Board of Education Agenda Abstract Meeting Date: 6/19/14 Agenda Type: Consent Agenda Agenda Item #: 5a

Transcription

1 Board of Education Agenda Abstract Meeting Date: 6/19/14 Agenda Type: Consent Agenda Agenda Item #: 5a Subject: Approval to Change Employees 403(b) Offering to Statewide 403(b) Plan Division: Support Services, Todd LoFrese Department: Budget and Finance Person Responsible: Ruby Pittman, Executive Director of Budget and Finance Feedback Requested From: Current 403b Contributors Agenda Item.Prior Submission Dates Work Session No Date Discussion and Action No Date Attachment(s): Summary of the Discussions of the 403b Committee, A Summary of the 403(b) Plan Assets as of April, 2014, N.C. 403(b) Information, Pentegra Information PURPOSE: To seek Board approval to change the district s offering of the 403(b) from the current four vendors to the new N.C. 403(b) Plan. BACKGROUND: The Board approved streamlining the district s twelve 403(b) vendors to four vendors in 2009 after the 403(b) Committee spent months reviewing, analyzing, and developing the recommendation. Since that time the district s four 403(b) vendors have been TIAA-CREF, ING, VALIC, and AXA Equitable. In addition to the 403(b) Plan offered by the district, employees also have the choice to participate in the NC 401K Plan and the NC 457 Plan as an optional retirement plan alternative. During the 2012 legislative session, the North Carolina General Assembly enacted House Bill 730, which authorized the Department of State Treasurer to establish a centralized 403b retirement savings plan as an option for employees of local boards of education. After a proposal process to select a vendor, the Supplemental Retirement Board of Trustees selected TIAA-CREF based on its ability to offer competitive investment vehicles, its exceptional participant education and communication program, and its existing relationships with compliance third-party administrators. The State entered into a five year contract with TIAA-CREF. H:\Word Docs\ months\june\board\webbdocs 61914\June Board Abstract.doc 1

2 The following is an excerpt from the December 2012 press release from the Department of State Treasurer: "The NC 403(b) program will give schools another option to help their staff save more effectively for retirement," [Treasurer Janet] Cowell said. "By leveraging economies of scale, we will be able to provide savings of up to tens of thousands of dollars for teachers over the course of their careers by offering a plan with lower investment and administrative fees, as well as enhanced services and improved compliance." 403(b) Committee Work and Recommendations The 403(b) Committee was reassembled in July 2013 with a meeting with Mary Buonfiglio from the NC State Treasurer s Office who shared information about the new NC 403b Plan. The Committee had discussions about the various options available to the district as outlined in the attached summary of the Committee s work. After multiple committee meetings over the course of the past year, the committee unanimously agreed that adopting the 403(b) program as developed by the State Treasurer s Office would be in the best interest of district employees, and would reduce the resources required by the district to monitor and administer our local plan. The 403(b) Committee s recommendations to the Board for changes to the district s 403(b) Plan are listed below: 1. Effective August 1, 2014, CHCCS would amend its current local 403(b) to adopt the plan document available through the NC 403(b) program and designate TIAA-CREF as the investment provider. Currently, the district has a plan document provided by our current plan administrator, and includes AXA Equitable, VALIC, ING, and TIAA-CREF as the four approved vendors allowed to offer 403(b) accounts to district employees. Attachment 2 provides the Board with detailed information regarding the district s current participation levels with the four vendors. 2. CHCCS would deselect AXA Equitable, VALIC, and ING as 403(b) vendors. Current participants will be able to continue contributions with the deselected vendors through December 31, Effective January 1, 2015, all contributions to the deselected vendors would be discontinued. 3. Employees would be able to open accounts with TIAA-CREF under the NC 403b Plan as early as August Following this date, new accounts could not be established with any other vendor. TIAA-CREF will provide representatives to meet with employees to discuss their enrollment options. Employees may also decide to seek advice from their accountants or other financial advisors H:\Word Docs\ months\june\board\webbdocs 61914\June Board Abstract.doc 2

