1. NYS Deferred Compensation
2. New York State Deferred Compensation
3. First Major Change in Years

NYS Deferred Compensation

NYS deferred compensation represents a new investment plan throughout the state of New York. It contains many aspects for a wide range of funds and investments.

New York State Deferred Compensation

The state of New York is working on overhauling a wide range of investment options in its New York State Deferred Compensation Plan, reported to be worth $19.4 billion. The governing board of this approved change, which should lead to many investment options being replaced either for performance reasons, a desire to consolidate options, the need to replace a few investments to make room for cheaper products, or renewing several investments that had lower prices negotiated for them. The board issued RFPs covering all of their asset categories in the plan's mutual fund lineup which was valued at roughly $12.1 billion. They unanimously voted to approve the changes with dominant themes of reducing expenses and improving performance.

Every new contract will last eight years. There will be two single-year extensions possible. Executives of the plan have not decided on a date to start these new investments or any dates for the termination of the other investments. Contracts for any existing investments which are covered by the vote of the board expired March 31, 2017. Nationwide Retirement Solutions is designated as the keeper of the records. They renewed their contract in April and is planned to run for seven years. The lineup changes are not related to Nationwide. The board voted in favor of replacing three of the small-cap equity funds and one large-cap equity growth fund due to performance reasons.

When it comes to small-cap funds, the Federated Clover Small Value Fund and Wells Fargo Small Cap Value Fund which total $296 million in current plan assets, are to be replaced by the Delaware Small Cap Value Fund, which is managed by Delaware Investments. The T. Rowe Price QM Small Cap Growth Fund will replace the Columbia Acorn USA Fund, giving that fund a total of $249 million. As spokesmen on behalf of Wells Fargo Asset management, no comment was made by Columbia Threadneedle Investments or Principal Global Investors, those some parties did not respond to requests for comment.

The NYS Deferred Compensation Plan will now employ collective investment trusts, engineering a huge change in the investment lineup while seeking to reduce the overlap of asset allocation, cut costs, and remove managers with poor performance. The board is expected to replace several mutual funds based on performance and replace others with cheaper CITs while adding additional CITs. Many mutual funds will be converted to CITs which will be offered by the same manager, while the board will also renew many contracts for mutual fund managers. It is difficult to estimate the exact savings overall for participants.

First Major Change in Years

The NYS Plan revised the lineup of mutual funds most recently in 2008. However, the adjustments at that time were modest when compared with these new changes. The plan did not consider offering any CITs in the 2008 revision due to the fact that they were not nearly as common at the time.

CITs have surged in use recently, bolstered by lower fees and a greater flexibility with regards to investment management while offering simplicity with regards to plan management. This is based on the highly useful Pensions & Investments' database, record tracking money managers of defined contributions. CIT use reportedly achieved:

  • $1.58 trillion in total assets at the end of 2015 which can be compared to the $895.6 billion back in 2008.
  • 70.8 percent of DC plans that were offered one or more CIT in 2015, an increase from 60 percent in 2014 based on the annual surveys by Callan Associates Inc.
  • The rate had been reported to be 51.9 percent in 2013, 48.3 percent a year earlier in 2012 with 43.8 percent in 2011.
  • The Vanguard Group Inc. reports that CITs used to represent 20 percent of all assets for DC plans in 2015 with all clients versus just 6.7 percent back in 2010.

Ultimately, the plan is a huge win for the entire state of New York. It represents growth and modernization throughout the investment community of the state and will provide opportunities which were previously unavailable.

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