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HomeMy WebLinkAbout03 - City's Employee Deferred Compensation and Health Savings Plans ContractsQ SEW Pp�T CITY OF �m z NEWPORT BEACH c�<,FORN'P City Council Staff Report October 24, 2017 Agenda Item No. 3 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, City Manager — 949-444-3001, dkiff@newportbeachca.gov PREPARED BY: Steve Montano, Deputy Finance Director, smontano@newportbeachca.gov PHONE: 949-644-3240 TITLE: Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts ABSTRACT: The original resolution presented to City Council at the October 10, 2017, meeting proposed that City Council affirm the City Manager's authority to execute on City's behalf all agreements related to deferred compensation and acknowledge liability protections afforded to Committee members acting in their official capacity as public employees to assist the City Manager in administration and management of the Plans. At the October 10, 2017, meeting, Council directed staff to revise the resolution. Per Council's request, attached is an updated resolution for Council review. RECOMMENDATIONS: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and b) Adopt Resolution No. 2017-65, A Resolution of the City Council of the City of Newport Beach, California, Affirming the City Manager's Authority to Administer and Manage the City's 457 Plan and Retirement Health Savings Plan. FUNDING REQUIREMENTS: Participating employees make all contributions into the deferred compensation and RHS plans. In-service withdrawals are taken only from the employee's available account balance. There are sufficient funds budgeted for the City's portion of the annual contribution to the ICMA-RC and Meritain contracts. No additional funding appropriation is necessary. 3-1 Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts October 24, 2017 Page 2 DISCUSSION: The City of Newport Beach ("City") maintains a deferred compensation plan under Internal Revenue Code Section 457(b) and a retirement health savings plan (collectively, "Plans") for the benefit of its eligible employees. The proposed resolution affirms the City Manager's authority to enter into agreements to administer and manage the Plans. All benefit provisions and related financial obligations related to the Plans are, and will continue to be, controlled by the City Council through Memorandum of Understanding agreements with the City's employee bargaining groups. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. z[9)t1INIkiLes The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Resolution No. 2017-65 Attachment B — October 10, 2017 Staff Report 3-2 ATTACHMENT A Resolution of the City Council Affirming the City Manager's Authority to Administer and Manage the City's 457 Plan and Retirement Health Savings Plan 3-3 RESOLUTION NO. 2017-65 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AFFIRMING THE CITY MANAGER'S AUTHORITY TO ADMINISTER AND MANAGE THE CITY'S 457 PLAN AND RETIREMENT HEALTH SAVINGS PLAN WHEREAS, the City of Newport Beach ("City") maintains a deferred compensation plan under Internal Revenue Code Section 457 ("457 Plan") and a retirement health savings plan (collectively, "Plans") for the benefit of its eligible employees; WHEREAS, the City Manager is the administrator of the Plans; WHEREAS, as plan administrator, the City Manager, on his own initiative, appointed City employees to assist in administration and management of the Plans ("Deferred Compensation Plan Committee"); WHEREAS, the individual City employees serving on the Deferred Compensation Plan Committee are acting in their official capacity as public employees and, as such, are entitled to all indemnity, immunity, and other rights and privileges afforded to public employees under existing State law; and WHEREAS, the City Council desires to acknowledge and affirm the City Manager's authority to administer and manage the Plans. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Manager is authorized to take any and all actions necessary to administer and manage the Plans. Section 2: The City Manager is authorized to execute on the City's behalf any and all agreements related to or arising from the City Manager's administration and management of the Plans. Section 3: The recitals provided in this resolution are true and correct and are incorporated into the substantive portion of this resolution. Section 4: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 5: The City Council finds the adoption of this resolution is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the 3-4 Resolution No. 2017 - Page 2 of 2 environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 6: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 24th day of October, 2017. Kevin Muldoon Mayor ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CITY -ATTORNEY'S OFFICE Aaron C. H rp City Attorney, 3-5 ATTACHMENT B October 10, 2017 Staff Report 3-6 Q SEW Pp�T CITY OF z NEWPORT BEACH cq�o'P City Council Staff Report October 10, 2017 Agenda Item No. 4 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, City Manager — 949-444-3001, dkiff@newportbeachca.gov PREPARED BY: Steve Montano, Deputy Finance Director, smontano@newportbeachca.gov PHONE: 949-644-3240 