Travis County Commissioners Court
December 21, 2004
Item 8
Let's call up number 8. That ought to be a pretty quick item. Then we'll
go to number 38.
>> will is to consider and take appropriate action on modification
to 457-b, deferred compensation plan, to include a participant loan provision.
>> thank you, judge, Commissioner. Good morning. We're here
today to discuss with the court an option that we brought with several other
options a few weeks back and indicating we would bring this up separately.
This is a provision that would allow our participants in the 457 plan to borrow
against their account, and they would do say at a rate of one percent over
the prime as determined by the wall street journal. For instance, last night
the prime was five and a quarter percent, so the loan rate would be six and
a quarter percent. And they could borrow up to 50% of their account balance.
Five and a quarter percent.
>> so I guess the example that we have as far as what we
have here was based on the prior -- for the last two weeks of the last quarter?
>> somewhere back.
>> those two weeks? So five and a quarter prime. So with
the one percent we're saying six and a quarter.
>> it would be six and a quarter today.
>> thank you for that, because it's changed. Okay.
>> and it's determined by the wall street journal prime at
the end of a particular quarter, so next quarter that may change again. It
changes each quarter. The maximum amount that can be borrowed is 50% of what
is in the participant's fund, so if they had 20 how 20,000 in the fund, they
could borrow up to 10,000. There are points of the loan provision I do want
to point out, two other factors. Attachment 1 and attachment 2, we've made
some changes to, but these are hard cover documents and it will take the programmers
into the next quarter to make the changes we've asked for. The other point
is that this will not -- loan will not be repaid to repay their deduction.
They will be repaid through a checking October -- draw on a checking account,
but not a draw on payroll. This is be done through withdrawals from the checking
account. We have two numbers, as we go forward, william sear's is the regional
director from houston. This is our local account representative. So if there
are questions, I知 sure they're quick to answer.
>> i've got a couple of them. And as you stated earlier,
ns one that did not get approved because of the fact that we didn't have all
the necessary provisions. We have some cleanup things that need to be done.
However, I need to basically find out, is there an existing model of this
particular 457 program, loan program, was that existing somewhere else? And
if so, could you tell me where and is it a success or failure?
>> my name is william sides, I知 program director with nationwide.
One example is harris county hospital district, we have the loan provision
there and it's going in -- and they have ach also. It's going very well. That's
one general area. The folks who are participating in the loan provision, it's
going very well there. There's over 100 plan sponsors who have enacted the
loan provision in the 457 since the new rule in 2001 allowing the 457 -- the
loan provision to come inside the 457 as it is in the 401-k as they've had
available to them for quite some years since it was created. And I think it's
-- I think that the loan provision coming into the 457 is a good thing. And
again, in harris county, a hospital district is going very well.
>> any others other than harris county?
>> the company has over 100 sponsors who have brought in
the loan provision. Nueces county has enacted it in their program.
>> any other programs?
>> my name is kim wilder. My experience was with the state
of Texas 401-k and 457 program for 10 years. And they had a loan provision
for the entire time I was with them. And we processed hundreds of loans a
month. And we were very successful there.
>> okay. The last thing, I just wanted to make sure that
the employees -- how many employees do we have right now currently that are
part of the deferred comp success with nationwide? Do we have any idea? Ballpark?
>> the last thing I heard was just over a thousand, which
has increased by quite a number in the last three or four months, but I think
it's just over a thousand.
>> the question that you asked was fixed asset. Fixed asset
is a particular choice of investment. The thousand refers to the number of
people in Travis County who are in deferred comp and have put it in some investment.
It may not be --
>> (indiscernible). But the other thousands that are participating
in this.
>> in the 457 plan.
>> okay. The last thing I want to make sure is the employees
of Travis County that are in this program realize that it is a fixed rate,
according to what you're saying, for the term of the loan. In other words,
if you come in whenever, in the fly, and at today's rate, let's say the prime
just went up to five and a quarter, so it means six and a quarter with the
one percent. So that means if the person comes in before the next quarter,
which would be March of '05, prior to the end of that quarter, that would
be the decreased rate from the loan? Is that correct or incorrect?
>> I don't think so, because that would be the fixed rate
until December 31st. And we're at the end of a quarter wit December 31st.
So whatever the rate for this quarter, like the quarter, October, November,
December is, that would determine what the rate would be for January through
March, I would think.
>> well, I didn't hear that.
>> the rate today the rate would stay at 6.25%. If it's taken
out in March, it would be whatever the prime rate is according to the wall
street journal plus one% and it would be fixed through the duration of the
loan.
