Page 1 1 2 3 4 5 6 7 8 9 10 Meeting... · 14 SONIA KHANDEKAR: This is Sonia 15 Khandekar. 16 NATHAN...

123456789101112 Transcript of the April 6, 2020 Interim13 Public Meeting of the New York State14 Deferred Compensation Board1516171819202122232425

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David Feldman Worldwide800-642-1099 A Veritext Company www.veritext.com

1 DAVID FISCHER: Good morning.2 DAVID NATOLI: Morning, David.3 DIANA JONES RITTER: I’d like to bring4 this meeting of the Deferred Compensation Fund5 board to order. Do I have a second?6 BLAKE WASHINGTON: This is Blake7 Washington. I’ll second that.8 DIANA JONES RITTER: Thank you. The9 meeting is called to order.10 NATHAN GREENE: Thank you, Diana. A11 quick note for the record, this is a recorded12 meeting. As a recorded meeting, we intend to13 make a transcript available on the board website.14 Your participation in the meeting will indicate15 that you consented to the recording and the16 transcript and such other uses of the recording17 and the transcript as the board determines to be18 appropriate or required by law. Thank you,19 Diana.20 DIANA JONES RITTER: Thank you. This21 is Diana speaking. Is Dave Natoli on this call?22 DAVID NATOLI: Yes, I’m here.23 DIANA JONES RITTER: Oh, thank you --24 DAVID NATOLI: Present.25 DIANA JONES RITTER: -- Dave. Thank

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1 you. Since this is a recording, should we take -2 - Mr. Nathan, should we take attendance and have3 people say who’s on the call officially?4 NATHAN GREENE: That’s a good5 suggestion, Diana. Let me take a stab at6 starting that just based on the pictures. We7 have in attendance all of the board members, each8 already identified. I see three members of the9 staff on the line. I see David, Sharon, and10 James each in attendance. I know from Shearman &11 Sterling we have myself speaking, Nathan Greene.12 We have Anna Stillman, Gillian Moldowan, Desta13 Hailu. Anybody else from Shearman?14 SONIA KHANDEKAR: This is Sonia15 Khandekar.16 NATHAN GREENE: Thank you, Sonia. I17 see from GSAM we have Marie, John, Ronnie, and18 Dave. Are there other participants that aren’t19 visible on the screen? Nationwide?20 PATRICK RAY: From Nationwide --21 RIC WHETRO: Ric Whetro is here from22 Nationwide.23 PATRICK RAY: Pat Ray is here. Brenda24 --25 BRENDA ANDERSON: Brenda Anderson,

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Nationwide.

PATRICK RAY: -- Anderson is here.

DIANA JONES RITTER: And from Callan,

you have Millie Viqueira and Tom Shingler.NATHAN GREENE: Dave, are we expecting

any other participants, or does that sound complete to you?

DAVID NATOLI: That sounds like a complete list to me.

NATHAN GREENE: Diana, back to you. DIANA JONES RITTER: Thank you. We have our agenda for today, and I’d like to ask are there any recommended revisions to this agenda or are we comfortable with that, board members?

BLAKE WASHINGTON: I’ve got norevisions to offer. This is Blake Washington.

18 DIANA JONES RITTER: David?19 DAVID NATOLI: I’m comfortable. Dave.20 I’m good.21 DIANA JONES RITTER: Okay, so we’re22 going to review some plan issues. We’re going to23 talk about the CARE 2020 amendments, fee24 determinations. We’re going to talk about25 investment policy waivers and an RFP issuance

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1 delay. So we have four items and we’re going to2 try to get through these quickly, concisely, so3 I’m going to turn it over to Dave Fischer so4 bring us through.5 DAVID FISCHER: Very good. Thank you,6 Diana. We’ll touch on the easiest one first.7 The first one, due to the COVID pandemic our RFP8 schedule needs to be amended. We had intended to9 issue an RFP for independent investment10 consultant in April of this year. I think it’s11 prudent because primarily, one of the main12 features of doing the RFP process is to meet the13 individuals, so we would have to have a face-to-14 face meeting which is not really appropriate15 given the circumstances.16 So I would like to have a motion just17 to defer the issuance of the RFP for independent18 investment consultant to a later date.19 BLAKE WASHINGTON: I’ll make that20 motion.21 DIANA JONES RITTER: We have a motion22 to make the date -- a later date. I’d like to23 have a second and then some discussion. Second24 to that motion?25 BLAKE WASHINGTON: Yeah, second. Blake

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1 Washington.2 DIANA JONES RITTER: So we have a3 motion and it’s been seconded. I’d like to have4 just a little discussion on that later date. One5 of the things that we might be facing with the6 need to continue to do business this way for a7 little while longer, so I’d like to have an idea8 of what a later date means. Like, how long do9 you think that we should delay it? Are you10 saying that we should not do it until11 everything’s clear and we can have a face to12 face?13 DAVID FISCHER: That’s a very good14 question. It’s really just going to be15 determined on how quickly this resolves. If it16 resolves very quickly, then we could just simply17 use the same schedule as far as when we would be18 doing our contracting.19 However, if it goes to any extended20 period of time, we would be going to the board21 and looking to do a one-year extension which22 we’re within the rights under the contract to do23 so, assuming that it would be agreed upon by24 Callan. I think that’s the most likely25 circumstance, but we don’t know at this time.

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DIANA JONES RITTER: Okay, so there’s one last question. When would we have to allow and when would we have to take action on an extension, not to violate our contract?

DAVID FISCHER: Well, we could get that done pretty quickly. I mean --

SHARON LUKACS: Yeah. The contract’s not -- the contract expires April 1st or March 31st of next year.

DIANA JONES RITTER: Oh, next year.SHARON LUKACS: We’re doing this a full

year ahead of time, so we have some time. An extension is relatively easy, saying, as long as both parties are amenable and I don’t foresee a problem doing that.

DIANA JONES RITTER: Okay. So we can actually put this back up at a future -- the next board meeting. We could take a check in on where we are. So we have a proper motion and a second of that motion. Any further discussion? Motion carried. Thank you.

DAVID FISCHER: On the same -- well, related subject in the fact that our next board meeting, of course, is scheduled for May, I think that’s fairly unlikely to be occurring in New


1 York City. I just want to make note that the2 executive order that allows for these virtual3 meetings appears to be only suspended through4 April 11th of this year. I assume that’s going5 to be extended, but we will have to address that6 at such time.7 DIANA JONES RITTER: Okay.8 DAVID FISCHER: That’s just a note --9 DIANA JONES RITTER: Thank you.10 DAVID FISCHER: The next issue, which11 is fairly straightforward one, is on the asset-12 based fee. I had sent around documentation13 regarding the calculation of the fee and it14 appears that even -- as you may recall in our15 last board meeting, we approved moving the asset-16 based fee down from three basis points to two-17 and-one-half basis points.18 Obviously, the markets have changed19 dramatically; however, we reran the numbers based20 on the end of March asset values, and it appears21 to me that we can still continue with our plans22 to move the asset-based fee down to two-and-a-23 half basis points. As you recall, we have a24 reserve requirement of anywhere between $1.525 million and $2 million based on what we assume

