LOS ANGELES -- The City of Los Angeles Deferred Compensation Board is redesigning its $1.3 billion 457 plan and streamlining the investment options.
At the same time, the board has slashed its administration costs by 80% over the length of a five-year contract, representing a $29 million savings, and has negotiated reduced institutional pricing on investment management fees, said Steven Montagna, management analyst.
The unbundled approach also allowed the board to choose the "best of class" investment options, Mr. Montagna said.
The old version of the plan had 29 core investment options, and two firms -- Hartford Life Insurance Co., and Washington Mutual Bank, Seattle -- providing a full array of services including administration, education and communication, he said. (In 1994, Washington Mutual outsourced the record keeping to National Deferred Compensation, Columbus, Ohio.)
The new plan design, which will be implemented July 1, will have 18 investment options -- including 10 core ones -- plus a discount brokerage window.
Great West Life & Annuity Insurance Co., Englewood, Colo., will be the record keeper and administrator, Mr. Montagna said. It also will provide the education, communication and the brokerage window, he added.
In exchange for the plan retaining four of the 12 Hartford funds that had been offered in the plan, Hartford Life offered to cut its mortality and expense risk charge -- the insurance company equivalent of an administration fee -- to 15 basis points from 75 basis points. It also eliminated its contingent deferred sales charge; the board will save $10 million alone on liquidating the funds.
The board also will keep four funds provided by Washington Mutual; 10 were dropped.
Added were a Galliard Capital Management stable value fund; a Morgan Stanley/MAS fixed-income fund; stock and bond index funds from Vanguard Group Inc.; an enhanced equity fund from Aetna; a special equity fund from Diversified Investment Advisors; a Russell 2000 index fund from State Street Global Advisors; and an international fund from Fidelity; and an international index fund managed by Bankers Trust.
The board originally selected an international index fund managed by Bankers Trust but decided to reconsider after officials became aware of additional fees. The board decided to keep Bankers Trust after the bank assured the board that a 25-basis-point transaction fee would be removed by the end of the week, Mr. Montagna explained.
