Orange County

1

• Orange County

Employee Deferred Compensation Program September
30, 2008
2
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

3
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

4
Background

• Optional defined contribution program (Section
  457 Plan)
• Supplements Florida Retirement System
• County is fiduciary and sponsor of program (per
  IRS regulations)
• Program is funded through employee contributions
• Employees allowed to contribute salary before
  federal taxes

5
Background

• Current participating agencies
• Board of County Commissioners
• Clerk of Courts
• Comptroller
• Property Appraiser
• Supervisor of Elections
• Tax Collector
• Sheriff has separate program

6
Background

• Current Investment Providers
• ING 1976
• ICMA 1983
• Nationwide 1989
• None of the providers were selected through a
  competitive procurement process

7
Background

• Recent national attention regarding fees and
  expenses of retirement programs (401(k) plans,
  IRAs, 457 plans)
• Fiduciary responsibility
• Fundamental principle all decisions/actions
  must be in best interests of participants
• Fees and expenses must be reasonable and
  adequately disclosed (transparency)

8
Background

• In 2004, investigated joining State of Floridas
  Deferred Compensation Program
• Logical extension to our primary retirement
  system (FRS)
• Recently completed an RFP for investment
  providers
• Legislative change needed did not materialize

9
Background

• County began investigating other alternatives
  including monitoring of Sheriffs competitive
  process
• In July 2008, County hired independent consultant
  (The Bogdahn Group)

10
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

11
Single vs. Multiple Provider Plans

• Single provider plans
• Create economies of scale
• Higher quality plans at lower cost
• Less costly to administer
• Allows simpler, well-constructed investment menu

12
Single vs. Multiple Provider Plans

• Multiple provider plans
• More expensive
• More costly to administer
• Too many investment choices increases complexity
  (confuses participants)
• Academic studies confirm too many investment
  choices results in poor investment
  decisions/outcomes for participants

13
Single vs. Multiple Provider Plans

• Per the Consultant It is our opinion that it
  is imperative that Orange County immediately move
  away from the current multiple vendor approach.
• Consultant, Board staff and Comptroller staff
  unanimously recommend single provider model

14
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

15
Procurement Ordinance

• Examples of procurements excluded from the
  competitive bid/RFP process
• Agreements with non-profit organizations
• Purchases from state or federal contracts
• Awarded bids by any local, state, or national
  governmental agency, cooperative purchasing
  organizations, or purchasing associations
  (termed piggybacking or cooperative
  purchasing)

16
Other Government Contracts
Procurement Ordinance

• Piggybacking Defined
• Utilizes existing contracts at other public
  agencies
• Vendor must agree to honor the contract
• Use same terms, conditions, pricing
• Original contract must have been awarded through
  equivalent procedures

17
Other Government Contract Examples
Procurement Ordinance

• Other governmental agencies have piggybacked
  from Orange County contracts for the following
• Health Insurance
• Electrical supplies
• Uniforms
• Automotive parts and supplies
• Security guard services
• Temporary labor
• Dairy and food products
• Insecticides

18
Other Government Contract Examples
Procurement Ordinance

• Orange County has piggybacked other
  governmental contracts for the following
• Heavy equipment in Fire Rescue
• Barcode scanning equipment
• Contracted staff
• Website translation
• Document imaging
• IT hardware and software
• IT consulting services

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Piggybacking Assuring the Process is Correct
Procurement Ordinance

• The Countys contract must be substantially the
  same as the contract piggybacked
• Terms and conditions
• Pricing
• Scope of work
• The other agency must have followed similar
  procedures as Orange County for award
• Must stay within the same market area as the
  agency from whom piggybacking was done

Source Software Vendors vs. Sarasota County
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Piggybacking Assuring a Good Price
Procurement Ordinance

• Is the contract we would sign essentially the
  same as the one signed by the other agency?
• Did the other agency follow their own procurement
  process rules?
• Did the other agency follow the same process that
  we would have followed?
• Did the other agency competitively procure the
  services or commodities?
• Were potential providers offered an opportunity
  to submit a bid or proposal?
• Are the potential providers generally the same as
  those we would normally use?

21
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

22
Sheriffs Deferred Compensation Program

• In May 2006, RFP issued for investment providers
• Single provider model
• RFP included four areas Service, Cost,
  Investments, Spanish Addendum
• Mailed to 18 investment providers (including ING
  and Nationwide)
• 13 proposals received and evaluated
• Sheriff selected Vanguard and successfully
  transitioned in November 2006

23
Sheriffs Deferred Compensation Program

• Consultant performed due diligence review of
  Sheriffs competitive procurement process
• Was the process adequate?
• Was the RFP comprehensive?
• Were all providers given an opportunity to
  respond?
• Was the procurement conducted in a fair, open and
  impartial manner?

