ESBD_453821_1760556092931_NEW IPS 6.2024 Deferred Comp Plan.pdf

TRAVIS COUNTY HEALTHCARE DISTRICT DEFERRED COMPENSATION PLAN

INVESTMENT POLICY STATEMENT

I. THE PLAN

The Travis County Healthcare District (“the Sponsor”) sponsors the Travis County Healthcare District Deferred Compensation Plan (“the Plan”) to provide eligible employees with the long-term accumulation of retirement savings through contributions to individual investment accounts within the Plan.

The Plan is intended to qualify as an employee benefit plan subject to all applicable federal laws, including without limitation, the Internal Revenue Code of 1986 (“IRC”), as amended, and the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, as well as any rules and regulations associated with those statutes.

Because the Sponsor recognizes the Plan’s participants and beneficiaries will have differing investment objectives, risk tolerances, and time horizons, the Plan provides participants with the authority to direct the investments within their own accounts. In order to comply with ERISA §404(c) and to limit its liability for investment decisions made by the Plan’s participants, the Plan will make at least three (3) different investment options that reasonably span the risk/return spectrum to enable participants to construct diversified portfolios based upon their individual circumstances. The Plan will also ensure participants are provided with sufficient information to make informed decisions regarding the investment options offered through the Plan.

In addition, the Plan may utilize one or more qualified default investment alternatives (“QDIAs”) when participants have not directed, or cannot direct, investment choices in their accounts. These QDIAs are intended to meet the requirements necessary to qualify for the safe harbor relief granted to a retirement plan’s fiduciaries under ERISA §404(c)(5).

II. ROLES AND RESPONSIBILITIES WITH RESPECT TO PLAN INVESTMENTS

To assist with its administration and management of the Plan, the Sponsor may assign some or all of its authority over the Plan’s investment options to one or more individuals or committees (collectively referred to herein as “the Investment Fiduciaries”). Specifically, the Investment Fiduciaries may be assigned responsibility, separately or collectively, for:

establishing and maintaining this Investment Policy Statement (“this IPS”);

selecting the investment options that may be made available to the Plan’s participants and beneficiaries, including one or more QDIAs;

periodically monitoring the performance of the Plan’s investment options and, if necessary, making appropriate adjustments;

hiring any investment advisors/managers the Investment Fiduciaries determine, in their sole discretion, will help them in discharging their duties; or overseeing the investment education and communications provided to the Plan’s participants.

III. THE PURPOSE OF THE INVESTMENT POLICY STATEMENT

The purpose of this IPS is to assist the Investment Fiduciaries in making prudent decisions by outlining underlying philosophies and processes to be used in the selection, monitoring, and evaluation of investment options to be offered under the Plan. However, while this IPS describes specific acts and criteria, it is not intended to serve as a rule book. Instead, its purpose is to help guide the Investment Fiduciaries in their considerations. In addition, this IPS is intended to be a flexible document the Investment Fiduciaries (as then comprised) may amend as relevant factors, in their sole discretion, so dictate.

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

IV. INVESTMENT OBJECTIVES

In order to comply with ERISA §404(c), the Investment Fiduciaries should endeavor to select a minimum of at least three (3) available investment options that:

provide exposure to a broad range of investments options in various asset classes that will allow participants to construct diversified portfolios based upon their individual circumstances;

have a history of affording a reasonable return compared to similar investment options within those asset classes, at prudent levels of risk;

charge fees that are reasonable, considering the overall net effect the investment options will have on the plan’s net operating costs; and include one or more QDIAs.

V. SELECTION OF INVESTMENT OPTIONS

As the Investment Fiduciaries consider investment options that will allow participants to construct diversified portfolios, they may group investments into general asset classes that provide for varying levels of potential risk and return. These asset classes may include, without limitation:

Conservative Investments

Cash and liquid investments such as money market, stable value, and/or guaranteed interest accounts.

Income Investments

Income-oriented managed investments such as bond funds consisting of low, medium, and/or high quality grade bonds of short, intermediate, and/or long term durations.

Management styles may include in domestic and/or foreign securities, as well as actively and passively managed funds.

