Travis County Commissioners Court
April 22, 2008
Item 24
Number 24 is to consider and take appropriate action on the following. A, Travis County 457 deferred compensation plan investment policy. B, proposed request for proposal, rfp, and c, proposed time line for rfp issuance, proposal review and contract award.
>> thank you. Judge and Commissioners aliceia, perez, executive manager for administrative operations, you have before you an item concerning deferred compensation. That is our 457 plan. The plan was established by the irc and adopted Travis County in 1980. It allows employees to defer compensation pre tax or without taxes, and then be taxed at a later date when the money is withdrawn, usually in retirement. It is considered to be a supplement for retirement. You have several items before you. The first is the Travis County 457 deferred compensation plan investment of policy. You have received a copy of that. We also sent one-page executive summary to you last week. The summary identifies the roles and responsibilities of all parties involved in the plan. The court appointed an oversight committee . The ultimate responsibility, fiduciary responsibility for the plan, lies with the Commissioners court. The investment policy statement also documents the process that is used to evaluate, select and monitor the plans, investment choices. The purpose of the ips, the investment policy statement, is to create a written set of guidelines to be used when selecting the plan's investments and to detail the process for periodically evaluating the investment options of fund managers and also, like I said, delineating the roles. Section six of the policy has the initial selection criteria. It also contains deselection criteria. This is the first time that the court has before it an investment policy for 457 plan. Prior to this, the 457 plan had been monitored and evaluated by naco. So now it is back with Travis County and we present to you an investment policy.
>> any questions about the investment policy?
>> no.
>> move approval.
>> second.
>> discussion? All in favor. That passes by unanimous vote. B.
>> the second item is a proposed request for rfp, and cyd or al, would you like to address that issue? We did get a draft last night. I believe that was sent to you early this morning. What we have done with the schedule, and we will go that as a next item, is set that for approval next week. We'd like to go through some of the items and then highlight it and send it back to you in memorandum form and get an approval next week. I think we coordinated that schedule with everyone so that it works.
>> norman is handing out to you now a copy of the initial craft --draft of the 457. This is a product that I developed but it has not been through purchasing yet, the procurement process in the county. Obviously this is more of the technical aspects of what we would be looking for in the bid process. And it needs to be carefully coordinated with cyd and her group in the normal procurement process.
>> any way to hit the hi lights quickly?
>> basically what this is, it's a description of the county and the plan and the characteristics of the plan, what we're requiring of potential bidders, that they understand the business that they have experience in dealing with plans of this type that they have taken appropriate security procautions. The normal things you would expect of any reputable plan minimum . --administrator. That's all followed by a request questionnaire. Maybe that might be good if I go over at least the initial scoring. The rfp is broken out into six specific areas. This is about midway through your package that was just handed out to you. You will see there's a block or a chart showing the criteria and maximum points. Propole requirements, representations and warranties.
>> section six.
>> carry ten points. Experience of the firm, ten points. Services provided, 15. Administration, regulatory services, 15. Proposed investment menu, 25. Then fees and expenses, 25. And over time, I致e kind of gravitated toward this. I remember somebody saying, asking me once, apart from what am I allowed to invest in, whan is it costing me, the rest of this stuff is fluff. I don't necessarily think it's fluff because you want a reputable minimum --administrator, you want statements on time you want to log into an internet site that let's do you what you want, you want to call a 800 number with somebody on the other end of the line. But the reality is in the retirement plan business, two of the most significant factors are, obviously, what type of investments are we going to include and what does it cost people to participate in the plan. In section 8 is the questionnaire that will be sent to people requesting the rfp package. That is from this questionnaire that we will score proposal responses and make a recommendation to the court. If I could also direct the court's attention to item 1.2 at the very beginning, 1.2.2, there is a market value add adjustment in the current nationwide contract that we have talked about previously. We just got some updated information from nationwide. That market value adjustment is now at $571,000. That is if the county were to move the $12 million of fixed assets fixed account assets to a new provider, nationwide computes it would incur a loss on the back value of those assets and that loss would be $571,000. Obviously, somebody taking over this plan would have to consider that as an expense item in bidding on this business. Somebody has got to pay nationwide $571,000. Obviously, this is a moving target, so as we move forward, that number could become higher or lower.
