Employment Agreements and Financial Planning for City Managers

2. Today�s Topics TCMA Financial Planning Services Project Service Providers for Project Financial Planning Concepts City Manager Compensation Statistics and Construction of Packages Employment Agreements Summary and Conclusions

3. TCMA Project One year project to offer: Financial Planning Compensation Package Assistance Employment Agreement Assistance Improved Sample Employment Agreement

4. TCMA Project Service Providers TCG Consulting, LP a subsidiary of TCG Advisors, LP Fee-based consultants Fee-based investment advisor through Regulated by the Securities & Exchange Commission Work with many public school Superintendents and School Boards across the nation on compensation packages and contracts Adams, Lynch & Loftin, P.C. Neal Adams � General Counsel to the Texas Association of School Administrators John Lynch � Former Assistant City Manager; works extensively with public law in Texas

5. Financial Planning Concepts

6. Total Financial PicturePublic Officials Have a Very Different Retirement Picture

7. Financial Planning:Looking at Your Total Financial Profile

8. Steps to Investment Success Know what rate of return you must achieve to meet your goals Goals for your heirs Goals for your retirement Other goals Choose portfolio allocation designed to achieve investment return needed Only take the risk you need to meet the goal Choose investments within your portfolio to meet goals Monitor your investments � are they performing?

9. So � You develop an investment plan as a part of your Financial Plan . . .What you don�t know about investment products can hurt you

10. Who is looking out for You? Securities Exchange Commission Federal Agency in charge of oversight of the investment industry National Association of Securities Dealers �Self Regulatory Agency� (SRO) � How effective is self regulation?

11. Current Market Issues Mutual Fund Industry Fee Disclosure Market Timing (Hedge Funds in VA�s) After Market Trading Insider Trading Lawsuits Spitzer/Marsh McLennan Issue

12. Types of Investments Typically Purchased by Public Employees Fixed Annuities Variable Annuities Mutual Funds Wrap Products Trust Platform

13. Public Employees are Often Easy Targets Do you know exactly what you are paying in fees on your 457(b) accounts, IRAs accounts and other investments each year? All fees not typically shown on statements Fees can be hidden Example: Buried in unit values Do you know how to examine a product and determine the fees? Sale of Investment Products to Public Employees is typically a �glamour contest� � lots of glossy material and little meaningful disclosure

14. Fee Comparison ExamplesAnnual Fees in One RFP Process Conducted by TCG (Approximately $200 per month @ 6.00% Earnings After Fees)

15. The Bottom Line: What you have at Retirement(Approximately $200 per month @ 6.00% Earnings After Fees)

16. How can you assure that you pay the lowest fees? Become educated Convert all fees to percentage Ignore the �fluff� Consider use of unbiased fee-based Investment Advisor Ask for examples of work Ask for references

17. Compensation Statistics and Construction of Packages

18. Compensation Statistics

19. Compensation Statistics

20. Compensation Statistics

21. The Compensation PackageMarket Value of Contract Compensation

22. Compensation Ideas Supplemental Retirement Plan/Deferred Compensation Payment of State Retirement Plan Contributions Fully Paid Family Medical Benefits Automobile Automobile Allowance Advanced Degree Stipend Labor Relations Stipend Physical Exam Extra Personal / Vacation / Consulting Days Paid at Daily Rate Salary Increases Tied to Other Staff Expense Allowance Life Insurance Supplement Do not use as Retirement Plan Disability Insurance Supplement Buy After-Tax Dues and Associations Severance Agreement Structured Agreement Post Retirement Healthcare

23. Summary of Employer Paid Plans 401(a): Defined Contribution Employer: $42,000 Not Affected by TMRS � a Defined Benefit Plan under Federal Tax Rules Defined Benefit Actuarial Cost of Benefit Must Coordinate Benefit with TMRS 457(b): Employer and/or Employee: $14,000 to $28,000 Use Carefully for Employer $ if Funds �Vest�Over Time 457(f): BAD unless carefully structured

24. Plan Documents Many Tax and Other Issues Document not required � but: What happens if disagreement with Council arises? Low Tolerance by Councils for Lengthy Employment Agreements Document Defines Type of Plan (401(a), 457, etc.) Vesting Investment of Funds Timing of Contributions Many Other Important Provisions

25. Be Careful with Deferred Compensation American Jobs Creation Act of 2004 ("AJCA") Added Internal Revenue Code Sec. 409A Aimed at abusive deferred compensation of corporations Includes 457(f) arrangements Examples of effect on deferred compensation under 457(f): Distributions must be made only upon separation from service, death, disability, change in ownership or effective control of the employer, unforeseeable emergency, or at a specified date The initial deferral election must be made prior to the beginning of the year in which the compensation is earned Must report on W-2 even if not taxed Violation = Immediate taxation + 20% penalty

26. Employment Agreements

27. Employment AgreementsA Win-Win for the City and the Manager Why Agreements are Increasingly Used in the Public and Private Sector Job Security for individual when the job may bring controversial decisions Particularly when the City Council or other governing body is subject to change for emotional/political reasons Helps ensure good decisions in the midst of controversy

28. Why Agreements are Increasingly Used in the Public and Private Sector Attracting the best candidates Moving family, looking at best job � stability is a major factor When competition reaches across states, industries, etc. The best professionals will look for the best deal � and this often involves an employment agreement

29. Why Agreements are Increasingly Used in the Public and Private Sector Organizational Stability When organizations are in great change, stability at the top is a key factor Holding on to top talent The best talent is always being recruited in any field; employment agreements can provide incentives to stay with the City Structures Compensation No surprises, minimizes disagreements after the individual is hired Subjects the individual to less financial pressure due to changes in oversight body (e.g., City Council)

30. Additional Benefits to the City

31. Summary & Conclusions

32. How Would You Answer These Questions? Do you have a financial plan? What are the gaps in your financial plan? In what ways are you and your family "at risk" financially? When was the last time you reviewed your financial plan? Have your career goals changed? Has your family situation changed? Has your financial plan stayed abreast of these changes? Do you have an employment agreement? If not, is it time for you to consider one? Can your current employment agreement be improved? If you were fired Monday, how vulnerable financially would your family be?

33. Goals of Our Service This service is NOT about positioning TCMA members to gouge their cities It IS about FAIRNESS It is NOT about preferential treatment for City Managers It IS about recognizing the UNIQUENESS of the City Manager position In the end, this is about �not being forced to trade integrity and professionalism for stability and security"

34. THANK YOU