TITLE: Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts ABSTRACT: State and local government deferred compensation programs have become increasingly important to both employers and employees over the past three decades. For employees, the programs have come to represent the greatest single opportunity for voluntary, tax-deferred savings available, with features that put the programs on par with 401(k) plans in the private sector. For employers, deferred compensation plans have become a basic employee benefit, seen as an important tool to recruit and retain valuable employees. The City Manager appoints a Deferred Compensation Plan Committee comprised of select City of Newport Beach management staff to oversee the City's employee deferred compensation and retirement health savings plans. The City Manager has delegated authority to the Committee to act in a fiduciary capacity in selecting and monitoring the investment operations offered to employee participants. The proposed resolution, included as Attachment A, for City Council consideration affirms his authority to execute on City's behalf all agreements related to deferred compensation and indemnifies Committee members from future actions related to or arising from the administration and management of the Plans. Participating employees make all contributions into the deferred compensation and RHS plans. In-service withdrawals are taken only from the employee's available account balance. There are sufficient funds budgeted for the City's portion of the annual contribution to the retirement health savings contracts. No additional funding appropriation is necessary. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and 3-7 Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts October 10, 2017 Page 2 b) Adopt Resolution No. 2017-65, A Resolution of the City Council of the City of Newport Beach, California, Affirming the City Manager's Authority to Administer and Manage the City's 457 Plan and Acknowledging Past, Current, and Future Actions Taken by Employees to Assist in Plan Administration and Management. FUNDING REQUIREMENTS: Participating employees make all contributions into the deferred compensation and RHS plans. In-service withdrawals are taken only from the employee's available account balance. There are sufficient funds budgeted for the City's portion of the annual contribution to the ICMA-RC and Meritain contracts. No additional funding appropriation is necessary. DISCUSSION - The City of Newport Beach ("City") maintains a deferred compensation plan under Internal Revenue Code Section 457(b) ("457 Plan") and a retirement health savings plan (collectively, "Plans") for the benefit of its eligible employees. The City Manager appoints a Deferred Compensation Plan Committee (the "Committee") comprised of select City of Newport Beach management staff to oversee the Plans. The Committee is authorized to act in a settlor capacity to administer business relationships on behalf of the Plans and to manage legal requirements and operational responsibilities. The Committee is also authorized to act in a fiduciary capacity in selecting and monitoring the investment operations offered to participants. In order to complete these and other complex tasks, the Committee relies on the assistance of Benefit Financial Services Group (BFSG), an experienced public sector investment consulting firm. With the assistance of BFSG, the Committee recently conducted a Request for Proposal (RFP) process to review the Plans and to ensure that the services provided are comprehensive and cost effective. Deferred Compensation The City of Newport Beach has offered a deferred compensation plan to its employees since 1973. This plan, under Internal Revenue Code Section 457, allows employees to defer compensation, pretax, into a retirement fund for use upon retirement. It is similar in concept to a private sector 401 K plan, although with very different rules for deferral and distribution. Our current plan has been administered by Empower Retirement (Empower), formerly Great West Retirement Services, since 1973. Our most recent Plan Document was approved by the City Council in 2005. The objectives of the 457(b) Deferred Compensation RFP process are to improve or retain the current investment options offered by the Plans; reduce investment -related fees and other expenses paid by participants; provide education and other services provided to participants; and simplify benefits administration. The RFP was issued publicly on March 27, 2017, and seven responses were received by the April 28, 2017, due date. wil Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts October 10, 2017 Page 3 Respondents included Empower (incumbent), ICMA-RC, Lincoln, MassMutual, Nationwide, Prudential, TIAA, and Voya. Upon the completion of the RFP process, the Committee recommended that the City enter into a new contract with the incumbent provider, Empower. The new contract with Empower has a three-year initial term and two one-year renewal options. Under the terms of the contract, Empower will provide recordkeeping administration, plan sponsor services, investment guidance and advice counseling, financial and education services, and will reduce the current revenue