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TO: Mayor Richard C. Irvin
FROM: Daniel Ferguson, Accounting Manager
Linda Read, Comptroller and Deputy Treasurer
Christopher Minick, CFO and City Treasurer
DATE: December 10, 2024
SUBJECT:
A resolution authorizing a five-year agreement with Creative Planning Retirement Services at a total cost of $325,000 to perform 457(b) fiduciary and consulting services for the City's deferred compensation plans.
PURPOSE:
The City of Aurora seeks to perform a detailed analysis of the current plans offered by the City, as it is our fiduciary duty to offer competitive options at current market costs for our participants.
BACKGROUND:
Section 457 of the Internal Revenue Code permits local governments to offer tax-deferred retirement savings plans. In 2002, the City offered 6 deferred compensation plans and hired Becker, Burke Associates per R02-630, to evaluate the City's plans. At the time, there were complaints that the City offered too many plans for individuals to reasonably evaluate. As a result of their evaluation, the City closed four of those plans to new participants and added one new plan per R03-466. The four plans were closed to new participants (referred to as "Soft Close") due to a combination of significant redundancy in investment options, low enrollment in some plans, poor customer service, and high fees. In 2009, one of the closed plans was reopened, resulting in four plan options accepting new participants at the current time. Here is a list of the plans that the City currently maintains and administers, with reference to the year the plan was started:
Zurich Life (Kemper) - 1987 (Soft close 2003)
Voya (ING/Aetna) - 1987
Nationwide (USCM) - 1987
MissionSquare (ICMA) - 1989 (Soft close 2003)
Security Benefit (Parkstone) - 1994 (Soft close 2003)
LPL (Waddell & Reed) - 1996 (Soft close 2003; reopened 2009)
NPPFA Benefits (IPPFA) - 2003.
DISCUSSION:
To fulfil our fiduciary duty of offering competitive options for our participants, the City issued a request for qualifications (RFQ 23-73) on October 30, 2023, with responses due by November 29, 2023. The City sought independent firms with expertise in plan evaluation, to ensure that prudent investment choices are provided and that participant costs are minimized. The desired services include a review of participant fees, investment structure, ongoing monitoring of investment options, and assistance with record keeper review, benchmarking, and performance. The City received 12 responses to its RFQ by the deadline. Members of the Finance department reviewed each RFQ response and determined that 5 firms best demonstrated their qualifications and were invited to in-person interviews. The in-person interviews were conducted the week of April 14th, 2023. Attached to this request is a copy of the RFQ scoring and ranking by members of the Finance department.
The City scored each of the five finalist firms by the following criteria: (1) Review of the current investment structure, investment options and ongoing monitoring, (2) Identification of the appropriate share class to be utilized for each investment option, (3) Assistance with record-keeper review, benchmarking, and possible transition and consolidation, (4) Registration status of firm and advisors, and (5) The firm must have adequate cybersecurity coverage. The City determined Criteria (1) and (3) provided the most value to our participants and therefore weighted them as 30% and 25%, respectively, of the overall score.
Creative Planning Retirement Services ("CPRS") received the highest scores for criteria (1) and (3), as well as the highest overall score. It was determined that CPRS possessed a unique combination of specialization, independence, and firm size, for the benefit of our participants.
They are one of the largest advisory partners to many of the industry's top investment providers and recordkeepers. This leverage allows them to negotiate the lowest fees and expenses for our participants. 100% of CPRS revenue is derived from services performed as a retirement plan investment advisor and consultant, demonstrating specialization and focus in this specific industry. As of July 1, 2023, CPRS had $1.6 billion in institutional 457(b) and 457(f) retirement assets under advisement across fifty-nine 457 plans.
CPRS does not offer proprietary funds or investment products and has no affiliation with a bank, brokerage, and investment management firm. This allows them to maintain independence while acting as a fiduciary to their clients. They are the only top 10 provider of retirement consulting services (as defined by assets under management or advisement in defined contribution plans) that does not have a broker dealer relationship.
CPRS successfully provided services to other governmental agencies in our area and with relation to the size and complexity of the City's deferred compensation plan options. The City of Des Moines had nine plan vendors and CPRS saved their participants over $1 million in fees per year. Des Moines also launched a comprehensive employee financial and retirement planning initiative and was named as the Pension & Investments Governmental Plan Sponsor of the year in 2019. The City of Naperville was the largest participant in the NPPFA pool, and CPRS facilitated the consolidation of their plans from four vendors to a one-vendor solution. That consolidation results in a reduction of more than 70% of total plan fees and an institutionally priced, open architecture investment lineup consisting of premier funds.
Therefore, CPRS was selected as the firm to perform the 457(b) fiduciary and consulting services for the City's deferred compensation plans. Their proposed fee includes monthly status calls and quarterly committee meetings, along with the services noted below.
