TOWN OF SEWALL S POINT

Transcription

1 TOWN OF SEWALL S POINT PAMELA MAC KIE WALKER Town Manager TO: FROM: Town of Sewall s Point Commission Pamela Mac Kie Walker, Town Manager SUBJECT: Agenda Item 6 Retirement Consultant Town Commission Meeting, June 27, 2017 Background: The Town has currently retained International City/County Management Association Retirement Corporation (ICMA-RC) to manage the deferred compensation plan benefit provided to staff. After extensive interviews with Mr. Brad Larsen of NFP Corp., staff recommends that NFP be retained to replace ICMA-RC. As with ICMA-RC, there is no cost to the Town. The Town will benefit, however, in two ways: (1) increased attention to fiduciary responsibilities under the Qualified Plan, and (2) happier employees with better access to investment options for their retirement planning. Mr. Larsen will make a presentation to the Town Commission and answer any Commission questions. Recommendation: Staff recommends that the Town transfer management of its Deferred Compensation Qualified Plan to NFP Corp.

2 Firm Overview At NFP Corp., our solutions and expertise are matched only by our personal commitment to each client's goals. We're a leading consultant and insurance broker that provides retirement plan consulting, employee benefits, commercial insurance, and wealth management solutions. NFP's Retirement division is dedicated 100 percent to retirement plan consulting (including investment consulting) and employs more than 200 people. We directly advise over $100 billion across 1,384 retirement plans (as of 01/01/2017) and provide a practice management platform that is used by 400+ advisory firms representing another $300 billion of retirement plan assets (as of01/01/2017). Our professional staff is highly credentialed and experienced and includes 30 CFA charterholders, 12 former practicing ERISA attorneys and 3 former practicing actuaries. NFP will serve as an ERISA 3(21) investment manager. An outline of our services is summarized below: Fiduciary compliance and education Plan governance processes and documentation Investment advisory services Investment selection and monitoring Provider benchmarking I searches I negotiation Plan design and participant engagement strategies Participant education I financial wellness I participant advice What makes NFP uncommonly relevant in today's world isn't just what we do, but how we strive to do it. We call it the "NFP Way", and you won't find it anywhere else. The NFP Way begins with our dedication to helping our clients solve their most complex business and personal challenges. We're driven to find the right answer for you, not just a formulaic or by-the-book answer. To do this, we focus on the details. Whatever the challenge, we will approach it with a fresh perspective and apply our deep knowledge, creative thinking and industry experience to deliver a tailored solution. Our personal commitment to our clients is a relentless pursuit of excellence, and we aim to deliver extraordinary results every day. Fiduciary Services Overview ERISA requires plan fiduciaries to satisfy the highest duties of care in our legal system, with severe consequences attached to imprudent actions and inactions. Serving as an ERISA fiduciary, NFP is held to the same legal responsibilities under ERISA that our clients must satisfy. This provides important assurances and protection when you rely on our advice to make plan-related decisions. Our clients can engage us as either an ERISA 3(21) fiduciary or an ERISA 3(38) fiduciary. As an ERISA 3(21) fiduciary, we assume fiduciary responsibility for assisting our clients with gathering, examining and

3 understanding information that's relevant to making informed decisions on behalf of plan participants. A plan sponsor, however, retains control and discretion pertaining to final investment decisions. If a client appoints us to serve as an ERISA 3(38) fiduciary, NFP accepts control and discretion over a plan's investment decisions, which transfers this responsibility to us. As a practical matter, the majority of our engagements begin with NFP serving as an ERISA 3(21) fiduciary, because most plan sponsors are uncomfortable relinquishing control. Over time, if a client finds that it's "rubber stamping" our recommendations, then appointing us as an ERISA 3(38) fiduciary can help to further insulate plan fiduciaries from the responsibility and, therefore, liability associated with making investment decisions on behalf of plan participants. Fiduciary Compliance and Education NFP offers comprehensive and on-going committee training, education and support through our Fiduciary Fitness Program which ensures our retirement plan clients are continuously apprised of the status of all aspects of their retirement plan, not just investment due diligence. Our Fiduciary Fitness Program was designed by former practicing ERISA attorneys to meet four objectives: Undertake a gap analysis in regards to the plan sponsors' fiduciary responsibilities; implement a fiduciary education program; assist plan sponsors in meeting their fiduciary responsibilities; and document the completion of fiduciary duties. Our fiduciary education program consists of over 20 different education and documentation modules. Each module focuses on a distinct area of fiduciary responsibility, risk mitigation or plan administration. Our clients also receive a monthly newsletter containing industry-related articles and a quarterly legal newsletter containing relevant information regarding the legal landscape. NFP also provides regularly scheduled educational webinars designed to further the fiduciary's education and awareness of developments within the industry and legal landscape. Plan Governance and Documentation Unless and until a formal delegation occurs, a plan's named fiduciary (typically its board of directors) is accountable for all aspects of an organization's retirement plan. If need be, we will begin by assisting your Board of Directors with formally delegating daily administrative and investment responsibilities to a Retirement Plan Steering Committee. We provide the following templates to assist you with this process: Board Resolution adopting a Retirement Plan Committee Committee Member Acceptance to acknowledge a member's appointment and fiduciary status Steering Committee Charter outlining the composition, scope of responsibilities and the authority delegated to a plan's committee Investment Policy Statement outlining the investment responsibilities of the Retirement Plan Steering Committee Upon completion of these items, NFP assists your Retirement Plan Steering Committee with fulfilling its administrative and investment responsibilities. We provide the following resources to educate plan committee members regarding their fiduciary duties and responsibilities:

