Administrator selection stirs up trouble for Los Angeles Deferred Comp

LOS ANGELES — The $1.8 billion City of Los Angeles Deferred Compensation Plan's decision to hire Nationwide Retirement Solutions to replace Great-West Retirement Services as plan administrator has gotten contentious.

Supporters of Denver-based Great-West said the firm supplied the services the board wanted at a lower cost than Columbus, Ohio-based Nationwide, while that firm's supporters said Nationwide provided far superior services for a nominal fee increase.

The Los Angeles City Council subsequently vetoed the decision to hire Nationwide, and sent the matter back to the board to reconsider.

Michael Galvin, part of the four-member board majority when it voted on Aug. 17 to hire Nationwide, has filed a lawsuit against the city, claiming the City Council did not have the constitutional authority to veto the board's decision.

Brian Perry is a deputy to City Councilman Dennis Zine, who led the successful veto effort. He said the city attorney "did not believe at the time of our action that there would be any problem with it." He said the city charter gives the City Council the legal right to veto contracts.

While Mr. Galvin was a member of the plan's board when the decision to hire Nationwide was made, he is no longer. The city's unions, which he represented, voted Sept. 24 to replace him with Richard Kraus.

Mr. Galvin is fighting his removal, claiming correct procedures weren't followed. In a letter to Shelley Smith, chairwoman of the board, Mr. Galvin said replacing him with Mr. Kraus is "a serious violation of law." He said the LA City Coalition of Unions that voted to replace him on the board represents only half of the organizations that elected him.

Julie Butcher, general manager of Service Employees' International Union Local 37 of Los Angeles, said there was "an absolutely legally constituted meeting of the unions when he was replaced," and that Mr. Galvin has no legal basis to fight his removal.

Ms. Butcher said Mr. Galvin's vote in favor of Nationwide and the higher fees it proposed to charge for its services was one of the reasons for the decision to replace him.

According to the original proposals, Great-West said it would charge $47.50 per participant per year, while Nationwide said it would charge $59 per participant per year.

Brian McCleave, director of new business for Nationwide and who led the team that made the board presentation, said Nationwide's proposal included more service and a "full advice component." He said Great-West's proposal had an additional charge of $25 per participant per year for investment advice — for a total of $72.50 per person.

Greg Seller, senior vice president at Great-West, confirmed the $25 per participant charge for advice.

Mr. McCleave also pointed out that Great-West chose not to appeal the board's decision, even though an appeals process exists. Instead, he alleged, Great-West officials chose to work with dissenting board members to reverse the decision. Mr. Seller said Great-West may still appeal.

Mr. McCleave said it wasn't clear in the RFP whether the cost of the advice component should be presented separately or as part of the total package of services. The RFP (provided to Pensions & Investments by Steven Montagna, senior personnel analyst), said: "Describe the advice services you would propose. Include any fees separately in the fee proposal form."

"That's clear to me," said Mr. Montagna.

Mr. McCleave said Nationwide officials told the board that for $42 per participant per year, they could provide the same level of service that Great-West had said it would provide in its proposal for $47.50. To do that, Nationwide would remove the advice feature and reduce the number of employees servicing the plan.

Mr. McCleave also said the plan's staff and consultant, Mercer Investment Consulting, Richmond, Va., did not recommend Great-West's proposal over Nationwide's, but simply presented them to the board as the two best, both worthy of serious consideration. Wendy Young, the Mercer consultant who works on the plan, declined to comment.

Mr. Montagna, who was responsible for the staff's recommendations, said it was "a little disingenuous" for Nationwide to say that no recommendation was made by the staff. "In my own report I stated it was the staff's judgment that Great-West provided the best proposal," he said.