HomeMy WebLinkAboutAgenda Statement 1986/10/14 Item 08 Reso 12765COUNCIL AGENDA STATEMENT
Item 8
Meeting Date 10/14/86
ITEM TITLE: a) Resolution ~O~ ~ ~°~ Approving renewal of Deferred
Compensation Plan Agreement with Great Western Savings
b) Resolution Approving execution of the ICMA
Retirement Trust, adopting the Trust Agreement, and appointing
ICMA Retirement Corporation as Trustee
SUBMITTED BY: Director of Finance ~~~
REVIEWED BY: City Managerl~ (4/5ths Vote: Yes No X )
On July 23, 1974, the City Council approved a Deferred Compensation Plan for
the City of Chula Vista. Since the establishment of the Plan, Great Western
Savings has been the sole depository for the City's deferred compensation
funds. The City would like to provide additional investment options for
employees to defer their monies into in order to encourage employees to
participate in the City's Deferred Compensation Plan. To that end, staff has
surveyed and evaluated other deferred compensation programs.
Accordingly, staff is recommending that employees be offered an opportunity to
participate in two deferred compensation programs: Great Western Savings
(currently offered) and ICMA Retirement Corporation.
RECOMMENDATION:
That Council approve Resolutions establishing two deferred compensation
programs for the employees of the City of Chula Vista.
BOARDS/COMMISSIONS RECOMMENDATION: Plot Applicable.
DISCUSSION:
The Finance Department sent Request for Proposals to several firms offering
deferred compensation programs. Three firms responded by submitting proposals:
1. Great West Life
2. Great Western Savings
3. ICh1A Retirement Corporation
An evaluation committee composed of the Director of Finance, Assistant
Director of Finance, and a Principal Management Analyst invited the three
firms to an interview where they were given an opportunity to offer more
detail on their deferred compensation programs and answer questions from staff.
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During the interviews, the evaluation committee rated the three firms and
proposals on the following basis:
1. 2U points - General experience and knowledge including number of
public agencies and employees serviced in California.
2. 55 points - Administration of the City's Deferred Compensation Plan
including plan enro ment, participant counseling, administrative
fees, and reporting format.
3. 80 points - Investment options including range of options, past
performance, fees, allocation flexibility and guaranteed interest
rates.
4. 45 points - Benefit payments including assistance to participants in
setting payment schedules, flexibility of payment options, payout
fees, and preparation of annual wage and earnings forms.
The evaluation and rating by staff concluded that Great Western Savings and
ICMA Retirement Corporation offered the most attractive deferred compensation
programs in terms of experience, transferability of contributions, fees, and
guaranteed interest rates.
GREAT WESTERN SAVINGS
Chula Vista has used Great Western Savings Deferred Compensation Program for
the past 11 years. All monies deferred by employees have gone into Great
Western Savings Indexed Account (Guaranteed Interest Rate).
Great Western serves 195 public agencies in the State of California with over
64,000 employees currently enrolled. Great Western has consistently offered
very attractive guaranteed interest rates as part of its Deferred Compensation
Program. Under our current three year contract with Great Western, which
expires October 25, 1986, participants have earned a minimum 10% interest rate
on their deferred funds for the past three years.
With the proposed new three year contract, the guaranteed minimum interest
rate has been lowered to 7.6%, which is still attractive in today's market.
The interest rate payable each month is actually established by using
whichever one of the following indices that results in the highest rate:
A. The rate of interest in effect on the last business day of the
calendar month for 90 day market rate accounts at Great Western.
B. A rate of interest determined on the last business day of each
calendar month equal to the 180 day United States Government Treasury
Bill discount rate, as set by the last Treasury Bill auction held
before the last business day of the month plus 25 basis points.
C. 7.6% per annum.
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Meeting Date 1 1 86
Fees - Great Western Savings imposes no administrative fees or charges to the
City or participants for its guaranteed savings account.
Contract - The proposed three-year contract with Great Western Savings has
only two changes from the current contract: 1) the minimum guaranteed
interest rate has been lowered from 10% to 7.6% to reflect changing market
conditions; 2) the current contract names Great Western Savings as the
exclusive provider of a deferred compensation program for Chula Vista. This
exclusiveness has been deleted from the proposed contract.
Great Western Savings will continue to provide enrollment services, maintain
records and reports on all participants, distribute quarterly financial
reports, and payout benefits as instructed.