4 Fiduciary Diagnostic : An ongoing diagnostic tool that outlines plan management responsibilities and documents completion of required tasks. Education Modules: 20+ education modules that outline responsibilities under ERISA and how to implement prudent processes. Initially, a client's Fiduciary Diagnostic is used to identify any existing gaps pertaining to the committee's fiduciary responsibilities. The Fiduciary Diagnostic is then reviewed and updated on a quarterly basis to identify upcoming plan management responsibilities and to document when required tasks are completed. The following items are used to assist with this process: Quarterly Investment Monitoring Reports document adherence to your IPS. Fee Benchmarking Reports document the reasonableness of plan fees and services. Fiduciary Compliance Checklists document the completion of plan management duties. Plan Operations Checklists document compliance with plan terms and definitions. Steering Committee Minutes document committee discussions arid actions. Fiduciary File Checklists outline plan documents and processes that need to be maintained. Fiduciary Briefcase TM is a virtual file to organize and store plan documents, reports, required disclosures, required notices, meeting minutes and employee communication materials. NFP also assumes the responsibility for creating meeting agendas and organizing the necessary materials for committee discussions. After each meeting, NFP provides meeting summaries/minutes that outline key discussion, decision and follow-up items. Finally, NFP organizes and stores a plan's documents, processes, reports and meeting minutes in a secure, internet-based, filing system that we call a plan's Fiduciary Briefcase. NFP's clients can access these items on an as-needed basis such as during annual plan audits. Investment Advisory Services To date, over $300 billion of retirement plan assets (as of 06/30/2016) rely on our proprietary fund ranking system to enhance outcomes, manage risks and reduce fiduciary exposure. Our approach consists of two equally important parts, i.e., sophisticated, quantitative analytics and in-depth, qualitative due diligence. Quantitative Analytics. Funds are scored using a proprietary 10-point pass/fail scoring process that is also easy to understand. A fund's overall score reflects a manager's skill within a particular asset class. Funds that score 7 points or more are considered acceptable. Funds that score 6 points or below are considered "watch or "replace" based on further analysis and discussion....,...,. IOPoilll'als.fai Sollir~S)illm ~j. ;e IJla)'Slsb!gOs lh...,,..., B"W.tkMl e!em;n!s d SUCteSS!lis!119"''''U!lf" 'Ud<)' --- IJKieotf)liglC/eatng Cullom- <lo!ornpe<rg'o<ll"1f""" ~~r:.. 0-! -~~ints Qualitative Due Diligence. NFP's Investment Research team conducts daily meetings with portfolio managers to monitor portfolio philosophy, processes and personnel. We leverage our size to gain access to key investment personnel that other consulting firms cannot.

