Travis County Commissioners Court
November 9, 2004
Item 14
14. Consider and take appropriate action on 457 deferred compensation plan
modifications: a. Cost for passage series funds; -- should we call these one
at time or just read all of them.
>> [inaudible - no mic]
>> b is participant loan provision, c. Qualified domestic
relation orders (qdro); d. Fixed account transfer restriction; and e. Self-directed
brokerage account.
>> good afternoon, alicia perez, executive manager for administrative
operations. There are several changes in our 457 deferred compensation plan
in Travis County, where employees can defer tax -- retax money into a 457
account. We have an -- a contract with -- with nationwide retirement services.
And there are several changes that we are bringing to the court for consideration.
We have here dan mansour with risk management, administrator of the plan and
representatives from nationwide, also. So we can go ahead and start with --
with a and i'll pass it over to william sawyer to discuss the cost of the
re-- or the reduction of cost for passage series funds.
>> thank you, judge. I知 [indiscernible] retirement solutions
and kim [indiscernible] representative that works directly with Travis County.
The series, we have a fee matrix, the american century alter and -- american
century growth with now is .90. Expense fee there. What we are offering, what
we would like to do is lower that expense fee to .55 for travis under the
portfolio for Travis County. The difference is that passing series funds are
well recognized funds, american century, s and p 500, your really top notch
funds. Expense ratio fees are a little higher on those. What we want to do
under american century, very recognized fund, we want to lower those two funds
for you in Travis County. Passage series funds.
>> you are going from a .90, to a .55.
>> correct.
>> okay, based upon -- okay. 1%. Okay.
>> okay.
>> once that -- our goal here right now harris county, Travis
County, has 20 million dollar in the fund. Once we reach 25 million, the expenses
will lower automatically. And that's our goal is to -- to give you a -- an
expense fee that -- as low as we possibly can afford it as a for profit organization.
I think that we can do that as we are working together with the h.r. Department
in educating the employees here in Travis County, the benefit of the 457 deferred
compensation program. I think that we can reach those in a couple of years,
the $5 million mark, maybe three years hopefully.
>> I would like to move approval of 14 a.
>> second.
>> discussion?
>> judge. [indiscernible] if we are taking the expense fee
down from .9 to .525.
>> yes.
>> what -- to .55, what -- how long have you had .9 into
we fall under as Travis County you are falling under naco, it's been there
for under naco for [indiscernible] section.
>> if I may add --
>> you can add the -- okay.
>> yeah. The maximum variable account expense fee is determined
by assets in the plan. So as the assets in the plan increase, the -- the fees
will decrease. So in order to give you -- exact answer we would probably have
to research that a little bit.
>> given that we've had, that we have around 20 million in
the investment portfolio.
>> correct.
>> give me a five-year, the last five years, have we gone
-- have we grown the assets from 15 million to 20? And [multiple voices] have
we found any sort of movement in our .90 to our .55, has there been any movement
in that over the --
>> I was looking at your port foil I don't from 2002. In
2002 the asset base was 14,000. 14 million I知 sorry. Now we are at 20 million,
so we're doing well. Now, from zero to 10 million, under naco, that's the
plan we're under, that expense ratio is 0.95. But once you reach 10 million
in assets under the Travis County plan, then your basis expense fee and your
passage series is .90.
>> right.
>> okay? So my goal is once we reach 25 million, it decreases
to .80. What nationwide has done, because as a program director for Travis
County, I want to enhancements with your plan because you have been with us
a long type. I spoke with the actuaries in the company and asked them to bring
those two well recognized passage series funds down to .55 and as we continue
to increase ours on sets a, hopefully I can go back to the actuaries next
year and ask for maybe another fund can be decreased. In the assets.