>> now, if we were to ask you to do an evaluation of the 571, obviously, that's something that you could do for us? I mean weigh in on that.
>> yes.
>> you being a part of or under contract with us.
>> yes. The 571 is, I mean, it is a computation based on a formula that nationwide will provide to us. So it is determinable. The problem is the baseline number they use is an index, a bond index. It's a lehman brothers triple b bond index that is not very public so it's sometimes tough to get information about what that index is actually doing, but it is not impossible and something I could definitely compute for the county.
>> that is really important to us. I mean given that--
>> it's a huge issue.
>> right, I mean it's a deal killer for, I mean because you could put a large number on there to where no one would want to compete. That's something personally that I知 going to want to know.
>> if you look at it over a five-year contract you'd be talking about somebody assuming the plan would be paying an additional $125,000 a year because of that market value adjustment. But I also like to remind the court that if the county decided to move the plan and move those fixed assets over a five-year period of time rather than all at once, so the assets would pretty much stay with nationwide, and each month, one 60th would go to a replacement provider, there would be no charge, no market value adjustment on that type of distribution.
>> are you saying that the issue is not is much calculating what the mva is as it is negotiating with any new provider how to distribute the burden of what that calculation is?
>> that is correct, Commissioner.
>> okay.
>> and because we are a group of investors, then that's what you mean by the cost recovery be spread among all participants of the plan?
>> that's correct. The way I look at this, every one has had access to the fixed account. People may have had money in the fixed account. Ten years ago. And if you were to take that $571,000 bogey and just assess it to those people in the fixed account, I知 not sure that's a very equitable way of sharing that cost. But there are, there's a mum --number of pricing scenarios . If you look, it may be a good thing to do, if you go to the very final page, section 8.5.1. We've chatted with the court before about this issue. What we're asking for is an exclusive, we want pricing where someone might be an exclusive administrator which is what nationwide is now, the sole administrator in the plan. If you look at the first bullet there, it asks for pricing based on the payoff of the market value adjustment. The second bullet shows no payoff, no market value adjustment at all. And the third is the transfer of the existing fixed assets monthly over a five-year period of time.
>> does that mean, I guess, how would that be handled? I guess as far as the fixed account? Let's say this goes out for, the court decides to go out and send out a rfp for other folks to look at what we are dealing with here as far as our investments. Of those persons that have current activities with the provider now, nationwide, let's say someone else comes in and has a better, whatever, response as far as the rfp process is concerned. The question comes, what happens to the assets that would be under nationwide, because they are our current provider, and the new person that if someone other gets it other than nationwide, how would that transition take place, and will there be any impact on the current, I think Commissioner Gomez brought it as far as the subject matter, fixed accounts, the transition of that fixed account to the new provider. Would there be any negative impact on that investment under fixed account, just an example?
>> I think that's a very fair question, Commissioner. My response is, if anyone is disadvantaged from this process, the process should not go forward.
>> okay.
>> and that is what we're trying to do, is make sure people get maximum value. If you go through this whole process and you get proposals that are not as good, even because of the market value adjustment, than where we are today--
>> thank you for that the reason why I brought that point up, right now people aren't the economic crisis situation going on, the investments that people are making, the steam out of the investment is not as it was, it's kind of hard for a person to be losing money with people going to pawn shops and everything else, pawning away, because of economic situations, increasing gas, a lot in this that people may not be willing to take a loss in a secured investment that they have had for a while. So that's why I pose the question as I did, the possibility of losing that value that currently exists in a transitional situation of someone else. I think you answered it by saying this, that if there are significant losses, there has to be some level of what loss is at that point. And if there is a loss, then the person ought to have a way to opt out or not be bothered with it. That's basically what I was driving at.
>> it becomes a very delicate situation.
>> exactly.
>> and that's what we will work through in moving ahead on the process, get proposals from reputable vendors and analyze them carefully and analyze the impact on the current participants in the program and make some recommendations to the court about whether or not there is a better deal out there and if there is, how best to approach that transitionally where folks are not adversely impacted. Sorry, I keep skipping around.
