Attachment 1 - SOW TSP C Fund.doc

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Statement of Work (SOW)

TIB-2015-RFP-0002

INVESTMENT MGT C FUND

Attachment 1

1.0 DESCRIPTION OF SERVICES

1.1 Introduction.

1.1.1 Mission. The Federal Retirement Thrift Investment Board (FRTIB, Board, TIB, or Agency), created by the Federal Employees’ Retirement System Act of 1986, administers the Thrift Savings Plan (TSP) for Federal employees. The TSP is a defined contribution plan similar to 401(k) plans in the private sector.

1.1.2 Scope. The Contractor shall receive and invest monies representing Thrift Savings Plan (TSP) cash flows in a manner consistent with the specifications, terms, and conditions set forth in the Statement of Work (SOW) and the contract. The work to be performed under this SOW applies to the management of the TSP Common Stock Index Investment Fund (C Fund).

1.1.3 Statutory Requirements. Title 5 of the United States Code, §§ 8438, 8472, and 8475, provides the major statutory requirements for TSP investments.

1.1.4 Definition of “Contractor.” Use of the term Contractor in this document and the contract is intended to apply collectively to the investment manager and any subcontractors or other entities, regardless of the affiliation with the manager, whom the manager may retain to provide the services described in this document, including custodian duties.

1.1.5 Description of the Thrift Savings Plan.

1.1.5.1 The TSP, which is administered by the FRTIB, is a retirement plan, similar to a 401(k) plan, offered to Federal employees. The following investment funds are offered within the TSP.

1.1.5.2: TSP Investment Funds

1.1.5.3 In addition to the above fund options, the TSP offers participants Lifecycle Funds options (L Funds) with predetermined investment mixes across major asset classes designed to meet participants’ investment objectives over various time horizons. The L Funds invest exclusively in the G, F, C, S, and I Funds.

1.1.5.4 All of the TSP funds are pre-notified funds, meaning that participant orders are received (by 12:00 noon ET) and transmitted, in aggregate, to the index fund manager by 2pm ET for settlement the next business day. Participants receive the closing net asset value (NAV) of the funds on the day the trade is initiated.

1.1.5.5 The C, S, I, and F Funds participate in securities lending. The cash collateral received against securities loans made from those Funds which are separate accounts is primarily invested in the G Fund. The cutoff for G Fund investment is 11:00 AM, ET. That is, in order for the Agency to redeem cash collateral from the G Fund, the Agency must have notice by 11:00 AM one business day prior to the transfer. Similarly, for cash collateral to be deposited into the G Fund, the credit to the Agency’s Treasury account must be received by 11:00 AM ET, in order to be included in that day’s investment in the G Fund.

1.2 General Requirements.

1.2.1 The contractor shall perform and/or provide the following:

1.2.1.1 Provide a primary point of contact to work with the TIB Contracting Officer’s Representative (COR) for items required in this contract.

1.2.1.2 Provide a primary point of contact to work with the TIB Contracting Officer (CO) for contract related items or issues.

1.2.1.3 Accept responsibility as a fiduciary pursuant to § 8477 of Title 5 of the United States Code for its acts and omissions in connection with the selection, purchase, investment, retention, management, and disposition of TSP assets and handle all fiduciary responsibilities described in § 8477 and § 8474 or other applicable laws related to the management or handling of financial assets. Award of this contract shall constitute an allocation by the Executive Director of certain responsibilities in accordance with § 2584.8477(e)-3(b) of title 29, Code of Federal Regulations. The Executive Director and the appropriate representative of the Contractor shall complete this allocation by affixing their signatures to Attachment 4.

2.0 Summary of Requirements

2.1 The contractor shall perform the following services and/or items:

2.1.1 Provide investment management services for the TSP C Fund.

2.1.2 Manage a daily-valued, passive, Standard and Poor’s 500 Index strategy in a separate account vehicle that accommodates daily cash flows.