3 4. CHCCS would end its contract with TSA, Inc. for Third Party Administrator (TPA) services and enter into a contract with Pentegra for TPA services. Currently, the four plan vendors pay a fee to TSA, Inc. for TPA services. The contract with Pentegra will be paid by a 10 basis point charge to our plan that has been approved by the N.C. State Treasurer s Office. TPA services are necessary to manage transactions with the 12 deselected vendors associated with previous district 403(b) Plans, and to help the district ensure that the plan operates in compliance with our plan document and meets all regulatory requirements. Employee Notification Individual letters were mailed to current participants in the district s 403(b) Plan explaining the recommendation being presented to the Board. Employees were encouraged to continue their contributions in the new NC 403(b) Plan. Their current account balances may be retained in their existing accounts or they may elect to roll funds into the new plan as best suits their financial welfare. Summary The recommendation from the 403b Committee to adopt the State s NC 403(b) Plan is based on the expectation that our employees will benefit directly from the lower plan fees as negotiated by the Treasurer s Office based on a larger statewide environment, and will benefit indirectly from the district s ability to improve plan communication and education services available to employees in a single-provider environment. The single vendor model will also simplify the decision process for employees. The Committee is continuing its work on developing a Financial Education Program for district employees. We are currently reviewing program offerings from the N.C. State Employees Credit Union and may seek bids from other providers if needed. Some employees in our district would benefit greatly from having free fiscal advisory services available to them whether it is helping them plan for their first home, getting bills paid off, or deciding upon an optional retirement plan. FINANCIAL IMPACT: N/A PERSONNEL IMPACT: N/A RECOMMENDATION: N/A RESOLUTION: Be it, therefore, resolved that the Board of Education approves the administrations recommendation to change the district s 403(b) Plan to the State NC 403b Plan with Pentegra as the new Third Party Administrator. H:\Word Docs\ months\june\board\webbdocs 61914\June Board Abstract.doc 3

4 CHAPEL HILL CARRBORO CITY SCHOOLS 403(b) Committee Review and the New North Carolina 403(b) Program Option Committee Members: Dr. Todd LoFrese, Ruby Pittman, Jonathan Scott, William Hennessee, Karen Patillo, and Marny Ruben. During our first committee meeting held on July 23, 2013, we heard an initial presentation from Mary Buonfiglio, Deputy Director, Supplemental Retirement Plans, NC Treasurer s Office about the new NC 403(b) program. We reviewed current participation in the District s 403(b) plan and outlined the need to make a decision regarding the new direction of the local 403(b) plan in light of the new initiative from the Treasurer s Office. The committee agreed on three next steps: (1) request approval from the Treasurer s Office for the creation of an Administrative Expense Account to help the District off-set plan-related expenses; (2) create Guiding Principles to lead the 403(b) review; and (3) consider five key reports to evaluate the overall plan: (1) Investment Scorecard, (2) Education Policy Statement, (3) Plan Overview, (4) Adoption Checklist and (5) Compliance Checklist. During the second meeting held on September 19, 2013 the committee reviewed, discussed and accepted the following Guiding Principles: Seek to maximize the investment oversight work being done by the NC Treasurer s Office Seek to minimize local resource requirements Provide support for teachers and staff through any transition Provide clear communication to help teachers and staff make sound, well-informed decisions Encourage participation in a retirement savings program The committee identified and discussed the range of possible recommendations, defined as: Declining to add the NC 403(b) option Adding the NC 403(b) option into the current plan environment Adding the NC 403(b) as the only available option moving forward, but allowing current participants to continue with alternate vendors Transitioning to the NC 403(b) as the only 403(b) provider, similar to the NC 401(k) and NC 457 models The committee also discussed possible strategies to support teachers and staff if vendor changes are made, including various ways to make re-enrollment as easy as possible to protect current participation and encourage new participation. During the third meeting on October 14, the committee reviewed available information on the existing investment provider products and the proposed NC 403(b) product as the Investment Scorecard report. After a review of the discussions and comments shared in the first two meetings, the committee affirmed that spending more time on vendor evaluation and comparisons was not desired; and the members opted in favor of deferring to the NC Treasurer s Office for vendor selection and investment oversight. The committee also discussed opportunities for the 403(b) plan to receive employer contributions, and the potential payroll tax savings. The committee reached a consensus decision to recommend adoption of the NC 403(b) option exclusively for the district s 403(b) plan, but to allow adequate time for teachers and staff to make new elections before stopping contributions to current vendors. 1