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1 future expenses to be and revenue.2 So in our calculations, we left some3 room and assuming that -- using the values -- it4 was actually, the Dow was at 21,506 when we reran5 the numbers. Today, it’s at 21,890, right at6 this moment. We were only down by about7 $300,000, meaning that we would still have8 reserve about $1.7 million.9 So that’s well within our range, kind10 of assumed that when we did our calculation11 prior. The question is, is that what if the12 market declines further? I did -- and a lot of13 this is rough calculations, because we have a14 moving asset allocation. People are moving money15 around. The effect of stock market declines does16 not affect all account sizes the same.17 In other words, some of the larger18 accounts had more equity than smaller accounts,19 just happens to be the way they work. But the20 rough number that I see is about 17,500 on the21 Dow. Now, that’s a fairly shockingly low number22 compared to the current, but it is within the23 realm of possibility.24 We’re assessing the fee at the end of25 this week, so I don’t really imagine much is

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1 going to happen, but what I would like is to have2 the authority that if there is some sort of3 severe market correction that we could suspend4 the reduction of the fee to two-and-a-half basis5 to something like two-and-three-quarters basis6 points on my own authority. I think it’s very7 unlikely, but as you know it’s difficult to set8 together a board meeting, so I think it’s just9 good to have that power if necessary.10 DAVID FISCHER: So I don’t know if11 there’s any --12 DAVID NATOLI: This is Dave Natoli. I13 have a question. Can you remind me, is -- this14 fee is assessed twice a year, is that correct?15 DAVID FISCHER: That is correct, April16 and September of every year, so we could adjust -17 - in other words, if we’re a little low, we could18 adjust up if we had to. We prefer to smooth19 these calculations. In other words, we try to20 maintain the same mass base fee throughout the21 year, but there’s no requirement to do so.22 DAVID NATOLI: And you would envision23 the possibility that if we give you this24 authority, you would need to act before25 September, possibly?

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1 DAVID FISCHER: No, no. This would be2 for the April. This is only for the April3 assessment. We’ll have plenty of time between4 now and September to see what the market does for5 that particular assessment.6 DAVID NATOLI: Right.7 NATHAN GREENE: When is the April 18 assessment actually made? Is it made 30 days9 out, 60 days out, 45 days out?10 DAVID FISCHER: It’s actually going to11 be assessed on Friday, but Nationwide would need12 a couple days just to adjust, because they have13 it set up for two-and-a-half basis points. This14 is really a tail event question. I don’t think15 this is very high probability that the market’s16 going to go from 21.8 down to 17.5 in a matter of17 three days. So if there’s a concern with it, we18 can let this pass. If it does it, it does it.19 We’ll adjust the asset-based fee in September if20 desired.21 DIANA JONES RITTER: This is Diana22 speaking. David, this is my question. You know,23 give me the scenario. If we leave the asset-fee24 base as it is now, that’s an option or are you25 suggesting that that would -- and wait until

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1 September, that would allow -- that would really2 create some risk to us if we do that?3 DAVID FISCHER: The only risk -- here’s4 the combination of events that would cause -- I5 don’t know if the word “risk” is the right word.6 If the market declines dramatically and we go7 ahead as we had planned and made a motion in our8 previous board meeting to asset at only two-and-9 a-half basis points rate, in the September10 assessment, we may have to raise the rate11 depending on what happens in the market.12 So the markets stay where they are,13 we’re fine. We have nothing to worry about. But14 we’re getting closer to that $1.5 million range15 as -- if the market declines, as far as having16 reserves. We have reserves; it’s just our policy17 has been to maintain those between $1.5 million18 and $2 million which, compared to many other19 plans out there, it’s actually not a high20 reserve.21 It’s the right reserve, but some plans22 actually reserve like six months of expenses.23 We’re nowhere near that. I am not concerned.24 It’s not -- I’m not taking this from an area of25 concern, just we’ve been reluctant to ever move

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1 the fee up. We will have to if the markets2 decline, but we’ve been always reducing it. I3 just know there’s a sensitivity there to raising4 it, so sometimes you don’t want to cut something5 below the point where it’s sustainable.6 I don’t believe that it’s not7 sustainable. I wouldn’t have recommended moving8 it to two-and-a-half basis points in the first9 place.10 DAVID NATOLI: This is Dave Natoli.11 Just a followup question. If we were to give you12 this authorization, it would only be valid for13 the next three days?14 DAVID FISCHER: Pretty much, yes.15 DAVID NATOLI: All right. Well, given16 that the market right now is up 1,100 points, I17 don’t think it’s necessary, personally. That’s18 my view.19 DAVID FISCHER: I have no problem with20 that. I just want to bring up the fact that we’d21 done -- to be honest with you, I had actually22 thought this would be tighter than it was, but23 we’re finding that the plan is actually holding24 up very well for a number of reasons, partly25 because the most widely held investments have

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1 actually outperformed the market so they have not2 gone down as far as the market is concerned.3 And people have changed some of their4 asset allocations and as I said before, the plan5 isn’t as sensitive to changes in the market as6 you might imagine, only because the largest7 account balances -- when I say sensitive, from8 the perspective of the fee, not from actual9 people’s savings. But the larger account balance10 folks, above $200,000, are the ones that are most11 likely to have a more heavy equity allocation.12 So from our fee perspective, when13 somebody’s account goes from $300,000, $250,000,14 doesn’t affect the fee at all. It affects them,15 obviously, where the smaller accounts, because16 they’re more heavily weighted towards fixed17 income, they have a lesser sensitivity. So just18 wanted to go through the -- I mean, we don’t19 normally have to go that deep into it, but I’m20 fine with leaving it just as it is.21 DIANA JONES RITTER: I have one more22 question. So we had voted to reduce the fee,23 right?24 DAVID FISCHER: Yes.25 DIANA JONES RITTER: What if we -- This

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1 is Diana speaking – maybe this is a question for2 Nathan. What if we reversed that?3 NATHAN GREENE: It’s Nathan speaking.4 I spoke to Dave and my understanding is that the5 lower fee has not yet been communicated in a plan6 participant document, so it is in effect, quite7 straightforward to reverse the decision. You8 have the authority and you would not be9 contradicting a communication made to the plan.10 DIANA JONES RITTER: So perhaps you see11 that -- David, board members, what if we were to12 not reduce the fee at all and ride it out to the13 next opportunity?14 BLAKE WASHINGTON: This is Blake15 Washington. I’m always looking for an16 opportunity to reduce fees for our plan17 participants, as --18 DIANA JONES RITTER: Right.19 BLAKE WASHINGTON: -- everyone on this20 call is. I just think there’s so much volatility21 right now and that our job, foremost, is to22 ensure we still have a plan that’s functioning23 well and is able to be nimble on the interests of24 our participants, so my preference would be just25 to leave the fee as is for now and reassess at a

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1 later date.2 DAVID FISCHER: Just so I’m clear,3 Blake, you mean -- when you say leave the fee4 where it is, as assumed at two-and-a-half basis5 points, right?6 BLAKE WASHINGTON: No, forgive me.7 Under current law, under current assessment8 value.9 DIANA JONES RITTER: You mean not10 taking -- this is Diana. Do you mean, Blake, not11 taking action that we --12 BLAKE WASHINGTON: Not reducing it to13 2.5.14 BLAKE WASHINGTON: If my board members15 -- my board members feel differently, I’m16 certainly amenable to something in the mid-range.17 I just feel like there’s, as we said, lots going18 on right now and I think staying the course –19 there’s some beauty in staying the course here,20 too.21 DAVID FISCHER: Just to throw the other22 side out there, Blake, is that really,23 technically we are -- we’ve committed to two-and-24 a-half basis points and given the current market,25 that puts us right where we’re supposed to be at