2.1.3 Acting as FRTIB’s agent, the contractor shall conduct due diligence and retain and employ a custodial agent to create and maintain separate account vehicles for the custody of the above portfolio and to perform necessary administrative services relating to custody of the portfolio. The custodian bank shall act as a depository and custodian holding all assets as received from FRTIB. The contractor and its custodial agent shall hold such assets and provide services including fund valuation, the filing of claims on shareholder class action litigation and the processing of amounts thereby received, and “middle office services” such as trade confirmations and reconciliations. The FRTIB Contracting Officer (CO) may, in his sole discretion, direct the manager to terminate the custodial arrangement at any time and to move the assets to a different custodian.

2.1.4 Achieve, on a time-weighted basis, investment performance that closely tracks that of the underlying index, as measured and published by the index provider. The Board members will monitor tracking performance on a monthly basis.

2.1.5 Accommodate a daily deadline for trading on a pre-notified basis by 2:00 p.m. ET, with settlement the next business day. Participants receive the closing net asset value (NAV) of the funds on the day the trade is initiated.

2.1.6 Receive (or disburse) by wire transfer, and invest (or divest) TSP cash flows from (or to) the FRTIB and any asset manager(s) designated by the FRTIB as frequently as daily, subject to the discretion of the FRTIB. Between the time cash flows are received by the Contractor and invested in securities in the appropriate index, or otherwise to provide adequate liquidity for the proposed fund, the funds may be invested in the appropriate index futures contracts, or in secure, high quality, short-term, fixed-income securities (the cash account) that emphasize principal preservation and liquidity over yield enhancement.

2.1.7 Serve as a securities lending agent to lend securities in the separate account index fund portfolio managed on behalf of the TSP.

2.1.8 Manage a custom cash collateral reinvestment portfolio for the reinvestment of a portion of the cash collateral received against security loans.

2.1.8.1 Provide a solution that meets ongoing liquidity needs associated with cash collateral reinvestment activities, given the liquidity schedule of the G Fund.

2.1.9 Be responsible for all investment and operational activities relating to securities lending, including, but not limited to, approving counterparty borrowers, monitoring counterparty exposure, processing security recalls, etc.

2.1.10 Indemnify the TSP against losses resulting from counterparty/borrower default.

2.1.10.1 Establish a list of eligible borrowers and a maximum amount that may be borrowed by each borrower. Conduct ongoing reviews of borrowers' qualifications.

2.1.10.2 Require that all loans of securities be collateralized by either cash or U.S. Government securities.

2.1.10.3 Require competitive market levels of collateralization for domestic and international securities, including accrued income. Monitor collateral levels daily. Obtain additional collateral if mark-to-market values fall below acceptable levels.

2.1.10.4 Collect all interest or other distributions with respect to all loaned securities.

2.1.10.5 Make available a daily report of collateral, identifying daily collateral required and pledged, and a monthly report on securities lending activity and outstanding loans, including amounts by borrower.

2.1.11 To the extent TSP’s securities are lent to the provider’s affiliated entities, the provider shall have processes to ensure that loans made to such affiliates are in accordance with applicable laws and regulations, and are not economically disadvantageous to the TSP. The contractor will disclose the existence of any such loans to FRTIB within 30 days.

2.1.11.1 Shall provide the TSP regular reporting that provides evidence that loans made to its affiliated entities were not economically disadvantageous to the TSP and that loans were made at rates that are comparable to the rates for loans of similar securities to non-affiliated entities and/or are in line with market rates for such loans.

2.1.12 Execute all trades efficiently, with an emphasis on seeking best execution and compliance with fiduciary standards. Minimize trading costs, and upon request, provide an explanation of transactions incurring trading costs above the average trading costs associated with managing assets benchmarked to the respective index.

2.1.13 Address all corporate actions in a manner which will result in maximum financial benefit to TSP participants and in accordance with fiduciary responsibilities.

2.1.13.1 Provide the Board with a statement of proxy voting policies and periodic reports explaining any votes that are exceptions to stated policies. Provide updates as policies are revised. Within 60 days after the end of each quarter, provide a report prepared by an independent third party assessing the compliance of the fund with the Contractor’s proxy voting policy/guidelines.

