INVESTMENT SUBCOMMITTEE MEETING MINUTES

Comptroller's Office
Mark Ojakian
Thomas Woodruff
Margaret Haering

Matters Discussed:

Peggy Haering reviewed the performance of the investments in the State's defined contribution plans. Although the market gyrations of the past six months have negatively impacted virtually all asset classes, the plans' investment options have largely outperformed their benchmark indices. Peggy recommended that the investment subcommittee adopt an investment policy statement, which would set out the criteria for selection and monitoring of investment options. Tom Woodruff noted that investment policy statements had already been prepared for the 403(b) and 457 plans, and Mark Ojakian indicated that a similar document should be considered for the Alternate Retirement Program.

Brian Comer updated the committee on the recent events concerning ING's corporate parent, including the fact that the government of the Netherlands was guaranteeing up to 80% of the value of mortgage backed held by ING. He updated the committee on ING's most recent financial strength rating by the leading insurance company rating agencies. ING is rated very strong (AA) by Fitch and Standard & Poors, Good (AI) by Moody's and Superior (A+) by A.M. Best.

Brian next discussed market conditions and the crediting rate for the Stable Value Fund. The Stable Value fund's current crediting rate is 5.02%. ING recommends that the crediting rate be lowered in order to reflect credit market conditions. The Stable Value fund will be expecting inflows of $300,000,000 in July 2009, resulting from the liquidation of general account obligations from ING and The Hartford. If the State implements a retirement incentive program over the next few months, the Stable Value fund may need to keep some liquidity in order to respond to participant demands for rollovers or liquidation. The Stable Value Fund continues to experience large inflows of money, reflecting the fact that participants are allocating more of their current contributions to that option. ING has appointed Christine Hurtsellers as new manager for the Stabilizer contract assets. ING hopes to bring her in to meet the Commission.

Tony highlighted recent changes in composition of the Stable Value portfolio, including disposition of half of the non-agency MBS. Tony said that the remaining non-agency MBS in the portfolio are tranches that continue to pay principal and interest regularly.

Tony went over the crediting rate calculations for the second quarter of 2009. Applying the formula in the Stabilizer contract would result in a rate that is considerably below 5.02%. ING recommends a reduction in the crediting rate for the next quarter to 4.12%. Under the contract terms a new crediting rate will be calculated in July 2009, and it is likely to be lower at that point. ING believes that it would be prudent to reduce the crediting rate as of April 1st

After discussion among the members, Charlie Cassella moved to approve that recommendation. He was seconded by Bob Baus, and the subcommittee members voted in favor of the motion. The item will be placed on the agenda for the next Retirement Commission meeting for March 19, 2009.

The members also discussed the possibility of securing another wrap provider for the $300 million that will be coming into the Stable Value fund in July 2009. Committee members asked whether it might be possible to obtain payment of the remaining funds at The Hartford in advance of the July 2009 deadline. Peggy Haering will look into the matter and advise the committee of that possibility.

Charlie Cassella questioned ING representatives about the underlying securities in the Stable Value fund. Tony Campbell indicated that less than 2% of the fund's assets were invested in MBS involving Alt A, Sub-prime or Option ARMS and answered other questions about exposure to derivatives or CDO exposure.

Materials Reviewed:
ING Interest rate calculation for 2ndquarter of 2009
Stable Value Fund Renewal sheet
Historical Index and portfolio Yields
Stable Value Fund Review
ING performance updates for plan investment options as of 12/31/08 and 2/28/09.

Decisions voted upon:
The subcommittee will refer its recommendation to reduce the Stable Value crediting rate to 4.12% to the full commission.

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