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1 $1.7 million. So we’re not running short by2 bringing it down to two-and-a-half basis points.3 DIANA JONES RITTER: Okay. Thank you.4 DAVID FISCHER: If we were to leave it5 at three, we would probably have a reserve value6 above $2 million.7 DIANA JONES RITTER: Okay.8 DAVID FISCHER: Which hasn’t been our -9 - really hasn’t been our strategy in the past.10 BLAKE WASHINGTON: Are there any -- can11 you provide some range of unforeseen investments12 that the plan would have to make in the interim13 in a bad -- in a downturn? Are there any costs14 that we would assume that could not be paid as a15 result of not having enough cash on hand, other16 than concerning --17 DAVID FISCHER: No.18 BLAKE WASHINGTON: No?19 DAVID FISCHER: The largest expense we20 have is for administrative services and that’s a21 fixed fee based on a number of participants. So22 if participants leave, for example -- I’m not23 saying they’re going to -- then you would have a24 lower fee. I mean, the only fee that really25 would probably be likely to vary very much would

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1 be legal fees, but we already have them in the2 budget at the maximum.3 BLAKE WASHINGTON: I should’ve asked4 that first. Thank you.5 DIANA JONES RITTER: Thank you, Blake.6 That was a great --7 DAVID FISCHER: I mean, as you know,8 I’m very prudent when it comes to financial9 planning on these issues, and I don’t believe10 that moving this down to two-and-a-half basis11 points is not prudent. I think it is prudent.12 All I was looking for is having flexibility if13 some market were to decline dramatically and14 apparently, it’s not going to and that’s great.15 We’ll have our assessment in April and16 then we’ll just keep reviewing these things like17 we always do. We always have an interim18 reassessment for the second assessment of the fee19 anyway for September, so we’ll have plenty of20 time to adjust the fee if necessary.21 DIANA JONES RITTER: So what I’m22 hearing, and I’d like to confirm with Dave, I23 also think that we should go ahead with the 2.524 and then reassess and see where we are at our25 next board meeting. I’m comfortable with that,

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1 as well, Blake. Dave, where are you?2 DAVID NATOLI: I’m in favor of that3 approach, too, Diana. This is Dave Natoli.4 DIANA JONES RITTER: Okay, so we don’t5 need a motion to continue moving forward on this,6 Dave, so are we good on this one?7 DAVID FISCHER: We do not.8 DIANA JONES RITTER: Okay.9 DAVID FISCHER: Yes, we are. Thank10 you.11 DIANA JONES RITTER: That was good12 discussion. Thank you very much. And we’ll --13 BLAKE WASHINGTON: This is Blake here.14 Just be clear, I support the decision, too, so I15 just want -- if there’s anything that comes up,16 Dave, if you can keep us in the loop, that would17 be helpful.18 DAVID FISCHER: You bet.19 BLAKE WASHINGTON: Thank you.20 DAVID FISCHER: Okay. I would say21 probably the next thing to move on to would be22 the discussion of adjustments to the Stable23 Income Fund investment policy.24 As you know, the COVID-19 pandemic has25 had a number of issues related to the bond

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1 markets, especially downgrades amongst a number2 of the sectors that are affected including energy3 which has had both the issues of economic issues4 but as well as a price war between OPEC and5 Russia, so it’s caused prices to decline, meaning6 that a number of our holdings within some of the7 investment managers have declined below our8 standards -- our normal standards for quality.9 And probably at this point, I turn it10 over to Marie and John and let them just kind of11 discuss what is being proposed and the reasons12 behind it.13 MARIE MASTRO: Sure, thank you, Dave.14 This is Marie Mastro. What we reached out, as15 Dave indicated, we reached out to the board staff16 in mid-March to discuss language that’s inside of17 the New York State Stable Income Fund Investment18 Policy and Guidelines. This is the overarching19 document that contains guidelines that are then20 inserted into both the wrap contracts and the21 investment management agreements with each of the22 underlying fixed income managers.23 And the investment policy states that24 if a security is downgraded below the minimum25 credit quality set forth, the sub-manager or

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1 managers in the accounts will dispose of the2 security in a prudent manner with a target3 disposition of 30 days after the date of4 downgrade.5 Given the fixed income markets and the6 conditions that we are witnessing which are, you7 know, to describe it mildly, are unprecedented,8 we have seen a lot of challenges in terms of9 liquidity in the market in terms of being able to10 execute securities as well as downgrade them. We11 expect to see continued downgrades.12 I did send over a spreadsheet. To13 date, there are 28 securities in the Stable14 Income Fund’s fixed income portfolios represented15 by five names as Dave indicated. The names that16 we’re seeing are energy related, Occidental17 Petroleum being the largest, Cenovus, airlines --18 American Airlines as well as U.S. Airways, Ford,19 and Patterson Energy.20 They are in five portfolios: JPMorgan,21 Wellington, Barings, Voya, R&M, and Jennison.22 Several of those managers have reached out to23 GSAM Stable Income asking for additional time,24 given the illiquidity in the market to be able to25 sell these securities, so that is why we reached

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1 out to staff as well as Shearman & Sterling.2 And the proposal that we would like to3 put forth to the board is to not actually4 permanently change the language in the Stable5 Income Fund. We feel that given the guidelines6 and the objectives of this fund, that that7 language is appropriate from a long-term8 perspective.9 However, given the market that we are10 in right now, we felt that it would be important11 to reach out to the board and recommend that the12 managers be given additional time if they felt13 they needed it, not to exceed 90 days, to be able14 to liquidate the securities. And certainly, I do15 want to stress that the board has at its option16 to do nothing here and simply stay with the 30-17 day downgrade.18 But we did talk to the wrap issuers.19 Four of the five wrap issuers have agreed to a20 temporary waiver through September 30th of the21 30-day downgrade to allow the managers the22 opportunity, if they feel that it’s appropriate,23 to liquid these 28 securities that I just24 described in the hopes that they can get better25 prices.

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1 Still, they have to liquidate them, but2 the hope is that they might be able to have a3 better economic outcome. Certainly, a fire sale4 of securities, as we all learned from the credit5 crisis, is never a good thing as you lock in6 losses. We certainly do not have a crystal ball.7 We just feel that the managers8 themselves are in the best position based on9 their analysis to determine the appropriate time10 to liquid this -- in this market, and that 3011 days may not meet the standard of prudent given12 how challenging the market has been. Now, we13 have seen the market improve since the Fed and14 other central banks have intervened, but it still15 continues to be a challenging market and we16 expect that to continue as this virus -- until17 it’s resolved.18 So I’ll pause there, if there are any19 questions.20 DAVID FISCHER: I would just like to21 make a statement -- this is Dave -- that we spent22 quite a bit of time on the phone and preparing23 emails and that type of thing on the subject and24 board staff thinks it’s an inappropriate move to25 have a temporary waiver of the cure period,

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1 moving it to 90 days. It’s our opinion.2 THOMAS SHINGLER: And Dave, this is Tom3 Shingler from Callan. I would like to state from4 a Callan perspective that we’re looking at these5 types of guidelines across stable value providers6 and we shared this with board staff, a stable7 value fund checklist and one of them is to8 consider changing the cure period provision so9 that you have, as Dave said -- typically, in10 normal markets, it would be 30 days. That’s the11 way guidelines are typically written, and we’re12 recommending that plans consider moving that to a13 longer cure period, typically 90 days instead of14 30 days because it gives the managers more time15 to bring their exposures back into compliance so16 it’s consistent with what Marie is saying based17 on her conversations with managers.18 We’re hearing the same things and I19 would also caution that while conditions have20 improved since late March, so March 23rd, around21 there, we are also still potentially early in a22 stress -- stressed, distressed period in parts of23 the fixed income market, so we don’t want to be24 over confident about the market outlook and so25 having this kind of temporary change is prudent