5 The district has been waiting on the State to issue final approval of the NC 403(b) option. The final approved occurred in April. The district did receive approval from the Treasurer s Office for the creation of an Administrative Expense account, at a rate of 10 basis points on participant assets held with the NC 403(b) provider. It is not expected that the State s new 403b plan will pay fees but will pass along fees to participants. The district s current TPA firm, TSA, is receiving fee payment from the four current vendors at a rate of $2.00 per month per participant. In the interim, Verity has been working to seek an alternative choice of service provider for district to consider to meet the needs faced by the district in transitioning the plan to a single-vendor environment within the mandate of the Guiding Principles developed by the committee. A successful plan environment has three elements: (1) Investment product selection and oversight, (2) Participant engagement, (3) Compliant plan operations. The committee has recommended deferring to the Treasurer s Office for the investment oversight. However, the district retains responsibility for participant communication, education and engagement, and for compliant plan operations. Verity, as plan consultant to the district, proposes the following service package to provide the two remaining elements with minimal local resource requirements. To create an employee education program, Verity suggested a relationship with Credit Union Investor Services (CUIS), the advisory firm division of the N.C. State Employees Credit Union (NCSECU). With 253 branches throughout the state, robust workshops on financial topics, and a strong presence and established relationships with the schools already in place, CUIS/SECU could be an ideal partner to provide educational services and investment advice to teachers and staff within the district s NC 403(b) local plan. A meeting was held on March 19 th with officials from CUIS/SECU to discuss what can be offered to help the district develop an Employee Education Policy Statement, and a communication campaign to support teachers and staff through this plan transition. Should the district eventually move all optional retirement services to the State plans, the current TPA would no longer be able to collect processing fees from the current vendors. The district will still need TPA services to manage transactions with the deselected vendors. We do not know if TSA would be interested in continuing services to the district or know what their payment requirements would be. The district has requested that information from TSA. Their response is that they need additional information from the State s 403b Plan with TIAA-CREF to determine what role they might serve. A final determination from TSA is still pending. The district has made an additional request to the State for an additional 15 basis points in funding that would be used for education and advisement services for employees. The original request was for 10 basis points to be used to offset plan administration expenses. These funds might also be available to offset charges from the TPA for deselected vendor services. An alternate TPA firm, Pentegra Retirement Services, has been identified that could potentially provide the services to the district. Pentegra is a nationally respected plan administrator that has earned the endorsement of the NC Banker s Association, among many others. Pentegra is currently developing services as a discretionary administrator customized for the TIAA-CREF/NC 403(b) environment and the TIAA-CREF Compliance Coordinator service as selected by the State. These services as a vendor neutral compliance TPA, ultimately, would also be available to districts throughout the state. Pentegra s rate band for CHCCS would be $625 per month or $7,500 annually. The proposal also includes a monthly plan administration fee, estimated at $475 per month or $5,700 annually, although this figure is subject to possible change. The district can use the included 10 basis point Administrative Expense Account to pay this fee. TSA is currently charging 2

6 $20,088 in fees to vendors on behalf of the district. Should the district decide to move forward with the Committee recommendations, Chapel Hill Carrboro City Schools would offer employees the State-sponsored 403b option, maintain TPA services, and contract with CUIS/SECU for the employee education component. At the March 22, 2014 meeting the committee reviewed and affirmed the recommendation to adopt the NC 403(b) program as the single provider investment option for the District s local 403(b) plan. The committee heard an update on the impact this decision would likely have with respect to the current third party administrator retained to provide compliance and administrative support to the District, and acknowledged the need to outsource administration to a third party administrator with a service offering supportive of the District s decision to de-select all current vendors in the plan. Discussion moved to various implementation considerations and time tables. The committee received update on the interim meeting with administration from CUIS/SECU and that the District had submitted a request to the Department of State Treasurer for approval of a 15 basis point fee structure to incorporate CUIS/SECU for provision of participant education and support services. The committee developed the following outline as a target time table: May 15 June 5 July 1 Begin communication with current participants Seek approval of the recommendation from the Board Target Effective Date for changes to the plan, to include: Adoption of the new plan document Designating TIAA-CREF the single provider for new enrollment Allow contributions to continue to current vendors until 12/31 Begin a communication effort to affirm re-enrollment for existing participants During this process, a presentation to Cabinet was also recommended, prior to seeking Board approval. The request was made by the committee to ask the CUIS/SECU if a video presentation could be developed to show during staff members returning to school in September to introduce the changes in each school. The request was made by the committee to seek assistance options from the proposed administrator in communicating with non-active participants with accounts covered by the plan that are also impacted by the changes over the summer months. At the May 27 th Committee meeting, the timeline was revised to the following: June 10 June 19 August 1 Mail individual letters regarding the proposed 403(b) Plan changes on June 10 Seek approval of the recommendation from the Board Target Effective Date for changes to the plan for the changes outlined at the March 22 nd meeting After further discussion about the proposed Employee Education Program, the decision was made to separate those services from the new plan adoption. The Committee will continue to pursue a contract for an Employee Education Program and could possibly issue a Request for Proposal. 3

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