requirement from 0.17 percent of variable plan assets to 0.058 percent of total plan assets. Additionally, the loan setup fee will be reduced from $60 to $50 and the loan maintenance fee will be reduced from $35 to $25 per year. The new contract results in an approximate annual savings of nearly $60,000 to plan participants. All contributions into the deferred compensation plan are made by participating employees, without any employer contribution; therefore, this contract will have no financial impact to the City. Retiree Health Savings Plan The City of Newport Beach has offered the Retirement Health Savings Plan to its employees since 2006. The Plan document and the Adoption Agreement, which became effective November 1, 2012, govern the Plan. The assets of the Plan are held in a Trust pursuant to Internal Revenue code Section 115 and allows employers and employees to accumulate assets to pay for health insurance and out-of-pocket medical expenses in retirement. RHS plans have a number of advantages including tax-deferred contributions, tax-deferred investment earnings and tax-free withdrawals for eligible medical expenses for participants, their spouses and dependents. All full-time employees participate in the Plan and as of June 30, 2017, there are 1,540 participants with a balance, and $24.7 million in assets invested in the Plan. The Plan currently operates with two contribution structures. The "Hybrid" structure is provided to employees who were hired and met eligibility requirements prior to 2006. The "Fully -Converted" structure is provided to all employees hired after 2006. The following chart compares the two contribution structures: Provision Fully -Converted Hybrid Payment by Employee to City to support None $100/month until retirement program prior to retirement Contribution to Plan Account During . 1 % salary contribution by employee 1 % salary contribution by employee Employment 0 $2.50 per month for each year of . No City contribution services plus age (5 year vesting) . $75 per month for every month paid by Employer into `old" system prior to January 1, • $100 per month for every month 2006 (15 year maximum: made by paid into `old" system prior to City at time of retirement) January 1, 2006 (15 year maximum: . Cash from conversion of leave at made by City at retirement) retirement (percent selected by • Cash from conversion of level at each association) retirement (percent selected by each association) City Contribution to Plan Account After None $400/month Retirement Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts October 10, 2017 Page 4 The current plan has been administered by ICMA-RC and Meritain Health since 2012. ICMA-RC provides recordkeeping and administration services while Meritain provides claims processing, and retiree billing and enrollment services. The objectives of the RFP process were to ensure that the services provided are comprehensive and cost effective for the recordkeeping, administration, claims processing and retiree billing and enrollment services for the RHS Plan. The RFP was issued publicly on March 27, 2017, and seven responses were received by the April 28, 2017, due date. Respondents included ICMA-RC (incumbent), Empower, Keenan, MassMutual, Nationwide, Prudential, and Voya. Based on initial analysis, which highlighted areas of high importance to the Committee, Keenan, Prudential, and Voya were eliminated from contention. Upon the completion of the RFP process, the Committee recommended that the City continue to contract with the incumbent provider — ICMA-RC. The contract with ICMA-RC has a three-year term. Under the terms of the contract, ICMA-RC will reduce the City's per participant charge from $25 to $20 resulting in approximate annual savings of nearly $8,000. The pricing structure will also be revamped, providing plan participants with an approximate annual savings of $40,000. Meritain will not increase the rates for three years for the enrollment and retiree billing services. Benefit administrative fees are budgeted for annually in the Risk Management Administrative Services account 01025252-811005; no additional appropriation is necessary. Affirming the City Manager's Authority to Administer the Plans and Committee Indemnification Public sector deferred compensation plans are not covered under the Employee Retirement Income Security Act (ERISA). However, administering the plan in accordance with ERISA Section 404(c) can limit plan sponsor exposure to fiduciary liability in connection with plan losses. This is achieved when plan participants can exercise control over their account assets. According to 404(c), in order to have such control, participants must be provided with a broad range of investment alternatives, sufficient information to make informed decisions regarding those alternatives, and the opportunity to make investment directions at least quarterly. To the extent that these requirements are met, plan sponsors would likely be relieved from liability with respect to losses resulting from participant -directed investments. The City Manager currently administers the Plans in accordance with these fiduciary responsibilities. As the Plans administrator, the City Manager has appointed, and maintained oversight over, the members of the Committee, executed agreements pertaining to the Plans on the City's behalf, and, with the Committee's assistance, taken any and all actions necessary to administer and manage the Plans. The Committee currently assists the City Manager in the administration and management of the Plans and fulfills its fiduciary responsibilities per 404(c) as follows: • Develops the investment structure and polices for the Plans. 