One who intends to leave others better off for his having existed.

1/12/15

How to save $231,292,517 for Oakland, California's employees invested in ICMA-RC's 401 retirement plan

Based on ICMA-RC's proposal for Winston Salem, North Carolina dated November 30, 2011 which states "based on a full plan take over of approximately $20 million in plan assets with 1,149 participants... ICMA-RC's minimum annual revenue requirement is 0.34% of assets with a five year contract term."

$20 million x 0.34% = $68,000, which was ICMA-RC's minimum annual Record Keeping revenue requirement for 1,149 participants.

$68,000 / 1,149 = $59.18 per participant, let's say at most $60 for record keeping for each Oakland participant.
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Per ICMA-RC's Q4 2013 Plan Service Report (PSR), as of the 1st quarter of 2014, Oakland had $425,450,003 in its ICMA-RC 457 plan with 3,846 participants. (page 51 of Oakland's Q4 2013 PSR)

Per ICMA-RC, "As of December 31, 2013, the estimated annual cost to your plan is $3,158,922 consisting of $3,158,922 from fund fees and expenses (0.74% of plan assets)" on page 69 of Oakland's Q4 2013 Plan Service Report.

Per ICMA-RC, Record Keeping costs for Oakland's 3,846 employees cost $667,670 per year on page 69 of Oakland's Q4 2013 Plan Service Report.

$667,670 / 3,846 employees = 173.60 for Record Keeping per Oakland employee per year, while Winston Salem was quoted for less than $60 per year with 2,697 fewer employees.

3,846 employees x $60 = $230,760 instead of the $667,670 Oakland currently pays.

$667,670 $425,450,003 = 0.16%, which is what Oakland is currently paying (page 69, PSR)

$230,760 / $425,450,003 = 0.05423904, let's call it 0.06% for what Oakland should be paying for Record Keeping

$667,670 - $230,760 = at least $436,910 less per year for Record Keeping, considering Winston Salem, North Carolina's ICMA-RC retirement plan was quoted for far fewer participants and assets.

If Oakland asked ICMA-RC to match Winston Salem's pricing, the City could save about $436,910 per year for Oakland's employees invested in ICMA-RC's 457 plan.
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Oakland's ICMA's VT PLUS [Stable Value] Fund, had $49,644,105 invested by the City's participants as of 2013's fourth quarter (PSR page 70).

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

Oakland's 0.06% Record Keeping Fee + 0.48% fund cost could = 0.54% instead of 0.82%.

If 0.82% - 0.54% = 0.28%, Oakland's employees with money in ICMA's VT PLUS fund could make another $139,003 per year more.
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Oakland's $49,644,105 Stable Value Fund - $425,450,003 total assets = $375,805,898 not in ICMA's VT PLUS [Stable Value] Fund.

By mirroring the rest of Oakland's assets with the Federal Government's Thrift Savings Plan, designed by federal employees for themselves, the City could dramatically lower the cost 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 Admiral Shares
Expense Ratio = 0.10% + 0.06% = 0.16%

Vanguard Extended Market Idx Signal
Expense Ratio = 0.10% + 0.06% = 0.16%

Vanguard FTSE All-World ex-US Index Fund Admiral
Expense Ratio = 0.15% + 0.06% = 0.21%

Vanguard 500 Index Fund Admiral Shares
Expense Ratio = 0.05% + 0.06% = 0.11%
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The total cost for Oakland's $375,805,898 in bond and equity funds could be at most 0.16%, which is about the average of the funds above including Record Keeping fees.

$375,805,898 Fund and Record Keeping x 0.16% = $601,289.44

$49,644,105 Stable Value Fund and Record Keeping x 0.54% = $268,078.17

$601,289.44 + $268,078.17 = $869,367.61 total annual cost for Investment and Record Keeping, instead of $3,158,922.

$869,367.61 / $425,450,003 = 0.204% total potential annual fee for Oakland's employees, instead of the 0.74% they now pay.
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$3,158,922 - $869,367.61 = $2,289,554 in total potential annual savings for everyone invested in the Oakland's ICMA-RC 457 plan.

$2,289,554 / 3,846 participants = about $595 more per participant in year one.

In 30 years, another $595 per year per employee compounded at 7% should leave another $60,138 for each Oakland employee by mirroring the federal government's Thrift Savings Plan.

$60,138.46 x 3,846 = $231,292,517 potential savings for Oakland's employees invested in ICMA-RC's 457 plan over the next 30 years compounded at 7%.

Please help retain more money in your community by reallocating and renegotiating Oakland's 457 plan's funds and fees.

It's the right thing to do.

George Hartzman.
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Please help save $35,122,520 for City of Greensboro employees

http://hartzman.blogspot.com/2015/01/please-help-save-money-for-city-of.html

Please support Charlotte, North Carolina in saving $22,048,780.40 for their employees invested in ICMA-RC's 457 retirement plan

http://hartzman.blogspot.com/2015/01/please-support-charlotte-north-carolina.html

1 comment:

Hartzman said...

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.

Information has been obtained from sources believed to be reliable, but accuracy is not guaranteed.

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.

$231,292,517 based on a hypothetical 7% return over 30 years.