orange county employee deferred compensation program september 30, 2008

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Orange County Employee Deferred Compensation Program September 30, 2008

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Page 1: Orange County Employee Deferred Compensation Program September 30, 2008

Orange County

Employee DeferredCompensation Program

September 30, 2008

Page 2: Orange County Employee Deferred Compensation 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

Page 3: Orange County Employee Deferred Compensation 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

Page 4: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 5: Orange County Employee Deferred Compensation Program September 30, 2008

Background

Current participating agencies Board of County Commissioners Clerk of Courts Comptroller Property Appraiser Supervisor of Elections Tax Collector

Sheriff has separate program

Page 6: Orange County Employee Deferred Compensation Program September 30, 2008

Background

Current Investment Providers ING – 1976 ICMA – 1983 Nationwide – 1989

None of the providers were selected through a competitive procurement process

Page 7: Orange County Employee Deferred Compensation Program September 30, 2008

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)

Page 8: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 9: Orange County Employee Deferred Compensation Program September 30, 2008

Background

County began investigating other alternatives including monitoring of Sheriff’s competitive process

In July 2008, County hired independent consultant (The Bogdahn Group)

Page 10: Orange County Employee Deferred Compensation 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

Page 11: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 12: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 14: Orange County Employee Deferred Compensation Program September 30, 2008

Presentation OutlinePresentation Outline

Background Single vs. Multiple Provider Plans Procurement Ordinance Sheriff’s Deferred Compensation

Program Cost Comparison and Evaluation Transition Plan Summary & Recommendations

Page 15: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 16: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 18: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 19: Orange County Employee Deferred Compensation Program September 30, 2008

“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

Page 20: Orange County Employee Deferred Compensation Program September 30, 2008

“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

Page 21: Orange County Employee Deferred Compensation 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

Page 22: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 23: Orange County Employee Deferred Compensation Program September 30, 2008

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?

Page 24: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 25: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 26: Orange County Employee Deferred Compensation 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

Page 28: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 29: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 30: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 31: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 32: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 33: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 34: Orange County Employee Deferred Compensation 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

Page 35: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 36: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 37: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 38: Orange County Employee Deferred Compensation 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

Page 39: Orange County Employee Deferred Compensation Program September 30, 2008

Summary and Recommendations

Lower fees for our employees

Fair procurement process

Fiduciary responsibility

Page 40: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 41: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 42: Orange County Employee Deferred Compensation Program September 30, 2008

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

Page 43: Orange County Employee Deferred Compensation Program September 30, 2008

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.

Page 44: Orange County Employee Deferred Compensation Program September 30, 2008

Orange County

Employee DeferredCompensation Program

September 30, 2008