24
Sheriffs Deferred Compensation Program

• Consultants findings and conclusions
• Sheriffs RFP was adequately advertised and
  distributed
• Information requested was comprehensive and
  provided necessary tools to make an informed
  decision
• Evaluation process was thorough and fair
• Produced an excellent result

25
Sheriffs Deferred Compensation Program

• Sheriffs program results
• Implemented November 2006
• Substantially lower annual fees and expenses
• Simpler, well-constructed investment menu (County
  currently has almost 200 investment choices)
• No termination fees
• 17 increase in number of participants
• 45 increase in amount of contributions

26
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

27
Cost Comparison

• Consultant attempted to compare annual fees and
  expenses of current providers with Vanguard
• ING and Nationwide did not disclose all fees
• Consultant required to use estimates
• County has experienced same situation for years

28
Cost Comparison

• Estimated Annual Plan Expenses
• and Termination Fees

29
Cost Comparison

• Over 20 year period, additional 1 annual charge
  for fees reduces a participants account balance
  by 17 - U.S. Government Accountability Office
  and U.S. Department of Labor

30
Cost Comparison
U.S. Government Accountability Office
70,500
20,000 Upfront Investment For 20 Years
7 Return (0.5) Fee 6.5 Yield
31
Cost Comparison
U.S. Government Accountability Office
12,100 Less 17
70,500
58,400
7 Return (0.5) Fee 6.5 Yield
7 Return (1.5) Fee 5.5 Yield
32
Cost Comparison
U.S. Government Accountability Office
12,100 Less 17
70,500
22,200 Less 32
58,400
48,300
7 Return (0.5) Fee 6.5 Yield
7 Return (1.5) Fee 5.5 Yield
7 Return (2.5) Fee 4.5 Yield
33
Evaluation

• Consultants rating of Countys program vs.
  Sheriffs program
• Scale from negative -10 to positive 10
• Countys current program - negative -7 or
  negative -8
• Sheriffs current single provider structure with
  Vanguard - positive 6 to a positive 8

34
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

35
Transition Plan

• Extensive communications program to employees
• On-site meetings
• Web-site assistance
• Frequently asked questions (FAQ) brochure
• All new contributions and majority of existing
  funds will be transferred to Vanguard

36
Transition Plan

• Transfer of existing funds
• Employees have option to direct transfer to
  investments of their choice (e.g., to similar
  investments)
• If employee does not specify, funds automatically
  transferred (mapped) to age appropriate
  Vanguard Target Retirement Fund
• Target retirement funds provide for automatic
  stocks and bonds allocation strategy for a
  specific retirement date

37
Transition Plan

• For existing funds subject to termination fees,
  employees will have option to leave funds with
  current providers until termination fees no
  longer apply
• Vanguard successfully managed similar transition
  for Sheriff
• Estimated transition date January/February 2009

38
Presentation Outline

• Background
• Single vs. Multiple Provider Plans
• Procurement Ordinance
• Sheriffs Deferred Compensation Program
• Cost Comparison and Evaluation
• Transition Plan
• Summary Recommendations

39
Summary and Recommendations

• Lower fees for our employees
• Fair procurement process
• Fiduciary responsibility

40
Summary and Recommendations

• Consultant, Board staff and Comptroller staff
  recommend piggybacking off Sheriffs contract
  as follows
• Contract with Vanguard for investment provider
  services (Vanguard and Dimensional Fund Advisors)
  
• Contract with Vanguard for third party record
  keeping services
• Term of contract would be 5 years with one 5-year
  renewal

41
Summary and Recommendations

• Per the Consultant We believe that it would be
  a serious failure of fiduciary responsibility for
  the County to delay, even if that delay would be
  in connection with doing a new RFP on the model
  that OCSO conducted. Participants require the
  immediate cost reductions that piggybacking on
  the OCSO RFP will provide.

42
Summary and Recommendations

• Next Steps
• September 30
• Board approval to piggyback on Sheriffs
  contract with Vanguard
• October thru December 2008
• Education/communications program with employees
• January/February 2009
• Conversion (transfer of funds) to Vanguard

43
Action Requested

• Board approval to contract with Vanguard for
  third party record keeping services, and with
  Vanguard and Dimensional Fund Advisors for
  investment provider services for the Countys
  Deferred Compensation Program under the same
  provisions of the Orange County Sheriffs Office
  contract pursuant to the piggybacking provision
  of Section 17-312(d), Orange County Code to
  include Board approval and authorization for the
  Mayor to execute the final Trust Agreement and
  Recordkeeping Fee Agreement with Vanguard. The
  term of the agreements would be for five (5)
  years with one five (5) year renewal.

44

• Orange County

Employee Deferred Compensation Program September
30, 2008
45
Cost Comparison

• Nationwide appears to provide Florida Association
  of Counties 600,000 annually (per FAC FY 2007/08
  Budget Proposal)
• Matter of fiduciary concern
• Conflict of interest

46
Cost Comparison

• Per the Consultant Adopting the core
  conclusions of the diligent RFP process conducted
  by OCSO would immediately provide Orange County
  with a clear arms length vendor relationship, and
  would remove even the appearance of a conflict of
  interest