Equity Investments

Accounts that invest in domestic and/or foreign securities, including shares in companies with small, medium, and/or large market capitalization. Management styles include actively and passively managed funds designated as value, blend, and/or growth oriented.

Balanced Funds

Funds that invest in a combination of conservative, income, and/or equity investments;

“fund of funds” accounts that combine several of these above investments into one or a series of investments; and “manager of managers” accounts that combine several different investment styles and/or fund managers into one or a series of accounts.

Other Investment Options

Funds that are designed to track the performance of a given sector of the economy or region of the world; real estate and/or real estate investment trusts; alternative investments; and/or separate accounts managed through a group annuity contract.

QDIAs

A fund or funds that meet the requirements of a QDIA under ERISA §404(c)(5). The selected QDIA(s) will be used for any participant contribution (employee or employer) for which participant’s direction has not been received.

After determining which asset classes should be represented in the Plan’s investment lineup, the Investment Fiduciaries can evaluate and select the specific investment options that will be made available in each of those categories. In order to be considered for inclusion in the Plan’s offerings, an investment option should generally meet the following minimum standards:

Its investment performance should not significantly lag the median return for an appropriate, style-specific benchmark and/or peer group.

Its specific risk and risk-adjusted return measures should be within a reasonable range relative to an appropriate, style-specific benchmark and/or peer group.

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

Its fees should be competitive compared with similar investments. In this regard, though, the Investment Fiduciaries may take into account the net expense the Plan would owe after receipt of the revenue share offered by the investment option.

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

Special Considerations for Selection of QDIAs: The default investment(s) designed as the Plan’s QDIA(s) may be any of the following types of alternatives, which are designed to provide for long-term growth while minimizing the risk of large losses:

an investment product that changes its asset allocation and risk based on the employee’s age, projected retirement date, or life expectancy (for example, a target date fund);

a product that takes into account a group of employees as a whole to determine an appropriate level of investment risk (for example, a balanced fund);

an investment management service that spreads contributions among plan options to provide an asset mix that takes into account the individual’s age, projected retirement date, or life expectancy (for example, a professionally managed account); or any additional QDIA types that are subsequently enacted by Congress or approved by the

Department of Labor.

Special Considerations for Selection of Target Date Funds: If the Investment Committee decides to offer one or more target date funds as an investment option for the Plan (whether as a QDIA or otherwise), they may consider the additional factors set forth in attached Appendix A – “Target Date Fund Selection and Monitoring Process for the Plan.”

VI. INVESTMENT MONITORING

The Investment Fiduciaries should periodically monitor the Plan’s investment options to ensure they continue to meet the Plan’s investment objectives and to assess whether each available option continues to be appropriate for the Plan.

In addition to the criteria listed in Section V. Selection of Investment Options, the Investment Fiduciaries may consider the following factors when conducting their review of the Plan’s investment options:

political, social, regulatory, and economic changes that are likely to have a significant effect on the risks and returns associated with the various types of asset classes;

the performance of alternative investments within the same or similar asset classes;

an analysis of how the Plan’s current participants are utilizing the existing investment options, as well as anticipated changes to the Plan’s participant demographics; and any other relevant factors that may have a significant impact on the Plan, its participants and beneficiaries, or available investment options.

While these reviews will typically occur pursuant to a regular timeline developed by the Investment Fiduciaries, they may also consider and act upon unusual, notable, or extraordinary events that occur prior to the scheduled review.

VII. INVESTMENT REPLACEMENT

Experience has shown that frequent changes to investment options based upon short-term fluctuations in markets are generally neither expected nor desirable. Therefore, it is advisable for the Investment Fiduciaries to evaluate the performance of specific investment options from a long-term perspective.

For example, the Investment Fiduciaries may consider terminating an investment option if, over an extended period of time, it:

significantly underperforms without a justifiable rationale;

fails to achieve performance and risk objectives; or fails to maintain a consistent investment style.

In this regard, the Investment Fiduciaries may develop, or instruct the Plan’s investment advisor to develop, a scorecard for monitoring the performance of the Plan’s investment options based upon relevant factors, including without limitation the criteria listed above. The Investment Fiduciaries may then use the scorecard to determine whether it should consider placing the investment option on a “watch list” and, if it remains on the “watch list” over a given number of consecutive quarters, evaluate it for possible removal and/or replacement.