>> correct. Thank you. Last year -- some other members of
the court may have questions, but there is something that we discussed and
didn't go into a lot of detail, but talked about the default, the penalty
of the default. Let's say a person did not in the checking or savings account
is debited for the amount of the loan, for whatever reason something happens,
can you explain the default previously, please?
>> sure. What happens is the participant requests a loan.
This would be the process. The participant would request a loan and a loan
is processed within five to 10 business days. And then the loan is set up
as an ach withdrawal from a checking or savings account. If for some reason
the checking or savings account didn't have sufficient funds in it at the
time of the debit, that would be considered a defaulted payment, and that
would be considered similar to a returned check. So they would have a charge
for the returned check fee or returned debit. The participant is allowed then
to send in a personal check or cashier's check or money order to nationwide
for that payment within 30 days. If 30 days goes by and they have not sent
in a personal check for the amount missed, the following month we will try
to debit two payments for the loan, the one missed and then the current. When
that is defaulted on, there is money for that amount. The loan is considered
in permanent default. The exception to the permanent default would only be
if we had misinformation about a checking or savings account and the loan
payment was not made for those circumstances. But if the money was not there
and the loan payments were not made after 60 days, the loan would be in default
and the participant would be issued to 99 at the end of that calendar year
for the amount that was not repaid.
>> but they would be notified continuously.
>> but it wouldn't be considered as income then. Before that
it's not really income, just a loan, but if you default, then you would be
-- your 1099 would say this is now income.
>> you did not mention a default fee. Has that been waived?
>> no, there is a default fee as well. When you default on
your loan, it will cost you $50 in the default fee. In addition to the $25
it cost because you did not make the automatic withdrawal.
>> that's the fee, that $25 would be for the checking account.
You may have -- the individual may have a cushion, they may not be charged
$25 in the checking account, but they will be charged $30 from nationwide.
>> this person has 25,000, $30,000 in that account, whatever
they have, does that money continue to stay in -- let's say it $20,000 and
you borrow half of it. The requirement is that you can only get half of what
you have invested, is that correct? All right.
>> that is correct, 50%.
>> so if that's the case then, would the whole enforcement
of the investment stay intact at the 20,000-dollar level even though you've
borrowed $10,000 against the total?
>> yes. You do not liquidate or sell your investment to cover
the amount of the loan.
>> nationwide actually loans you. The loan is actually made
to you. Your money is actually collateral that nationwide actually loans you
the amount that you request.
>> that's not what we said in those meetings. What we said
in those meetings was that the money was -- what you said in those meetings
was that the money came out of the participant's account and that the participant's
account loaned it, and therefore the interest that was earned by the loan
goes back into the participant's account and the only portion of that -- of
the payments that the employee has to make in addition to paying back the
principal are the other charges that nationwide -- you didn't mention those
and I forgot what the amount is, but it was a small amount. So if the money
is loaned from their account, then their assets in their account should show
up as 20,000 total, 10,000 loan and 10,000 in whatever other investments they
have available to them.
>> my understanding is the $10,000 would move from there
to a holding account, but still earn whatever -- the fixed account is still
earning interest. The interest that's charged on the account -- on the loan
goes back in the participant's account for your fee.
>> in addition to the six and a quarter.
>> if the person was to -- after hearing this and if the
court decides to approve this today,, number one, what would be the effective
date of this particular program. Number 2, is when would -- what would a person
have to do to apply for a loan? What steps?
>> that would be up to the hr department once you've signed
the official documents, then all provisions would be enacted.
>> and you could -- as soon as you approved -- as soon as
the effective date of the loan, you could call customer service and request
a loan, and again, that processing time is about five to 10 business days.
>> they can request a check or they would credit it to your
checking account, whichever you prefer.
>> there was one other question I had. If you default on
the loan, the amount declared is the unpaid portion of the loan only.
>> that's right. Unpaid balance.
>> there are two documents in order to add this mod fa modification
to the plan, there are two documents. They're shown as attachment one and
attachment two that are required to be signed if the court approves the amendment.
And those are received by nationwide. It takes them about 10 days, it's my
understanding, to get the system set up. So it would be within 10 days that
an individual could call customer service to initiate.
>> what would be the contact person. What is that number?
>> 1-800--405- 8430.
>> that was my final question, judge.
>> I have three or four. The first is is there a prepayment
penalty?
>> no, sir.
>> so in the example, if I borrow $10,000 from myself, and
the interest rate is 5.8, let's just take your example here, I end up paying
back 11483.17. So is my deferred compensation total increased by this much
at the end of the loan?
>> yes, sir.
>> and that example includes other costs?
>> yes.
>> the example that they have includes the fee.
>> if you look at the example that you had, there's a column
that says other costs. That's the cost of administration that nationwide charges.