>> I guess the reason that I want to know is -- I mean obviously
as we've talked in my office, I probably -- this wasn't very high on my screen
because -- because, I mean, we just kind of, this is something that we have
always done with the county I guess, I mean, my only being here two years
I wouldn't have known what we have done from the 80s, you know, up to this
time. But there has been a considerable amount of interest shown from nation-wide
and naco, just in general. And I just -- I wonder, I mean, have we -- have
we monitored this thing where we would have seen a fee drop -- what did we
start with whenever we were lower than 14 million. I mean at some point in
time -- we started with zero somewhere, 1982 or what. What has been the fluctuation
with our fees over the last number of years? I mean --
>> I think that I had a statement today that I -- we -- okay
now if I could just share this with you. Your account value as of September
30th in Travis County was 20,301,000. Okay, your total gains have been 5,407,000.
Since inception, which I think is really good. And the -- your deferrals to
date have been 17 million. -- 17,622,000 which is great, I think has done
really well under the plan. My only concern is that having the -- half of
the assets here in Travis County are in a fixed account. We have to somehow
better educate the employees that if you are well diversified in each asset
class, we have one set of fund called the [indiscernible] funds which are
overseen by -- by professionals and every quarter they review your account
and if any changes need to be made in that port portfolio they will do it
for you. If we can educate the employees about investing and the importance
of diversification. Nation wide has one of the highest paid fixed accounts
in the 457 business, 4.45%, that's what the employees here receive. But if
we are diversified in the six asset classes properly, then I think that we
can do better. We can do a lot better in our investments. By educating employees
of asset allocation.
>> do you think that we should have been doing that? I mean,
do you think that we should have been more aggressive with our employee based
-- I mean, I realize -- let me tell you, they are complicated. I mean, given
that most of the dollars -- this $20 million that are rank and file folks,
you start talking to them about 457's, fixed assets and all of the terms that
you use in this industry you know you see the glaze come over everybody's
eyes. I知 concerned, I don't think it's necessarily you all's fault because
it's hard to get people to the table. Like when somebody calls you, says I
want to come talk to you about your insurance needs, you go oh, okay, so I
-- I would think that -- that, you know, I知 glad this is on our screen because
it is obvious to me that we probably needed to do this. I知 happy to see y'all
in the office because, I mean,, you know, you all have the responsibility
besides our employee group and the professional that we do employ group as
part of the folks that really, you know, come in and educate us on what we
need to be doing, this is something that people really need to have more --
I mean if they are concerned about their money, most people are concerned
about, you know, what sort of investments they have and what are the real
potentials, I mean,, you know, obviously, I mean, if most of you -- at least
a substantial portion of your investments, you know, are in, you know, lower
yielding things, you know, obviously lower yielding, you know, generally you
don't have, you're not as exposed, that is something that I think most unsophisticated
folks that are in the market, you know, that's probably where they would rather
be.
>> yeah.
>> but I知 glad to see that this thing is getting some attention
so -- but I was really interested to see whether or not our expense fee had
-- you know, could have been going down, you know -- going down now because
I think that there's -- it's kind of gotten around town that union Travis
County is perhaps wanting to look at something. I think in the long run will
it benefit us.
>> it will. What we want to do, too, is in our education,
is to bring tcdrs involved because Travis County has a wonderful pension plan
with tvdrs and also social security in our education workshops, partnering
with them. I think having tcdrs there because a lot of people in Travis County
are depending on their pension, they understand that because they know that's
like a guarantee. 10% of every pay period out here, I think their match is
2.25 on the dollar. With tcra's coming in, participating in the workshops
along with social security, then 457 is absolutely wonderful for the pretax
benefit of the loan, I think it's wonderful.
>> I知 happy to be unsophisticated. I知 one of those folks
in the fixed because when you see folks making a ton of money and then losing
a tonight of money in the stock market, 4.45 sounds really darned good until
things kind of even out, things are kind of improving now, more stability
going on with the stock exchange, but it's like I didn't want to get into
that, that works just groovy for me, certainly in the early part of my working
years, I wasn't thinking about retirement, I was thinking about getting a
house. So I can certainly understand when folks say I知 going to save up for
a -- for a down payment, get into some real estate, and then we hit 49 and
we're all of a sudden starting to think about retirement. Like oh, golly I
need to make it up. But even so everybody has to find their own comfort level.
