's probably 5 experienced this through the deferred 6 compensation program, because it's a somewhat 7 similar phenomenon. 8 You can cap that product at that point, 9 stop it from future enrollment, you can attempt 10 to jawbone folks out of it and into a similar 11 product if you -- if you can do that. 12 We're not at all sure -- and I don't know 13 what Commissioner Gallagher's experience has 14 been, but we're not at all sure that you can 15 forcibly remove people from some of these 16 products once they're in them, even if they are 17 presented with the evidence that it's not the 18 best -- in their best interest. 19 But we certainly will make all of those 20 efforts -- 21 COMPTROLLER MILLIGAN: But it is largely 22 jawboning. 23 MR. HERNDON: To a degree it's jawboning. 24 Now, you can prevent future enrollment -- 25 COMPTROLLER MILLIGAN: Yes. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 47 2 is one of the first things that you would do. 3 But you may not be in a position to enforce 4 that -- that dictum ultimately. 5 GOVERNOR BUSH: Can we -- can we have a 6 pause just -- 7 I'm sorry. Go ahead. 8 COMPTROLLER MILLIGAN: Well, how about in 9 things like fees and controlling costs, what 10 amount -- I know what you can do on the 11 institutional side. 12 What can you do on the bundled side, if 13 there were bundled providers? 14 MR. HERNDON: Well, we will do our utmost 15 in the course of the contract negotiations; and 16 not only in the course of ultimately the 17 contract negotiations, if there are any, but 18 also in the negotiations that have taken place, 19 and will likely take place, to get fees down 20 as -- as far as we can, and as reasonable for 21 the -- 22 COMPTROLLER MILLIGAN: Well, again -- 23 MR. HERNDON: -- the services we -- 24 COMPTROLLER MILLIGAN: -- I'm not talking 25 about what you might do in any further ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 48 2 But I'm talking about two years from now. 3 MR. HERNDON: Right. 4 Well, it would be our hope that we'd build 5 into the contract, to the extent that there is 6 flexibility in the product offering itself, 7 break points for lowering costs as dollar 8 volume increases, and those kinds of things, as 9 costs are reduced by virtue of most favored 10 nation clauses, and those kinds of things, that 11 we benefit from all of those opportunities as 12 well. 13 So we'll do our utmost to build all of 14 those safeguards in. But I'm not -- 15 COMPTROLLER MILLIGAN: Well, those -- 16 MR. HERNDON: -- sure if that's exactly -- 17 COMPTROLLER MILLIGAN: -- yeah. Well, 18 you're gett-- you're kind of getting at my 19 concern. 20 We haven't really in -- in terms of your 21 negotiations thus far with the series of 22 bundled providers that have been involved, you 23 haven't really gotten down into some of those 24 discussions at least to the extent where -- 25 MR. HERNDON: That's correct. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 49 2 been made. 3 And it would appear to me that if we were 4 to choose to go forward and -- and do some 5 additional negotiations, which is kind of your 6 Part II recommendation, that it ought to be 7 clear that we are -- really need to look hard 8 at how we control costs, how we handle low 9 performance in terms of products within the 10 bundled provider, as well as performance 11 overall by a bundled provider, and how you -- 12 you can them, if you have to can them, besides 13 jawboning. 14 That we ought to drive, I think, a very 15 hard bargain in terms of the clout that we 16 would have, as similar to the clout that we 17 would have over the institutional products. 18 And that we ought to drive an extremely hard 19 bargain. 20 And that would -- 21 MR. HERNDON: No, you're absolutely right. 22 COMPTROLLER MILLIGAN: -- comment. 23 MR. HERNDON: And -- and, in fact, one of 24 the -- one of the concepts that we are 25 contemplating employing, and I'm sure the -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 50 2 is coming, is stacking fees so that if the 3 DB plan and the DC plan both happen to use the 4 same vendor, for example, then we want to take 5 advantage of the cumulative price break that's 6 available to us -- 7 COMPTROLLER MILLIGAN: Sure. 8 MR. HERNDON: -- by virtue of both of them 9 using that -- that fee. 10 And so -- 11 GOVERNOR BUSH: Tom, can we pause here just 12 for a second -- 13 MR. HERNDON: I'm sorry. 