5 Sound fiduciary investment review processes need to be based on apple-to-apple performance comparisons. The processes followed by many investment advisory firms are not nearly as rigorous as ours. Prior to calculating any performance related metrics, e.g., alpha, beta, standard deviation, up & down capture ratios and information ratios, NFP's scoring process identifies a custom style benchmark index for each fund. We also create custom peer group universes for both actively managed and passively managed funds. Custom style benchmark comparisons allow us to isolate a fund's market-related and style-related investment returns so that any unexplained variance-le., over- or under-performance-can be attributed to manager skill. Separate peer groups for both actively and passively managed funds further refine the accuracy of our scoring methodology. Finally, return series, i.e., 36-month rolling intervals over the past five years, rather than fixed time intervals, e.g., one-, three- and five-year returns, are used to provide better measures of central tendency (consistency) and improve our ability to identify performance trends. Asset allocation and target date funds (TDFs) can create additional performance monitoring challenges because fund names typically do not convey the level of risk that is imbedded in a fund's approach. For example, one 2020 TDF fund may have 35 percent in equities while another 2020 TDF may have 70 percent in equities. As a result, comparisons that are based on the year in a fund's name can be very misleading. To overcome this problem, NFP utilizes returns-based style analysis across four major asset classes (U.S. Equity, Non U.S. Equity, Fixed Income and Cash) to create a custom benchmark index for each fund in a TDF series. NFP also creates a custom, risk-based peer group for each TDF in order to evaluate a portfolio's value-added relative to other asset allocation portfolios that have demonstrated similar levels of risk. Finally, because a TDF is constructed using underlying funds that focus on a particular area of the market, NFP scores the performance of the component funds using our individual fund scoring approaches Our scoring guidelines for actively managed portfolios, along with a sample fund Scorecard and a sample migration analysis are provided below. Target Date Fund Suitability Analysis and Selection In 2013, the Department of Labor (DOL) published "Target Date Retirement Funds (TDFs) - Tips for ERISA Plan Fiduciaries" over concerns that plan sponsors were not adequately investigating the assumptions and risk postures associated with a plan's TDFs. As a result, the DOL expects plan fiduciaries to analyze a series of factors prior to selecting a risk posture or glidepath that's appropriate for a plan. After a "best fit" risk posture is identified, plan fiduciaries are expected to have a process in place to evaluate the quality, composition and fees of TDFs that fit a plan's risk posture. The DOL's TDF recommendations are summarized below: Align TDF characteristics with participant characteristics Understand underlying investments Review fees and investment expenses Consider custom or non-proprietary options Develop effective employee communications Document the process NFP's proprietary TDF suitability process assists plan sponsors with documenting the logic that plan fiduciaries followed in order to select/construct a plan's TDF series. Our process begins with identifying a best-fit risk posture (glidepath) for a plan's participant population by incorporating the same funding adequacy logic that defined benefit plans use when determining an appropriate asset allocation and risk posture, i.e., it's prudent to "de-risk" sufficiently funded retirement portfolios, and it's imprudent to de-risk insufficiently funded retirement portfolios. Funding adequacy inputs include other participant retirement income sources, average participant savings rates, average participant balances, participant ages and an assumed age for retiring. Plan-specific assumptions, e.g., investment knowledge, risk tolerance and withdrawal patterns, are then combined to identify/finalize a best fit risk posture for a plan. After a best fit risk posture and glidepath is identified, NFP identifies and compares off-the-shelf and custom

6 model options that match a plan's best fit risk posture. Areas that are evaluated include differences in equity exposure, asset class exposure, management style, fund expenses and the quality of the underlying funds that are used to construct a TDF. Fee Benchmarking and Provider Searches Few, if any, advisory firms provide the access and experience that NFP leverages when benchmarking provider fees and services. Over the three-year period ending 12/31/2015, NFP conducted 442 provider RFPs with plan sizes ranging from under $1 O million to over $1 O billion. We know and understand provider tactics, and the service provider community respects the thoroughness of our approach. We create a plan's provider benchmarking comparisons from plan-specific RFP responses. Our process begins with an initial fact-finding meeting where we map out a plan's parameters, complexity, service requirements and unique needs. This information is then used to create a list of plan specifications that competing recordkeepers use to quote their services and fees. While definitely more arduous, there are several benefits to our RFP approach. Cost Investment Management First, it ensures "apple-to-apple" comparisons are used throughout the benchmarking process Next, all fee comparisons are based on current market prices instead of historical prices. Last, a competitive bidding process maximizes a plan's negotiating leverage with its current provider. Our final benchmarking report provides side-by-side comparisons of provider costs and services to isolate differences in these key areas: Total plan costs Net recordkeeping costs Net investment management costs Investment quality rankings Service differentiators 1 1 Service differentiators include: experience levels, retention rates, caseloads, compliance services, transaction services, website capabilities, mobile app capabilities, enrollment tools and support, investment education tools and support, customization capabilities and a host of investment platform capabilities and/or requirements. Plan Design As employers have shifted from a "funder" of traditional pension benefits to a "facilitator" of 401 (k) or 403(b) benefits, many have mistakenly concluded that the liabilities associated with their employees' retirement income needs have been eliminated. Employer balance sheets, however, haven't gotten any lighter. Instead, an employer's retirement income liabilities have shifted from a quantifiable liability to a nebulous and hidden liability that is created when employees are financially unable to retire.

