Attachment G - Investment Policy Statement 1-16-2020 signed.pdf

INVESTMENT POLICY STATEMENT

SENIOR MANAGEMENT SERVICE OPTIONAL ANNUITY PROGRAM

STATE UNIVERSITY OPTIONAL RETIREMENT PROGRAM

PART I. THE PLAN: SENIOR MANAGEMENT SERVICE OPTIONAL ANNUITY PROGRAM

STATE UNIVERSITY OPTIONAL RETIREMENT PROGRAM

State of Florida (the “Plan Sponsor”) sponsors the Senior Management Service Optional Annuity Program and the State University Optional Retirement Program (the “Plan”) for the benefit of its employees. The Plan is intended to provide eligible employees with the long-term accumulation of retirement savings through contributions to the individual participant accounts within the Plan.

The Plan is not subject to the Internal Revenue Code of 1986, as amended, and/or the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended.

This IPS does not cover employer stock, illiquid assets held by the Plan, and/or self-directed brokerage accounts or similar arrangements that enable participants to select investments beyond those designated by the Plan.

The officers, individuals and/or investment committee named in or established under the Plan documents as having responsibility for the management of the Plan’s investments are referred to in this IPS as the “Plan Fiduciary.”

Part II. THE PURPOSE OF THE INVESTMENT POLICY STATEMENT

The Plan Fiduciary has important responsibilities and is subject to fiduciary standards of conduct under ERISA. These responsibilities include:

➢ Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;

➢ Carrying out their duties prudently;

➢ Following the plan documents;

➢ Diversifying plan investments; and

➢ Paying only reasonable total plan expenses.

This IPS is intended to assist the Plan Fiduciary in making decisions regarding the Plan’s investment options in a prudent manner. To achieve that objective, the IPS outlines the processes for the selection, monitoring and evaluation of the investment options in the Plan. This IPS sets out criteria that may be used by the Plan Fiduciary as guidance in making decisions regarding the investment options available under the Plan.

Specifically, this IPS describes:

➢ The Plan’s investment objectives;

➢ The roles of those responsible for the Plan’s investments;

➢ The investment selection procedures and criteria for the Plan’s investments;

➢ The monitoring process for the Plan’s investments; and

➢ The procedures for handling investment options that fail to satisfy established objectives.

Part III. INVESTMENT OBJECTIVES

The Plan seeks to make available investment options that:

➢ Provide reasonable returns compared to appropriate peer groups and indices;

➢ Provide a broad range of investments so that employees can diversify investments within an investment category;

➢ Provide a minimum of three different investment options with differing risk and return characteristics

Part IV. ROLES AND RESPONSIBILITIES WITH RESPECT TO PLAN INVESTMENTS

The Plan Fiduciary is responsible for:

➢ Establishing and maintaining this IPS;

➢ Reviewing this IPS periodically, and making such changes to this IPS as deemed appropriate from time to time;

➢ Selecting the investment options;

➢ Voting proxies on investment options selected;

➢ Monitoring the performance of the investment options offered by the Plan and making investment changes;

➢ Hiring and monitoring an investment advisor;

➢ Hiring and monitoring an investment consultant, if applicable; and

➢ Overseeing participant investment education and communication.

The Investment Advisor is responsible for providing investment advice on non-discretionary basis to the Plan Fiduciary regarding the selection and monitoring of the Plan’s investment options. The specific responsibilities of the Investment Advisor are set out in the investment advisory agreement.

Part V. SELECTION OF INVESTMENTS

The Plan Fiduciary is responsible for the selection of the investment options to be made available to participants. This Part discusses the considerations and guidelines for fulfilling that fiduciary duty.

Selection of Investment Categories

The Plan intends to provide an appropriate range of investment categories that will reasonably span the risk-and-return spectrum that satisfies the “broad range” criteria that is consistent with the investment needs of the participants. These investment categories, and the options chosen to fill those categories, are intended to allow participants to construct portfolios consistent with their individual circumstances; for example, their goals, time horizons and tolerances for risk. To accomplish that goal, the Plan Fiduciary will select from among the investment categories listed on Appendix A (entitled “Investment Categories”) to this IPS, but is not required to and does not intend to have all options available at any given time. Where appropriate, the Plan Fiduciary may include additional investment categories.