Certainly I have lots of friends in the aggressive category. I知 in the weenie
category, I feel okay with that. Everybody has to find their own comfort level.
>> I for one have called people in from -- from naco to come
explain some of this. I did try some of it. It didn't work for me. And I went
back. I知 for a gambler. And I would rather have a bird in the hand than two
in the bush out there flying around. I知 just not that kind of gambler. So
anyway I think as long as the decisions still stays with the employee because
they -- you know, each one of us knows ourselves what it is that we are willing
to gamble on to take a risk on, and, you know, some are us are doing pretty
well without risking. I don't -- I知 not interested in risking.
>> right. And if I may add something, excuse me, I知 sorry,
i've been here now for three months, then experienced the new employee orientations.
For the most part and do have those same experiences that you all just spoke
of. I have people that I sit down with who say I mention stock market around
they say no way. It is probably representative of those numbers, about half
of the people that I sit face-to-face with just that is not for them. And
so --
>> you might want to introduce yourself.
>> kimberly wilder, the new representative for nation-wide.
>> thanks.
>> for Travis County.
>> so the fee reduction applies to part of the program, not
all of it.
>> two parts.
>> it applies to the funds, american century [indiscernible]
and the american century growth. These two funds make up about what percent
of the total investments? Basically 172,000. I believe when I looked at it,
it was close to 300,000 from both funds.
>> $300,000.
>> yes.
>> so 99% of the $20 million still has a -- has the the .90%
fee. The only way for us to move that is to get the total investment up to
-- up to $25 million.
>> the fees are different for the -- for -- for different
funds. What you have now is 50% of the 20 million around 10 million in your
fixed asset account. What is the fee?
>> zero.
>> for that?
>> yes.
>> [indiscernible]
>> for the fixed account, what is the basis point?
>> 4.45. No fee. No charge [multiple voices]
>> that's why so many of us are in it.
>> [multiple voices]
>> it may be 4.45 this time, but will it move. It's guaranteed
not to fall below 4.
>> 4.4%. This year.
>> but the 4.25, you never can go below that amount. In other
words, you may get above that, but if there is a minimum that it can't go
below as far as fixed account.
>> that's correct. And also over 10 year period, that fixed
account averages 6.25%. Over 10 year period.
>> right.
>> which is good.
>> yeah, yeah.
>> that's excellent.
>> it's steady. Yeah.
>> safe.
>> that's -- Commissioner Daugherty pointed out perhaps a
good question indeed if the court and committee decides to go out, ask for
a schedule, a basis point the experience on the variable accounts. Good question.
>> any more discussion? No. All in favor of a? That passes
by unanimous vote. Participant loan provision.
>> we would like to roll that over. We have one question
still that needed to be responded to and some revised documents sent over.
>> put it back on when it's ready?
>> yes, sir.
>> qualified domestic relation orders?
>> yes. That is a qualified domestic relations order, an
order judgment or decree set forth by a judge that details the right of the
third party to receive benefits from qualified plans, 45d. Qdros could be
used for child support, alimony, marital property rights to a spouse, former
spouse, child or other dependents of participants and we are amending the
agreement to allow nationwide if there is a qdro, introduced, a court order,
to disburse the -- to disburse the money or make the receiver a participant
in the plan. So this is to allow the person that is receiving the funds to
pay the taxes as opposed to the participant.
>> what they actually do is set up a separate account. Like
if it were a divorce situation, half of it were going to your spouse, there
would be -- there would be half that would remain in the barbara wilson account,
half that would go into the barbara wilson spouse account. That doesn't make
that spouse a participant in the sense that they can add money to it. But
they then can be treated as if they were a participant in terms of distribution,
so they can take money out or use what is put in their account.