Similarly, the Investment Fiduciaries may consider:

the anticipated ability of the investment option to perform in the future;

a change in the management of the investment option, as well as any legal or regulatory proceedings that may have a significant effect on it;

a material change to the investment processes used by the investment option; or any other development, or anticipated development, that could have a significant effect on the investment option’s future risk and/or expected return.

However, there are no hard and fast rules for determining when investment should be removed as an option under the Plan, and the Investment Fiduciaries may take action at any time and for whatever reason they deem appropriate, including a determination the investment is no longer suitable for the Plan’s participants.

Once the Investment Fiduciaries determine an investment option should no longer be offered, they may take one of the following approaches:

remove and replace (map assets) to an alternative investment option; or remove the investment option and do not provide a replacement investment option.

Whatever decisions the Investment Fiduciaries may make, they are advised to maintain written records relating to retention, termination, and/or replace of each investment option.

VIII. ASSISTANCE WITH INVESTMENT DECISIONS

Investment Advisors

The Investment Fiduciaries may contract with an individual or firm to serve as the Plan’s investment advisor. In selecting an appropriate investment advisor, the Investment Committee should ensure the selected individual or firm:

Is properly authorized to provide investment advice in the Plan’s home state;

Is currently in good standing with all applicable regulatory bodies that have jurisdiction over the advisor’s provision of investment advice;

Has the requisite experience to provide investment advice to the Plan;

Will provide investment advice in a manner that is free from any undisclosed conflicts of interest; and

Has provided the disclosures required by ERISA §408(b)(2), including all compensation the advisor will receive in connection with providing the advice as well as confirmation it will be acting in a fiduciary capacity pursuant to ERISA §3(21)(A)(ii) when providing investment advice.

While the investment advisor will have a fiduciary duty to act in the best interests of the Plan’s participants and beneficiaries, its primary function should be to assist the Investment Fiduciaries in their duties to select and monitor the investment options to be offered under the Plan. In that regard, the Investment Fiduciaries are not required to act upon any recommendations offered by the investment advisor. Instead, the Investment Fiduciaries will retain the final authority to make such decisions based upon their best judgment.

Investment Managers

The Investment Fiduciaries may contract with an individual or firm to serve as the Plan’s investment manager. In selecting an appropriate investment manager, the Investment Fiduciaries should ensure the selected individual or firm:

Is properly authorized to provide investment management in the Plan’s home state;

Is currently in good standing with all applicable regulatory bodies that have jurisdiction over the advisor’s provision of investment management;

Has the requisite experience to manage the Plan’s investment options on a discretionary basis;

Will manage the Plan’s investment options in a manner that is free from any undisclosed conflicts of interest; and

Has provided the disclosures required by ERISA §408(b)(2), including all compensation the advisor will receive in connection with providing the advice as well as confirmation it will be acting in a fiduciary capacity pursuant to ERISA §3(38) when providing investment advice.

Pursuant to ERISA §3(38), an investment manager has discretionary authority to make decisions regarding the Plan’s investment options without obtaining the Investment Fiduciaries’ approval.

As a result, if an investment manager is hired, the roles and responsibilities assigned to the Investment Fiduciaries regarding the selection and monitoring of the Plan’s investment options, as well as the liability for performing those duties, will be transferred to the investment manager.

However, the Investment Fiduciaries will have a duty to periodically review the investment manager’s activities to ensure they are consistent with the principles outlined in this document.

In addition, the Investment Fiduciaries shall, at all times, retain the ability to terminate or restrict any investment manager’s authority, as well as to hire a different or additional investment manager and/or investment advisor as the Investment Fiduciaries, in their sole discretion, deem appropriate.

IX. PARTICIPANT EDUCATION AND COMMUNICATION

As a participant-directed defined contribution plan, the Plan has a duty under ERISA §404(c) to provide the Plan’s participants with sufficient information to make informed decisions regarding the investment options offered through the Plan. Therefore, the Sponsor may assign the Investment Fiduciaries the task of helping to ensure the Plan’s eligible participants receive any investment-related communications necessary for making educated and informed choices.