14 GOVERNOR BUSH: -- to recognize a group of 15 young men and women from the -- the 16 Youth Challenge, the Florida National Guard 17 program. 18 They're -- they're visiting us, I guess 19 from Camp Blanding; is that right? 20 MEMBER OF THE AUDIENCE: Yes, sir. 21 GOVERNOR BUSH: We're delighted to have you 22 here. And you're future State employees, so 23 you may want to sit and listen about the 24 options that you'll have. 25 Future leaders of our state, and we're ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 51 2 Welcome. 3 (Applause.) 4 GOVERNOR BUSH: This is a -- this is the 5 exciting Florida Cabinet. It's the -- 6 TREASURER GALLAGHER: Oh, yes. 7 GOVERNOR BUSH: -- State Board of 8 Administration part of it. 9 TREASURER GALLAGHER: Sure, it is. 10 That's why they make it only three people 11 have to be here. 12 MR. HERNDON: Well, I'm not going to go 13 into this particular portion of the 14 presentation a great deal further. 15 Again, I would just encourage you -- 16 GOVERNOR BUSH: That's an -- 17 MR. HERNDON: -- to take -- 18 GOVERNOR BUSH: -- exciting chart. 19 MR. HERNDON: -- go to the -- go to the 20 website. 21 This one, I apologize, is -- is also 22 difficult to read. But I did want to at least 23 give you this information. I'm not going to go 24 into it at all. 25 But there was a concern about how ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 52 2 unbundled version versus the three firms that 3 provided it on a bundled basis, which would be 4 Fidelity, VALIC, and TIAA-CREF. 5 And so we simply tried to give you a little 6 synopsis of the key factors that -- that 7 entered into at least part of the 8 recommendation, not the least of which is cost. 9 And I understand that TIAA-CREF has pointed 10 out to us a -- a correction that we have made 11 to this. It does not affect the bottom line of 12 this chart, but it does affect the way 13 something was labeled. 14 And I want to make sure that that's on the 15 record. 16 TREASURER GALLAGHER: And that was? 17 MR. HERNDON: It was just the way we were 18 characterizing an administrative and services 19 fee. It doesn't -- as I say, it doesn't affect 20 the -- 21 TREASURER GALLAGHER: Yeah. 22 MR. HERNDON: -- the bottom line. 23 The -- the next chart that I want to just 24 briefly touch on is, again, to give you a 25 sense -- there's been a lot of questions about ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 53 2 you're very sensitive to the fact that you've 3 got an ongoing program education component, and 4 that this huge movement through the system of 5 all 600,000 employees that are -- that are 6 benefiting from this education. 7 And so this table is simply to -- there to 8 try and give you a sense of the costs 9 associated with the services that are being 10 provided, and how they're being billed. 11 They're either on a flat fee, on a fee for 12 service basis, on a usage basis, and so forth. 13 So this takes some of the major program 14 components, and simply kind of ticks them off, 15 and says, here's the fees that we're paying to 16 the respective vendors, and here's how they're 17 being billed out, and comes up with the -- with 18 the total package. 19 And -- and that's really all I'm going to 20 say about it, except just to commend that to 21 you for -- for future reference. 22 GOVERNOR BUSH: Tom, one of the things 23 that -- that I've been frustrated with as it 24 relates to technology projects -- a lot of this 25 is technology based -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 54 2 GOVERNOR BUSH: -- is that we don't -- 3 and -- and a lot of the vendors here are the 4 same vendors in other parts of government. 5 There's a group of maybe ten really good, 6 competent consulting technology firms, and we 7 keep buying stuff off the rack. 8 And then another state will probably follow 9 our lead on this, and they'll -- they'll -- the 10 same vendors will go to them, and -- and buy 11 that off the rack again. And we -- these 12 comp -- I think there's, like, a reconstruction 13 every time of a -- of a -- of a service that 14 basically would apply in California, or around 15 the world as it applies here. 16 Has there been any thought of -- of sharing 17 the -- the benefits of -- if we're the first -- 18 and we're not the first to do this -- but as a 19 state perhaps we might be the -- the largest, 20 has there been any thought about benefitting 21 from this going forward so that we can lower 22 some of those costs? 