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1 from our perspective.2 DIANA JONES RITTER: This is Diana. So3 you’ve seen changes in guidelines like this with4 your other clients? I’m just asking the5 question.6 THOMAS SHINGLER: Yes. We’re seeing7 similar discussions or changes, Diana, and it’s8 something that we’re recommending, too, is it’s a9 way of not having a manager be a forced seller in10 very poor market conditions.11 DIANA JONES RITTER: Thank you. And12 all of the wrap providers have agreed. This is13 Diana speaking, sorry. All of the wrap providers14 have been supportive of this or requesting this15 kind of change?16 MARIE MASTRO: So this is Marie Mastro17 from GSAM. Specific to the New York State Stable18 Income Fund, actually the wrap providers that19 agreed were New York Life, State Street, Mass20 Mutual, and Pru. Voya did not agree to the21 temporary waiver. What Voya came back with was a22 counter proposal.23 Their counter proposal was actually to24 permanently remove the sell rule from within the25 wrap contracts investment guidelines and to

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1 actually increase what is called a downgrade2 bucket which is a term that’s within the contract3 that allows you to hold downgraded securities, so4 not to sell them. It’s a concept that exists5 with quite a few wrap providers, Voya being one6 of them.7 It’s something that we have not8 utilized in the New York State Stable Income Fund9 because each manager does have a sell rule in10 that they actually have to get rid of the bond,11 but in the event that they did not sell the bond12 in the period of time and the bond was still13 there -- and we have had this happen where there14 have been securities that they did not sell -- is15 that the amount of the bond would actually go16 into the bucket and therefore not result in a17 book value write-down of the contract.18 So it’s a safety provision, I guess is19 how I would describe it, so you don’t have a book20 value write-down, but we have not utilized it in21 the contract. It’s actually in your contracts22 because we believe that’s a good thing to have.23 State Street also has this concept, but it’s24 never been utilized.25 So we did not feel that while it’s

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1 certainly, I would describe as something to2 consider, it’s inconsistent with the concept that3 this is a temporary situation and we didn’t want4 to permanently amend the Voya contract and5 completely remove the sell concept and utilize6 this bucket, so we decided not to pursue it with7 Voya.8 The other thing to note is that Voya is9 wrapping three short-duration managers, actually10 all the one to three gov credit: Voya,11 Wellington, and Longfellow. Because of their12 position in the yield curve, we also felt that13 they have a better opportunity to be able to14 liquidate short-duration security. I mean, the15 short-term end of the curve was probably the most16 challenging, but that has gotten a lot better17 given some of the Fed’s interventions.18 Whereas, portfolios like Barings,19 JPMorgan, longer duration, those are the20 portfolios we felt that needed the more --21 particularly Barings which has, if you saw the22 spreadsheet, has more securities. So we were23 comfortable moving forward with this idea with24 the four managers and the good thing to note is25 that State Street being a bank, they don’t have

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1 to go to the department of finance for approval,2 department -- New York State Department of3 Insurance, nor does Pru.4 So if the board were to agree to this,5 those managers could quickly put this into place.6 I should add, though, that Mass Mutual and New7 York Life will need to go to the New York8 Department of Insurance for approval even if the9 board were to agree to this. So that is10 something that we would have to work with them11 quickly to do and our hope is that the department12 will be amenable given the challenges that we’re13 facing.14 DIANA JONES RITTER: Thank you, Marie.15 Are there thoughts, comments, questions?16 BLAKE WASHINGTON: This is Blake17 Washington here. I just wanted to thank GSAM for18 getting us this information earlier.19 Seems like two weeks ago, could’ve been20 a day, because my whole life has been upended21 with the state budget, but it was certainly --22 your ability to identify the problem early on was23 really helpful, sort of diagnose what was going24 on and sort of -- and certainly Callan’s ability25 to show that’s a systemic issue, too, really

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1 gives me the comfort of giving some level of2 forbearance here and understanding that these are3 all professional people that are doing the best4 that -- a really, really tough situation.5 So certainly, from my point of view, I6 certainly would recommend abiding by GSAM’s7 recommendations.8 DIANA JONES RITTER: Thank you, Blake.9 That was well said. Dave, you want to weigh in?10 You good?11 DAVID NATOLI: I can’t say any more12 than Blake just said. He said it very well and I13 agree. And thank you, Marie and team.14 MARIE MASTRO: Thank you. You know, if15 there are any questions, as I indicated at the16 beginning of the meeting, we do have David17 Westbrook who, I believe, Diana, you may have18 remembered David and I --19 DIANA JONES RITTER: Yeah.20 MARIE MASTRO: -- worked together many21 years through the credit crisis, and David and I22 have been talking a lot about this and as he’s23 been working with our fixed income desk and about24 these securities, so I asked him on the phone.25 And of course, Ronnie Fallon who has been

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1 instrumental and has been helping draft the2 waivers, which I did send over to Shearman &3 Sterling.4 And I believe if Desta is on the call,5 I did get your comments and back and will seek to6 incorporate those if the board agrees to go7 forward. We will move as quickly as possible to8 -- again, if the board wants to do this waiver,9 to get this in place quickly.10 DIANA JONES RITTER: Anybody else?11 This is Diana speaking. We do want to recognize12 David and Veronica as well. Blake, you said it13 all. So I think what we’ll need, Dave, do you14 have words for the recommendation you want to --15 and then we can make the motion?16 DAVID FISCHER: Yes, I do. I’d like a17 motion to waive the State of New York Deferred18 Compensation Board Stable Income Investment19 Policies and Guidelines dated December 14th,20 2018, Section 3(b)(5) and any related individual21 manager investment guideline requirements that22 securities downgraded below the minimum credit23 quality specified be disposed of within 30 days24 after the downgrade and be replaced with a period25 of 90 days, effective through September 30th,

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1 2020.2 DIANA JONES RITTER: Okay. We’ve heard3 the recommendation. Is there a motion to accept4 or adopt this recommendation?5 BLAKE WASHINGTON: I’ll make that6 motion. Motion to accept.7 DIANA JONES RITTER: Okay.8 BLAKE WASHINGTON: Blake Washington.9 DIANA JONES RITTER: It’s been made.10 Is there a second?11 DAVID NATOLI: Dave Natoli, here.12 Second the motion, please.13 DIANA JONES RITTER: Okay. This is14 Diana. That motion carries. Thank you,15 everybody. And I loved the memo. It was really16 easy to read. Thank you very much.17 MARIE MASTRO: Thank you.18 DIANA JONES RITTER: Dave, what are we19 doing next?20 DAVID FISCHER: Okay, the last issue is21 our newest law, the CARES Act of 2020. I did22 send around some thoughts that I had had earlier,23 but there’s also a piece put together by Shearman24 & Sterling that I sent out this morning. I’d25 like to just have S&S just kind of go over some

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1 of the highlights of it. I mean, we have some2 decision points to make, in basically three3 different areas.4 Well, actually, one’s not a decision5 point, just an understanding, and then a couple6 of decision points. So if the folks from7 Shearman & Sterling would just like to say a few8 words about their thoughts on the CARES Act and9 then we’ll go through what decision points we10 have.11 GILLIAN MOLDOWAN: Hi, this is Gilliam12 Moldowan from Shearman & Sterling. I’m going to13 go through a couple highlight areas of the CARES14 Act for the board and the others in attendance on15 this call. The CARES Act is a far-reaching16 statute and has a number of areas including17 stimulus bills and direct relief to individuals.18 I’m going to focus right now only on the19 provisions related directly to managing deferred20 compensation plans like the New York State21 Deferred Compensation Plan for everybody here.22 These provisions that I’m going to23 describe would require plan document amendments,24 if they were adopted, but those plan document25 amendments are not required for a number of years

