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LAUSD Employee Retirement Savings Plans

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... plan, also commonly known as a tax sheltered annuity plan (TSA) is a retirement ... Provide independent employee investment education ... – PowerPoint PPT presentation

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Title: LAUSD Employee Retirement Savings Plans


1
LAUSD Employee Retirement Savings Plans
  • Current Environment
  • Proposed Improvements

2
LAUSD Employee Retirement Savings Plans
  • A 403(b) plan, also commonly known as a tax
    sheltered annuity plan (TSA) is a retirement
    savings plan that allows employees to save on a
    pretax basis for their retirement. Typically
    employee pretax contributions are invested in
    various annuity products (either fixed or
    variable), or mutual funds. A 403(b) plan is very
    similar to a 401(k) plan in terms of the pretax
    contribution limits, withdrawal provisions,
    distribution options and overall tax advantages

3
LAUSD Employee Retirement Savings Plans
  • Currently
  • LAUSD offers employees the opportunity to
    contribute to a 403(b) plan with pretax dollars
    (2004 pretax limit is 13,000, plus limited
    catch-up contributions)
  • Approximately 32,500 employees contribute 152m
    annually to their 403(b) plan (the value of total
    403(b) assets are unknown)
  • Employees may contribute to any one of
    approximately 120 different 403(b) providers

4
LAUSD Employee Retirement Savings Plans
  • Currently
  • Vast majority of 403(b) providers are insurance
    companies
  • Participation ranges from 3,000 for the most
    popular provider to one employee each for the
    bottom 11 providers
  • The top 10 providers have 54 of the contributing
    employees and 50 of the contributions
  • The top 20 providers have 75 and 72
    respectively and the top 30 providers 86 and 86
    respectively
  • There are 3 mutual fund firms within the top 30
    providers

5
LAUSD Employee Retirement Savings Plans
  • Currently
  • District 403(b) providers are almost exclusively
    insurance companies that sell various insurance
    products (life insurance, fixed and variable
    annuity policies and other products) in addition
    to various mutual fund offerings
  • Employees receive no independent investment
    education or advice unless they obtain such
    services on their own
  • To the extent employees receive such services
    from their 403(b) provider, it is generally
    provided by sales personnel and/or brokers who
    may not provide the most objective advice

6
LAUSD Employee Retirement Savings Plans
  • Currently
  • Fees assessed by these providers can be hidden
    and very high, thus reducing the investment
    returns to employees
  • Any 403(b) provider can receive employee
    contributions from our payroll if they sign a
    District hold harmless agreementhence the reason
    we remit to 120 providers
  • The Payroll Services Branch takes the pretax
    deductions from employee checks and remits
    separate monthly checks to each provider

7
LAUSD Employee Retirement Savings Plans
  • Currently
  • Due to the Districts historical hands off
    approach, all employees are on their own in terms
    of
  • Determining whether a 403(b) plan best suits
    their needs
  • Obtaining information on the benefits of
    retirement savings
  • What particular investments to choose
  • Obtaining clear knowledge on the fees and
    commissions they pay
  • Identifying their own retirement goals and how to
    achieve them

8
LAUSD Employee Retirement Savings Plans
  • Proposed
  • Based upon the current environment, District
    management believes that employees would be
    better served with a 457 plan as an additional
    retirement savings plan option
  • While a 457 plan has many of the same provisions
    of a 403(b) plan, the investment options
    available can be chosen to provide employees with
    an much enhanced mutual fund environment and
    lower fees than many 403(b) plans
  • Employees can elect to participate in either the
    403(b) plan, 457 plan or both. Participating in
    both can double the allowable amount of pretax
    savings available to employees

9
LAUSD Employee Retirement Savings Plans
  • Proposed
  • RFP responses are currently being reviewed. The
    winning bid will establish for the District
  • A 457 pretax contribution plan
  • Common remitter services to administer the
    current 403(b) providers and the new 457 plan
  • Web portal and 800 service center for employees
    to manage their 403(b) and or 457 plan and
    process transactions
  • Provide independent employee investment education
  • Monitor compliance requirements for employee
    contribution limits

10
LAUSD Employee Retirement Savings Plans
  • Proposed approach will ease the administrative
    and payroll burden and thereby improve staff
    efficiency
  • No incremental District cost with this proposed
    approach
  • Timing
  • RFP process will be complete in October 2004
  • Board approval will be sought in November 2004
  • Proposed effective date of new retirement plan
    platform will be in the first quarter of 2005

11
LAUSD Employee Retirement Savings Plans
  • 403(b) 457 Plan Comparison
  • Provision 403(b) 457
  • Eligibility Full and part-time employees same
  • Contributions 2005 - 14,000 same
  • Age 50 Catch-up yes same
  • 3yr catch-up yes yes-slightly different
  • Loans yes yes-slightly different
  • Withdrawals yes yes-slightly different
  • Fees yes based on individual yes-based upon
    total
  • investments and asset levels plan assets
    funds
  • Investments Varied. Insurance policies,
    annuities, Diversified selection
  • wrapped around mutual funds of mutual funds
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