23 Because they're pretty extraordinary. 24 TREASURER GALLAGHER: Especially Ketchum. 25 MR. HERNDON: Yes, sir, Governor. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 55 2 information is in the public domain that is 3 available for us to provide to other interested 4 parties, other states, and other jurisdictions. 5 Some of it is proprietary based on the 6 specific financial modeling and so on and 7 so forth that -- that companies have. 8 And we've tried in each one of our 9 contracts to give us as much flexibility as we 10 can to take advantage of -- of benefits like 11 you're describing. 12 It isn't always feasible. There are some 13 propriety elements here that are protected. 14 But an awful lot of the information is 15 available, an awful lot of the technology's 16 available, and can be exported if -- if there 17 are other interests. 18 And we -- we do get contacted from time to 19 time by other parties, and -- and we're happy 20 to provide them with that information -- 21 GOVERNOR BUSH: But you -- you haven't 22 ventured with any of our vendors -- 23 MR. HERNDON: We have not made a specific 24 venture arrangement, no, sir. 25 TREASURER GALLAGHER: Well, what I'm ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 56 2 they're going to do a web system Enter-- 3 infrastructure development, hardware, software, 4 maintenance and repairs. And management fees, 5 and the single sign on, directory service, and 6 everything. We're paying four million bucks 7 for this, and they're designing it for us. 8 Do we have some kind of ownership of that, 9 and other people can use it, and we get a fee? 10 I think that's where the Governor was 11 coming from. 12 MR. HERNDON: We have ownership of it. I 13 don't know how much utility there is for other 14 folks to use it. But we have ownership of much 15 of this program, not -- not all of it. 16 And, again, I want to -- I want to stress 17 that not all of it is owned by -- by us, or at 18 least it's -- it's co-owned, if that's a fairer 19 way to -- to phrase it. And we can remarket 20 some of it if -- if that's of interest at some 21 future date. 22 TREASURER GALLAGHER: Well, let's say 23 Ketchum, you know, because of their doing it 24 here, gets a contract to do it somewhere 25 else -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 57 2 TREASURER GALLAGHER: -- and obviously they 3 take what they designed for us -- 4 MR. HERNDON: Right. 5 TREASURER GALLAGHER: -- and going to tweak 6 it a little bit -- I mean, they get to charge 7 the next guy four million bucks. 8 Well, you know, I think we covered the 9 first of it. That's where I'm coming from. 10 MR. HERNDON: I understand. 11 And I don't know the specifics as it 12 relates to the Ketchum contract. I mean, if 13 you -- we can -- we can get into that at a 14 later time if you like, and we'll come back and 15 visit with you if that would be convenient, and 16 talk about some of those contracts 17 specifically. 18 GOVERNOR BUSH: I'd be interested, 19 because -- 20 MR. HERNDON: Okay. 21 GOVERNOR BUSH: -- this is a common problem 22 that -- that we face across-the-board. 23 I mean, we are -- we're -- we're spending 24 hundreds of millions of dollars on really state 25 of the art technology to provide a -- a needed ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 58 2 And then we -- we haven't -- normally we 3 haven't thought through the -- the end -- the 4 end game, which is that there's a benefit if 5 we're first or second of -- of selling this to 6 other people. 7 I guarantee you that Ketchum's going to go 8 around letting the world know that the fourth 9 largest pension fund in -- the eighth largest 10 in the world, or fourth largest in the country 11 is -- is doing this. 12 And -- and if we haven't -- if -- if the 13 vendor venture arrangement hasn't been -- been 14 excluded, because we're too far along, I would 15 encourage you looking at all this stuff. 16 TREASURER GALLAGHER: Okay. 17 MR. HERNDON: We'll do that, and we'll come 18 back and -- and talk about that with you 19 further. 