CC MEETING: July 12, 2016
DATE: July 5, 2016
TO: Leonard Martin, City Manager
FROM: Chrystal Davis, Director of Workforce Services and Bob Scott, Assistant City Manager/CFO
Title
Consider Authorizing The City Manager To Enter Into A Contract With ICMA-RC For Administration Of The City’s Deferred Compensation, Retiree Health Savings, and Social Security Substitute (OBRA) Investment Plans.
Body
BACKGROUND:
Since the early 1980’s, the city has offered its employees the opportunity to save for retirement through an IRS Code Section 457 deferred compensation plan which is similar to the private sector’s 401(k) plans. Over the years the city also added a 401(a) plan-which is no longer active- and two retiree health savings (RHS) plans, one now closed to new investment due to changes in IRS regulations and one serving as a defined contribution substitute for any employee with less than 20 years of service as of January 1, 2009. This defined contribution RHS plan replaces the defined benefit retiree health benefit plan that is now closed to new participants. In addition, changing IRS regulation required the city to establish a social security substitute plan for temporary and non-benefitted contract employees. These various plans are currently administered by ICMA-RC and Nationwide. ICMA-RC administers a 457, both RHS plans and the 401a plan. Nationwide administers a 457 and the social security substitute plan.
While effectively outsourcing the administration of these plans to the two providers, applicable statutes and related case law create a fiduciary responsibility on the part of the city to ensure that only appropriate investments are offered to plan participants and that the plan administrators are acting appropriately. In performing these fiduciary responsibilities, the city determined that it would be in both the City’s and plan participants best interest to consolidate administration of the participant’s approximately $86 million of investments to a single provider through a competitive request for proposal (RFP) process. The goals for the RFP were to:
Ø Reduce investment expenses for plan participants thereby increasing their effective rate of return.
Ø Streamline and improve investment offerings with the same investments available to all participants.
Ø Ensure high quality customer service and educational programs as well as access to financial planning services.
Ø Streamline and facilitate fiduciary monitoring on the part of the city by consolidating all programs to a single provider and offering fewer but very high quality investment options to participants.
On September 1, 2015, the city council approved the Hyas Group to assist the city in preparing and evaluating the RFP. Upon issuance of the RFP, the City Manager appointed eight employees to a Deferred Compensation Employee Advisory (DCEA) committee. These employees work in both supervisory and non-supervisory positions for the following departments: police, fire, environmental services, building inspections, parks, traffic operations, transit oriented development and streets.
FINANCIAL IMPLICATIONS:
The administrator of the various plans is compensated through participant fees based on the investment balances of each participant. There is no financial impact to the city.
STAFF RECOMMENDATION/ACTION DESIRED:
Seven proposals were received from Empower, Nationwide, ICMA-RC Lincoln Financial, MassMutual, National Life Group, and Voya. The first five firms were interviewed by the DCEA and ultimately they recommended Lincoln Financial and ICMA-RC to city management for negotiations. Following extensive negotiations, DCEA met and voted to support pursuit of a contract with ICMA-RC. Negotiated rates for the consolidated contract represent a significant reduction in investment expense borne by plan participants and this contract should meet all goals of the RFP as stated above (reduced costs, enhanced services, streamlined investment offerings, streamlined administration etc.).
Therefore it is DCEA and staff recommendation that the city council authorize the city manager to negotiate a contract with ICMA-RC for a ten year term.