Deferred Comp Report

My term as representative on the deferred compensation committee is up! I would like to continue for one more term as there are a few goals left that I'd like to accomplish. (see my note on natural resources below) However, if someone has a strong desire to serve on this committee I will gladly step down. If you are interested or know someone that is, please send a paragraph or two with the reasons why you want to represent the TSA on the deferred comp committee and what you want to accomplish. If you would like to know more about what we do you can contact me at ext 2628 or send an email to tom_hartman@tempe.gov.

On April 16th the Deferred Comp Committee met to review the plan results for the quarter ending December 31, 2007. Quarterly results are available 6 weeks after quarter end, so 1st quarter 2008 (Mar 31) results will be reviewed in May. There are 19 funds to choose from (with one open slot) as well as two guaranteed fixed (cash) funds and five Great West Profile funds.

Great West provided additional information to the committed this time that, in my opinion, was extremely useful. They broke out plan (401k/457) and fund participation, growth and distribution by asset class; contribution and disbursement history; and KeyTalk and Internet statistics. This was in addition to the fund performance peer review based on 3, 5 and 10 year returns, Sharpe ratios, and Morningstar Ratings for the previous 12 quarters. These are the analytical criteria we use to determine if a fund should be replaced. If the overall rating is below the funds benchmark for 4 consecutive quarters or 7 out of the past 12 quarters, it fails the analysis.

As of December 31, 2007:

• Plan Assets were $76.39 million dollars ($46.17 million in 2003)
  
• Plan Assets grew by $9.12 million dollars in 2007
• Contributions were $7.05 million dollars in 2007 ($7.24 million in 2006)
  
• There were 2,971 participants
• Average Account Balance was $25,713 in 2007
• Average Funds per account = 3
  
• Top 3 Asset Classes (in assets) were #1 International Stocks, #2 Large Cap Stocks, #3 Fixed Rate Funds
• Top 3 Funds (assets) were #1 Guaranteed Fixed Fund, #2 Vanguard 500 Index, #3 Dodge & Cox Balanced
• Internet Statistics: Average Distinct Visitors per month = 565, Average number of logins per visitor each month = 4

A motion to add a Roth 401k option to our plan passed. Contributions made to a Roth account are after tax, they do not lower your adjusted gross income so you don't get a tax break. However, withdrawals taken in retirement are not taxed because you paid the tax up front. In addition, the growth in income (returns) also isn't taxed. Something to think about. Withdrawals of contributions and returns in 401k/457 accounts are taxed, even though for many retirees the current rate is 15%. You should consult with your tax adviser to determine which option is best for you.

We also received good news about the popular Fidelity Low Priced Stock Fund. This fund had been closed to new contributions but is now re-opening.

I will propose adding a natural resources fund at our next meeting to fill the open fund slot. This would be considered a specialty fund. Currently the only other specialty fund is the Wells Fargo Specialized Technology Fund. Specialty funds are riskier due to their limited diversity.

The reason I think we should offer a fund that invests in companies related to natural resources (Energy, Metals, Agriculture) is that unlike tech stocks, junk bonds, and the trillions of high yield securities recently created by Wall Street; it is difficult to increase the supply of energy, agricultural commodities and many natural resources. Developing nations now hold $4.9 trillion in currency reserves, and most of it is in dollars. To meet demands due to rising standards of living, they have the ability to bid up the price of these resources. The entire landscape has been radically altered for key commodity and resource markets. The inflationary ramifications are significant. Inflation is especially cruel to retirees on fixed incomes. For most of us, deferred comp plans are the only significant option available to save for retirement. Therefore I believe we should be able to invest at least a portion of our portfolio in those things we cannot live without - food, energy and basic materials.

I have been searching for a socially responsible fund that is offered by Great West. As of yet I have not had any luck finding one thats strong enough to recommend.