20 GOVERNOR BUSH: Okay. 21 TREASURER GALLAGHER: Governor, I'd like to 22 sort of set little parameters here. 23 I just want my other two colleagues, and 24 the -- those in the audience to know that it is 25 my intention to recommend at this point, unless ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 59 2 ahead with the five vendors for continuing to 3 negotiate with the staff of the State Board. 4 And obviously we're interested in, 5 you know, what the fees are going to be, and -- 6 and what the carry's going to be, and certain 7 funds that are in some way duplicated that 8 would be not duplicated. 9 And so just to set the parameters of what 10 I'm planning on doing so that maybe that will 11 keep some people from having to talk. And -- 12 and it might add other people that want to 13 talk. I don't know. 14 But just -- that's -- just so that maybe 15 we'll get it in some kind of a -- there may be 16 something that somebody's going to say that's 17 going to make a huge change in my thoughts at 18 this point. But I will be surprised. 19 GOVERNOR BUSH: General? 20 COMPTROLLER MILLIGAN: I -- I would just 21 like to know exactly what is meant by 22 "extensive negotiations." 23 I'd like to know what the intent of the 24 negotiations are. I'd like to know what the 25 objective of the negotiations are before I buy ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 60 2 I don't think it should just be who can 3 bring me the lowest fees. As I tried to get to 4 a little while ago, there ought to be some 5 clarification of -- as to how we can control 6 and -- and otherwise have the clout necessary 7 to protect the members of the FRS. 8 And there are probably a lot of other 9 things that ought to be considered in 10 negotiations, including some of the, quote, 11 unquote, value-added things that may be brought 12 forward by a particular vendor. 13 So I -- I'd just like to have negot-- 14 extensive negotiations defined in some way. 15 TREASURER GALLAGHER: Well, I wasn't 16 looking to contract them by any means. I -- as 17 far as I'm concerned, I think it -- 18 COMPTROLLER MILLIGAN: Well, I -- I -- 19 TREASURER GALLAGHER: -- anything -- any 20 opening you want to add, add it. I -- 21 COMPTROLLER MILLIGAN: Well, I wasn't 22 suggesting that you were, Tom. 23 I'm just suggesting that I think it's 24 important that we -- they -- the vendors that 25 we're going to deal with, and the SBA, know ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 61 2 GOVERNOR BUSH: That's -- 3 COMPTROLLER MILLIGAN: -- is all I'm trying 4 to get at. 5 GOVERNOR BUSH: You -- I think that's an 6 important tool, because -- I mean, an important 7 thing to -- to discuss. 8 I think the bundled providers would like a 9 little -- little guidance given to the SBA as 10 well as it relates to negotiation, so that -- 11 so that there's some clarity on both sides. 12 And I think that's more than fair to -- 13 in fact, it ought to be part of the res-- a 14 resolution that we -- we craft here right now. 15 I mean, I'm -- I concur with 16 Commissioner Gallagher's comment, although it 17 wasn't in a res-- it wasn't in a resolution 18 form. If it was, I would second -- 19 TREASURER GALLAGHER: Well -- 20 GOVERNOR BUSH: -- it. 21 TREASURER GALLAGHER: -- it wasn't in a -- 22 in a motion yet. But that's what I plan on 23 doing. And I guess, if it'll make people 24 happy, Fidelity, VALIC, ING Aetna, Nationwide, 25 and Prudential is who I'm talking about. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 62 2 GOVERNOR BUSH: Those are the -- the -- the 3 recommendations -- 4 TREASURER GALLAGHER: -- five that have 5 been -- 6 GOVERNOR BUSH: -- from PEORP and IA-- the 7 IAC, right? 8 TREASURER GALLAGHER: That's correct. 9 Now, that passed through that committee on 10 a 10 to 2 vote. 11 I want to -- okay. I guess we'll go ahead. 12 I -- I won't add to that right now. 13 MR. HERNDON: Well, Governor, if it -- if 14 it would be helpful, perhaps in responding 15 briefly to the General's comments, and we can 16 kind of skip over the staff recommendations. 17 I mean, I -- I -- you're all familiar with 18 them, and -- 19 TREASURER GALLAGHER: We did skip over 20 them. That's why I made it -- 21 MR. HERNDON: I -- 22 TREASURER GALLAGHER: -- when I did. 23 MR. HERNDON: I -- I understand. 24 TREASURER GALLAGHER: I figured that'd max 25 some of the time. