Scottsdale employee deferred compensation retirement plan free of competitive scrutiny

Scottsdale City Hall is at 3939 N. Drinkwater Blvd. (File Photo)

Scottsdale City Hall is at 3939 N. Drinkwater Blvd. (File Photo)

A citywide retirement plan managed by the International City Managers Association Retirement Corp. has come under scrutiny as some city employees question whether or not it might be time for the city to explore other options.

And, it appears the existing contract has been systematically approved by Scottsdale City Council over the last 20 years in five-year intervals, which may have been done without a formal bid process.

The International City Managers Association Retirement Corp. administers a deferred compensation plan for all city employees above and beyond the Public Safety Pension Retirement System and Arizona State Retirement System.

The 457 deferred compensation plan administered by the ICMA-RC, which equates to $120 million, is where employees can opt for pre-tax contributions to certain interest-earning funds very similar to a 401K investment account.

Deferring compensation while employed means an individual can reduce the amount of taxable income once it’s used during retirement.

The contract administrator for the plan is the executive director of human resources at the city of Scottsdale.

“Understand that this is a supplemental plan, optional for employees who want to do something beyond what is provided via PSPRS or ASRS pension plans,” said Scottsdale Communications and Public Affairs Director Kelly Corsette in a Sept. 28 statement. “It is essentially an interest-earning savings account with tax benefits.”

Sasha Weller

Sasha Weller

But those benefits may be wasted or at least not fully realized, according to Sasha Weller, Scottsdale Fire Fighters Association president.

“Our interest is that our members have the very best deal and the most competitive deal within any benefits program,” he said in a Sept. 27 phone interview.

Mr. Weller contends the contract hasn’t gone to bid since it was first approved about 20 years ago.

“We don’t know what kind of deal this is or isn’t,” he said.

“That is based on the fact that it hasn’t been out to bid in 18-plus years. It is our contention, if this were to go out to bid, at a minimum, that would force competition and it would bring the best products forward. We believe our fees are higher than they should be.”

A guessing game

The fees assessed to Scottsdale employees is unclear.

“The fees paid by participants are those charged by the fund managers — such as Fidelity or T Rowe Price — for the running of the funds,” Mr. Corsette said.

“These vary by fund and these fees are included in the returns employees earn. There are no additional fees charged by ICMA-RC unless individuals take out a loan or have special circumstances such as divorce proceedings that require additional service. Plan participants can find the fees they are paying through their account.”

According to the latest version of the contract with the city, ICMA-RC makes money by receiving a total annual aggregate of revenue equating to .2 percent from funds offered by the plan.

In addition, the 2011 contract states at any time the fund reaches $125 million “ICMA-RC agrees to reopen negotiations of the costs set forth herein.”

Mr. Weller contends the time is now for negotiating a better deal for 457 deferred compensation plans.

“We have concerns that this hasn’t been looked at with a contemporary view, if you will,” he said.  “There is no way this is competitive. Our members pay the fees associated with deferred compensation, but one of our largest complaints is the lack of service they say they provide for us.”

The ICMA-RC provides Scottsdale employees with the services of maintaining their accounts, supporting them administratively and providing online access to their accounts, among others, city officials say.

The last contract for the management of the 457 deferred compensation plan was approved in October 2011, according to Mr. Corsette.

“Earlier this year, the terms of the contract were extended for one additional year so that a new city manager could be part of a public bid and evaluation process for this contract,” he said.

“However, when the city council did not hire a new city manager, that process was started. We are currently in the process of issuing a request for proposals for firms who wish to provide this service, after which a standard contract evaluation and award process will occur.”

When asked for records of previous requests for proposal documents, Mr. Corsette says the city doesn’t keep records that old.

“Some type of RFP process, but we do not have records back that far,” he said.

Keeping everyone happy

Mr. Weller contends his constituency is not concerned with who holds the contract — just that the city is doing everything it can to provide the best possible product for its employees who are paid with tax dollars.

“At the end of the day, our feeling is that even if the current provider remains the provider a bid would force the best possible plan for employees,” he said. “That is really our main concern: we just want to make sure our members are getting the best deal.”

Mr. Corsette says the plan is meant to be ancillary to already established pension programs for public employees.

“Participants pay income taxes only when they take out the money,” he said. “This helps supplement the PSPRS or ASRS pension plan that employees receive from the state.”

The existing contract can be terminated within a 30-day period but the city of Scottsdale must prove cause for the termination, according to the 2011 contract.

Scottsdale Councilman David Smith, who has served as the municipality’s treasurer, says the role the city plays is purely administrative.

“The importance of that or any change is it would not be a change to save taxpayers any money — it would only save employees money,” he said in a Sep. 27 phone interview. “That doesn’t mean it would be a bad thing to do. But it is more about the aggregate; is this what the employees want?”

Councilman Smith says he is open to any discussion a Scottsdale employee wants to have, but the plan is specifically a device in which they choose to participate.

“My attitude as a city councilman, other than keeping employees happy, is it is really their program,” he said. “This is a bit of a different situation because it is not technically a city program.”

Northeast Valley Managing Editor Terrance Thornton can be contacted at tthornton@newszap.com

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