Orange County

1. Orange County Employee Deferred Compensation Program September 30, 2008

2. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

3. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

4. Background • Optional defined contribution program (Section 457 Plan) • Supplements Florida Retirement System • County is fiduciary and sponsor of program (per IRS regulations) • Program is funded through employee contributions • Employees allowed to contribute salary before federal taxes

5. Background • Current participating agencies • Board of County Commissioners • Clerk of Courts • Comptroller • Property Appraiser • Supervisor of Elections • Tax Collector • Sheriff has separate program

6. Background • Current Investment Providers • ING – 1976 • ICMA – 1983 • Nationwide – 1989 • None of the providers were selected through a competitive procurement process

7. Background • Recent national attention regarding fees and expenses of retirement programs (401(k) plans, IRAs, 457 plans) • Fiduciary responsibility • Fundamental principle – all decisions/actions must be in best interests of participants • Fees and expenses must be reasonable and adequately disclosed (transparency)

8. Background • In 2004, investigated joining State of Florida’s Deferred Compensation Program • Logical extension to our primary retirement system (FRS) • Recently completed an RFP for investment providers • Legislative change needed did not materialize

9. Background • County began investigating other alternatives including monitoring of Sheriff’s competitive process • In July 2008, County hired independent consultant (The Bogdahn Group)

10. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

11. Single vs. Multiple Provider Plans • Single provider plans • Create economies of scale • Higher quality plans at lower cost • Less costly to administer • Allows simpler, well-constructed investment menu

12. Single vs. Multiple Provider Plans • Multiple provider plans • More expensive • More costly to administer • Too many investment choices increases complexity (confuses participants) • Academic studies confirm too many investment choices results in poor investment decisions/outcomes for participants

13. Single vs. Multiple Provider Plans • Per the Consultant – “It is our opinion that it is imperative that Orange County immediately move away from the current multiple vendor approach.” • Consultant, Board staff and Comptroller staff unanimously recommend single provider model

14. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

15. Procurement Ordinance • Examples of procurements excluded from the competitive bid/RFP process: • Agreements with non-profit organizations • Purchases from state or federal contracts • “Awarded bids by any local, state, or national governmental agency, cooperative purchasing organizations, or purchasing associations” (termed “piggybacking” or “cooperative purchasing”)

16. Procurement Ordinance Other Government Contracts • “Piggybacking” Defined: • Utilizes existing contracts at other public agencies • Vendor must agree to honor the contract • Use same terms, conditions, pricing • Original contract must have been awarded through equivalent procedures

17. Procurement Ordinance Other Government Contract Examples • Other governmental agencies have “piggybacked” from Orange County contracts for the following: • Health Insurance • Electrical supplies • Uniforms • Automotive parts and supplies • Security guard services • Temporary labor • Dairy and food products • Insecticides

18. Procurement Ordinance Other Government Contract Examples • Orange County has “piggybacked” other governmental contracts for the following: • Heavy equipment in Fire Rescue • Barcode scanning equipment • Contracted staff • Website translation • Document imaging • IT hardware and software • IT consulting services

19. Procurement Ordinance “Piggybacking”: Assuring the Process is Correct* • The County’s contract must be substantially the same as the contract piggybacked • Terms and conditions • Pricing • Scope of work • The other agency must have followed similar procedures as Orange County for award • Must stay within the same market area as the agency from whom piggybacking was done *Source: Software Vendors vs. Sarasota County

20. Procurement Ordinance “Piggybacking”: Assuring a Good Price • Is the contract we would sign essentially the same as the one signed by the other agency? • Did the other agency follow their own procurement process rules? • Did the other agency follow the same process that we would have followed? • Did the other agency competitively procure the services or commodities? • Were potential providers offered an opportunity to submit a bid or proposal? • Are the potential providers generally the same as those we would normally use?

21. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

22. Sheriff’s Deferred Compensation Program • In May 2006, RFP issued for investment providers • Single provider model • RFP included four areas: Service, Cost, Investments, Spanish Addendum • Mailed to 18 investment providers (including ING and Nationwide) • 13 proposals received and evaluated • Sheriff selected Vanguard and successfully transitioned in November 2006

23. Sheriff’s Deferred Compensation Program • Consultant performed due diligence review of Sheriff’s competitive procurement process • Was the process adequate? • Was the RFP comprehensive? • Were all providers given an opportunity to respond? • Was the procurement conducted in a fair, open and impartial manner?