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 63 2 opportunity. But I -- I understand the 3 message. 4 Essentially, what -- what we focused on in 5 this endeavor, and would be the focus of any 6 further negotiations are -- are five 7 ingredients. 8 And I -- I -- I say these five ingredients, 9 not intending to leave anything out 10 necessarily, but in the interest of just kind 11 of simplifying the conversation. 12 And -- and they are: Investment 13 performance, the quality of the investment 14 products themselves. And I -- when I'm 15 thinking about quality, I'm talking about high 16 degrees of confidence in consistent 17 performance, preferably outperformance of a 18 benchmark that -- that is chosen. 19 Secondly is the fees or costs associated 20 with providing the -- the program. There 21 obviously we want as low a cost as we can 22 reasonably expect to get for the products. 23 We're not trying to drive people into 24 bankruptcy, but we know pretty well what the 25 costs of various product offerings are with a ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 64 2 The third is a very solid educational 3 program that is complimentary -- I want to 4 stress that -- that word of the PEORP program 5 and its education program. 6 And where possible, we can break out 7 education elements that vendors propose to 8 offer on a fee for service basis so we can 9 compare apples to apples, and we can make some 10 recent decisions about Provider A can provide 11 this kind of high touch service; and Provider B 12 can, we can see how much they would charge. 13 Fourth is recordkeeping synchronization. 14 Now, for the most part -- 15 TREASURER GALLAGHER: I thought that 16 both -- didn't you recommend not having that, 17 and then the -- the Advisory Board recommended 18 not having that? 19 MR. HERNDON: Yes, sir. But -- but 20 there -- I'm not -- I'm not talking here about 21 providing recordkeeping. I'm talking here 22 about synchronizing with our recordkeeper. 23 And there are two or three things that we 24 have concerns about. All of the vendors have 25 indicated to us that they can comply -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 65 2 accounts. It's critical in this kind of thing. 3 They have to be able to meet the time 4 tables that we have to get that pricing 5 information to the recordkeeper. So there are 6 some boilerplate concerns that we have from 7 each vendor, that we want to hear them say we 8 can meet in a very clear form. 9 Now, we don't, frankly, expect that any of 10 the firms will -- will have a problem by these. 11 We -- we just want to hear it restated. 12 And then, finally, there -- there are -- 13 and, again, this is kind of a broad category, 14 but there are some transition issues we've 15 talked about in the past. Some firms have the 16 capability to accept in-kind transfers of stock 17 portfolios, for example, from us. That just 18 lowers the cost of the program overall to 19 everybody. 20 So those are the five global kind of 21 ingredients in -- in the negotiation. 22 Now, what we did -- and I appreciate that 23 this is somewhat presumptuous on our part. But 24 we e-mailed out to all of the vendors on Friday 25 afternoon -- this past Friday afternoon, a list ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 66 2 that Commissioner Gallagher just highlighted, 3 some concerns with respect to their specific 4 products. And asked them to be prepared to 5 talk about those in specific terms. 6 And we, in fact, did as 7 Commissioner Gallagher highlighted as well, 8 also highlighted some areas where there are 9 some duplicate products. For example, we've 10 got divergent costs, and -- and so forth. 11 We've also tried to be very mindful of 12 coming up with a good diversified line-up of 13 investment options. 14 And so those are the broad categories. 15 It's our expectation that with the information 16 we provided to the firms last Friday, if the 17 Trustees ultimately do decide to go forward 18 along these lines, that they understand our 19 concerns. 20 We've had a couple of requests for 21 clarification. Nothing major. We've responded 22 to those. 23 We would expect to start those negotiations 24 this afternoon. We would run through this 25 week, being mindful of the Thanksgiving ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 67 2 last chance. 