7 NFP integrates the knowledge and insights of our Retirement and Corporate Benefits divisions to identify the incremental costs of delayed retirement decisions so that our clients are able to make better plan design and resource allocation decisions. We begin the process by combining a client's claims, census and participant retirement plan data in order to quantify a client's expected liability. This is followed by prescriptive solutions that reduce a client's liabilities without spending more money. Where possible, we will also assist with benefit design changes that improve employee services and cost sharing and negotiate service provider contracts on behalf of our clients. After a holistic plan of action is determined. NFP's Retirement and Corporate Benefits divisions work together to integrate the fulfillment process. An outline of our plan design capabilities is summarized below: Projections of current retirement income replacement ratios Plan demographics risk assessments Benefits program assessments Delayed retirement cost assessments Plan design changes to improve retirement income replacement ratios Benefit design changes to improve employee services and cost sharing Negotiating service provider contracts Employee communication and education services Participant Education NFP provides both group and one-on-one sessions to assist with employee education. Meetings are tailored to focus on topics that are specific to your participants and their particular needs. We believe our LifeStage Approach that is outlined below will help your employees pursue financial well-being by considering their individual financial goals, their unique perspective and their changing needs and priorities throughout their lifetime. Starting Early Asset Balancing Goals Catching Up Nearing Budgeting Accumulation & Needs Projecting Retirement Enrolling Budgeting College Income Needs Fine Tuning Power of Projecting Budgeting Restarting Retirement Compounding Income Needs College Financial Contributions Income Needs Long-Term Increasing Aid Maximizing Restructuring Planning Contributions Short and Contributions Investments to Long-Term Intermediate- Intermediate- Provide Income Long-Term Term Planning Term Planning Intermediate- Investment Planning Risks Long-Term Short and Intermediate- Term Planning Asset Allocation Investment Intermediate- Term Intermediate- Risks Term Investment Investment Term Making Sense Risks Asset Allocation Risks Investment of the Media Asset Allocation Asset Allocation Risks Making Sense Making Sense of Making Sense Asset Allocation of the Media the Media of the Media Making Sense of the Media

8 Fees and Services As noted earlier, our clients hire us to assist them with gathering, examining and understanding information that is relevant to making informed decisions regarding their retirement plan. Our consulting services can be divided into four distinct categories. Depending upon a plan's needs, each of our services can be provided a la carte or bundled together to form a more full-service approach. Collectively, our services are designed to maximize the potential benefit of an organization's retirement plan from both an employer and an employee perspective. We've provided a summary of our proposed fees and services for your plan on the next page. A-la-carte fees for our Investment Advice, Fiduciary Support, Provider Benchmarking Services and Participant Advice services are available upon request. A full-serv ice fee that includes all of our services is highlighted in green at the bottom of the next page.

