SACRAMENTO, Calif. - The California Public Employees' Retirement System will introduce a deferred compensation plan for public employees July 1.
The new 457 plan is designed for use by employees of more than 2,500 public agencies, counties, cities and special districts that already contract with the public employees' retirement system for defined benefit plan management. About 600,000 of the fund's defined benefit plan participants - employees of local governments and school districts - will be eligible to join the new savings plan, if offered by their employer.
The remaining 300,000 participants are state employees, who will continue to participate in the existing Savings Plus program, which has more than $1.5 billion under management. The Savings Plus plan is separately administered by the Department of Personnel Administration.
The supplemental savings plan will look and feel very much like a 401(k) plan without an employer match, said Marty Walton, the retirement system's program manager for deferred compensation. Investment education, employee communications, record keeping and a toll-free voice-response system will be integral parts of the new plan.
State Street Bank and Trust Co., Boston, was selected as the record keeper and administrator.
The plan will offer eight investment options, including an inter nally managed money market fund, an active bond fund and a Standard & Poor's 500 Stock Index fund. The retirement system is searching for external managers for stable principal (GIC), conservative domestic equity, aggressive domestic equity, international equity and balanced funds.
The investment options will be managed in private mutual fund vehicles. Mr. Walton said external managers that already run assets for the defined benefit plan will be favored in the selection process.
Mr. Walton said many of the government agencies eligible to join the new supplemental savings program already have their own 457 plans in place. But a retirement system survey found more than 70% of the agencies expressed interest in the new 457 state plan, largely because the program will be relatively inexpensive.
"CalPERS can apply unusually effective economies of scale," said Mr. Walton, "by virtue of the size of our defined benefit plan assets and the breadth of our investment management operations."
Minnesota pact reached
ST. PAUL - National Benefits Inc. will keep its controversial contract selling deferred compensation investments to Minnesota state employees, but its compensation will be slashed dramatically under a tentative agreement.
If adopted by the Minnesota State Retirement System board and the State Board of Investment, the agreement reached Feb. 18 with National Benefits will save $10 million for the 50,000 participants in the state's deferred compensation plan over the next five years.
Most of the saving will come from cutting nearly in half the $3 million in annual fees paid to National Benefits, one of the two companies marketing 457 plan services. National Benefits markets three fixed-income and variable annuity funds managed by Great West Life Assurance Co., Englewood, Colo., as well as investment options managed by Minnesota Mutual Life Insurance Co., St. Paul, and the State Board of Investment.
Because the 13-year-old state contracts with National Benefits and other companies do not contain termination dates, retirement system officials have chosen to renegotiate the contract rather than open the program to competitive bids. Some top state officials, including Gov. Arne Carlson, fear the state could be sued if it terminates the existing contracts. Other board members, including state Treasurer Mark Dayton, favored putting the contract out for competitive bids.
David Bergstrom, executive director of the Minnesota State Retirement System, said more changes are in store this summer when the deferred compensation plan adds private label mutual funds, offered through Great West and Minnesota Mutual, but managed by major mutual fund companies. Mr. Bergstrom said final selections are being made now and the new funds should be ready for participant investment July 1.
The plan also will move to a consolidated benefit statement for participants, combining data from all three investment providers in a single document. And education programs will be significantly beefed up, said Mr. Bergstrom, giving the deferred compensation plan the feel of a 401(k) plan.
MINNEAPOLIS - IDS Institutional Retirement Services has formed a partnership with selected outside mutual fund managers to add specialized funds to its bundled 401(k) service package.
In addition to IDS' 25 mutual funds available to institutional investors through IDS' SmartSource service, sponsors also will be offered one of two small-capitalization equity funds, the Oppenheimer Discovery Fund and the Nicholas-Applegate Core Equity Fund; and two international equity funds, the Brinson Non-U.S. Equity Fund and the Templeton Foreign Fund.
New mutual fund
Transamerica Pension Services likely will broaden its institutional mutual fund family later this year with the introduction of an international equity fund, said Mark A. Metz, Midwest regional pension manager.
Transamerica is most likely to hire an outside manager to act as sub-adviser for the fund, rather than manage it internally.
Mr. Metz said heavy demand spurred introduction of the new fund. Transamerica already manages more than $10 billion in plan assets and offers bundled defined contribution plan services.