orange county employee deferred compensation program september 30, 2008
TRANSCRIPT
Orange County
Employee DeferredCompensation Program
September 30, 2008
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Background
Optional defined contribution program (Section 457 Plan)
Supplements Florida Retirement System County is fiduciary and sponsor of
program (per IRS regulations) Program is funded through employee
contributions Employees allowed to contribute salary
before federal taxes
Background
Current participating agencies Board of County Commissioners Clerk of Courts Comptroller Property Appraiser Supervisor of Elections Tax Collector
Sheriff has separate program
Background
Current Investment Providers ING – 1976 ICMA – 1983 Nationwide – 1989
None of the providers were selected through a competitive procurement process
Background
Recent national attention regarding fees and expenses of retirement programs (401(k) plans, IRAs, 457 plans)
Fiduciary responsibility Fundamental principle – all
decisions/actions must be in best interests of participants
Fees and expenses must be reasonable and adequately disclosed (transparency)
Background
In 2004, investigated joining State of Florida’s Deferred Compensation Program Logical extension to our primary
retirement system (FRS) Recently completed an RFP for
investment providers Legislative change needed did not
materialize
Background
County began investigating other alternatives including monitoring of Sheriff’s competitive process
In July 2008, County hired independent consultant (The Bogdahn Group)
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Single vs. Multiple Provider Plans
Single provider plans Create economies of scale Higher quality plans at lower cost Less costly to administer Allows simpler, well-constructed
investment menu
Single vs. Multiple Provider Plans
Multiple provider plans More expensive More costly to administer Too many investment choices
increases complexity (confuses participants)
Academic studies confirm too many investment choices results in poor investment decisions/outcomes for participants
Single vs. Multiple Provider Plans
Per the Consultant – “It is our opinion that it is imperative that Orange County immediately move away from the current multiple vendor approach.”
Consultant, Board staff and Comptroller staff unanimously recommend single provider model
Presentation OutlinePresentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Examples of procurements excluded from the competitive bid/RFP process:• Agreements with non-profit
organizations• Purchases from state or federal
contracts• “Awarded bids by any local, state, or
national governmental agency, cooperative purchasing organizations, or purchasing associations” (termed “piggybacking” or “cooperative purchasing”)
Procurement Ordinance
Other Government Contracts
“Piggybacking” Defined: Utilizes existing contracts at other
public agencies Vendor must agree to honor the
contract Use same terms, conditions, pricing Original contract must have been
awarded through equivalent procedures
Procurement Ordinance
Other Government Contract Examples Other governmental agencies have
“piggybacked” from Orange County contracts for the following: Health Insurance Electrical supplies Uniforms Automotive parts and supplies Security guard services Temporary labor Dairy and food products Insecticides
Procurement OrdinanceProcurement Ordinance
Orange County has “piggybacked” other governmental contracts for the following: Heavy equipment in Fire Rescue Barcode scanning equipment Contracted staff Website translation Document imaging IT hardware and software IT consulting services
Procurement Ordinance
Other Government Contract Examples
“Piggybacking”: Assuring the Process is Correct* The County’s contract must be
substantially the same as the contract piggybacked Terms and conditions Pricing Scope of work
The other agency must have followed similar procedures as Orange County for award
Must stay within the same market area as the agency from whom piggybacking was done *Source: Software Vendors vs. Sarasota County
Procurement OrdinanceProcurement Ordinance
“Piggybacking”: Assuring a Good Price 1. Is the contract we would sign essentially
the same as the one signed by the other agency?
2. Did the other agency follow their own procurement process rules?
3. Did the other agency follow the same process that we would have followed?
4. Did the other agency competitively procure the services or commodities?
5. Were potential providers offered an opportunity to submit a bid or proposal?
6. Are the potential providers generally the same as those we would normally use?
Procurement Ordinance
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Sheriff’s Deferred Compensation Program
In May 2006, RFP issued for investment providers Single provider model RFP included four areas: Service, Cost,
Investments, Spanish Addendum Mailed to 18 investment providers (including
ING and Nationwide) 13 proposals received and evaluated
Sheriff selected Vanguard and successfully transitioned in November 2006
Sheriff’s Deferred Compensation Program
Consultant performed due diligence review of Sheriff’s competitive procurement process
Was the process adequate?
Was the RFP comprehensive?
Were all providers given an opportunity to respond?
Was the procurement conducted in a fair, open and impartial manner?