This may include the provision of periodic Plan enrollment and/or investment education to eligible participants. In this regard, the Investment Fiduciaries may determine the most efficient medium for providing this education (written materials, electronic messaging, live or web conferencing, one-on-one meetings, etc.). In addition, the Investment Fiduciaries may delegate this enrollment and/or investment education to the Plan’s investment advisor or other vendor.

The Plan’s responsibility to provide investment education does not include a duty to provide individualized investment advice to any participants or beneficiaries. However, the Investment Fiduciaries may decide to offer individualized investment advice to participants and/or beneficiaries by authorizing one or more investment advisors to provide this service or by making managed investment account options available under the Plan.

X. COORDINATION WITH THE PLAN’S GOVERNING DOCUMENTS

If any term or condition of this IPS conflicts with the Plan’s governing documents or ERISA, the terms and conditions of those governing documents and/or ERISA shall control.

By their individual signatures or the signature of their authorized designee, below, the Plan Fiduciaries (as currently comprised) hereby represent they have reviewed and adopted this IPS with the intent that it be applicable until amended, terminated, or replaced by the Plan Fiduciaries (as then comprised) in the future.

Authorized Signature:

Date of Adoption:

Appendix A - Target Date Fund Selection and Monitoring Process for the Plan.

Introduction to Goals and Objectives of a Target Date Solution

The purpose of this supplement to the plan’s Investment Policy statement is to document the criteria the Committee has used for selecting and monitoring the Target Date Solution utilized in our plan. The Committee hopes this information can be useful to future Committee members as they continue to evaluate the plan’s target date needs.

Target date portfolios are a group of mutual funds or collective investment trusts designed to assist a 401k participant with investing for retirement. The individual mutual funds are comprised of a variety of asset classes designed to gear the appropriate risk allocation for the desired year of retirement. The funds will gradually adjust their allocations from an aggressive allocation to a more conservative allocation as that retirement date nears. This adjustment in the allocation of the target date series over time is called a glidepath.

These target date solutions have different goals, objectives, and structures than investments that focus on a singular asset class (e.g. Large Growth Fund). Accordingly, we note from the outset that the process used for evaluating a Target Date Solution is much different from that used for evaluating other investment choices in the plan.

The Committee considered implementing a customized target date solution for a plan of our size and determined the ongoing costs to effectively administer and execute a customized solution were prohibitive. However, the Committee has also noted that there are a wide variety of philosophies and target date structures available in the target date marketplace for implementing a solution appropriate for the participants in the plan.

The basic goal of our retirement plan is to provide our participants a vehicle for them to defer enough of their own money so that they have a means of maintaining a comfortable lifestyle in retirement. Our goal when evaluating target date solutions is to find a simplified investment tool that hopefully increases the chances for those who save enough of their own income to have sufficient resources to replace their income needs in retirement.

Potential Demographic Factors

The following are potential demographic factors the Committee considered when selecting and monitoring our target date solution. As a result, future Committee members may want to consider these factors, along with others they deem relevant, as they continue to evaluate the plan’s target date needs:

• The ages of our participants.

• The deferral rates of the participants in our plan.

• The compensation of our employees and/or participants.

• The current balances of the participants in the plan.

• Whether the company retirement plan is the primary retirement savings vehicle for our employees.

• How many of our employees take a complete distribution from the plan at or shortly after retirement/termination.

• How are our participants reacting when there are large swings in their portfolios.

Potential Factors for Selecting and Monitoring our Target Date Solution.

During the selection and review process of the target date provider for the Qualified Default Investment Alternative of the Plan, the Committee considered one or more of the following factors. As a result, future Committee members may want to consider these factors, along with others they deem relevant, as they continue to evaluate the plan’s target date needs:

Fund Objectives and Goals – Target date funds can be managed to different objectives and post retirement outcomes. The spectrum of goals range from managing towards less uncertainty and stable consumption versus higher uncertainty and consumption maximization.