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1 so the decisions right now would be about2 practice as opposed to documentation at this3 stage, and the documentation can follow based on4 the choices of practice.5 The first area I’m going to talk about6 is an amendment in the CARES Act to waive the 107 percent early withdrawal penalty for coronavirus-8 related distributions up to $100,000 per person.9 So what this is allowing is that individuals can10 take withdraws on an early basis from their11 deferred compensation plan accounts. There would12 be no additional 10 percent early withdraw13 penalty if they took it for the coronavirus-14 related distributions. They’d be taxed on that15 distribution at ordinary income rates over a16 three-year period unless they repaid the amount17 over that three-year period. There’s a lack of18 clarity right now in guidance as to exactly how19 the taxation and the repayment will work, but the20 statute provides for waiver of the 10 percent21 early withdraw penalty. That’s the first area.22 The next area of change is in loans.23 Loans from the plan can be made to qualified24 individuals, so those experiencing coronavirus-25 related hardship during the period of March 27,

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1 2020 through September 23rd, 2020. Those loans2 will not be treated as distributions up to3 $100,000, in essence. There are some other4 mechanics around the calculation of that amount,5 but I think that’s a lot to get into for our6 call. They’re outlined in the document that was7 circulated, so that’s a change to allow the8 expansion of loans.9 There are also revised rules about loan10 repayment timing, and in particular, if somebody11 has an outstanding loan from the plan and the12 loan has a repayment date that would have been13 between March 27th, 2020 and December 31st, 2020,14 the repayment date could be delayed a year.15 And then the last point to touch on16 here are the required minimum distribution rules.17 The required minimum distribution is waived for18 the calendar year 2020 and it’s inclusive of19 required minimum distributions for plan20 participants who have not yet taken their 201921 required minimum distribution and who would have22 been required to do so by April 1st, 2020.23 Those are the four areas that I think24 are important to highlight for this group;25 although, there’s a lot of other -- a lot of

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1 other areas tackled in the CARES Act and as I2 mentioned, these would require amendments to the3 plan if adopted, but those amendments need not be4 made in any immediate time. So I’ll pause there5 for any questions.6 DAVID NATOLI: This is Dave Natoli. I7 have a question. Dave Natoli. Even though we8 don’t need to amend the board materials for a9 while, if we were to be okay with these10 provisions, we could instruct board staff and NRS11 to implement them without amending the plan12 documents?13 GILLIAN MOLDOWAN: Yes, that’s correct.14 DAVID NATOLI: Thank you.15 BLAKE WASHINGTON: This is Blake here.16 Curious from the NRS perspective, Ric, Brenda,17 Pat, have any other states, any other plans done18 this yet? I’m assuming, obviously, it’s19 imminent. Have there -- any other similar20 actions occurring, and what has your response21 been thus far in terms of implementation?22 GILLIAN MOLDOWAN: Is there a23 representative on?24 PATRICK RAY: Yeah. Hi, this is Pat25 Ray with Nationwide. Blake, the answer is yes.

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1 I think initially there was a time period where2 it was necessary to come to an understanding of3 the provisions and how it works, and I think as4 with anything, you see different plan sponsors5 reacting differently, so you would see some plan6 sponsors doing a blanket acceptance of all the7 provisions.8 You have other plan sponsors being9 thoughtful in the implication of the four10 different provisions that are out there,11 identifying what is basically required under the12 law and what is optional for the plans under the13 law. And many of the plan sponsors that are more14 engaged such as the folks on this call are at the15 point where you are today where is -- where I16 would say is you’re reviewing the provisions and17 how they impact the plan and making the decision18 about how to proceed. Unless --19 THOMAS SHINGLER: This is Tom Shingler.20 Could I add to that?21 PATRICK RAY: Yeah, of course.22 THOMAS SHINGLER: I would just say it’s23 similar to what Pat was saying, Blake, where it’s24 -- plan sponsors are treating it as fiduciary25 decisions other than the RMD assets, so deciding

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1 whether or not to proceed with the optional2 provisions, and it’s also important to note that3 some plans don’t offer loans, so those -- that4 may make their decision process different.5 But I can say just in very recent6 experience for me, two 457 plans that I work with7 including one other very large state plan, they8 did approve the optional distribution provision,9 depending on the participant’s situation, up to10 $100,000 distribution provision. Neither of11 those plans do offer loans, so they’re not12 pursuing that, those provisions, but they are13 offering the optional distribution because they14 feel that the economic conditions are so severe.15 For both plans, that was part of the16 decision, the severity of the economic situation17 and wanting to help participants.18 BLAKE WASHINGTON: Thank you. And so19 from the NRS, Nationwide perspective,20 implementing any of these -- I mean, they seem21 pretty straightforward in many ways. As22 unstraightforward as they are, they seem23 straightforward, or as unprecedented as they are.24 In terms of implementing these, there’s no -- is25 there a lead time that’s required or anything of

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1 that nature or is it pretty much doable?2 PATRICK RAY: Blake, I would say --3 this is Pat Ray again. I would say that4 everything that we implement would require a5 certain amount of lead time, but we are prepared6 to implement any of the provisions that the board7 decides to enact.8 BLAKE WASHINGTON: Perfect.9 DIANA JONES RITTER: This is Diana. A10 question for Dave. Dave, what’s your -- what’s11 been your thoughts about these provisions?12 DAVID FISCHER: That’s an excellent13 lead-in. Thank you. Well, I’m going to touch on14 the first one, which is the easiest, which is the15 RMD. That doesn’t require any board action, but16 it does require some action on our part and we’ve17 had discussion with NRS how to handle this18 because obviously, anybody who hasn’t taken an19 RMD, we’re not going to require it. And as you20 may recall that there’s a year-end process by21 which we force our RMDs out to those that haven’t22 taken them. That, of course, will be suspended.23 Realize, too, that we’ve had experience with this24 in the past because the same -- a very similar25 thing happened in 2009 as far a suspension of

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1 RMDs, so this isn’t our first time at it.2 DIANA JONES RITTER: Right.3 DAVID FISCHER: However, this was the4 first time this in the middle of the year and5 some folks are already on systematic withdrawals6 to meet their RMDs and the discussion was, should7 we just stop them. Well, that’s not really a8 prudent action because a lot of those folks9 actually want those checks, regardless whether10 RMDs or not.11 So what we’re going to do is to focus12 on those participants who are receiving regular13 distributions that are designed only to meet the14 RMD purposes. We’re going to send a letter out15 to them to find -- and if they wish to stop those16 payments, they certainly can, immediately. So17 that’s really our process here, is that we’re18 going to go to those folks, and also offer for19 those that are within 60 days, throw all of the20 money back into the plan because they also have21 that option.22 So, I mean, I think that’s a pretty23 good way to approach this, but we don’t want to24 just stop distributions because some folks are25 actually living on the money and you’d have -- I

