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Consideration of request by Human Resources Director and Finance Director for approval of contracts related to the consolidation of the City’s Deferred Compensation program
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Submitted by:
John Ruggini, Finance Director
Beth Mbow, Human Resources Director
Department:
Finance Department
Human Resources Department
A. Issue
Request for approval to enter a contract with Nationwide for a deferred compensation 457(b) plan for employee retirement savings.
B. Background/Options
In January 2025, the City began a process to review and consolidate our current deferred compensation plan providers. Deferred compensation is a program that employees can choose to have funds deducted tax deferred from their paycheck and invested through a third-party provider. In the private sector, this is known as a 401K plan. In the public sector, it is a 457-plan based on the authorizing section of the federal tax code. While the assets belong to the employees, the City is considered the fiduciary. Current, retired and former employees have approximately $40 million invested in the City’s plans.
Previously, the City offered three different plans for employees to consider for deferred compensation retirement savings. Having three separate plans made it difficult to market to and educate employees on this benefit and was difficult to administer at the plan level. In addition, the City had limited leverage to reduce fees. The goal of this project was to select the best single provider, so we could consolidate our plans and offer the best solution for our employees.
With assistance from a consultant, we formed a 457 Plan Advisory Committee, which consists of employees from all levels of the organization and represents departments from all throughout the City. This group has worked together since January to conduct an RFP and review the vendor proposals to make the best decision for the City and employees.
We received a total of seven vendor responses. The team worked to narrow it to the best suited top three providers. From there, we conducted a robust process which included vendor interviews, references and a thorough cost and service analysis.
As a group, we came to the consensus that Nationwide is the best plan for us. By consolidating to a single plan, it will allow our employees to realize a significant cost savings in investment fees. Furthermore, Nationwide offers valuable customer service and educational tools to assist our employees in their retirement readiness and financial goals.
Fees are customarily charged as a percentage of employees account balances. The table below shows how the fees charged by each of the finalists would impact an average employee:
Through final negotiations, Nationwide is offering .0425% if we utilize their onsite participant education and retirement planning services or 0.035% if we do not.
We are also “unbundling” our services which is considered best practice for fiduciary reasons and a way to reduce fees. Nationwide will only serve as our record keeper and we will no longer use proprietary investment options. Instead we will contract with Retirement Plan Advisors (RPA) to choose and monitory publicly available mutual funds at institutional fee levels as well as provide fiduciary training and support. This service was an option provided in their contract awarded last year as part of a competitive RFP. This fee will be 0.08%.
The City must also still decide whether Nationwide or RPA will provide onsite education and retirement planning services. Nationwide would provide this for 0.0075% and RPA proposed .04%. Due to time constraints, the Committee has not yet made this final decision.
C. Strategic Plan (Area of Focus)
Does not apply.
D. Fiscal Impact
All fees are paid by employees participating with the program so there is no fiscal impact on the City’s budget. RPA estimates an employee who participates for 20 years and contributes $4,000 annually will save approximately $28,000 in fees compared to our current plan.
E. Recommendation
Staff recommends approval to enter into a contract with Nationwide for deferred compensation plan recordkeeping services at a cost of 0.035% of plan assets. Staff also request authority to enter into a contract with either Retirement Plan Advisors (0.04%) or Nationwide (0.0075%) for onsite participant education and retirement planning services pending additional due diligence. Finally, staff recommend entering into a 3-year contract with Retirement Plan Advisors for investment and plan support services at a cost of 0.08% of plan assets.