3-10 Resolution Affirming the City Manager's Authority to Administer and Manage the City's Employee Deferred Compensation and Health Savings Plans and Authority to Sign Related Contracts October 10, 2017 Page 5 • Selects and monitors a diverse range of investments offered to the Plan participants in accordance to the established policies. • Determines the Plans' providers and advisors as they relate to investment issues and services. • Ensures the provision of educational materials and information to employees to assist in informed decision making concerning plan participation and investment allocations. • Ensures the availability of timely and accurate participant statements. • Makes such other decisions as are necessary and appropriate to prudently manage the Plans' selection of investments and investment -related services. The proposed resolution for City Council consideration will further assist the City Manager in meeting his fiduciary responsibility and also affirm the City Council's expectation of individual responsibility for retirement security among City personnel. Specifically, the resolution affirms: • The City Manager's authority to administer and manage the Plans. • The City Manager's authority to execute on City's behalf any and all agreements related to or arising from the City Manager's administration and management of the Plans. • The actions taken by City employees, acting in their official capacity, to assist the City Manager in administration and management of the Plans. • Committee acting in their official capacity shall receive all indemnity, immunity, and insurance afforded to public employees under both the law and the City for any and all past, current and future actions related to or arising from the administration and management of the Plans. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENT: Attachment A — Resolution No. 2017-65 3-11 ATTACHMENT A Resolution of the City Council Affirming the City Manager's Authority to Administer and Manage the City's 457 Plan and Retirement Health Savings Plan and Acknowledging Actions Taken by Employees to Assist in Plan Administration and Management 3-12 RESOLUTION NO. 2017-65 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AFFIRMING THE CITY MANAGER'S AUTHORITY TO ADMINISTER AND MANAGE THE CITY'S 457 PLAN AND RETIREMENT HEALTH SAVINGS PLAN AND ACKNOWLEDGING PAST, CURRENT, AND FUTURE ACTIONS TAKEN BY EMPLOYEES TO ASSIST IN PLAN ADMINISTRATION AND MANAGEMENT WHEREAS, the City of Newport Beach ("City") maintains a deferred compensation plan under Internal Revenue Code Section 457 ("457 Plan") and a retirement health savings plan (collectively, "Plans") for the benefit of its eligible employees; WHEREAS, the City Manager is the administrator of the Plans; WHEREAS, as plan administrator, the City Manager on his own initiative appointed City employees, acting in their official capacity, to assist in administration and management of the Plans ("Deferred Compensation Plan Committee"); WHEREAS, the Deferred Compensation Plan Committee currently assists the City Manager in the administration and management of the Plans; WHEREAS, the City Council desires to acknowledge and affirm the City Manager's authority to administer and manage the Plans; and WHEREAS, the City Council further desires to acknowledge and affirm actions taken by City employees, acting in their official capacity on the Deferred Compensation Plan Committee, to assist the City Manager in administration and management of the Plans. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Manager is authorized to take any and all actions necessary to administer and manage the Plans. Section 2: The City Manager is authorized to execute on the City's behalf any and all agreements related to or arising from the City Manager's administration and management of the Plans. Section 3: The individual City employees serving on the City Manager's Deferred Compensation Plan Committee are acting in their official capacity and shall receive all indemnity, immunity, insurance, and other rights and privileges afforded to public employees under both the law and the City for any and all past, current and future actions related to or arising from the administration and management of the Plans. 3-13 Resolution No. 2017 - Page 2 of 2 Section 4: The recitals provided in this resolution are true and correct and are incorporated into the substantive portion of this resolution. Section 5: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 6: The City Council finds the adoption of this resolution is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 7: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 10th day of October, 2017. Kevin Muldoon Mayor ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE Aaron C. arpr� City Attorn 3-14