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1 don’t think we unilaterally should just stop2 payment just because this RMD rule. So that’s3 where we’re going with that, and I think that’s4 just the best way to do it.5 On the COVID distributions, one of the6 things just to note was we talk about 10 percent7 penalty which doesn’t generally apply to us, of8 course, but we do have people with money in9 rollover accounts that could have come from a10 401(k) or IRA so it does have some application to11 our plan.12 The question here, and always realize13 that when we’re talking about these14 distributions, these are only to what are known15 as qualified individuals, so it’s not that16 anybody can take these. This is only for the17 individuals who meet the standards of being a18 qualified individual, basically diagnosed with19 the SARS-CoV-2 or COVID-19 or experienced20 financial consequences related to furloughs,21 layoffs, things like that.22 The employee self-self certifies, so23 that doesn’t put us in a position of having to24 determine whether somebody is a qualified25 individual. They’re making that determination on

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1 their own. That being said, there has to be the2 expectation that some folks may claim to be3 qualified individuals that aren’t. That’s just4 those who have -- you know, with the issues.5 It is optional. We could say we’re not6 going to allow these distributions. Realize,7 these distributions are unusual on the fact that8 normally our plan only allows distributions upon9 termination of service, generally, or age

10 seventy-and-a-half, so this is allowing11 distributions at any age. It’s temporary. It’s12 only for this year until 12/31/2020.13 You can also select a lower amount than14 the $100,000 if you choose to. I don’t really15 think that’s going to be popular. I would look16 at this situation -- and I think this has17 interplay with the loan programs, too, by the way18 -- that I think the distribution question is an19 easier one than the loans, and if you’re going to20 allow the distributions, it changes the calculus21 on how -- what you’re going to do with the loans.22 I think, because this is just my23 opinion, but New York is the hardest hit state so24 far, and hopefully it stays that way, as far as25 the economic impact to individuals in our state.

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I think that because of the kind of hard times that folks are under, I think we have to -- not we have to. I think we should approve this because otherwise, I think you’re going to have an awful lot of people that are harmed and they’re going to have to try to go through the unforeseeable emergency withdrawal provisions which may or may not actually match up very well with their actual needs that they may be facing under this COVID situation.

I know that also as an anecdotal thing, there’s another -- there’s a large record keeper that assumed that the participating employers all were electing these and they were to opt out, which I think is kind of strange. I think it’s good that we’re making this decision by a thoughtful process, realizing from a plan perspective, there will be leakage due to this.

Money is going to come out of the plan, some of it maybe not for the best purposes and a lot are for good purposes, so we have to balance that. But we have a very, very large plan. We don’t have any problems with scale, so from that perspective, I don’t think there’s any injury to the plan. I’m more concerned about what


1 individuals may do.2 And I think we’re going to design a3 customized withdrawal form for this purposes and4 we’re going to try to include some sort of5 language just to try to have somebody tap the6 brakes, possibly, saying that, you know, is this7 -- do you really need to do this, because you are8 going to affect your retirement income.9 One of the other questions came up and10 GSAM did a great job of checking into this. We’re11 concerned any time you have a plan amendment,12 does it affect the wrappers. In other words, is13 the wrap provider going to look at this in saying14 this is an employer-initiated event and they15 understand this is fine. So I mean, I’m open for16 discussion, but if you’re looking for the17 recommendation of the board staff, we would18 approve this at the $100,000 level.19 DIANA JONES RITTER: That’s the RMD.20 DAVID NATOLI: This is Dave Natoli. On21 the issue Dave just discussed, I’m in favor of22 moving this item.23 DIANA JONES RITTER: Okay.24 DAVID NATOLI: Under the circumstance,25 I think it’s warranted.

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1 DIANA JONES RITTER: Okay. So that’s -2 - this is Diana. So that’s two out of the four,3 right, that we’ve discussed. That we’ve4 discussed. The RMD and the early withdrawal.5 DAVID FISCHER: We would have a -- we6 would have a motion if you agree, but I don’t7 want to push that unless everybody’s agreed.8 DIANA JONES RITTER: This is Diana. My9 question is, there’s two other provisions here.10 We --11 DAVID FISCHER: Yeah.12 DIANA JONES RITTER: We do not need to13 act on them?14 DAVID FISCHER: But they’re loan15 related.16 DIANA JONES RITTER: Are they?17 DAVID FISCHER: We will. We will and18 we can decide -- maybe we’ll touch on the other19 ones and then come back to whether or not we make20 a motion on the distributions, if you’re more21 comfortable with that.22 DIANA JONES RITTER: Well, I don’t mind23 --24 DAVID FISCHER: Want to do that?25 DIANA JONES RITTER: Diana here. I

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1 don’t mind. Blake, I don’t know if I’ve heard2 from you on this because we could take these two3 and then consider the others. Blake, do you have4 any thoughts about the RMD and the early5 withdrawal?6 BLAKE WASHINGTON: Yes. I think Dave7 Fischer’s comments were spot on, so I certainly8 would agree with proceeding.9 DIANA JONES RITTER: Okay, as I would.10 As I -- this is Diana -- as I would as well. So11 David, do you have language that you would like12 us to consider for these two?13 DAVID FISCHER: Yes, I do. We don’t14 have any language for the RMDs because that’s15 automatic and doesn’t require any board action.16 DIANA JONES RITTER: Okay.17 DAVID FISCHER: What we would be18 requesting is a motion to authorize distributions19 to qualified individuals of up to $100,00020 pursuant to the CARES Act of 2020 and make21 required amendments to the state’s plan22 documents.23 DIANA JONES RITTER: Okay, we have the24 recommendation. Is there a motion to adopt?25 BLAKE WASHINGTON: Blake Washington.

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1 Motion to accept.2 DAVID NATOLI: Seconded --3 DIANA JONES RITTER: Do I hear a4 second?5 DAVID NATOLI: -- Dave Natoli.6 DIANA JONES RITTER: David, thank you7 for your second.8 DAVID NATOLI: Seconded, Dave --9 DIANA JONES RITTER: That motion10 carries.11 DAVID FISCHER: Very good.12 DIANA JONES RITTER: Thank you.13 DAVID FISCHER: In the loan area14 there’s really two subsets of decisions here.15 The first one, it is -- I’ve heard it’s rather16 unclear whether or not a board has the authority17 to say yes or no to this, but I believe that we18 could at least be -- we should at least make the19 motion to do so if we want to allow for it, and20 that is in the area of the extension of the21 loans.22 In other words, for a person who has a23 loan due, that they get an extra year to pay24 that. I think that’s kind of important and25 that’ll affect not only a current payment, but

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1 also let’s say you have one of those loans that2 was structured to be a five-year loan. It now3 gets extended to a six-year loan, so it puts4 people at a better -- and once again, only5 qualifying individuals because all these loan6 provisions only affect qualifying. So that would7 allow for folks that aren't going to be able to8 make a loan payment -- this is similar to other9 loans that are being extended and once again,10 we’re not sure if it requires board action, but I11 think it makes sense to do so. I think it’s once12 again board staff’s opinion that anybody who has13 an outstanding loan that can’t make the loan14 payment and is a qualifying individual should15 have that loan extended.16 The second one -- we’ll go back to this17 one later, but the second one, which I think is18 much more problematic, is once again for19 qualifying individuals, is to increase the loan20 provision from $50,000 to $100,000 and instead of21 a 50 percent of account limit to $100,000 of22 account. That limits also aggregate with other23 employer plans which is similar to what we24 already do with dealing with plan loans between25 us and the New York State Employee Retirement