Sheriff’s Deferred Compensation Program
Consultant’s findings and conclusions Sheriff’s RFP was adequately
advertised and distributed Information requested was
comprehensive and provided necessary tools to make an informed decision
Evaluation process was thorough and fair
Produced an excellent result
Sheriff’s program results Implemented November 2006 Substantially lower annual fees and
expenses Simpler, well-constructed investment menu
(County currently has almost 200 investment choices)
No termination fees 17% increase in number of participants 45% increase in amount of contributions
Sheriff’s Deferred Compensation Program
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Cost Comparison
Consultant attempted to compare annual fees and expenses of current providers with Vanguard ING and Nationwide did not
disclose all fees Consultant required to use
estimates County has experienced same
situation for years
Cost ComparisonEstimated Annual Plan Expenses
and Termination Fees
PercentagePercentageDollarDollar
TotalTotal
DollarsDollars
PerPer
ParticipantParticipantTerminationTermination
FeeFee
ICMA-RCICMA-RC 1.36%1.36% $170,751$170,751 $313$313 00
INGING 1.12%1.12% $592,855$592,855 $283$283 $434,892$434,892
NationwideNationwide 1.14%1.14% $764,345$764,345 $299$299 $904,000$904,000
TotalTotal $1,527,951$1,527,951 $294$294 $1,338,892$1,338,892
VanguardVanguard 0.47%0.47% $623,976$623,976 $125$125 $0$0
Cost Comparison
Over 20 year period, additional 1% annual charge for fees reduces a participant’s account balance by 17% - U.S. Government Accountability Office and U.S. Department of Labor
Cost Comparison
7% Return7% Return(0.5%)(0.5%) Fee Fee6.5% Yield6.5% Yield
$70,500$70,500
U.S. Government Accountability OfficeU.S. Government Accountability Office
$20,000 Upfront Investment$20,000 Upfront Investment
For 20 YearsFor 20 Years
Cost Comparison
7% Return7% Return(0.5%)(0.5%) Fee Fee6.5% Yield6.5% Yield
$70,500$70,500
$58,400$58,400
7% Return7% Return(1.5%)(1.5%) Fee Fee5.5% Yield5.5% Yield
$12,100 Less $12,100 Less 17%17%
U.S. Government Accountability OfficeU.S. Government Accountability Office
Cost Comparison
7% Return7% Return(0.5%)(0.5%) Fee Fee6.5% Yield6.5% Yield
$70,500$70,500
$58,400$58,400
$48,300$48,300
7% Return7% Return(1.5%)(1.5%) Fee Fee5.5% Yield5.5% Yield
7% Return7% Return(2.5%)(2.5%) Fee Fee4.5% Yield4.5% Yield
$12,100 Less $12,100 Less 17%17% $22,200 Less $22,200 Less
32%32%
U.S. Government Accountability OfficeU.S. Government Accountability Office
Evaluation
Consultant’s rating of County’s program vs. Sheriff’s program Scale from negative -10 to positive
+10 County’s current program - negative -
7 or negative -8 Sheriff’s current single provider
structure with Vanguard - positive +6 to a positive +8
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Transition Plan
Extensive communications program to employees
On-site meetings
Web-site assistance
Frequently asked questions (FAQ) brochure
All new contributions and majority of existing funds will be transferred to Vanguard
Transition Plan
Transfer of existing funds Employees have option to direct transfer to
investments of their choice (e.g., to similar investments)
If employee does not specify, funds automatically transferred (“mapped”) to age appropriate Vanguard Target Retirement Fund
Target retirement funds provide for automatic stocks and bonds allocation strategy for a specific retirement date
Transition Plan
For existing funds subject to termination fees, employees will have option to leave funds with current providers until termination fees no longer apply
Vanguard successfully managed similar transition for Sheriff
Estimated transition date – January/February 2009
Presentation Outline
Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation
Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations
Summary and Recommendations
Lower fees for our employees
Fair procurement process
Fiduciary responsibility
Summary and Recommendations
Consultant, Board staff and Comptroller staff recommend “piggybacking” off Sheriff’s contract as follows: Contract with Vanguard for
investment provider services (Vanguard and Dimensional Fund Advisors)
Contract with Vanguard for third party record keeping services
Term of contract would be 5 years with one 5-year renewal
Per the Consultant – “We believe that it would be a serious failure of fiduciary responsibility for the County to delay, even if that delay would be in connection with doing a new RFP on the model that OCSO conducted. Participants require the immediate cost reductions that “piggybacking” on the OCSO RFP will provide.”
Summary and Recommendations
Next Steps September 30
Board approval to piggyback on Sheriff’s contract with Vanguard
October thru December 2008
Education/communications program with employees
January/February 2009
Conversion (transfer of funds) to Vanguard
Summary and Recommendations
Action Requested
Board approval to contract with Vanguard for third party record keeping services, and with Vanguard and Dimensional Fund Advisors for investment provider services for the County’s Deferred Compensation Program under the same provisions of the Orange County Sheriff’s Office contract pursuant to the “piggybacking” provision of Section 17-312(d), Orange County Code to include Board approval and authorization for the Mayor to execute the final Trust Agreement and Recordkeeping Fee Agreement with Vanguard. The term of the agreements would be for five (5) years with one five (5) year renewal.
Orange County
Employee DeferredCompensation Program
September 30, 2008