24. Sheriff’s Deferred Compensation Program • Consultant’s findings and conclusions • Sheriff’s RFP was adequately advertised and distributed • Information requested was comprehensive and provided necessary tools to make an informed decision • Evaluation process was thorough and fair • Produced an excellent result

25. Sheriff’s Deferred Compensation Program • Sheriff’s program results • Implemented November 2006 • Substantially lower annual fees and expenses • Simpler, well-constructed investment menu (County currently has almost 200 investment choices) • No termination fees • 17% increase in number of participants • 45% increase in amount of contributions

26. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

27. Cost Comparison • Consultant attempted to compare annual fees and expenses of current providers with Vanguard • ING and Nationwide did not disclose all fees • Consultant required to use estimates • County has experienced same situation for years

28. Cost Comparison Estimated Annual Plan Expenses and Termination Fees

29. Cost Comparison • Over 20 year period, additional 1% annual charge for fees reduces a participant’s account balance by 17% - U.S. Government Accountability Office and U.S. Department of Labor

30. Cost Comparison U.S. Government Accountability Office $70,500 $20,000 Upfront Investment For 20 Years 7% Return (0.5%) Fee 6.5% Yield

31. Cost Comparison U.S. Government Accountability Office $12,100 Less 17% $70,500 $58,400 7% Return (0.5%) Fee 6.5% Yield 7% Return (1.5%) Fee 5.5% Yield

32. Cost Comparison U.S. Government Accountability Office $12,100 Less 17% $70,500 $22,200 Less 32% $58,400 $48,300 7% Return (0.5%) Fee 6.5% Yield 7% Return (1.5%) Fee 5.5% Yield 7% Return (2.5%) Fee 4.5% Yield

33. Evaluation • Consultant’s rating of County’s program vs. Sheriff’s program • Scale from negative -10 to positive +10 • County’s current program - negative -7 or negative -8 • Sheriff’s current single provider structure with Vanguard - positive +6 to a positive +8

34. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

35. Transition Plan • Extensive communications program to employees • On-site meetings • Web-site assistance • Frequently asked questions (FAQ) brochure • All new contributions and majority of existing funds will be transferred to Vanguard

36. Transition Plan • Transfer of existing funds • Employees have option to direct transfer to investments of their choice (e.g., to similar investments) • If employee does not specify, funds automatically transferred (“mapped”) to age appropriate Vanguard Target Retirement Fund • Target retirement funds provide for automatic stocks and bonds allocation strategy for a specific retirement date

37. Transition Plan • For existing funds subject to termination fees, employees will have option to leave funds with current providers until termination fees no longer apply • Vanguard successfully managed similar transition for Sheriff • Estimated transition date – January/February 2009

38. Presentation Outline • Background • Single vs. Multiple Provider Plans • Procurement Ordinance • Sheriff’s Deferred Compensation Program • Cost Comparison and Evaluation • Transition Plan • Summary & Recommendations

39. Summary and Recommendations • Lower fees for our employees • Fair procurement process • Fiduciary responsibility

40. Summary and Recommendations • Consultant, Board staff and Comptroller staff recommend “piggybacking” off Sheriff’s contract as follows: • Contract with Vanguard for investment provider services (Vanguard and Dimensional Fund Advisors) • Contract with Vanguard for third party record keeping services • Term of contract would be 5 years with one 5-year renewal

41. Summary and Recommendations • Per the Consultant – “We believe that it would be a serious failure of fiduciary responsibility for the County to delay, even if that delay would be in connection with doing a new RFP on the model that OCSO conducted. Participants require the immediate cost reductions that “piggybacking” on the OCSO RFP will provide.”

42. Summary and Recommendations Next Steps • September 30 Board approval to piggyback on Sheriff’s contract with Vanguard • October thru December 2008 Education/communications program with employees • January/February 2009 Conversion (transfer of funds) to Vanguard

43. Action Requested • Board approval to contract with Vanguard for third party record keeping services, and with Vanguard and Dimensional Fund Advisors for investment provider services for the County’s Deferred Compensation Program under the same provisions of the Orange County Sheriff’s Office contract pursuant to the “piggybacking” provision of Section 17-312(d), Orange County Code to include Board approval and authorization for the Mayor to execute the final Trust Agreement and Recordkeeping Fee Agreement with Vanguard. The term of the agreements would be for five (5) years with one five (5) year renewal.

44. Orange County Employee Deferred Compensation Program September 30, 2008