>> if inteed they choose to draw it then they have to pay
ordinary taxes on it or they could roll it over to an ira or another retirement
tool without having to pay taxes.
>> but using that Sam example, barbara wilson would not be
penalized because they had to withdraw the money early in order to take care
of a divorce or alimony or whatever it was that was going on. You don't get
penalized if that's indeed what happens to your account.
>> that's correct. It gives nationwide the ability for an
[indiscernible] pay.
>> from an employer perspective, what is the down side of
us approving this amendment?
>> the down side is that the amendment requires us as the
employer to verify that the order for qualified domestic relations order --
is a valid order. And my comment when we first brought this up is that I thought
that before we ahead that kind of assertion that the employees' attorney involved
in whatever it was that created the court action created the order sent us
a letter verifying that this was a valid order. So that we don't have any
risk involved.
>> okay. Okay.
>> so your question -- your concern went to how do we document
the validity of the order?
>> yes.
>> that's not in the amendment, that is -- in the steps that
we use to -- to implement?
>> yes. And what the -- what the order that -- that -- or
the amendment that we would be making to the plan says is that the employer
is responsible for telling the plan administrator that this is a valid order.
So that -- so that the validity of the order, whether it's a valid order or
not, is ours to decide. If we say that the employees or the participants'
attorney verifies that it's a valid order, then we've got a good basis for
believing that it's a valid order.
>> it just gives nationwide the right to, as an alternate
paiee, the ability to write the check to the ex-spouse or whoever, takes the
burden off of the participant.
>> that's something that we would want to do I guess. Unless
it costs us --
>> right now the participant has to pay the taxes as would
provide for the person who is actually receiving the money to pay the taxes
on it. If they draw the distribution.
>> I move approval of 14 c.
>> second.
>> any more discussion? All in favor? That passes by unanimous
vote.
>> account transfer restriction.
>> okay.
>> this is one that -- that we are not -- we are not recommending
or not really taking a position on. Currently a participant can withdraw 20%
from a mixed asset account to move into a mutual fund or whatever. It's capped
at 20% annually. Nationwide has said that they are willing to -- to make it
an ago gatt figure of 12% -- agregate, extend to all participants, the maximum
could be withdrawn from the fund for that year. Now, nationwide has said that
-- the 12% would equate to that $2.4 million. They have said that they really
have never seen that happen. But I would allow deferment to william sawyers
to speak to that.
>> again, I really think the aggregate limited is a good
thing. I would like to bring it into your program. I would like to make it
exclusive. Right now the company is offering a 12% aggregate limit. Okay.
And during my research I found that aggregate limit has only been met 5% per
year. Through the nationwide retirement solution, we have over 5,000 different
accounts. The reason that I think that the aggregate limit it's a good thing
is as we spoke earlier for instance a fixed account is a good place to be
in your risk tolerance level is low. But through new funds, what if the market,
if you had 5,000 in your account and the stock market was doing really well,
you became better educated and you understood asset allocation, you said okay
I may want to move a certain dollar amount of my money. But the way it is
now, you are restricted to 20% a year. Soips it may take you five years to
move it over to the market and the mutual funds. The average return of a mutual
fund during a 10 year period is [indiscernible] you may decide to take that
risk. The way the plan is set up now you can only move 20% per year.
>> it's not contingent on what nobody else does, though.
In other words you almost are looking at a collective situation versus an
individual situation.
>> individual.
>> that's correct.
>> and that's the difference right there. If I want to decide,
if it's 20%, an individual. Those individual decisions I think give the employee
or those participants in this particular program the independence that you
need whereas what you are suggesting it will be something a collective type
of situation where it's contingent on what other folks do. I really don't
feel comfortable with taking my independence or freedom away to do things
on an individual basis as opposed a collective. That would be my of my opposition
to what you just suggested.