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1 System.2 It doesn’t really -- the law doesn’t3 specifically state that you have to have a form4 signing -- I’m sorry, having the person sign a5 form saying that they’re a qualifying individual,6 but it seems to me it would be best practice.7 The issue I see with this, though, is that we8 already have a one loan limit which would kind of9 negate the value to anybody trying to take this10 loan, because most likely, whoever would need11 this, already has a loan outstanding so they12 would be preempted from having the ability to13 take a second loan.14 The answer to that is we could15 temporarily allow for two loans, but we aren’t16 really set up for that at this point. To me, it17 raises the question, if we approve allowing the18 distributions, it seems like that would be19 enough. If the distributions weren’t eligibly20 rolled over within three years, I’d say well,21 there’s a significant tax differential here.22 But they can repay them and not have it23 affect their long-term retirement as well as24 their tax situation. So of all the provisions, I25 find this extension of the loan provisions to be

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1 the most problematic. I think it’s also very2 hard to administer and we could include this3 later if we chose to.4 So just to kind of summarize, I think5 doing the distributions is -- we’ve decided6 that’s a pretty good idea, but between these two7 loan provisions, I think one from a board staff8 perspective, I think having the extensions makes9 a lot of sense and I think we should do that.10 As far as extending the loan11 provisions, as far as going from the $50,000 to12 $100,000 and 100 percent of account value, I13 think is a little more problematic. I don’t know14 if you have any views, S&S, Callan, Nationwide,15 anybody, but that’s just kind of what I’ve been16 looking at.17 GILLIAN MOLDOWAN: Yeah. This is18 Gillian Moldowan from Shearman & Sterling. The19 one thing I would note that I have heard from20 clients is that as people may be aware, some21 different compensation plans do not have loan22 opportunities within them. I have been hearing23 that plans are not, for the most part, at least24 as of yet, adding loan provisions.25 They are seeing the loan opportunity

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1 along with the early withdraw penalty-free2 distributions as being applicable to the same3 group, as was just discussed, and in large4 respect meeting the same needs and so have gone5 with the distribution change and not necessarily6 added loans to their program if they don’t have7 them already. You obviously already have a loan8 program, so slightly different, but I just wanted9 to note that to the extent it was helpful for10 people.11 DIANA JONES RITTER: Thank you. NRS?12 PATRICK RAY: I would just say that we13 talked through this very, very much in detail14 with Dave Fischer and we support Dave’s view on15 this in the manner that it would be complex to16 change and that adding a change to the loan17 provision would be, I think in many ways,18 assisting the people who would already -- it’d be19 much more advantageous for them in many cases to20 take the distribution that you just approved.21 BRENDA ANDERSON: Well said, Patrick.22 PATRICK RAY: Yeah --23 BRENDA ANDERSON: This is Brenda from24 Nationwide. I would just echo what Pat just said25 along with what Gillian just said. We’re seeing

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1 the same trend with large plans across the2 country that they’re electing the early3 withdrawal distribution option but not adding4 loans, as Tom even talked about earlier. A5 number of our plans don’t have a loan provision,6 but they are not leaning toward adopting that7 provision.8 DAVID FISCHER: Tom or Millie, do you9 have anything to add?10 THOMAS SHINGLER: Well, I was11 mentioning this earlier, that part of it is12 whether or not you offer loans in the first13 place, but you do offer loans and there’s, as14 Patrick was saying, there’s some advantages of a15 distribution for those facing hardships versus16 the -- using the loan provision so I can see that17 aspect of it.18 And we also do have clients, so I will19 say that our -- we’re looking at plans across20 whole slew of types, right, public plans,21 corporate plans, nonprofits, and some are22 adopting all of the provisions and the argument23 for that would be that what’s allowable by law24 we’re going to allow as a plan because of the25 severity of this situation and we don’t want to

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1 prohibit our participants from accessing a2 provision that is allowable by law.3 So that’s been the argument there when4 we’ve been discussing it internally at Callan and5 also in some discussions with clients, but like I6 said, it is client specific and plan specific and7 the approach we’ve taken at Callan is that the8 RMD is required. There’s no board decision9 there, but the other decisions are fiduciary10 decisions that a board should make and document,11 and there’s not a right answer to them.12 DIANA JONES RITTER: This is Diana13 speaking. So I need just a little bit more14 clarity on the loans. Yes, we have the other15 options. Yes, we’ve always allowed loans and I16 am interpreting this as saying that we would17 increase -- we would increase the amount of the18 loan that individuals can take. So I’m not clear19 on what would be -- what, again, to use this20 word, what the risk would be to the member with21 this provision, if we were to allow it.22 DAVID FISCHER: Good question. When23 you bring it from the perspective of risk, I24 don’t think it was much a question of risk as25 that more from a perspective of we have other

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1 alternatives that are less complex and easier2 understood. I mean, the truth of the matter is3 most folks taking these types of loans are very4 likely not to get paid, so they would have to pay5 the tax all in one year versus taking a6 distribution, you can spread it out over three7 years if you so elect.8 I mean, it’s typically a better9 situation. If we didn’t -- you have to take,10 kind of break the participants up into groups.11 So obviously, anybody who’s not considered a12 qualified individual if it had no impact on them.13 So it’s only these qualified individuals. And it14 would only be those qualified individuals who15 don’t already have a loan outstanding that could16 even utilize this.17 So you have somebody with no loan and18 they could either take this $100,000 loan and19 then have to immediately have payments on a loan20 with interest, or they can take -- but we also21 offer the option of a distribution. It just22 strikes -- from an understandability perspective23 in probably most cases, the distribution method24 is probably a better method for them. These25 aren’t temporary expenses that are going to get

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1 paid back.2 I mean, these are where people have had3 a substantial permanent loss of assets. They4 don’t have a job. They have to pay their rent,5 that type of thing. And if they don’t have the6 money now to pay that, those -- it’s not likely7 they’re going to have the money in the future. I8 mean, I don’t have a strong feeling. If it’s9 something that the board things that we should10 include, we certainly can.11 We could also make these decisions and12 then look at this again in our May meeting. Now13 this one, I think, is a little less timely. But14 as Tom said, there’s also a view that we’ve had15 in the past that we allow whatever the law16 allows, and I can accept that as well. I -- but17 I will tell you that I think there will be a lot18 of misunderstanding in trying to execute these19 loans.20 DIANA JONES RITTER: This is Diana21 speaking. So that’s another one of my questions,22 because what I’m hearing you say is that the23 members will have access to the distributions and24 that really covers what this would allow, in a25 different way. That’s what I’m hearing. And

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1 maybe in a way, that advantages the member in2 terms of paying back and things like that.3 So the question to Nationwide is, how4 would you -- I mean, even if it’s complex, we5 have a duty to be able to find ways to6 communicate these things of complexity to our7 members so they can understand them. So I do8 understand that it could be very complex, but9 we’re really good at what we do and we can find10 ways to do that.11 I’m going to ask Nationwide in terms of12 when our members are calling the call center and13 they’re asking about the distributions and if we14 were to have the loan, how would you describe the15 two to our members in a way that they would16 understand and -- just thinking about our members17 and how that information might be conveyed. I18 mean, David, Blake, you have comments on this and19 I’m going -- you want to weigh in on this, I’m20 open as well. I’m just trying to understand it a21 little more from the members’ perspective.22 DAVID NATOLI: This is Dave Natoli.23 DIANA JONES RITTER: Okay, Dave.24 DAVID NATOLI: This is Dave Natoli. So25 from my view is that the provisions that we’re