Goal of Stable Consumption: This goal is focused on providing an account balance at retirement that supports a steady withdrawal of assets and manages towards participants that are loss averse. This goal will most likely use a more conservative glidepath, especially as retirement approaches, seeking to provide more downside protection. This goal typically leads to a relatively lower equity landing point at retirement. This goal may lead to less uncertainty in participant risk with a corresponding lower expected return profile.

Goal of Consumption Maximization: This goal attempts to maximize asset growth and account balance at retirement. A target date solution that utilizes a higher equity/risk strategy is usually managing towards the goal of minimizing longevity risk, or the likelihood that a person may outlive their assets. Higher equity/risk asset allocations usually mean higher volatility with hopefully higher long term absolute returns. This goal is typically supported by a relatively aggressive glidepath near or at retirement. This goal may result in more extreme outcomes, positive or negative, if markets significantly deviate. This goal typically leads to a comparatively higher equity landing point at retirement with typically a higher uncertainty in participant risk / reward profile.

Glidepath Characteristics - A large portion of the expected performance of the target date solution will be determined by the equity/risk asset glide path of the solution as it approaches a retirement date. A high percentage of the investment variance between the various target date funds is driven by asset allocation. The following are some characteristics of a glide path that may be considered when evaluating the glidepath.

Beginning Equity Allocation – Younger participants have more “human capital” and most of their accumulation phase is ahead of them so theoretically they should have more equity exposure. However, there has been some evidence that younger participants are more risk adverse than previous generations and many may not be able to stay invested in a portfolio with 100% equity exposure.

Rate of Equity Rolldown or Steepness of the Glidepath – There are some glide paths that are relatively steep with a significant drop in equity right before the targeted retirement date and conversely there are glide paths that are relatively flat with a slower rate of change in equity allocation across the glide path. There are rational reasons that support both types of glide paths.

Equity Landing Point – High equity exposure during a down market at retirement could have a significant impact on income drawdown. The level of equity chosen is often related to the conflicting goals of stable consumption versus consumption maximization. There are rational reasons for different equity landing points.

Post Retirement Phase –Should the equity allocation be static as long as it can support a sustainable withdrawal rate or should there be a higher equity exposure for 5–10 years into retirement to further maximize growth of assets.

There are rational reasons for both a “to” glidepath and a “through” glidepath.

Management Costs:

When evaluating the various Target Date Solutions, the Committee may want to compare the costs of the available share classes accounting for both the expense ratios and any corresponding revenue sharing to determine the net expense ratio of the fund. The Committee has found comparing the institutional share class of each target date series is probably the most appropriate expense comparison between the various target date providers.

Active or Passive Underlying Investment Management:

There are solutions that use a completely passive index approach with all the investment asset classes utilized in the target date solution. There are solutions that use predominately only active managers. There are solutions that use varying degrees of both passive and active managers. A passive index approach will normally cost less than an active asset manager. There are rational reasons for a target date philosophy to be predominately passive and there are rational reasons for a target date philosophy to be predominately active approaches.

Active or Passive Risk Glide Path and/or Asset Allocation:

There are some funds that have a completely passive risk glide path with a primary goal of not adjusting the allocation of the glide path over time. There are other choices that have targeted glide ranges that give the manager flexibility to adjust the underlying risk allocation in each vintage of fund. There can be some merit in allowing a manager to have some flexibility to adjust the glidepath allocation of the target date solution over time.

Underlying Asset Classes:

Every manager utilizes a variety of asset classes to provide diversifying benefits to the portfolio. There are a wide variety of philosophies on the asset classes that are needed to provide appropriate diversification. A manager should have flexibility to adjust asset classes to respond to market conditions if it believes these adjustments will help execute the goals of the target date solution.

Periodic Review of Target Date Solution Selected:

Although a target date provider has been selected, the Committee should periodically review the target date solution in view of:

• our demographic assumptions

• our company’s philosophy and objectives with our target date solution

• the philosophy of the target date provider

• the continuity of the management team at the target date provider

• the glide path or glide range of the investment solution from the target date provider

• the execution of the solution and its long term performance relative to benchmarks that are appropriate for evaluating the specific glide path utilized by the target date provider.

The review process for the target date series should take a long term viewpoint and should not make changes based on short term over performance or underperformance of the target date series relative to an arbitrary “peer group” established by outside agencies.