3 Obviously when we get to actually 4 negotiating a contract, if one is called for, 5 you have to reduce all of that to a much more 6 excruciating form of written report. 7 But -- but that's by-in-large the -- the 8 thrust of the -- 9 GOVERNOR BUSH: Tom. 10 MR. HERNDON: -- negotiations. 11 GOVERNOR BUSH: What about the General's 12 concern about customer protection? 13 I'm not sure what -- how you called it. 14 But the -- the ongoing issues of -- of -- 15 that were -- that he brought up. Couldn't that 16 be another element of this -- I don't think he 17 described it in those five -- 18 MR. HERNDON: Well, absolutely. When I 19 talked about fees and costs, I'm -- I'm 20 including that in that category. And I 21 apologize if I'm not being more -- 22 GOVERNOR BUSH: Well -- 23 MR. HERNDON: -- explicit -- 24 TREASURER GALLAGHER: -- well, I think 25 you're talking about in quality. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 68 2 TREASURER GALLAGHER: In other words, their 3 quality area is -- we know their quality today. 4 But managers change. 5 MR. HERNDON: Right. 6 TREASURER GALLAGHER: And we've had that -- 7 MR. HERNDON: Right. 8 TREASURER GALLAGHER: -- in our deferred 9 comp, and we've had to get -- you know, get rid 10 of a -- a mutual fund because it lost a good 11 manager they had, and it started to slip in 12 performance. 13 And it needs to -- at that point, needs to 14 come off the table. 15 MR. HERNDON: Right. 16 TREASURER GALLAGHER: And then -- and what 17 we do, as the General said, we inform people 18 that we no longer allow people to put money in 19 it, and we recommend they might want to move to 20 somewhere else. 21 And we -- it's hard to make them, although 22 a couple of them, I see them getting hurt so 23 much, I'd feel like just closing it down, and 24 moving it for them. 25 And I -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 69 2 TREASURER GALLAGHER: -- we may or may not 3 have the legal authority to do that. But 4 the -- 5 COMPTROLLER MILLIGAN: Well, that -- 6 TREASURER GALLAGHER: -- issue should be 7 gone over. 8 COMPTROLLER MILLIGAN: And -- and that's 9 what I'm concerned about now. I think we ought 10 to build through -- 11 TREASURER GALLAGHER: That's right. 12 COMPTROLLER MILLIGAN: -- these 13 negotiations the legal clout, whatever you -- 14 however you want to describe it, that enables 15 us to effectively fly high cover for the 16 employees that are investing in bundled 17 providers. 18 MR. HERNDON: Yes, sir. 19 I completely agree with you -- 20 COMPTROLLER MILLIGAN: Whatever that means. 21 And it means a lot to me that you are going to 22 build in a tremendous amount of protection. 23 And that means that these bundled providers 24 have got to come forward and negotiate to that 25 end. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 70 2 TREASURER GALLAGHER: Well, what this also 3 means is that the employees need to know 4 that -- I mean, it -- it really looks like how 5 big a parents do we want to be in this. And -- 6 GOVERNOR BUSH: Yes. 7 TREASURER GALLAGHER: -- that's -- that's 8 sort of the -- part of the problem in -- in 9 this. And that is -- 10 COMPTROLLER MILLIGAN: It -- it isn't a 11 question of how big we want to be, but if we 12 want to be big, we ought to have the capacity 13 to do it. 14 I'm not suggesting anything other than we 15 build into right now the ability to do whatever 16 we need to do. And I don't know what that is. 17 TREASURER GALLAGHER: Well, I mean, I can 18 tell you, there's -- 19 COMPTROLLER MILLIGAN: -- protection for 20 members of the FRS. 21 TREASURER GALLAGHER: There is -- there is 22 something that should be built in, and that is 23 that we -- that we don't have -- or it's 24 questionable if we have in the deferred comp 25 plan. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 71 2 nonperformer, in other words, it just doesn't 3 perform any more, because of whatever reason -- 4 usually it's management problems -- that you 5 can take -- that the people know that you can 6 take their money from that -- and it's got to 7 be a bad -- I mean, there's got to be some 8 criteria there. You just don't want to move 9 people's money around, that -- you know, give 10 them a choice to move it, and if they don't 11 move it to wherever they want, then somehow or 12 another -- 13 GOVERNOR BUSH: I -- 14 TREASURER GALLAGHER: -- we're in a 15 fiduciary responsibility to move it. 16 COMPTROLLER MILLIGAN: I'm not going to try 17 to describe all those details. I -- I just 18 want to make sure that we have the capacity. 