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1 discussing from a members’ perspective is for2 them to have access to their money, if necessary.3 They have to self-certify. The loan provision, I4 would agree with what Dave Fischer as well as the5 lawyers have said and in the short term, I do not6 think today that we should approve this. We have7 another board meeting scheduled, I believe, in8 May.9 We have another one in the fall, and if10 warranted, we could review this and look at it11 again and, if necessary, reconsider it. But at12 this point, I’m not in favor of doing this.13 DIANA JONES RITTER: Okay.14 BLAKE WASHINGTON: This is Blake15 Washington here. Regardless of this action, plan16 participants’ ability to access a loan under base17 -- under current law remains unimpeded, correct?18 DAVID FISCHER: Correct.19 BLAKE WASHINGTON: Okay. So combining20 that with the other action we’ve taken, certainly21 gets -- carries the ball down the field quite a22 way. I think it’s worth delaying a decision on23 this particular piece until we start to see a24 little bit more facts on the ground here. Just,25 I think, from the fiduciary responsibility, it

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1 just makes sense to just, as Dave said earlier,2 pump the brakes a little bit and just try to see3 what universe is out there.4 Maybe in the next month or so, our5 friends at Callan or NRS can start to give us6 some utilization criteria -- or utilization7 experience so we can better -- have more informed8 judgment. Because the best judgment I have now9 is just, is protecting the people in the plan and10 if we have the base loan in place plus the other11 provisions we’ve accepted, that goes a long way,12 so...13 DAVID FISCHER: Because if you think14 about it, a person who doesn’t have a loan15 outstanding could take $100,000 withdrawal and a16 $50,000 loan under the current plan. I mean,17 that’s $150,000.18 BLAKE WASHINGTON: Right. Correct.19 That’s what was running through my mind. Yeah.20 DAVID FISCHER: Right. If this21 distribution methodology wasn’t generous, let’s22 say it was limited to $10,000 or whatever, I23 think I’d have a whole different view, but the24 fact that you can withdraw $100,000 out, that’s25 quite a bit and I mean, the concern is that I

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1 have just from a retirement planning perspective,2 is I hope -- although, we can’t do anything other3 than try to educate folks -- that this may be4 looked as an opportunity to get at money and --5 that they don’t really need to withdraw, but6 we’re going to just do our best efforts as far as7 helping people along that route.8 DIANA JONES RITTER: This is Diana.9 I’d like to summarize that, then, that we -- and10 I’m comfortable doing this as well -- that we11 will defer a decision regarding this loan12 provision and we’re doing so because the members13 will have continued access to loans and14 distributions even in amounts that exceed what15 this -- addition loan provision would provide so16 that by deferring this, we are not impacting our17 members’ ability in this very difficult time to18 access loans and distributions. Is that a fair19 summary?20 DAVID FISCHER: Yes. I would like to21 say that I think we -- if we’re going to have the22 extension of the loans, I do have language for a23 motion if you’d like to entertain that.24 DIANA JONES RITTER: I would like to25 entertain the extension of the loans. Blake?

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1 Dave?2 BLAKE WASHINGTON: Yeah, I think that3 makes perfect sense, the loan extender of4 repayment is a laudable thing.5 DIANA JONES RITTER: David? Okay --6 DAVID NATOLI: I agree.7 DIANA JONES RITTER: The8 recommendation, Dave?9 DAVID FISCHER: Yes. I’d like a motion10 to authorize extensions to qualified individuals11 of loan payments pursuant to the CARES Act of12 2020 and to make required amendments to the state13 plan documents.14 DIANA JONES RITTER: Okay. The15 recommendation’s been made. Is there a motion to16 proceed?17 BLAKE WASHINGTON: Blake Washington.18 Motion to proceed.19 DIANA JONES RITTER: Is there a second?20 DAVID NATOLI: Seconded.21 DIANA JONES RITTER: Motion’s been22 properly --23 DAVID NATOLI: Seconded, Dave Natoli.24 DIANA JONES RITTER: -- made and25 seconded. The motion carries.

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1 DAVID FISCHER: Okay, we do have one2 other issue, too. We also have authority the3 model plans and the model plan document. I was4 going to suggest a motion which allows the model5 plan sponsors to use any of the provisions that6 are available under the CARES Act and to make the7 required amendments because in this case, then,8 each individual model plan sponsor can decide9 which of these provisions they wish to include,10 the distributions and any of the element of the11 loans.12 I don’t know of any reason to limit13 their access to any of these provisions, so, I14 mean, I don’t know if you have a discussion on15 it, but...16 BLAKE WASHINGTON: Hey, Dave --17 DIANA JONES RITTER: This is Diana.18 I’m comfortable with it. Blake?19 BLAKE WASHINGTON: Just a quick20 question. For all the model plans, do each of21 them have loan powers now or does that vary by22 plan?23 DAVID FISCHER: That varies plan by24 plan. The way the model plan is designed is to25 have the base plan document in what we call

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1 Schedule A, and Schedule A is where the model2 plan sponsors select various features of the plan3 and there’s a number of them.4 BLAKE WASHINGTON: Okay, so I --5 DAVID FISCHER: This would be --6 BLAKE WASHINGTON: Yeah, my question7 was just be to, if they did not have loan8 repayment -- loan authorization under current9 practice, if they needed to access that under10 these terms, then that would be desirable, so I11 think your recommendation is a good one.12 DAVID FISCHER: Okay. Well, I’d like a13 motion to authorize model plan sponsors to enact14 any provision of the CARES Act of 2020 related to15 governmental Section 457(b) plans to make16 required amendments to the model plan document.17 DAVID NATOLI: This is Dave Natoli.18 I’d like to make that motion.19 BLAKE WASHINGTON: Blake Washington.20 Second that motion.21 DIANA JONES RITTER: This is Diana.22 The motion’s been made and properly second, so23 that motion carries. David, and -- thank you,24 and I want to thank everyone for all of the work.25 This is very complex. It’s very challenging.

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1 This is a very challenging time for us2 and our members, and I think by the actions that3 we’ve taken today, we’ve shown our consideration4 for the members and our fiduciary5 responsibilities really, really well. So is6 there any other business, David?7 DAVID FISCHER: Not from my end.8 DIANA JONES RITTER: Or any other9 comments from anyone, any of our partners on the10 phone? Is there anything that anyone wants to11 share?12 DAVID FISCHER: I would make one13 comments, just that our partners really have been14 partners through this process. Everybody on the15 line here has been working with us in just the16 best way. I mean, high levels of communication17 and good advice.18 DIANA JONES RITTER: That’s terrific,19 yes. That was a silent applause from Blake and20 all of us for the partnership and when the tough21 gets going, this group is just amazing, so I want22 to second that, David, that we have a great team23 of partners and we really take good care of our24 fund on behalf of our members.25 So hearing no other business, is there

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1 a motion to adjourn?2 DAVID NATOLI: I’d like to make a3 motion to adjourn. This is Dave Natoli. Keep up4 the good work.5 DIANA JONES RITTER: Terrific. Is6 there a second?7 BLAKE WASHINGTON: I’ll make that8 second, and thanks to all on the call for all9 your hard work and thoughtfulness. And good luck10 to each.11 DIANA JONES RITTER: Yeah. Motion’s12 been made and second, so we’re in adjournment,13 and be well and stay healthy everyone. Thank14 you. Bye bye.1516171819202122232425

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1 C E R T I F I C A T I O N23 I, Sonya Ledanski Hyde, certify that the4 foregoing transcript is a true and accurate5 record of the proceedings.6789 __________________________________1011 Veritext Legal Solutions12 330 Old Country Road13 Suite 30014 Mineola, NY 115011516 Date: April 16, 2020171819202122232425

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