TRANSMITTAL LETTER FOR BOARD MEETING OF NOVEMBER 7, 2024
COMMITTEE ON PROCUREMENT
Mr. Brian A. Perkovich, Executive Director
Title
Authorization to enter into an agreement for Contract 23-RFP-23 Deferred Compensation Plan Administrator, with the Variable Annuity Life Insurance Company, for a five-year period, effective January 1, 2025 to December 31, 2029
Body
Dear Sir:
Authorization is requested to enter into an agreement with the Variable Annuity Life Insurance Company (VALIC) to provide deferred compensation plan administrative services for a five-year period from January 1, 2025 through December 31, 2029. The Variable Annuity Life Insurance Company operates under the brand name of its parent company Corebridge Financial, Inc. in order to leverage its resources and brand recognition in the marketplace.
On March 6, 2024, Request for Proposal 23-RFP-23 Deferred Compensation Plan Administrator was publicly advertised. On April 5, 2024, the District received four (4) responsive proposals from the following vendors: VALIC (operating under the brand name Corebridge Financial); Empower Retirement, LLC; MissionSquare Retirement; and Voya Institutional Plan Services.
The proposals were evaluated by the District’s investment consultant Innovest Portfolio Solutions, LLC. The criteria for this evaluation were outlined in Contract 23-RFP-23 and included: stable value product and investment offerings; account team and plan administration; participant communication and education; technology and data; customer service; trust services; experience; and overall cost structure.
Following the preliminary evaluation of proposals, excluding cost, three of the four proposers were deemed to be finalists and were invited to a finalist interview. Finalist interviews were held on July 30, 2024, through August 1, 2024. Interviews were conducted by the District’s Deferred Compensation Committee with support from its investment consultant. The Deferred Compensation Committee consists of Chairman of Finance; Treasurer, and Director of Human Resources. A solicitation was sent to each finalist on August 19, 2024 for an unqualified “best and final” offer. The “best and final” offers were returned to the Director of Procurement and Materials Management on August 23, 2024.
Based on the evaluation of the proposals using the criteria described above and the pricing provided in the “best and final” offers, the Deferred Compensation Committee has recommended that a contract for deferred compensation plan administrative services be awarded to VALIC. VALIC has been providing administrative services for retirement plans for over 60 years with approximately $393 billion in assets under management, including $46 billion in public sector assets. It provides services to 22,000 plans, including 14,000 public sector organizations, covering 1.8 million participants.
VALIC will provide all plan administration, recordkeeping and custodian services as outlined in the request for proposal. They are able to administer the current investment line-up offered by the District plan, including the self-directed brokerage option, and offer access to over 12,000 mutual funds through their open architecture platform. The proposed communication plan includes a dedicated, local communication consultant that will develop a customized education and communication program in partnership with the District. The communication strategy will utilize plan analytics to develop targeted, personalized messaging. The program will include targeted educational campaigns built around individual career stages, webinars, on-site presentations, toolkits, one-on-one support, and a new retiree resource center added to the custom participant website. Self-guided retirement planning tools are available to participants via the participant website or through one-on-one meetings with the dedicated Certified Financial Planners. A mobile app is also available to all plan participants.
The fees assessed by the plan administrator for providing these administrative services are paid by plan participants on a quarterly basis. VALIC’s administrative fee per participant represents a reduction of 38.7% from the current administrative fee. Although this administrative fee is not the lowest among the proposals received, the proposal from VALIC included other financial considerations and service enhancements that add value to the offering and positively impact plan participants.
One financial factor that adds value for plan participants is the interest rate guarantee provided by VALIC for the stable value (fixed interest) option within the plan. The stable value fund under the District plan currently holds approximately $74 million in participant assets with 1,134 participants having assets invested in this option. The financial proposal from VALIC provides an interest rate of 3.35% for the stable value option and, more importantly, guarantees this rate for a two-year period. This guarantee is important in the current environment where the Federal Reserve is reducing interest rates beginning with the 50-basis point cut at its September meeting and an additional 50-basis points anticipated over the coming months. This rate guarantee will ensure that participant assets invested in the stable value option will see stability in the interest earned regardless of the number or magnitude of the rate reductions implemented by the Federal Reserve. The other proposals received allowed for interest rate adjustments by the plan administrator at least quarterly and as frequently as daily on the stable value products presented, a significant disadvantage in this rate environment.
In addition, the VALIC proposal includes a 12-month exit provision that provides the District with critical flexibility should it ever want or need to move the plan assets to another plan administrator. This provision allows all assets to be paid out at book value with 12-month written notice. Without this provision, the assets held in the stable value option may not be available at the time of transition but would be paid out over time putting the plan at a significant disadvantage financially.
Along with these financial factors, the VALIC proposal includes a significantly better participant on-site advisor package. VALIC will provide four (4) on-site representatives, including one that is bi-lingual. These representatives will have regularly scheduled on-site hours at seven District locations. Each of these individuals is a licensed Certified Financial Planner allowing them to assist participants with planning for retirement and all other aspects of their financial lives, a valuable addition to the participant services. Employees can meet with the representatives in-person at the plant locations during regularly scheduled hours or virtually, including appointments after hours and on weekends upon request. The proposal also includes two additional representatives that focus on assisting participants with enrollment and other administrative functions, new employee orientations, and group educational meetings. One of these individuals will have scheduled hours on-site at the various locations and the other is available for virtual one-on-one meetings Monday through Friday. Proposals received from other vendors provided one dedicated representative with meetings primarily virtual and on-site meetings available by appointment only. The representative would not be a Certified Financial Planner.
Finally, the selection of VALIC as the plan administrator would not require the transition of the $375 million in participant assets to a new custodian since VALIC is the incumbent administrator. This eliminates the risk associated with moving participant assets, blackout periods, establishing new payroll contribution file feeds, moving requirement minimum distribution and beneficiary information, and other procedures required during an implementation.
Since there are no direct costs to the District for these services, Appendix A and the Appendix V goals was not be included in this contract because the estimate is less than the minimum threshold established by Section 4 of the Affirmative Action Ordinance.
In view of the foregoing, the Deferred Compensation Committee recommends that the District enter into an agreement with VALIC to provide deferred compensation plan administrative services for a five-year period from January 1, 2025 through December 31, 2029.
Recommended, Thaddeus J. Kosowski, Director of Human Resources
Recommended, Darlene A. LoCascio, Director of Procurement and Materials Management
Respectfully Submitted, Marcelino Garcia, Chairman, Committee on Procurement
Disposition of this agenda item will be documented in the official Regular Board Meeting Minutes of the Board of Commissioners for November 7, 2024
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