INVESTMENT SUBCOMMITTEE MEETING MINUTES

Date: December 18, 2008 Time: 11:00 a.m.
_ Regularly Scheduled X Special
Attendees: Was a quorum present? Yes
Commission Other Attendees
Peter Blum Brian Comer (ING)
Charlie Casella Tom Robers (ING)
Mary Marcial Tom Maniente (ING)
Robert Baus
Steven Greatorex
Comptroller's Office
Thomas Woodruff, Division Director
Margaret Haering, Assistant Director

Matters Discussed:
ING's suggested that we reduce the Stable Value Fund's credited interest rate for the 1st quarter of 2009. Because the contract provides for the crediting rate to remain constant for a full year, a waiver of the contractual provision would be required.

Brian Comer explained the reasons for ING's recommendation to lower the Stable Value Fund's crediting rate. His concern is that the market is uncertain and that interest rates are close to zero on government securities. The Stable Value Fund continues to experience large inflows of money, which could make managing the fund more difficult in the months ahead. Brian explained that new money cannot be invested at the present crediting rate of 5.02% and that it is inevitable in this environment that interest rates will be lowered in June.

If we wait until 6/30/09 to lower rates the funds may experience large outflows - either because equities rebound or because of the reduction in interest rates. It is likely that our market to book ratio will continue to deteriorate in the short-term. While ING believes that the mortgage backed securities (MBS) in the portfolio are good investments, the market is discounting all MBS that are not guaranteed by the federal government. To date, there have been no defaults in the MBS held by the fund.

If participants start withdrawing money en masse, we could be in a position of having to liquidate securities when prices are depressed. Brian said the ING was willing to waive contract provisions that allowed it to terminate the contract if the crediting rate went to 3.5 % and the market to book ratio declined to 0.95.

Materials Reviewed:
ING Interest rate calculation for 1st quarter of 2009
Stable Value Fund Renewal sheet.

Decisions voted upon:
The subcommittee will refer the issue to the full commission. No vote was taken.

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