How to save $20,967,663 for the City of Durham's employees invested in ICMA-RC's 457 retirement plan

If the City of Durham asked ICMA-RC to match Winston Salem and Orlando, Florida's pricing, the City could save about $347,848 per year for Durham's employees invested in ICMA-RC's 457 plan.
A $59.18 per participant charge for record keeping for each Winston Salem, North Carolina was proposed by ICMA-RC, dated November 30, 2011, as Orlando, Florida, which re-negotiated their fees in 2014 appears to be paying about $57.23 per employee as of Q3 2014.
Per ICMA-RC, the City of Durham had $25,531,109 in its ICMA-RC 457 plan with 461 participants, and is paying $130,646 per year for Record Keeping, as Q2 2014.

461 employees x $59.18 per employee = $27,281

$130,646, what Durham is currently paying,
- $27,281, which is what Winston is for Durham's 461 employees
= $103,365 per year being overcharged to Durham by ICMA-RC for Record Keeping.

$27,281 / $25,531,109  = 0.11% which Durham should be paying for Record Keeping
Durham should ask ICMA-RC to match Winston Salem and Orlando's pricing;

Winston Salem's consultant said ICMA's [Stable Value] VT PLUS's base cost, which may be relatively high, is 0.48%.

For Durham's ICMA's VT PLUS [Stable Value] Fund,
which had $2,678,476 as of 2014's first quarter,
should cost no more than 0.11% + 0.48% = 0.59%
instead of 1.12%.

The total cost for Durham's $2,678,476 stable value fund should be at most;
$2,678,476 x 0.59% = $15,803,
instead of $29,999, or about $14,196 less,
meaning employees with money in ICMA's VT PLUS fund
could make another $14,196 more per year.

$25,531,109 total - $2,678,476 Stable Value = $22,852,633 in Equities and Bonds.

By mirroring the rest of Durham's 457 plan assets with the Federal Government's Thrift Savings Plan, designed by federal employees for themselves, the City could dramatically lower costs to employees and increase returns via low cost index funds, whose expense ratios would be even lower if assets held in each fund were larger than $5 million;

Vanguard Intermediate-Term Bond Index Fund
Expense Ratio = 0.10% + 0.11% for Record Keeping = 0.21%

Vanguard Extended Market Index Fund
Expense Ratio = 0.10% + 0.11% = 0.21%

Vanguard FTSE All-World ex-US Index Fund
Expense Ratio = 0.15% + 0.11% = 0.26%

Vanguard 500 Index Fund
Expense Ratio = 0.05% + 0.11% = 0.16%
The total cost for Durham's $22,852,633 in bond and equity funds could be at most 0.21%,
which is the average of the funds above including Record Keeping fees.

$22,852,633 x 0.21% = $47,991, including Record Keeping fees for equities and bonds.

$47,991 + $15,803 for the Stable Value fund including Record Keeping fees
= $63,794 possible total annual cost

$63,794 / $25,531,109 = 0.25% instead of 1.06%, or the $271,472 currently being paid.

$271,472 - $63,794 = $207,678 in total potential annual savings
for everyone invested in the Durham's ICMA-RC 457 plan.

$207,678 / 461 participants = about $450 more per participant in year one.

In 30 years, another $450 per year per employee compounded at 7%
should earn another $45,483 per participant.

$45,483 x 461 = $20,967,663 potential savings for Durham's employees
invested in ICMA-RC's 457 plan over the next 30 years
compounded at 7% once annually.

Please help retain more money in our state by supporting the reallocating and renegotiation
of Durham's 457 plan's funds and fees.

It's the right thing to do.

George Hartzman

1 comment:

g said...

Information has been obtained from sources believed to be reliable, but accuracy is not guaranteed. Format originally conceived to conform to compliance guidelines for strategic, economic planning and financial ethics courses, for CPAs, attorneys and investors. Efficacy through understanding could be exponential, as long as most don't know what they could. The material has been prepared solely for information purposes. Any action taken as a result of information or analysis, is ultimately reader responsibility. Past performance is no guarantee of future results. $35,122,520 based on a hypothetical 7% return over 30 years.