LAUSD Employee Retirement Savings Plans

1. LAUSD Employee Retirement Savings Plans Current Environment & Proposed Improvements

2. LAUSD Employee Retirement Savings Plans • A 403(b) plan, also commonly known as a tax sheltered annuity plan (TSA) is a retirement savings plan that allows employees to save on a pretax basis for their retirement. Typically employee pretax contributions are invested in various annuity products (either fixed or variable), or mutual funds. A 403(b) plan is very similar to a 401(k) plan in terms of the pretax contribution limits, withdrawal provisions, distribution options and overall tax advantages Benefits Administration

3. LAUSD Employee Retirement Savings Plans • Currently: • LAUSD offers employees the opportunity to contribute to a 403(b) plan with pretax dollars (2004 pretax limit is $13,000, plus limited catch-up contributions) • Approximately 32,500 employees contribute $152m annually to their 403(b) plan (the value of total 403(b) assets are unknown) • Employees may contribute to any one of approximately 120 different 403(b) providers Benefits Administration

4. LAUSD Employee Retirement Savings Plans • Currently: • Vast majority of 403(b) providers are insurance companies • Participation ranges from 3,000+ for the most popular provider to one employee each for the bottom 11 providers • The top 10 providers have 54% of the contributing employees and 50% of the contributions • The top 20 providers have 75% and 72% respectively and the top 30 providers 86% and 86% respectively • There are 3 mutual fund firms within the top 30 providers Benefits Administration

5. LAUSD Employee Retirement Savings Plans • Currently: • District 403(b) providers are almost exclusively insurance companies that sell various insurance products (life insurance, fixed and variable annuity policies and other products) in addition to various mutual fund offerings • Employees receive no independent investment education or advice unless they obtain such services on their own • To the extent employees receive such services from their 403(b) provider, it is generally provided by sales personnel and/or brokers who may not provide the most objective advice Benefits Administration

6. LAUSD Employee Retirement Savings Plans • Currently: • Fees assessed by these providers can be hidden and very high, thus reducing the investment returns to employees • Any 403(b) provider can receive employee contributions from our payroll if they sign a District hold harmless agreement…hence the reason we remit to 120 providers • The Payroll Services Branch takes the pretax deductions from employee checks and remits separate monthly checks to each provider Benefits Administration

7. LAUSD Employee Retirement Savings Plans • Currently: • Due to the District’s historical hands off approach, all employees are on their own in terms of: • Determining whether a 403(b) plan best suits their needs • Obtaining information on the benefits of retirement savings • What particular investments to choose • Obtaining clear knowledge on the fees and commissions they pay • Identifying their own retirement goals and how to achieve them Benefits Administration

8. LAUSD Employee Retirement Savings Plans • Proposed: • Based upon the current environment, District management believes that employees would be better served with a 457 plan as an additional retirement savings plan option • While a 457 plan has many of the same provisions of a 403(b) plan, the investment options available can be chosen to provide employees with an much enhanced mutual fund environment and lower fees than many 403(b) plans • Employees can elect to participate in either the 403(b) plan, 457 plan or both. Participating in both can double the allowable amount of pretax savings available to employees Benefits Administration

9. LAUSD Employee Retirement Savings Plans • Proposed: • RFP responses are currently being reviewed. The winning bid will establish for the District: • A 457 pretax contribution plan • Common remitter services to administer the current 403(b) providers and the new 457 plan • Web portal and 800 # service center for employees to manage their 403(b) and or 457 plan and process transactions • Provide independent employee investment education • Monitor compliance requirements for employee contribution limits Benefits Administration

10. LAUSD Employee Retirement Savings Plans • Proposed approach will ease the administrative and payroll burden and thereby improve staff efficiency • No incremental District cost with this proposed approach • Timing: • RFP process will be complete in October 2004 • Board approval will be sought in November 2004 • Proposed effective date of new retirement plan platform will be in the first quarter of 2005 Benefits Administration

11. LAUSD Employee Retirement Savings Plans 403(b) – 457 Plan Comparison Provision403(b)457 Eligibility Full and part-time employees same Contributions 2005 - $14,000 same Age 50 Catch-up yes same 3yr catch-up yes yes-slightly different Loans yes yes-slightly different Withdrawals yes yes-slightly different Fees yes – based on individual yes-based upon total investments and asset levels plan assets & funds Investments Varied. Insurance policies, annuities, Diversified selection wrapped around mutual funds of mutual funds Benefits Administration