>> okay. It's really giving that individual --
>> even thoit may give -- even though it may get the individual
to do more, but the point is it still takes from freedom from you in a sense.
>> the way I look at it now, that individual is restricted.
You are restricted 20%.
>> I understand that.
>> I understand that. But I understand individual versus
collective is something that's hard for me to support. Of course that's just
me, though. That's just me, that's the way all of us individuals and -- these
are all individual decisions that -- that we must make.
>> the problem is that everybody individually had the same
great idea at the exact same time. Then it really could have some limits.
It might work on an individual case. I知 kind of where Commissioner Davis
is. At this point I知 not there in this one. Maybe I need more education.
I知 kind of like I think the 20% works okay for me until I get some better
information that -- that the other one is -- is a good idea.
>> I知 liking what you are saying, though.
>> yeah. It could work. But it could also, if everybody had
the same great idea the same day --
>> restricted at 12%. What we will do hopefully as time goes
on, we will do our best to ed indicate more on aggregate limit.
>> I知 not there yet on that [multiple voices]
>> committee that's not -- that's not -- for that specific
reason. You can see where that would be found, I mean, may not be what --
you know, what you all that are in the industry I mean, you know, understands
that, you know, there can be, you know, a real benefit but, I mean, given
that we've said that, you know, at 4% that people are -- pretty happy with
-- with -- you wouldn't expect -- I won't tell you anything else.
>> right, right, believe me I understand. All I want to offer
it --
>> they all want to do it the same day.
>> I understand.
>> I think as time goes on hopefully we can work on that.
>> being osm anything else on d -- anything else on d? E,
self directed brokerage account.
>> this is another one that we are not recommending. Dan?
>> the self directed brokerage account, we had a request
to find out if that was an option that could be include understand the deferred
comp. We did, nationwide brought this forward. The problem is that the fees
can -- being charged, I think on an individual basis, a participant could
go out to the market on the internet and do better and -- than paying $30
for a transfer. So we are recommending that that not be -- be part of this
plan modification. The request was made could this be added, the answer was
it can be --
>> $30 per trade or if you trade -- treasury notes, a $45
minimum again if -- you know, if -- probably do better.
>> yeah.
>> [indiscernible]
>> you should four could do better via the internet.
>> what's the supporting argument.
>> it provides the option for employees to invest in the
stork market using their -- stock market using their pretax funds.
>> yes, you could go outside of the plan and open a schwab
account, but of course that would be tax dollars.
>> so you couldn't trade, have an individual brokage account
--
>> plus there's a lot of risk involved in individual stock
trading. I think that would be a lot of responsibility on Travis County on
that one.
>> that's a little high, too, if lieu at the amount of money
and compare doing it independent of just brokerage situations, that's high.
>> well, in the market --
>> that's high.
>> within the market now again as dan said, I知 not -- notify
argument on this one, I have no argument on this one, not at all. Because
[multiple voices] I have to say that -- under that fee there's quite a few
trades that you can make under there, quite a few. I think that it's just
-- very risky individual stock trading.
>> up to a thousand, too.
>> that means --
>> is it next week or you are just going to bring it back
when it's ready.
>> we will just bring it back when it's ready. One question
that [multiple voices] that we had on the interest rate.
>> won't be next week?
>> if we can get the information from nation-wide by next
week, yes, sir.
>> okay.
>> I expect an agenda item to be ready.
>> uh-huh.
>> all right.
>> anything else on this item? Thank you very much, appreciate
you all's patience. Thank you very much.
>> thank you.
The Closed Caption log for this Commissioners Court agenda item is provided by Travis County Internet Services. Since this file is derived from the Closed Captions created during live cablecasts, there are occasional spelling and grammatical errors. This Closed Caption log is not an official record the Commissioners Court Meeting and cannot be relied on for official purposes. For official records please contact the County Clerk at (512) 854-4722.
Last Modified:
Wednesday, October 26, 2005 3:18 PM