2.1.13.2 Provide the Board a monthly report of class action settlement activity.

2.1.14 The Contractor shall submit earnings for each separate account daily, electronically in a format provided by the FRTIB. Earnings are calculated as of each TSP business day. Total net earnings include capital gain or loss (net of trading costs), dividend income, securities lending income, any income from the cash account, or any other income. The daily earnings figures are to be transmitted as soon as available each business day, but no later than 6:00 p.m. ET. Procedures must be established for notification of the Board and the TSP record keeper if the earnings figures are not transmitted by 6:00 p.m. ET. (In advance of receipt of the initial TSP assets, the Contractor must participate in testing the process for transmission of the electronic data file containing the daily earnings. Such testing may include earnings for the offered fund(s) based on hypothetical balances provided by the Board, and provision of any technical assistance required to establish the electronic data link with the Board’s recordkeeping system.)

2.1.15 Provide, no later than 3:00 p.m. ET the next business day after each trade date, a statement of assets and transaction summary report. The asset statement shall be comprised of a summary of the cost and market value of the assets held in the separate account reported in terms of the number of units of the unitized separate account that are held, and their cost, current unit value and total market value. The transaction summary report detailing each trade shall include the number of units purchased or sold, unit value, and trading costs (including purchased/sold accrued interest where applicable) and trading cost per unit. The unit value shall reflect dividends and other income credited since the last trade.

2.1.16 Accept the in-kind transfer of assets from the prior contractor into the proposed account at a minimal cost to the TSP.

2.1.17 Provide the Board’s auditor access to the firm’s personnel, operations, and records to perform the Board’s annual financial audit and semiannual financial reviews. This includes providing direct confirmations requested by the independent auditor, audited financial statements, and other documents such as audit reports on internal controls.

2.1.18 Provide the Department of Labor, and its authorized contractor(s), access to the firm’s personnel, operations, and records to perform fiduciary compliance audit(s).

2.1.19 Obtain from the Department of Labor any required exemptions from prohibited transaction restrictions contained in the Federal Employees’ Retirement System Act of 1986 (e.g., ability to utilize exchange traded funds), without charge to the TSP.

2.1.20 Provide information on any insurance policies that protect TSP assets against loss resulting from violations of fiduciary duty or errors and omissions. Provide information demonstrating compliance with the bonding requirements of § 8478 of Title 5 of the United States Code.

2.1.21 Transfer the assets to a separate or commingled account on the books of the Contractor or to a separate or commingled account with another contractor at the request of the Board upon 30 days’ written notice.

2.1.22 Provide Board staff access to all senior investment personnel.

2.1.23 Disaster Recovery Plan. The Contractor is required to have and maintain a disaster recovery plan, which includes critical business operations, computer systems, and telecommunications. Such plan shall be tested and/or updated annually. The contractor shall provide a copy of the annual test report to the FRTIB within 30 calendar days of the completion of the test. The disaster recovery plan shall include, but not be limited to, the following:

2.1.23.1 Emergency response procedures, including:

2.1.23.1.1 Step-by step instructions identifying explicit techniques to be used for responding to various emergency situations;

2.1.23.1.2 Identification of disaster recovery teams; and

2.1.23.1.3 An organizational chart and list of key personnel responsible for performing the disaster recovery actions as well as the priority of duties and lines of authority.

2.1.23.1.4 Backup site activation procedures which identify:

2.1.23.1.5 Backup site location; and

2.1.23.1.6 Backup site activation processes.

2.1.23.1.7 Primary site recovery procedures, including:

2.1.23.1.8 Instructions for accomplishing salvage operations;

2.1.23.1.9 A replacement acquisition strategy for hardware, software, telecommunications, etc.;

2.1.23.1.10 Facility reconstruction plans; and

2.1.23.1.11 Identification of personnel supporting the primary site recovery and the team(s) they support;

2.1.23.1.12 Primary site reactivation/normalization, procedures to ensure a smooth transition from the alternative processing site to the primary site; and a list of teams performing the various functions and the personnel assigned to those teams.