ICMA RETIREMENT CORPORATION
Since 1972, the ICMA Retirement Corporation (RC) has administered deferred
compensation retirement plans exclusively for local government employees. RC
is non-profit corporation governed by a Board of Directors composed of
executives of local agencies and therefore familiar with local government
concerns.
RC currently administers the largest single pool of local government deferred
assets, with a trust fund balance in excess of $650 million. Nationally, over
2,250 local governments offer this deferred compensation plan to their
employees with the total number of employees enrolled in RC in excess of
68,000. In the State of California, RC serves 255 employers and has over
7,100 participants enrolled in the plan. Local agencies in San Diego County
that belong to RC include the Cities of Coronado, Carlsbad, Escondido, La
Mesa, National City, Oceanside, Poway, Santee, and San Diego Association of
Governments.
RC offers four investment options open to all participants. Taken together,
these options allow an employee to participate in the major investment
categories considered prudent for retirement planning. The categories are:
guaranteed investment contracts, equities (stocks), corporate bonds, and
government securities as described below:
1. Guaranteed Fund - The guaranteed fund offers protection of principal and a
guaranteed rate of return for a specified period of time. The return is
underwritten by guaranteed insurance contracts and similar types of
securities. There is no reduction in the guarantee for any reason,
including early withdrawal. Because this fund is invested in short-term
guaranteed contracts, RC offers a premium rate of return based on current
availability in the market.
2. Stock Fund - The stock fund offers a varied portfolio of equities and has
the potential for the highest long term returns of any of the RC funds at
a significantly higher level of risk. Its objective is to provide a
return, over any five-year period, at at average rate exceeding inflation
by 6% per year.
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Meeting Date~6T1~7~6
3. Balanced Fund - This fund is oriented toward equities; however, due to the
high volatility of return in equity investment, the fund is balanced with
corporate bonds and government securities. Its long term objective is to
provide a return, over 5 years,in an average amount to exceed inflation by
4% per year.
4. Bond Fund - This fund is restricted to investment in corporate and
government backed debt securities (generally, referred to as bonds). The
bond fund is designed to provide a more stable annual rate of return than
would be possible with equity investments. It is not likely that long
term returns would equal those of the Balanced or Stock funds.
Exhibit A indicates the performance history of the variable funds and the
interest rates that have been credited to the Guaranteed Fund.
Participants may change the investment allocation for future contributions at
any time and as often as they wish by filing an amended joinder agreement.
Past accumulations may be transferred among the funds on a quarterly basis.
However, transfers out of the guaranteed fund to change investments are
permitted only at the end of a contract period.
Fees - RC charges only two fees: A one dollar per month account maintenance
fee charged to all participants contributing more than $800 on an annualized
basis and a management fee of 1% of the total fund balance for the Balanced,
Bond, and Stock funds. This amount is prorated monthly. There is no fee to
participants contributing less than $800 annually.
GREAT WEST LIFE
The third deferred compensation program evaluated by staff was offered by
Great West Life. This program was considered by staff to be much less
advantayeous for employees for the following key reasons:
1. Great West Life's Guaranteed Interest Fund has a minimum guaranteed
interest rate of only 4.U%. The minimum guaranteed interest rate of Great
Western Savings is 7.6°~ and it is over 6.0% for ICMA.
2. Compared to the other two firms, Great West Life has a very small number
of plans in California, servicing twenty-six public agencies with 1,662
participants.
3. The fees associated with this program are higher than the other two
recommended programs. These include a $12 annual recordkeeping fee per
participant, an asset management fee of .24% annually on the first $25,000
of each participants guaranteed option assets only, and a mortality and
expense risk charge of 1.25% of variable assets per year that is deducted
frorn the daily net asset value. In addition, for any lump sum payment
from a participant's annuity account, there is a 6% contingent deferred
sales charge deducted from the payment.
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SUMMNRY
Staff is recommending an expansion of the number of investment options
available to employees participating in the City's Deferred Compensation Plan
and that Council approve the resolutions which will allow:
(1) continuation of the Great Western Savings Guaranteed Interest Rate
Account; and
(2) implementation of the ICMA Retirement Corporation Deferred Compensation
Program offering four investment options (one guaranteed fund and three
variable funds).
FISCAL IMPACT: Not applicable.
WPC 0374G
b he City Council of
Chula Vista, Calif~oJ~rnia