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Home My WebLink AboutD-3 Staff Report - Consolidation of 457 Deferred Compensation PlansSCHEDULED ITEM D-3 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL VIA: SERGIO GONZALEZ, CITY MANAGER FROM: TANYA BRAGG, DIRECTOR OF HUMAN RESOURCES AND RISK MANAGEMENT DATE: MARCH 18, 2019 SUBJECT: CONSOLIDATION OF THE CITY’S 457(B) PLAN RECORD-KEEPING PLATFORMS FROM FOUR DIFFERENT PROVIDERS TO A SINGLE RECORD- KEEPING PLATFORM WITH MASSMUTUAL BACKGROUND: The City of Azusa provides employer sponsored deferred compensation plans under Section 457(b) of the Internal Revenue Code (“IRC”), herein known as “The Plan.” The Plan provides tax benefits to employees whom make deposits into the Plans on a pre-tax basis for their retirement. Currently, the City offers multiple plan providers, CalPERS, Nationwide, Lincoln, and ICMA-RC, and has managed the Plans with internal staff. Due to increasing fiduciary responsibilities related to administering and monitoring the Plans under the IRC and California law, staff is recommending that City Council approve the consolidation of the current four plans into a single record-keeping platform with MassMutual, thus MassMutual will be the record-keeper for a single 457(b) plan. RECOMMENDATION: Staff recommends that the City Council take the following action: 1.Approve the consolidation of the current four 457(b) deferred compensation plan record-keepers to a single record-keeping platform with MassMutual effective July 1, 2019 2.Authorize the City Manager, as the City’s Plan Administrator, to execute the necessary agreements in a form acceptable to the City Attorney. APPROVED CITY COUNCIL 3/18/2019 CONSOLIDATION OF THE CITY’S 457(B) PLAN RECORD-KEEPING PLATFORMS March 18, 2019 Page 2 ANALYSIS: Under Section 457(b) of the Internal Revenue Code, government entities may sponsor a deferred compensation plan, while meeting fiduciary responsibilities under California law, to allow employees to defer income tax on retirement savings into future years. For several years, the City has provided employer sponsored deferred compensation plans under Section 457(b) with four companies: CalPERS, Nationwide, Lincoln and ICMA-RC. Under the California State Constitution, Article XVI Section 17, government entities that sponsor a 457(b) have fiduciary responsibilities to ensure the operation and investment of the public retirement plan is for the exclusive purpose of providing benefits to participants and beneficiaries. The fiduciary responsibilities are to: •Invest the assets of the plan, •Administer the plan, •Engage in a prudent process for making all decisions related to the operation of the plan, including decisions related to the plan's investments and related services. Because of the complexity of the investment process and responsibilities, the City contracted with SFG Retirement Plan Consulting, LLC (“SFGRPC”), a retirement plan consultant and fiduciary, to conduct an audit of the contract terms, investment options and fees within the CalPERS, Nationwide, Lincoln and ICMA-RC plans. As a fiduciary, the City has a responsibility to control the investment choices made available in the plans with CalPERS, Nationwide, Lincoln and ICMA-RC and to ensure fees charged to participants are reasonable The RFP included a review of all contract related data, including but not limited to: administrative fees associated with those plans, investment options, asset values, fixed account interest rates, and additional fees that may be charged by the plans. SFGRPC also compared the information obtained through the RFP with other record-keepers to determine whether the incumbent Plan fees were reasonable through a formal Request for Proposal (“RFP”) process to eight (8) record-keepers, including Nationwide, Lincoln and ICMA-RC. An RFP was not sent to CalPERS as the CalPERS investment platform is limited and does not provide for a custom comprehensive investment menu. Based on SFGRPC's analysis and marketing results, it was determined that the plan participants as a whole would benefit by consolidating from four record-keepers to a single record-keeper. MassMutual, Prudential, Voya and Lincoln provided the most competitive results and services. Staff and SFGRPC presented the RFP results to the representatives of each of the City’s bargaining groups. Based on the RFP results and feedback from the bargaining groups, MassMutual was tentatively selected as the new single record-keeper pending a final meeting with MassMutual. By aggregating plan assets and selecting MassMutual as the single record-keeper, the City has the opportunity to reduce plan and investment fees by $123,194, enhance the investment options, and provide participants a higher than average fixed interest rate. The fixed interest rate for 457(b) participants will increase from a blended 2.60% to 4.25%, an estimated positive impact of $155,580. The combination of fee savings and fixed interest earnings provides an estimated $278,774 positive impact to plan assets, benefiting participants CONSOLIDATION OF THE CITY’S 457(B) PLAN RECORD-KEEPING PLATFORMS March 18, 2019 Page 3 based on their asset allocation. Staff and SFGRPC met with representatives from MassMutual’s sales, service and conversion teams to obtain an understanding of the conversion process, and confirm their service capabilities which include a proprietary technology called TRAK Gap Analysis that incorporates exact CalPERS tiers and the ability to model projected retirement income utilizing the CalPERS retirement benefit options, 457(b) assets and outside assets that will be used for retirement. Based upon the positive financial impact and enhanced services participants will receive, Staff is recommending City Council approve the consolidation of the current four 457(b) deferred compensation plan record-keepers to a single record-keeping platform with MassMutual effective July 1, 2019. FISCAL IMPACT: There is no fiscal impact associated with the recommended action. For those employees participating in the new City’s deferred compensation plan, the benefit is lower fees and a higher blended fixed interest rate. Prepared by: Reviewed and Approved: Tanya Bragg, Sergio Gonzalez, Director of Human Resources & Risk Management City Manager