19 I think everybody understands that. 20 MR. HERNDON: It -- 21 COMPTROLLER MILLIGAN: And also would like 22 to just add one other thing, Governor, if I 23 may. 24 That is, I -- I recognize in the education 25 piece here, you talk about the complementary, ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 72 2 particular bundled provider that really adds 3 some value to what they are providing. There 4 are probably a bunch of other complementary 5 things. 6 And I just would be -- I would ask you to, 7 you know, consider other things that some of 8 these bundled providers may bring if -- to the 9 table in a complementary sense. 10 MR. HERNDON: Yes, sir. 11 If I might add, Governor, and I 12 apologize -- it -- just make this one comment, 13 because it may be helpful. 14 Any recommendation that we were to bring 15 back to you postnegotiation would be couched in 16 the subject to successful negotiation of a 17 contract. 18 So it would be that we would recommend A, 19 B, or C, or none of the above. But all of that 20 would be subject to negotiating a contract on 21 terms that we find agreeable to us. 22 So -- 23 GOVERNOR BUSH: As we try to set the tone 24 for these negotiations, I'm not sure how we do 25 this in a motion form. ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 73 2 plan, there's an underlying premise that people 3 are empowered to make choices for themselves as 4 well. 5 And we could -- you could attempt to create 6 a -- a negotiation climate that basically says, 7 benefits of defined -- you know, the defined 8 benefit program, we're just going to impose it 9 on defined contribution. 10 It's a totally different philosophy that's 11 underneath this. And -- and I hope that we 12 don't lose sight of that. 13 The -- the people that are risk -- certain 14 people, because of the longevity of service, 15 clearly are not going to opt into this. There 16 are other people that maybe, because of 17 their -- when -- in that initial education 18 phase will stay in the defined benefit plan. 19 But there are others that have the 20 capability of making decisions for themselves 21 with proper advice. 22 And I think our focus ought to be, 23 negotiate the best price, make sure that there 24 is compatibility in the education so that 25 there's not some inconsistency that -- that ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 74 2 MR. HERNDON: Right. 3 GOVERNOR BUSH: -- for the people that 4 are -- we've empowered to make choices for 5 themselves, make sure that there are the legal 6 protections that the General has brought up 7 going forward. And that, you know, the best 8 way to do this is up front. 9 But in the context of -- of the defined 10 contribution plan, not the defined benefit 11 plan. 12 And -- and then this investment performance 13 issue needs to be discussed. And I think today 14 is the day to do it. Because there seems to be 15 a lot of confusion about how you measure 16 performance. 17 And -- and perhaps we should air that out, 18 and -- and then maybe move forward to finish 19 this today at least. 20 MR. HERNDON: We'll be happy to do that. 21 I -- I think it might be worthwhile, 22 Governor, and -- and members, if -- if you're 23 agreeable. The Chairs of the Investment 24 Advisory Council, Ms. Grant, who's 25 Comptroller Milligan's appointee; and ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 75 2 case, the Advisory Council for PEORP. 3 And I think they may wish to have a couple 4 of words, and then we can move to -- 5 GOVERNOR BUSH: Great. 6 MR. HERNDON: -- the speakers. 7 I think there's probably a shorter list 8 than there was a few minutes ago -- 9 TREASURER GALLAGHER: Good. 10 MR. HERNDON: -- and -- and go -- get back 11 to -- to the program. 12 TREASURER GALLAGHER: Before you do, Tom -- 13 MR. HERNDON: Yes, sir. 14 TREASURER GALLAGHER: -- there -- there was 15 a tie vote, which sort of ends up a loser, in 16 regards to at least -- let's look at 17 SunAmerica, which now has been merged through 18 acquisitions by AIG, so that it's a sister 19 company of VALIC. 