Plan Design
- Results and expense optimization
- Overall benefits alignment
- Write and maintain the Investment Policy Statement ("IPS")
Plan Governance
- Regulatory and design trends
- Service-level agreement tracking
- ERISA compliance
- Fact-based decision support
- Provide quarterly fiduciary training
Employee Engagement
- Demographic analysis
- Enrollment support
- Financial well-being guidance
- Assist with coordinating employee education with recordkeeper
Vendor Management
- Market assessment
- Fee negotiation
- Management of RFP recordkeeping services
Investment Advice
- 3(38) or 3(21) fiduciary
- Investment selection and ongoing monitoring
- Quarterly investment performance reports
- Marketing and economic insight
Strategy Development
- Cost management
- Risk reduction
- Talent strategy
- Outcomes focus
The City established its Deferred Compensation Administration Committee back in 2003, per R03-487. The committee is comprised of the Chief Financial Officer/City Treasurer (Chair), Director of Human Resources, and Corporation Counsel. This committee is charged with evaluating the deferred compensation plans. Under CPRS's direction as a fiduciary to our deferred compensation plans, the City seeks to implement quarterly analysis and evaluation of the available plans, investment performance, participant engagement, and recordkeeper services. This will be similar to the oversight and management currently provided during the quarterly meetings for the City's Retiree Health Insurance Trust Fund ("RHITF").
The City also proposes expanding the Deferred Compensation Administration Committee to include additional representatives from the various labor groups, ensuring that representatives of the participants are involved in plan oversight and decision-making moving forward. CPRS will assist the committee in identifying opportunities to increase overall participation with the deferred compensation plans, such as providing opportunities for participant education and engagement. These initiatives will provide more opportunities for our City employees to be prepared for their retirement in the future.
CPRS will provide guidance to the Deferred Compensation Administration Committee on value-add opportunities within the deferred compensation plan design. Most of the plans the City currently offers have been in place for nearly three decades and the current marketplace has drastically changed since that time. CPRS will ensure that we are offering the competitive options that our participants now expect, but with reasonable fees at current market rates.
Lastly, it is important to state that the City does not pay any fees for any recordkeeper or investment fees related to the deferred compensation plans. All fees are paid by the participants as basis points of the investment balances in their accounts. Upon execution of this agreement, CPRS's fees will accrue during the evaluation and RFP process, but no fees will be deducted from the participants until after the plans are evaluated and a new reduced fee structure has been implemented. According to the current market rates and review of comparable case studies, we expect our participant fees to be greatly reduced as a result of CPRS's services, and their fee will only be a fraction of the savings realized by our participants. This is also the rational for the proposed five-year relationship with CPRS as the evaluation and reduce fee structure may take up to a year to implement from start to finish, and there will be significant oversight provided by CPRS throughout the duration of the agreement due to the complexity and age of our current plan options.
Ultimately, we expect the revised Deferred Compensation Administration Committee, with representation from various labor groups and under the advice of CPRS, to do what is in the best interest of our participants moving forward.
IMPACT STATEMENT:
Approval of the agreement will enter an ongoing consulting relationship to assure that the City's benefits program offers competitive investment options for deferred compensation programs at competitive pricing for participants.
RECOMMENDATIONS:
Staff recommends approval of a resolution authorizing a five-year agreement with Creative Planning Retirement Services at a total cost of $325,000 to perform 457(b) fiduciary and consulting services for the City's deferred compensation plans.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution authorizing a five-year agreement with Creative Planning Retirement Services at a total cost of $325,000 to perform 457(b) fiduciary and consulting services for the City's deferred compensation plans.
body
WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, Section 457 of the Internal Revenue Code permits local governments to offer tax-deferred retirement savings plans; and
WHEREAS, the City has offered deferred compensation plans since 1987 as a part of the benefits package for the attraction and retention of employees; and
WHEREAS, the City last performed a formal review of its deferred compensation plans and policies in 2003; and
WHEREAS, the City would like to perform an updated review of its offered deferred compensation plans and policies to comply with current best practices and monitor investment performance on an ongoing basis; and
WHEREAS, the City performed a competitive request for qualifications process, in accordance with the City's Procurement Policy, in search of firms to advise the City in its fiduciary duty and received twelve responses; and
WHEREAS, the responses were evaluated by the Finance Department and the five most qualified firms were invited to in-person interviews to be scored by various pre-determined criteria; and
WHEREAS, Creative Planning Retirement Services received the highest overall score, demonstrating that the firm possessed a unique combination of specialization, independence, and firm size to best meet the needs of the City and our participants; and
WHEREAS, Creative Planning Retirement Services' fees will accrue during the evaluation and request for proposal process, but no fees (by unit of basis points) will be deducted from the participants until after the plans are evaluated and a new reduced fee structure has been implemented; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the proposed agreement with Creative Planning Retirement Services shall be and hereby approved; and further
BE IT RESOLVED, that the Director of Purchasing shall be and hereby is authorized to execute said agreement on behalf of the City in substantially the form set forth in Legistar file 24-0963 and attached hereto.