2.1.24 Monthly Reports shall include the following information. Provide all such reports electronically to the extent possible and in the format required by the Board.

2.1.24.1 Investment Activity – At a unitized level, all investment activity for the period: purchases and sales, with number of units, price, total cost/proceeds and realized gain or loss. This report must be available on a daily basis showing cumulative month to date activity.

2.1.24.2 Holdings – Provide website access to detailed holdings on a security level basis as of month end.

2.1.24.3 Investment Performance Tracking Reports and Attribution Reports: Performance results shall be time weighted rates of return for the separate account by month, calendar year to date, and for the last 12 months, presented with the corresponding benchmark returns and differences in period performance on the first business day after month end, as well as a performance attribution report by month and year to date within ten business days of each month end.

2.1.24.4 Securities Lending Reports – Provide a monthly report that includes amount of assets on loan, utilization rate, revenue earned, total spread attributed to intrinsic or reinvestment spread, collateral levels, and borrower exposure. Provide a monthly report on terms of new investments made with securities lending collateral.

2.1.25 Annual Reports. The contractor shall provide the following annually.

2.1.25.1 Evidence of fidelity bond and errors and omissions professional liability coverage.

2.1.25.2 Current Form ADV Parts 1 and 2.

2.1.25.3 An annual report regarding the diversity of the Contractor’s workforce in accordance with Pub. Law 111-31, Div. B, tit. I, sec. 105 to be provided to the FRTIB no later than April 30 of each year, relating to the previous calendar year.

2.1.25.4 Annual financial statements for the separate account that are audited and reviewed by an independent certified public accountant licensed by the contractor’s state of incorporation to perform such services.

2.1.25.5 Annual firm level financial statements that are audited and are prepared on an accrual basis of accounting by an independent certified public accountant licensed by the contractor’s state of incorporation to perform such services.

2.1.26 Provide firm level quarterly financial statements that are audited and are prepared on an accrual basis of accounting by an independent certified public accountant licensed by the contractor’s state of incorporation to perform such services.

2.2 Deliverables Management.

2.2.1 The contractor shall provide deliverables as specified herein. If a deliverable date falls on a weekend or holiday, the Contractor shall submit the deliverable on the last business day prior to the due date. Deliverables shall be submitted to the COR in an agreed upon format.

2.2.1.1 Deliverables Table

2.1.10.5 2.1.13.2 Submit within 15 days after each month to the COR or as noted.

2.1.15

6:00,PM ET

3:00 PM ET

3.0 PHASE-IN/PHASE-OUT

3.1 Services under this contract are vital to the FRTIB and must be continued without interruption .

3.1.2 The Contractor agrees to--

(1) Exercise its best efforts and cooperation to effect an orderly and efficient transition during both the phase-in and phase-out phases (if applicable).

(2) The Contractor shall, upon the Contracting Officer's written notice, (1) furnish phase-in services for up to 90 days after award of this agreement, and (2) negotiate in good faith a plan with the previous predecessor to determine the nature and extent of phase-in services required. The plan shall be subject to the Contracting Officer's approval. The Contractor shall provide sufficient experienced personnel during the phase-in period to ensure that the services called for by this agreement are maintained at the required level of proficiency.

(3) If the Contractor is not the successful offeror on a follow-on effort to this agreement then the Contractor shall, upon the Contracting Officer's written notice, (1) furnish phase-out services for up to 90 days after this agreement expires, and (2) negotiate in good faith a plan with a successor to determine the nature and extent of phase-out services required. The plan shall specify a date for transferring responsibilities of work described in the plan, and shall be subject to the Contracting Officer's approval. The Contractor shall provide sufficient experienced personnel during the phase-out period to ensure that the services called for by this agreement are maintained at the required level of proficiency. The Contractor shall allow as many personnel as practicable to remain on the job to help the successor maintain the continuity and consistency of the services required by this agreement.

Travel. The FRTIB may require that contractor personnel attend meetings in Washington, D.C. or other locations as required. Travel costs will not be reimbursed separately, rather the negotiated fees under the contract shall include all expenses including travel, lodging, and other allowable costs.

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