20 We've taken a pretty strong stand not to 21 have not an annuity program in this Tier IV. 22 Is that what I remember? 23 MR. HERNDON: Thus far. 24 TREASURER GALLAGHER: Thus far. 25 Would you sort of give me staff's opinion ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 76 2 SunAmerica's going to give us their opinion on 3 it -- just so we can have yours now, and listen 4 to theirs later? 5 Because I -- I left that out on purpose 6 because of the desire not to have an annuity 7 accumulation, because the problems really that 8 we had in it with defined contribution. 9 Many of the product bundled providers have 10 removed annuity accumulation from their 11 retirement plan. 12 So if you'll give us just a touch on that. 13 MR. HERNDON: And this is a -- a com-- a 14 composite of the consultants that worked with 15 us, Mercer, and Dr. Milevsky from Canada, 16 and -- and our own staff's review. 17 Essentially there were two vendors who 18 recommended or proposed annuity style products. 19 We looked at both of the products fairly 20 extensively, had a separate set of analyses and 21 so forth that -- that took place on those. 22 And ultimately concluded that from the 23 standpoint of the costs associated with the 24 annuity, the liquidity problems that existed, 25 and the returns that were available for the ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 77 2 there wasn't sufficient merit to recommend any 3 of those vendors. 4 There is no question that there are 5 circumstances under which an annuity product is 6 useful. In our belief and recommendation, we 7 felt that it was much clearer -- a case could 8 be made on the next -- 9 TREASURER GALLAGHER: On the retirement -- 10 MR. HERNDON: -- process as you distribute 11 the products, when you annuitize your earnings 12 and distribute it, as opposed to on the 13 accumulation phase, tend to be very high costs 14 associated with the accumulation phase -- 15 TREASURER GALLAGHER: Right. 16 MR. HERNDON: -- there are liquidity 17 problems, and so on and so forth. 18 That's -- that's it in a nutshell. 19 TREASURER GALLAGHER: Let me just ask you 20 this -- this is going to make it real easy for 21 you. 22 Both -- both products that you looked at 23 carried a penalty for moving your money from 24 there to somewhere else? 25 MR. HERNDON: As I recall -- ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 78 2 MR. HERNDON: No. As I recall, one did 3 not. Or at least one was striving to eliminate 4 virtually all of the associated liquidity kind 5 of -- 6 GOVERNOR BUSH: That would be -- 7 MR. HERNDON: -- products. 8 GOVERNOR BUSH: -- the Sun? 9 MR. HERNDON: That was Sun. Yes. 10 TREASURER GALLAGHER: Okay. Well, we'll -- 11 so they don't have any penalty for moving out 12 of it. 13 MR. HERNDON: As best I can recollect, 14 that's the case. I -- 15 TREASURER GALLAGHER: Well, I'm sure 16 they're going to -- 17 MR. HERNDON: -- Dr. Francis. But they 18 may -- and they'll, I'm sure, clarify that for 19 us as well. 20 So -- 21 GOVERNOR BUSH: I'm sure they will. 22 MR. HERNDON: Yes. Ms. Cariseo, Ms. Grant. 23 GOVERNOR BUSH: Welcome. 24 TREASURER GALLAGHER: And thank you for 25 your hard work, unpaid. If you went through ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 79 2 that you've had, all of you, and the rest of 3 the Advisory, too, we thank you very much. 4 Because I know it was a tremendous -- 5 GOVERNOR BUSH: Absolutely. 6 TREASURER GALLAGHER: -- amount of work and 7 dedication that you did. 8 And I want to personally thank you. 9 MS. GRANT: Thank you. We appreciate that. 10 Good morning, Governor Bush, 11 General Milligan, and Commissioner Gallagher. 12 I was asked to speak to you today to present 13 the views of the members of the Investment 14 Advisory Council, which I Chair. 15 Last Thursday, both the Advisory Councils 16 were asked to consider the inclusion of bundled 17 providers in the program. 18 I've been a member of the IAC since 1998, 19 and have never before seen an issue exude such 20 passion from the members and the vendor 21 community. 22 TREASURER GALLAGHER: It's called money. 23 Not passion. Money. 24 MS. GRANT: When it comes to politics, I am 25 a neophyte. So a lot of this -- and all of ACCURATE STENOTYPE REPORTERS, INC. STATE BOARD OF ADMINISTRATION 80< | |||||||||||