>> can I just address Commissioner dave's question while he is looking. I just want to make this clear to Commissioner Davis. I知 glad to see this in here whampt we are asking, Commissioner, is for them to give us these proposals two different scenarios. What it would cost us just to have an exclusive administrator and have them pick up that cost that we're going to have to pay for that market value adjustment, and to also give us pricing if we were to keep nationwide and add a new provider. And I was at a meeting last Friday with a purchasing agent from another county, and they put out a proposal several years ago which she is going to send to me. But they do have, they kept their current provider and added an additional provider. Now, how that all washed out as far as cost, that will all be shown as allstated, during the negotiation process and see what folks offer. At least we'll know what our options are and what it's going to cost us when we come back to y'all.
>> if you keep your current and add a new one, then it gives more opportunity or more selection, I guess, for employees to either go the present route or go to another one.
>> that's what they did in this other county.
>> that's meaning of that is.
>> that's what the other county is.
>> is that other county about our size our much larger.
>> den ton county.
>> smat.
>> smaller.
>> they are not the fifth, but they are a large county. That might affect the fees for the new provider because they are not getting the encare county. But that would address some of the concerns that submissioner Davis and other have had about those folks who don't want to change. So it is an option that we're asking to look at to evaluate so that we know that we are doing the best thing for employees.
>> even with that, there is an opportunity for the employee of Travis County to opt out if they don't feel that it's comfortable if anyone else comes in at a different setting. The opt out option. I heard no one talk about that. I know that no one is here, I think, that is in favor of losing money the.
>> no, I don't think the intent is for any employees to lose money. It's for the mu provider to pick up that $570,000. And ,000 that will --how that will effect what they charge us.
>> Commissioner Davis, I think what I heard, I think I had kind of touched on the issue of what if an employee wanted to opt out.
>> yeah.
>> I think one of the answers, I知 sure there are others, one is you have to wait until you leave county employment.
>> that's right.
>> then you can roll that over to an ira. But I don't know that you can opt out.
>> you can stop contributing. You just can't move the money.
>> you can stop contributing. But you can't take your money out. Have you to wait until you leave county employment and roll it over.
>> the opt out situation I知 talking about, let's say someone comes in with another provider and that person is not, feels they may be losing money with the other provider because of whatever activities take place in transition and everything else.
>> okay.
>> would they have a chance to opt out and don't use that provider.
>> and stay with nationwide.
>> stay with what they currently have got.
>> we're going to ask those questions and we're going to see what that does to the pricing all the way around. Al is going to help us make that evaluation.
>> okay.
>> analysis.
>> in the court decides ultimately to move the existing assets to a new provider, everyone moves the. There is no opt out feature.
>> no opt out feature made.
>> if the court decides that is what is in the best interests of all the plan members. Just like if you move your health insurance provider from you nightd to blue cross to humana. They all have a different network. You disadvantage some people because maybe their tr is not in the new network. What you are looking for is what is best for everyone as a group.
>> there won't be an opportunity to out individually per se, as far as what you are suggesting.
>> if I can direct the court's attention to page 3, item number 1.3.
>> the court has a decision to make after all the proposals are back, if you choose to move everything then they won't have an opportunity to say. You can vote not to move everything. But you don't know what you're going to do until you see what your options it's kind of like I don't know what I want to have for dinner until I get to the restaurant and see what's on the menu.
>> I see.
>> we're asking for all those options that we can look at them and y'all make a good decision.
>> item 1.3 on page 3, I知 sorry, once again, I知 skinning around on you of the I値l read this. It is the intent of the county to seek proposals from qualified firms for man administration and investment services for 457 b defined contribution plan to athe general objectives of section 1.4 below. It is further intent of the court that the plan continue to provide excellent value to its participants and that participants are not in any way disadvantaged by this process or its outcome. That's what I致e heard you all say before, and I tried to incorporate that.
>> what if we are? There's nothing we can do about it.
>> then you just choose not to move to a different provider. If the we don't get anyone that provides a better offer than what's currently on the table, we stay where we are.
