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

1/14/15

How to save $35,122,520 for Greensboro, North Carolina's employees invested in ICMA-RC's 457 retirement plan

If Greensboro asked ICMA-RC to match Winston Salem and Orlando, Florida's pricing, the City could save about $347,848 per year for Greensboro's employees invested in ICMA-RC's 457 plan.
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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 for record keeping for each Greensboro participant, as Orlando, Florida, which re-negotiated their fees in 2014 appears to be paying about $57.23 per employee as of Q3 2014.
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Per ICMA-RC's Q1 2014 Plan Service Report (PSR), Greensboro had $87,898,314 in its ICMA-RC 457 plan with 2,781 participants, and is paying $242,640 per year for Record Keeping.

2,781 employees x $59.18 per employee = $164,580  

$242,640, what Greensboro is currently paying,
- $164,580, which is what Winston is for Greensboro's 2,781 employees
= $78,060 per year of overcharge for Greensboro by ICMA-RC for Record Keeping.

$164,580 / $87,898,314 = 0.19% which Greensboro should be paying for Record Keeping
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Greensboro 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%, as Orlando is only paying 0.22%.

For ICMA's VT PLUS [Stable Value] Fund, which had $36,415,538 as of 2014's first quarter, 0.19% + 0.48% = 0.67% instead of 0.82%.

The total cost for Greensboro's $36,415,538 stable value fund should be at most;
$36,415,538 x 0.67% = $243,984, instead of $298,607, or $54,623 less.

0.67% instead of 0.82% = 0.15%, which of $36,415,538 = $54,623, meaning employees with money in ICMA's VT PLUS fund could make another $54,623 per year more.

$87,898,314 total - $36,415,538 Stable Value = $51,482,776 in Equities and Bonds.

By mirroring the rest of Greensboro'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% + 0.19% for Record Keeping = 0.29%

Vanguard Extended Market Index Fund
Expense Ratio = 0.10% + 0.19% = 0.29%

Vanguard FTSE All-World ex-US Index Fund
Expense Ratio = 0.15% + 0.19% = 0.34%

Vanguard 500 Index Fund
Expense Ratio = 0.05% + 0.19% = 0.24%
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The total cost for Greensboro's $51,482,776 in bond and equity funds could be at most 0.29%, which is the average of the funds above including Record Keeping fees.

$51,482,776 x 0.29% = $149,300, including Record Keeping fees.

$149,300 + $243,984 for the Stable Value fund including Record Keeping fees
= $393,284 maximum total annual cost

$393,284 / $87,898,314 = 0.45% instead of 0.84%, or $741,132 currently being paid.

$741,132 - $393,284 = $347,848 in total potential annual savings for everyone invested in the Greensboro's ICMA-RC 457 plan.

$347,848 / 2,781 participants = about $125 more per participant in year one.

In 30 years, another $125 per year per employee compounded at 7% should leave another $12,634 each.

$12,634 x 2,780 = $35,122,520 potential savings for Greensboro'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 community by supporting the reallocating and renegotiation of Greensboro's 457 plan's funds and fees.

It's the right thing to do.

George Hartzman

1 comment:

Hartzman 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.