Selection of Investment Options

After determining the investment categories to be used, the Plan Fiduciary is responsible for selecting specific investment options for each of those categories.

As the Plan Fiduciary engages in the process of selecting the investment options, they may consider information from many sources, including information that may be provided by investment advisor, the Plan’s recordkeeper or other retirement plan investment provider.

Attached as Appendix B (entitled “Investment Review Scorecard Process”) is a current description of the methodology and scoring of investment options that may be used in the process for the selection of investment options for the Plan. The Plan Fiduciary has reviewed the methodology of the process and has determined that it is appropriate for the Plan and the participants.

A list of the current investment options and their benchmark indices will be maintained separately and updated from time to time.

The Plan Fiduciary shall maintain written records of decisions relating to the choice and ongoing monitoring of investment options under the Plan. Such records may be in the form of minutes taken of meetings, that note such things, for example, as time and place, attendees, matters discussed, and decisions reached. The written records may include documents or materials used by the Plan Fiduciary in its decision-making process.

Part VI. INVESTMENT MONITORING

The Plan Fiduciary will regularly monitor the Plan’s investment options and investment categories for compliance with the Plan’s investment objective and to assess whether a particular investment option continues to be appropriate for participants.

While frequent change is neither expected nor desirable, the process of monitoring investment performance relative to specified guidelines is an ongoing process. Recognizing that short-term fluctuations may cause variations in performance, when monitoring investments under the Plan, the Plan Fiduciary evaluates investment performance from a long-term perspective.

Monitoring occurs on a regular basis and utilizes the same criteria that were the basis of the investment selection decision. It is contemplated, but not mandated, that the Plan Fiduciary will conduct a formal review at least quarterly. Further, the Plan Fiduciary seeks to consider any unusual, notable or extraordinary events on a current basis.

If, upon evaluation, an investment option continues to be acceptable, no further action is required. If after evaluation of an option, the Plan Fiduciary determines that it should be subject to heightened review, the Plan Fiduciary will take steps to further review, study and/or remedy the deficiency. If over a reasonable period the provider is unable to resolve the issue, termination may result (see Part VII).

Attached as Appendix C (entitled “Investment Selection and Monitoring Process”) is a current description of the process that may be used by the Investment Advisor for reviewing whether an investment option has underperformed and an explanation of the process, which the Investment Advisor may follow if engaged to provide investment monitoring services. The Plan Fiduciary has reviewed that process and have determined that it is suitable and appropriate for the Plan. Therefore, the Plan Fiduciary has adopted this process, methodology and scoring system described in Appendices B and C for purposes of monitoring the investment options.

VII. INVESTMENT OPTION TERMINATION

There are no hard and fast rules for investment option termination. The ultimate decision to retain or terminate an investment option cannot be made by a formula. However, the Plan Fiduciary may consider the investment option’s anticipated ability to perform in the future when determining whether to retain an investment option.

In addition to those above, other factors may include manager turnover, legal or regulatory proceedings, or material change to investment processes. Of course, the Plan Fiduciary also may remove any investment option at any time and for whatever reason they deem appropriate, including a determination that the investment is no longer suitable for the Participants.

For an investment option to be terminated, one of the following approaches may be taken:

➢ Remove and replace (map assets) to an alternative investment option.

➢ Freeze the investment option, but add a competing investment option for new contributions.

➢ Remove the investment option and do not provide a replacement investment option.

Replacement of a terminated option would follow the criteria outlined in Part V, Selection of Investments.

The guidelines in this IPS, and in this Part VII, are to assist, but not bind, the Plan Fiduciary. In that regard, the Plan Fiduciary should exercise discretion and considered judgment in the termination and replacement process. It is the intention of the Plan Fiduciary to maintain written records of decisions relating to the decision of retaining or terminating an investment option.

Part VIII. COORDINATION WITH THE PLAN DOCUMENT

If any term or condition of this IPS conflicts with the Plan, the terms and conditions of the Plan shall control.