9 Fees and Services Schedule: Plan Sponsor Investment Advisory Services [83 Serve as an Fiduciary to the Plan(s) under ERISA. D 3(38) Fiduciary [83 3(21) Fiduciary [83 Patent Pending Scorecard System 10-point Fund Scoring System [83 Initial Investment Structure Evaluation and Ongoing Review [83 Investment Policy Statement Development and Management [83 Review and Analysis of Existing Managers I Mutual Funds D Target Date Fund I QDIA Suitability Review by a CFA D Serve as Fiduciary for Custom Asset Allocation Models I TDFs D Asset I Liability Modeling for Defined Benefit and Cash Balance Plans [83 Investment Manager I Mutual Fund Search and Selection [83 Investment Manager I Mutual Fund Monitoring & Due Diligence [83 Quarterly Performance Reporting and Review b [83 Annual Meeting Summaries I Minutes to Document Comm ittee Discussions and Actions A-la-carte Fee: $TBD I quarter Fiduciary_ Support Services [83 Plan Governance Documents - Board Resolution, Fiduciary Acknowledgements and Committee Charter [83 ERISA Fiduciary Calendar and Plan Management Responsibilities Fiduciary Diagnostic [83 Fiduciary Compliance Reviews to Document Completion of Plan Management Responsibilities [83 Fiduciary Training and Education [83 Plan Design Evaluations [83 Annual Fee and Expense Analysis vs. Industry Averages [83 Quarterly Legal and Compliance Updates [83 Monthly Plan Sponsor Newsletter [83 Virtual Fiduciary File to Organize and Store Plan Documentation A-la-carte Fee: $TBD I quarter Provider Benchmarking and Plan Analysis [83 Competitive Analysis of Provider Costs, Services and Investments against other Bidding Providers [83 Evaluation of Administrative, Recordkeeping, Compliance, Website/Statements, Investment Management, and Employee Communications Services [83 Cost Analysis compares Provider Compensation, Investment Management Fees and Total Plan Costs [83 Investment Analysis compares Current and Proposed Investment Lineups using Scorecard System [83 Negotiation of Provider Compensation, Investment Changes and Service Commitments is included [83 Assist in the Selection, Coordination and Review of Service Provider Finalist Presentations [83 Full Report Documents 408(b)(2) Compliance [83 Executive Summary to Document Committee Discussions and Actions D Establish I Review Non-Qualified Plan A-la-carte Fee: $TBD per Study Plan Participant Investment Advisory Services [83 Annual Participant Demographics Review [83 Annual Participant Education Initiatives [83 On-site Group Education/Advice Meetings [83 On-site One-on-One Education/Advice Meetings [83 Retiree Financial Planning Seminars [83 Executive Financial and Estate Plann ing Sessions D Financial Wellness Program Included with Plan Sponsor Fiduciary Advice Services Full Service Option - Includes All Services Listed Above Fee: 0.125% I quarter 1 Year Service Commitment 3 Year Fee Guarantee Includes: Quarterly Investment Reviews, Annual Committee Meeting, On-going Fiduciary Support, Provider Transition and Participant Investment Advise as needed.

10 ~:::;:r...:_-:.o:=at=-..:~...:.'.i::::~ :::;~~~;;,,...,--===~~:...~~:~ <';;-::;::,,...,_~""-~~., ~ Ll ~ f1 About NFP A ~ At NFP Corp., our solutions and expertise are matched only by!j,, I ~ our personal commitment to each client's goals. We're a leading I i insurance broker and consultant that provides employee benefits,. ~. ; property & casualty, retirement, and individual insurance and ", wealth management solutions through our licensed subsidiaries ip 1 and affiliates. K I NFP has more than 3,400 employees and global capabilities. Our ~ expansive reach gives us access to highly rated insurers, vendors and financial institutions in the industry, while our locally based employees tailor each solution to meet our clients' needs. We've become one of the largest insurance brokerage, consulting and wealth management firms by building enduring relationships with our clients and helping them realize their goals.. 1 enfp NFP I 120 Vantis, Suite 400, Aliso Viejo, CA I I nfp.com/retirement Securities may be offered through Kestra Investment Services, LLC (Kestra IS), member FINRNSIPC. Investment Advisory Services may be offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement Inc., a subsidiary of NFP or Dave Ramsey. 1 Examples of service differentiators may include but are not limited to: experience levels, retention rates, caseloads, compliance services, transaction services, website capabilities, mobile app capabilities, enrollment tools and support, investment education tools and support, customization capabilities and a host of investment platform capabilities and/or requirements. Any information regarding insurance coverage contained herein is intended only to provide you with a brief overview, not a comprehensive list of policy exclusions, limitations and conditions. The insurance policy issued will contain the specific terms, conditions, and exclusions of the coverage. Please read the entire policy carefully, including all endorsements. NFP and its subsidiaries or affiliates are not responsible for decisions or actions of any insurance company or intermediary, including those related to rating or pricing practices, coverage interpretations, post-policy audits, claims handling, or otherwise. Information provided herein is for general informational purposes. NFP and its subsidiaries do not provide legal or tax advice and we recommend that our clients consult an attorney or tax professional. We believe the information is accurate, however, we make no warranty or guarantee regarding the accuracy or reliability of the content. This material was created by NFP Corp. (NFP), its subsidiaries, affiliates or membership organizations for distribution by registered representatives, investment advisor representatives, agents or members. The target date is the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each fund will change on an annual basis with the asset allocation becoming more conservative as the fund nears the target retirement date. Mutual funds are sold by prospectus only. Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of a mutual fund. The fund prospectus provides this and other important information. Please contact your representative or the Company to obtain a prospectus. Please read the prospectus carefully before investing or sending money. 10/15 (MKT ) Copyright 2016 NFP. NFPR ACR# /16