Total Plan Assets/Participants: $221 million/approximately 1,500
Participation Rate: 65%
Average Deferral Rate: 7%
Average Account Balance: $90,000
Additional Retirement Plans: Defined benefit
AS ONE OF THE MOST colorful metropolises in the nation, the City of Las Vegas decided to promote its first two-day seminar about retirement savings—the “Investment and Retirement Palooza: Making Dollars and $en$e”—with equally vibrant print, electronic and video marketing materials featuring the Rat Pack, Elvis Presley and the Rolling Stones. “We wanted something fun and creative that would resonate with our employees, whose average age is 50,” says Dan Rigato, human resource (HR) administrator for the city. “I wanted to tease people with colorful, iconic images to get them to take a look, and employees told me they thought it was cool.”
The result, Rigato says, was tremendous, with 25% of the plan’s 1,500 participants attending the Palooza. More importantly, he reports, 85% of surveyed attendees said they would take at least one of five actions due to what they learned: start investing in the 457 plan, increase their deferrals, rebalance their asset allocation in line with their risk tolerance, talk to a financial planner and/or log onto the recordkeeper’s website to check out their funds.
The Palooza, held at City Hall, was followed by three road shows at city satellite offices; the combined effort prompted 46% of those attendees not already in the 457 plan to enroll, an additional 46% of current participants to increase their deferrals and 87% to schedule a personal consultation with a financial planner. Says Rigato, “That engagement was what we were really after.”
Additionally, the city provides Web-based seminars targeted to five different age groups, ensures that recordkeeper representatives are available to meet with employees one on one, schedules benefits staff members to hold meetings with participants and, starting this year, offers participants Morningstar investment advice.
“It’s very interesting how much the employees are interested in the concept that health equals wealth, and how the folks who thought they might have enough to retire at age 65 have learned that there are still significant health costs,” says Mark Vincent, chief financial officer (CFO) for the city.
The plan’s 65% participation rate, average 7% deferral rate and average balance of $90,000 are largely owed to Las Vegas’ emphasis on employee education and engagement. The city does not automatically enroll employees into the 457 plan and offers a fully funded defined benefit (DB) plan, the Public Employees’ Retirement System of Nevada, or Nevada PERS, through which members may earn a maximum of 75% to 90% of their average compensation when they retire. “We push the fact that while the DB plan is fantastic, you are going to need more, and most people go into retirement financially unprepared,” Rigato says.
Las Vegas has the added challenge of coordinating its educational events and curricula—it currently has three different recordkeepers administering its three 457 plans. According to Rigato, Las Vegas opened its first 457 with MassMutual but, in response to prompting from the Internal Revenue Service (IRS) that public defined contribution (DC) plans offer more choices, it opened a second one with ICMA-RC several years later. The city then opened a third with Nationwide as the recordkeeper, he says, because that provider works closely with the National Association of Firefighters union.
This redundancy was the reason why, two years ago, the city hired Freddie Sarno, corporate retirement director with Morgan Stanley Wealth Management, Las Vegas, to assess its three recordkeepers and issue a request for proposals (RFP) to replace them, with the goal of reducing administrative costs by 15 basis points (bps), says Mark Vincent, chief financial officer (CFO) for Las Vegas. The city’s unions immediately pushed back, making management realize it should first educate participants, form an investment committee of four executives and four union representatives, and give the committee formal fiduciary training.
Las Vegas has the added challenge of coordinating its educational events and curricula—it currently has three different recordkeepers administering its three 457 plans.
Sarno provided this training, then helped the committee pare back and improve its 104 fund offerings; he also coordinated educational efforts with the three recordkeepers. As he puts it, the goal was to “transform the plan to one focused on participant education that offers a best-in-class retirement benefit to participants and their fiduciaries and that exudes fiduciary excellence.”
When he first came on board, Sarno says, Las Vegas was “behind the curve in the government space. They had never had any formal process, documentation, committee or investment policy statement [IPS]. I realized the opportunities for what was possible.”
With Sarno’s guidance, Las Vegas has reduced its fund lineup by 15%, to 83 funds. Rigato would like to see that cut back by another 15% over the next 18 months and, eventually, to have only 15 funds for each 457 plan.
Heeding guidance from the Department of Labor (DOL), Sarno and the committee determined that, due to the plan demographics, “through retirement” target-date funds (TDFs) would be the appropriate choice for the plan. While the ICMA plan maintained the incumbent Vantagepoint Milestone target-date funds, the MassMutual plan replaced its existing TDF suite with one from T. Rowe Price; the Nationwide plan, which had no target-dates, also adopted the T. Rowe Price funds.
Educating participants about proper asset allocation will be the next step for the city, as nearly half (46%) of the assets in the MassMutual plan are invested in a stable value fund that guarantees a 4% return. In the ICMA plan, only 6% are in target-date funds. To date, just 1% of the assets in the Nationwide plan are in these funds. With participation in them so low, Vincent says, it is a priority this year for the plan to educate participants about proper asset allocation, with the hope that they will gravitate toward the target-date offerings.
Las Vegas is also excited about retirement readiness reports from each of its recordkeepers, which it would like to unveil in time for the upcoming Retirement Palooza in June. It would then augment the rollout with a session for participants about using the associated tools—for instance, how to input their 457 savings along with the Nevada PERS and Social Security, with the goal for each participant to replace 80% of income in retirement, Rigato says. In conjunction with this, Las Vegas will begin looking at retirement readiness metrics for the plan as a whole, along with the other data it currently analyzes: participation rates; deferral rates; asset allocation and participation in the TDFs; fees; and fund performance.
In addition, at its meeting this month, the investment committee will discuss and vote on automatic enrollment and escalation, as well as on making the target-date funds the default investment. “I think they are going to move in that direction,” Sarno says. “The committee is starting to see what is possible.”
Vincent adds, “I am very encouraged about employees grasping the value of their 457 plans, and their response” as indicated by the 65% participation rate, 7% deferral rate and Palooza attendance. “The big thing for me, personally, is that we still have too many fund selections because of too many recordkeepers. I don’t think the majority of the investment committee agrees with that yet.” But if they continue to see the negatives, namely, “diluting our assets and increasing our fees,” he says, one day, the committee might even agree to offer just one 457 plan.
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