HONOLULU - Hawaii's deferred compensation board is preparing to revamp the investment options in the state's $900 million 457 plan, replacing two funds and adding others.
In all, the board could issue up to five requests for proposals: fixed income; large-cap value; large-cap growth; small-/midcap value; and stable value, said Wayne L. Chu, vice chairman of the board. Board members also intend to replace two Prudential funds. The plan has eight investment options.
What's more, the board has, for the second time, selected CitiStreet LLC, North Quincy, Mass., as third-party administrator.
Hawaii's third-party administrator saga began in February 2002, when the board hired Mercer Investment Consulting and issued an RFP. Incumbent Hawaii Benefits Inc.'s contract, due to expire last June 30, was extended for a year.
In September, the board selected CitiStreet. Finalists Hawaii Benefits and Great-West Life and Annuity Insurance Co./Benefits Corp. filed protests. Hawaii Benefits' claimed the selection process was done in secret, violating state law. Great-West's complaint alleged CitiStreet's sister company, Salomon Smith Barney, was improperly allowed to sell services unrelated to the plan to participants. The other finalist was Nationwide Retirement Solutions.
Plus, information about the selection process was leaked to participants, which caused them to complain that the selection process was corrupt.
In a statement she issued to participants, board Chairwoman Kathleen N.A. Watanabe said Hawaii Benefits initially scored highest in evaluations of the finalists. Citistreet was second, she said. But when it was discovered one board member gave scores of zero to all but his favorite administrator, the grading system was adjusted, and CitiStreet was first.
"The total points awarded by each trustee indicated that a majority of trustees scored CitiStreet the best company, and that the unreasonably low scores did in fact produce skewed results," she stated.
In late January, board members were informed by officials from the state attorney general's and state procurement offices that the board violated the state's open meetings law during the search process. So with Mercer's help, the board re-evaluated all of the proposals in a public meeting. CitiStreet won, followed by Great-West, Nationwide and Hawaii Benefits.
"CitiStreet's proposal was deemed to be the most advantageous to the plan and participants," Ms. Watanabe stated in another statement to participants. She noted Hawaii Benefits would earn $3.3 million for its one-year contract expiring June 30, while CitiStreet would get a maximum of $2.5 million in the first year of its contract. CitiStreet's maximum yearly fee was $400,000 less than the next lowest bidder, Ms. Watanabe said.
Mr. Chu, the board's vice chairman, said board members leaned toward a more high-technology approach to participants. CitiStreet has committed to spend $1.4 million over the first five years for customized communication materials and to open a Honolulu office, he said.
CitiStreet executives were hesitant to talk much about the process. "I'm very pleased that the board selected us two times," said Randy Taylor, senior vice president of CitiStreet. "Unlike the previous provider, which had only Hawaii as an account, CitiStreet is one of the largest benefits providers in the world, with the very best services for entities small to very large."
Calls to Mike Moss, president and chief executive officer at Hawaii Benefits, were not returned by press time.