>> if you do the whole say transfer, there are not internal revenue consequences, no penalty or anything like that--okay. The recommendation is that we act on this next week?
>> we're going to change, put it in our document format, some of the terminology is going to be changed. But his technical stuff will not be changed. So if y'all are okay. With the general nature of this we can put it all together. You all can authorize me to get et out or y'all can authorize me to bring it back next week and have you approve. I think they want to get et out the fifth of may, which is next Tuesday?
>> next Thursday.
>> Monday.
>> actually the time line was moved to accommodate y'all being able to do that. If y'all are comfortable with what's there, we can move the time line back again.
>> if you want us to come back I can. If not, we are going to work on it, get it together and get it out as fast as we can.
>> judge, I would move approval.
>> second.
>> and authorize the purchasing agent to issue without bringing it back to court?
>> yes. If all you are doing is transferring.
>> we have standard terms and conditions. I notice some of the terminology. One of the things that al and I talked about this morning, and I do think dan man seur needs to hear this dan is the project manager however in the neck phase, the purchasing agent by law supervises that process. Al and I have an understanding that all communications will go through lolly and I in my office. Vendor communications, everything, any vendors calling should be referred to my office. So we will be in a procurement process until we have a contract award. So for this phase, purchasing will sort of be the project manager although dan is still overall project manager and he will be coordinating with us.
>> so the rfl will include language to that effect.
>> yes, our standard language.
>> any discussion of the motion?
>> judge, I壇 like the say this. I知 going to abstain on this motion. The reason for my abstention is that I think we really do need to come some time in the near future to come up with a possible where by we look at these contracts that we have, contract with vendors that we have a long history with, and maybe revisit that to come up with a policy as far as when do we do when is it necessary to go out for a rf p. Right now I think we have been a little inconsistent in some of our process. I知 referring to the expo center, for example, g and m, where we went after a rf p. Of course, here is another situation where we did not go for a rfp an example of the expo centers, and today we are going out for a rfp so somewhere along the line it almost makes it appear that we are selecttively taking things that need a rfp and things that do not. So I think we need to come up with some kind of policy to deal with that. That's the reasons for my absence.
>> anymore discussion? All in favor. Shows show Commissioners eckhardt, Daugherty and yours truly environmenting in favor. Voting against--
>> abstaining.
>> I知 looking toward Commissioner Gomez.
>> abstaining.
>> two people abstaining, Commissioner Davis and Gomez.
>> okay.
>> c?
>> c is the time line that we received today. We want to go back to the original one is this.
>> yes. This time line bumped it a week. I think with this action today we should be able to get it out next Fridaywe don't--
>> we don't need the extra week. Move approval.
>> second.
>> show Commissioners eckhardt, Davis, yours trily voting in favor.
>> Commissioner Davis abstaining for same reasons.
>> Commissioner Gomez joining that.
>> can we continue with c on the contract award.
>> I知 not sure we can do that of the I think we need specific language on that.
>> it says in contract award. It is a modification. I can actually approve it myself because it's within the contract. But I thought I would just update y'all. Al and I have been back and forth over the weekend. We've come to the 19,250 that he proposed that does not include transition services if needed.
>> I think that needs to be more specific language. Don't you, barbara?
>> on the agenda?
>> yes.
>> in terms of approving this.
>> in terms of the court taking any action or the court responding to what cyd has said, yes, there needs to be more specific language. Oftentimes, you will get information that is not posted but you can't discuss it, you can't act on it.
>> it says consider and take appropriate action.
>> on what?
>> 24 is consider and--
>> normally we could say contract award with retirement.
>> is this an award or modification of existing contract already approved?
>> it's modification technically.
>> it says consider and take appropriate action on an investment policy on the rfp, and on the time line. It doesn't say anything about take appropriate action in relation to modification of contract.
>> can you do it without us.
>> I can do it without you.
>> do it.
>> thank you.
>> move that we recess until 1:30second.
>> all in favor. That passes by unanimous vote.
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Last Modified:
Wednesday, April 23, 2008 8:51 PM