SR-0 (86)
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council Meeting:
Santa Monica,
June 11, 1991
TO:
Mayor and city council
FROM:
city Staff
SUBJECT:
Recommendation to Authorize the City Manager to
Negotiate and Execute a Contract with the Public
Employees Benefits Services corporation to
Administer the City's Deferred Compensation Plan
INTRODUCTION
This report requests Council authorize the City Manager to
negotiate and execute a contract with Public Employees Benefits
Services corporation (PEBSCO) to administer the City's Deferred
Compensation Plan.
BACKGROUND
The city has 987 participants in its deferred compensation plan.
This number include.s blue collar, clerical, professional and
management employees.
Great Western Bank is the current administrator of the city t s
deferred compensation plan. The contract with Great Western Bank
expired as of December 311 1990. However, Great Western Bank has
continued to administer the plan on a month-to-month contract
basis, pending selection of a new plan administrator.
During 1990, the Federal Savings & Loan Insurance Corporation
(FSLIC), which had provided federally guaranteed insurance for
deposits made with Great Western Bank and other savings and loan
financial
institutions,
was merged with
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the Federal Deposit
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Insurance Corporation (FDIC). Under FSLIC regulations, the
account of each indi vidual participant in the City's deferred
compensation plan was federally insured up to $100,000.
Following the merger of FSLIC with FDIC, the U.S. Treasury
Department issued a ruling to the effect that the federally
guaranteed insurance provided by the FDIC only applied to an
entire deferred compensation plan rather than to the account of
each individual plan participant. However, the U. S. Treasury
Department delayed implementation of this change in coverage for
all savings and loan institutions until January, 1992. Thus, as
of January, 1992, if the city's deferred compensation plan were
to remain with Great Western Bank, the entire plan would be
insured for $100,000. Individual participant insurance would be
discontinued.
The change in FDIC coverage prompted the city to look at other
deferred compensation plan administrators since Great Western
Bank would no longer be able to insure each individual
participant's account. The City engaged the services of William
M. Mercer, Inc., an employee benefits consultant specializing in
deferred compensation plans, to oversee the selection of an
administrator for the City'S deferred compensation plan.
Will iam M. Mercer, Inc. sent out requests for proposal to a
number of deferred compensation plan administrators. Great
Western Bank, the current plan administrator, and the Santa
Monica City Employees Federal Credit Union were also invited to
submit a proposal. Based on its review of the proposals, William
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M. Mercer, Inc. recommended that the city interview four deferred
compensation plan administrators: Prudential Life Insurance
Company: T. Rowe Price: Great West Life; and Public Employees
Benefit Services Corporation (PEBSCO). PEBSCO is the
administrator of the U. S. Conference of Mayors and the National
Association of Counties deferred compensation plans.
A committee of City staff and William M. Mercer, Inc. conducted
interviews with the top four firms. Based on those interviews
and input from William M. Mercer, Inc., the committee recommended
that the City select PEBSCO as its deferred compensation plan
administrator.
DISCUSSION
The criteria used in evaluating the deferred compensation plan
administration proposals and making the final recommendation to
the city included: security of investments, the rate of return
on investments, and the quality of the administrative services
offered by the firm. It was determined that the U. S. Conference
of Mayors (USCM) plan, administered by PEBSCO, scored the highest
in terms of these criteria.
The credit quality of Nationwide Insurance Company, the
underwriting insurance company of the USCM plan, is superior. In
addition to being rated A+ by A. M. Best, and triple A by Moody's
and Standard & Poors, Nationwide has an excellent capital and
surplus ratio as well as minimal exposure to junk bonds and
problem real estate. The historic investment performance of the
fixed annuity offered by Nationwide has been superior. In
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addition, Nationwide is offering a 4% bonus on all money
transferred from Great Western Bank to its fixed product. This
would result in each individual participant experiencing a 4%
bonus upon transfer to the new plan provider.
with the elimination of FDIC coverage for individual participants
in deferred compensation plans, the only federally insured
investment option available would be the investment of funds with
a credit union. Credit unions are federally insured through the
National Credit union Share Insurance Fund (NCUSIF). NCUSIF,
unlike FDIC, provides insurance coverage up to $100,000 for each
individual participant in a deferred compensation plan. All
other available deferred compensation plan investment options,
including those offered by Nationwide Insurance Company, would
not be federally insured. Instead, the deposits would be secured
by the assets of the company offering the deferred compensation
plan investment options.
At the City's request, in addition to the fixed fund and mutual
fund investment options offered by Nationwide Insurance Company,
PEBSCO will be offering a credit union investment option in order
to provide employees with an investment option that would be
federally insured up to $100,000. The Santa Monica City
Employees Federal Credit union will be asked to present a
proposal to PEBSCO. PEBSCO will select the credit union that can
offer the best rate of return and provide the required
administrative expertise and services.
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PEBSCO is one of the most experienced companies in the
administration of deferred compensation plans for the public
sector. It is the administrator for both the USCM and the
National Association of counties programs as well as several
state plans including those of Maryland, Wisconsin and Arizona.
The services that PEBSCO will be able to offer employees are
superior to those currently provided by Great Western Bank. For
example, an employee will be able to dial a toll free 800 number
at any time and make changes to his/her investment choices.
CUrrently, an employee can only make such changes twice a year.
PEBSCO's fees and charges are very competitive. There are no
fees assessed to a participant's account while in the plan or
upon termination of membership in the plan.
A letter has been sent to all City deferred compensation plan
participants notifying them of the change in plan administrators
and providing them with information regarding the selection
process that was utilized and the reasons for the selection of
PEBSCQ as the new plan administrator. A series of meetings have
been scheduled to provide city employees with the opportunity to
ask questions regarding the city's deferred compensation plan and
the change in plan administrators.
BUDGET/FINANCIAL IMPACT
Entering into a contract with PEBSCO to administer the City' s
deferred compensation plan does not involve any expenditure of
City funds.
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RECOMMENDATION
It is recommended that Council authorize the City Manager to
negotiate and execute a contract with the Public Employees
Benefit Services Corporation (PEBSCO) to administer to the city's
deferred compensation plan.
Prepared by: Karen Bancroft
Mike Dennis
Jack Hutchison
craig Perkins
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