The Plan Fiduciary has reviewed the IPS and agrees that the IPS accurately reflects the intent of the Plan Fiduciary with regard to the range of investments, objectives and criteria for selection, and evaluation of investment options within the Plan.

Date adopted: January 16, 2020

Adopted by Plan Fiduciary:

Print Name: Joyce W. Morgan Sign Name:

APPENDIX A

INVESTMENT CATEGORIES

Equity Investment Categories

Large Cap Growth

Large Cap Value

Mid Cap Growth

Mid Cap Value

Small Cap Growth

Small Cap Value

International Equity

Emerging Markets

ESG/Social Responsibility

Real Estate

Energy

Blended Equity/Fixed

Target Date Funds

Fixed Income

Short Term Bond

Intermediate Term Bond

Long Term Bond

High Yield Floating Rate Bond International Bond

APPENDIX B

INVESTMENT REVIEW SCORECARD PROCESS

The following generally describes the process the Plan Fiduciary follows in evaluating investment options for the Plan.

The Investment Scorecard utilizes a pass/fail system to evaluate 7 criteria as identified below.

Performance versus the Benchmark – a fund passes these criteria if its return is superior to the assigned benchmark on a quarter and year-to-date basis. This metric evaluates the fund’s overall performance in its asset class.

Sharpe Ratio – a measure of risk-adjusted return. A fund passes this criterion if its Sharpe Ratio is greater than the assigned benchmark for the quarter. Sharpe Ratio uses Standard Deviation as the risk statistic. Measured using monthly data over a five-year span. This metric describes the excess return a fund provides for the risk it takes.

Rank in Category – a fund passes this criterion if it ranks in the top 50th percentile of its peer group, on a five-year basis. This metric identifies the fund’s percentile rank in the category.

Operating Expense Ratio - A favorable score is earned if the investment's expenses are in line with the asset class top quartile ratio. Operating expenses reduce the net asset value of a mutual fund and work against its performance. A low expense ratio is imperative.

Manager Tenure - A fund passes this criterion if the longest tenured manager is greater than five years, OR the fund's longest tenured manager is greater than the category average as calculated by

Morningstar, whichever is shorter. Manager tenure can indicate a manager who is aging and nearing retirement, or an inexperienced manager.

Standard Deviation is a measure of risk; the higher the standard deviation, the more risk a fund has taken on to achieve performance. A fund earns a passing score on this metric if it has taken less risk than the benchmark.

Scoring:

6 or 7 is considered a passing score 5 fund to be watch-listed 4 or below may be a fund to replace

APPENDIX C

INVESTMENT SELECTION AND MONITORING PROCESS

INVESTMENT SELECTION PROCESS

The particular investment under consideration should meet the following standards for selection:

➢ Investment performance should be competitive with the median return for an appropriate, style-specific benchmark and peer group.

➢ Specific risk and risk-adjusted return measures should be reviewed by the Plan Fiduciary and be within a reasonable range relative to appropriate, style-specific benchmark and peer group.

➢ It should demonstrate adherence to the stated investment objective, without excess style drift over trailing performance periods, for funds in a similar investment category.

➢ Fees should be competitive compared with similar investments.

➢ The investment manager should be able to provide portfolio holdings, performance, and other relevant information in a timely fashion, with specified frequency.

➢ The investment should not score four or fewer points on the seven-point Investment Review Scorecard.

INVESTMENT MONITORING PROCESS

Based upon objective criteria as described in Appendix B, each fund will be attributed an overall investment score with a maximum of seven points. A score of five or fewer points will typically result in the fund being placed on a “Watch List.”

The fund can emerge from the “Watch List” by achieving a subsequent score of six points or higher. If the fund remains on the “Watch List” for four consecutive quarters it will be subject to possible elimination from the Plan.

The Plan Fiduciary may adjust the score upward to accommodate for a more stringent watch list threshold.

Of course, the Plan Fiduciary can take other relevant, material facts and circumstances into consideration when monitoring investments, whether or not they are on the “Watch List.”

The seven-point due diligence process does not apply to funds with less than 5 years of history (3 years of history for Target Date funds).