Our hearts and minds are with the Ukrainian people and their families and loved ones, as they face unprovoked Russian aggression with resolve and courage. We express our fervent prayers for peace and resolution alongside yours and millions of others.

We thought you would appreciate a brief update on financial markets and your retirement savings, considering the significant volatility, and wanted to address any impact from Russian domiciled assets.

What is happening: The backdrop

The U.S. stock market started the year at elevated prices and valuations, after three years of above average returns. As a reminder, the S&P 500, which tracks large cap U.S. stocks, returned over 28% last year.

Inflation is at a 40 year high of 7.5%, and you have no doubt been impacted by rising costs. The U.S. Federal Reserve (Fed) no longer views inflation as transitory and has become increasingly focused on using their tools to address rising costs through interest rate increases.

Investors expect the Fed to start raising interest rates at the Federal Open Market Committee (FOMC) meeting on March 16th and to continue to do so throughout 2022 and 2023 to combat inflation.

The Fed also needs to start to reduce its $8.9 trillion balance sheet around midyear 2022.

Investors worried that tighter monetary policy will impact financial assets and started selling at the start of 2022. Rising interest rates cast doubts on former market leaders (technology and other growth stocks) that traded at higher valuations, hence the sell off. This process was expected, as some level of correction was seen as healthy for the market longer term, particularly when a recession was not expected.

The unexpected happened: Russia started military aggression on the night of February 23

• Markets sold off initially then rebounded, followed by frequent, large intraday moves and volatility as the magnitude of the invasion became clearer.
• In terms of outlook for interest rates, a prolonged war could change things for the Fed who may slow down the pace of interest rate increases. The obvious uncertainties may lead to a more balanced approach, which could be viewed as a relief to financial assets.
• In terms of equity markets, if a recession can be avoided, the downdraft we have already experienced may reflect a good portion of potential declines. However, the region-by-region impact will vary, with Europe and certain Emerging Markets bearing a greater impact from slowing recoveries and higher cost of imported goods, including energy.

What is the Pension Boards doing?

We continue to work diligently on your behalf. Our internal investment team, that has experience through many prior market downturns, is working closely with our investment consultant, and with external investment managers to protect your assets and provide potential upside when opportunities arise.

In times of uncertainty vigilant eyes and steady hands are more important than ever. We have constant dialogues with managers, market participants, policy observers and geopolitical experts, and we can act where appropriate to rebalance portfolios. Some situations like war are less predictable. High uncertainty and investors changing sentiment can whipsaw investors. What is most important is to be aware that volatile market moves can penalize rash and untimely decisions.

In terms of direct exposure to Russia, it is limited. Russia securities exposure (as of February 28, 2022) is less than 0.08% of overall assets managed on participants’ behalf. This is a tribute to diversification, the role active managers play in anticipation of events, and product design. For example, the Global Sustainability Index Fund, the Sustainable Balanced Fund, and the Stable Value Fund, all for active participants, have no direct Russian securities exposure. As for the remaining holdings, the Pension Boards relies on our external managers to value and make decisions on holdings, as we hold indirectly. Rest assured we are in contact with those managers on liquidity of holdings and future plans.

What should you do?

Saving for retirement, you should focus, always, on the appropriate asset allocation, or mix among stocks, bonds, and cash/stable value investments, and your long-term retirement objectives. It is rarely wise to react to shorter-term market movements. The easiest way to avoid that is to invest in the Target Annuitization Date (TAD) Fund nearest to your retirement date. Again, these funds are more aggressive early in your career, and become more risk averse as retirement approaches, by owning less equities and more bonds and stable value investments.

Our capable and responsive Member Services staff is available to you. Please contact the Pension Boards at 1.800.642.6543 with questions about fund information, performance, strategy, and approach.

If you have questions about your unique financial situation, please contact an Ernst & Young (EY) financial planner, available at no cost to you. Visit the EY Navigate™ website at https://pbucc.eynavigate.com/ or call the EY Navigate™ Financial Planner Line at 1.877.927.1047, Monday through Friday from 9:00 a.m. to 8:00 p.m. (ET).

We will get through this together and will do it well, thoughtfully, and with the deepest care for you, our members.