Of that 11,000 whatever that you paid back, that one column there that's the
other costs column goes to nationwide, would not go into your account. What
you're talking about is if it's 11,300, about 11,150 goes into your account
and about 150 goes to nationwide. I知 just guessing on the 150. That may object
the high end rather than accurate -- may be on the high end rather than accurate.
>> so you do pay the costs. So what right into the employee
have to convert this loan to a withdrawal? Let's say I borrow $10,000 and
I decide two months later, you know, i'd rather just take my money and deal
with the i.r.s. At the end of the year. Could I just do that at my discretion?
>> under the 457 provision it has to be what they call for
an emergency. Once the loan is enact -- you're asking once the loan is enacted?
>> yes, sir. [overlapping speakers].
>> in addition to the taxable --
>> there's not a tax on 457 program.
>> we will put together a one or two pager, and in simple
english language that would explain to county employees exactly what the loan
program is.
>> we can work with nationwide to do that. We have a cover
letter that they've agreed to send with all loan corporations.
>> based on our discussion today, I would do a question/answer.
We've been doing questions today. The answers have not been as clear as I
would hope. But in a two-page description, you can deal with the most asked
questions. I知 assuming that Travis County employees have indicated an interest
in the ability to borrow against money they have in deferred compensation.
And so you're trying to accommodate employee participants basically.
>> absolutely.
>> so it does seem to me that there ought to be a two-pager
that explains here's what the loan program is all about before you get into
it.
>> we have a loan brochure that already does do -- it's a
trifold.
>> let's get that straight with court and maybe we ought
to look at that in draft form before we finalize it.
>> a handout?
>> I really have 10 or 12 others. When I see the description,
I will -- either these questions will be addressed or they won't, and i'll
know to ask them to you, which I can do by telephone or in an office meeting
rather than in court today. What I知 suggesting, though, is that we need a
good description of the program so employees who decide to borrow against
their deferred comp funds will know exactly what they're getting into.
>> oh, yeah.
>> anything else for the court?
>> judge?
>> yes, sir.
>> I think it's a good idea. I mean, I -- I for one am very
much in favor that it's you're money, you ought to be able to do what you
want to on with it, but there's a same question that a lot of people are asking
about social security, is that if you wonder whether or not people are really
capable of dealing with the money that they are -- that they are owed, and
unfortunately, some people are pretty good with dealing with money and some
people aren't. But I do think that if somebody is -- is putting money back
in the 457, that they ought to be able to deal with it. I agree that I think
that there needs to be a one pager or two pager would people really understand
exactly what's happening, but it seems like that it's fair from nationwide's
standpoint, so I don't have a philosophical issue with it. I mean, I think
we're doing the right thing for folks because quite honestly, people need
access to the money that they have. I would hope that they can take care of
their own house and realize that if they're going to borrow this money and
take it down that their investments aren't going to be what they really wanted
them to be. So i'd like to send a message that I philosophically feel like
that this is a good thing to do for the employees. But I do want people to
understand exactly what the ramifications are whenever they take the money
out. And if for some reason they can't repay. [one moment, please, for change
in captioners]
>> ... That will be a significant issue, you know, should
we approve it? So you can be assured that the workshops that the employees
will attend, that will be a pig part of what I explain to the employee as
a tool for them to use. It's there and available and it may not be for everyone.
>> may not be.
>> and I encourage them to get counseling.
>> how long will it take to implement.
>> the division?
>> yes, sir.
>> within once the documents are received the county solutions
with right away.
>> how long will it take to provide us a copy of the two-page
written description?
>> [inaudible]
>> I have a brochure. Of a description of a problem for county
employees. Anymore discussion? Chief, you get that today and we'll get you
the rest of the court. I知 assuming we'll have an opportunity to give you
comments. Either by telephone or in writing which we can do in -- we'll get
those to you let's say by early January. I知 assuming it will take 30 days
to get this up at the least.
>> I believe that is probably accurate, judge, by the time
the documents are receive and processed through nationwide.
>> give us two weeks.
>> we'll have it to you by next week to review.
>> if you could give us a copy of the state's description
of -- description of the state's loan program, that will help too.
>> the state of Texas?
>> the state of Texas.
>> can I say something real quick? We also have a brochure,
a loan brochure, if that -- okay.
>> anything that you have that you think will help.
>> thank you.
>> I知 hoping for something that is tailored to Travis County
unless the other is clearly more beneficial. I figure if I understand it,
Travis County employees will.
>> okay.
>> great.
>> anymore discussion on the motion? All in favor? That passes
by unanimous vote. Thank y'all 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 2:30 PM