News: 2006 4th Quarter

The investment committee of the 401k plan of a large, publicly traded utility recently hired IFS to analyze and recommend enhancements to its investment procedures for evaluating the continued suitability of offering employer stock as an investment option. In addition to this baseline study of how the current procedures compare to "best practices," IFS will have an ongoing advisory role concerning the employer stock investment option.

The investment committee of this public company's 401k plan hired IFS on an ongoing basis to act as an independent fiduciary regarding employer stock in the plan. In that role, IFS is responsible for determining whether to continue offering employer stock as an investment option and for communications with participants regarding that stock.

The board of trustees of the employee benefit plans of this firm hired IFS to assist them in evaluating the plans' multi billion dollar 401k investment programs. The investment program is sophisticated, including a variety of "alternative investments" as options available to plan participants.

The Board of Trustees of the Ironworkers Local 25 Benefit Funds in Novi, MI (a suburb of Detroit) hired IFS as its ongoing investment consultant, to advise on a wide range of investment subjects including asset allocation, investment structure, investment manager search and risk controls.

The Fluor Corporation Master Retirement Trust includes defined benefit plans as well as defined contribution plans that Fluor sponsors and maintains. The Investment Committee of the Master Trust, on behalf of those defined benefit plans, retained IFS as an independent fiduciary and investment manager to determine whether and on what terms the DB Plans should acquire from the DC Plans their interest in a pool of private equity limited partnerships held within the Master Trust.

With the assistance of an outside valuation firm IFS selected and supervised, IFS determined a secondary market valuation for the pool of partnerships, and took responsibility for deciding whether the DB Plans should purchase the interest of the DC Plans in the partnerships. IFS decided in favor of the transaction and successfully completed the DB Plans' purchase at that price.

The Krispy Kreme Corporation Retirement Savings Plan and the Krispy Kreme Profit-Sharing Stock Ownership Plan retained IFS to determine whether to approve the settlement of an ERISA class action lawsuit brought against Krispy Kreme and various alleged plan fiduciaries, asserting breaches of fiduciary duty in the management of the Plans' investment in Krispy Kreme stock. The suit alleged that the fiduciary breaches caused damage to the plans' participants as a result of dramatic declines in value of the Krispy Kreme stock.

IFS determined that the settlement of the lawsuit for $4.75 million, plus certain changes in the plans' rules regarding participant investments in Krispy Kreme stock, satisfied the requirements of the Department of Labor's Prohibited Transaction Class Exemption 2003-39. That exemption sets forth the conditions for an ERISA-covered plan to release claims against parties in interest such as the plan's sponsor and fiduciaries.

Acting as independent fiduciary on behalf of defined benefit and defined contribution plans sponsored by Fortunoff, IFS has completed the sale of a 4-acre property in Long Island, New York to a national insurance company. The plans had acquired the property in 1993 from one of the Fortunoff companies sponsoring the plans, and leased the property, with its warehouse, back to the plans pursuant to a prohibited transaction exemption granted by the Department of Labor.

The sale of the property, at a price in excess of the most recent appraised valuation, marks the end of an assignment that began when the plans' trustee engaged IFS in 2003 to replace an independent fiduciary who had served since the plans purchased the property.

IFS' work began with investigating and resolving the plans' claims, as landlord, for prior, unpaid rent. We then negotiated an extension of the lease with the tenant, and supported a successful application for a new prohibited transaction exemption which the Department granted in 2006, retroactive to the date IFS became independent fiduciary.

After determining that it was in the plans' interest to sell the property, IFS engaged a brokerage firm to market the property on the plans' behalf and, with the assistance of the brokerage firm and outside counsel, negotiated a purchase and sale agreement and consummated the sale.

The Ohio Retirement Study Council (ORSC) retained IFS in 2005 to conduct fiduciary performance audits of STRS and OP&F (collectively, the Systems), two of the five statewide public pension funds in the state of Ohio, with assets of nearly $60 billion as of June 30, 2005 and $13 billion as of December 31, 2005, respectively. STRS manages approximately 77% of its assets internally while OP&F uses virtually 100% external investment management. The ORSC's purpose is to advise and inform the state legislature regarding benefits, funding, investment and operations of the five statewide retirement systems in Ohio, including STRS and OP&F.

IFS' final reports were delivered to the ORSC and the Systems in December 2006. The reports contained eighteen task areas divided into two parts: (A) Investment Issues and (B) Management Issues. Within section (A) were 13 task areas: The Investment Policy Statement; Portfolio Risk; Investment Performance; Investment Structure and Costs; Use of External Consultants: Asset Allocation; Brokerage Practices; Due Diligence Procedures; Statutory Provisions and Administrative Rules; Conflicts of Interest; Custodian; Internal Controls and Risk Management; and Investment Accounting. Section (B) included five task areas: Board Governance, Policies and Oversight; Organizational Structure and Resources; Ability to Attract and Retain Employees; Monitoring of Investments and Reporting; and Reporting to the ORSC.

IFS conducted a custom peer group survey of comparable public pension funds for each System. While IFS found that the two Systems were generally in line with best practices, especially in terms of their investment programs, IFS did make a number of recommendations, some of which have already been implemented. Notable among IFS' recommendations for both STRS and OP&F are those concerning legal restrictions on the Systems' current opportunity to select and contract with custodian bank(s)outside of Ohio. IFS also evaluated the impact of the recently passed Senate Bill 133-dealing with other aspects of in-state investing-- and how the Systems were implementing its requirements.

IFS was retained to perform an independent operational review of the Central Pennsylvania Teamsters Pension Fund and delivered its final First Report in December 2006. IFS' contract calls for us to prepare two additional Reports over the next three years to determine the degree to which the Board of Trustees has adopted and implemented the recommendations in the First Report.

IFS addressed the following subjects: Investment-Related Organizational Structure; Investment Policy; Asset Allocation; Retainer Consultant's Responsibilities; Investment Management Structure; Investment Performance; Investment Performance Reporting; Investment Performance Benchmarking; Due Diligence Procedures: Manager Search and Selection; Costs and Fees; and Actuarial Review. IFS found that the Fund's investment program is in line with best practices to a significant degree, although we do make a number of recommendations for enhancement.

In its Sept/October edition, the Journal of Benefits and Compensation published an article entitled "The Role of the Independent Fiduciary," authored by Skip Halpern, President of IFS.

The editorial in the November 27, edition of Pensions & Investments quoted our firm's President, Skip Halpern, regarding in-state investing by public pension funds.

Frank Lilly, CEO, spoke at the November meeting of the National Coordinating Committee for Multiemployer Plans regarding the impact of the Pension Protection Act on the investment programs of multiemployer plans, specifically, their asset allocation and particular investment strategies.

Steve Harding, SVP, spoke at the November professional development conference of APPFA, the Association of Public Pension Fund Auditors, to mark APPFA's 15th anniversary. Steve spoke on his observations on internal auditing in public funds, based on the past 15 years with NYSLERS from 1990-1999 and IFS from 1999 to present. Steve was APPFA's founding President from 1991 to 1994.

Jeanna Cullins, SVP and Managing Director spoke on a panel entitled "Navigating the Current Regulatory Environment." This concentrated on key challenges facing investment fiduciaries of public pension funds.