tcg ppt financial planning

EmploymenEmployment t

AgreementAgreements and s and

Financial Financial Planning Planning for City for City

ManagersManagers

Presented by

Today’s Topics

TCMA Financial Planning Services Project Service Providers for Project Financial Planning Concepts City Manager Compensation Statistics and

Construction of Packages Employment Agreements Summary and Conclusions

TCMA Project

One year project to offer:Financial PlanningCompensation Package AssistanceEmployment Agreement AssistanceImproved Sample Employment Agreement

TCMA Project

Service ProvidersTCG Consulting, LP a subsidiary of TCG Advisors, LP

• Fee-based consultants• Fee-based investment advisor through

Regulated by the Securities & Exchange Commission

• Work with many public school Superintendents and School Boards across the nation on compensation packages and contracts

Adams, Lynch & Loftin, P.C.• Neal Adams – General Counsel to the Texas Association of School

Administrators• John Lynch – Former Assistant City Manager; works extensively with

public law in Texas

Financial Planning Concepts

Total Financial PicturePublic Officials Have a Very Different

Retirement Picture

Social Security2%

Investments29%

State / Municipal Retirement

System69%

Financial Planning:Looking at Your Total Financial Profile

State Retirement System

Insurance

Employment Agreement

Severance Agreement

Estate Planning

Social Security

Working After Retirement

Investments*

*Remember: For Public Officials, this is usually much less important than in the private sector

Steps to Investment Success1. Know what rate of return

you must achieve to meet your goals

Goals for your heirs Goals for your retirement Other goals

2. Choose portfolio allocation designed to achieve investment return needed

Only take the risk you need to meet the goal

3. Choose investments within your portfolio to meet goals4. Monitor your investments – are they performing?

So – You develop an investment plan as a part of your Financial Plan . . .

What you don’t know about

investment products can hurt you

Who is looking out for You?

Securities Exchange Commission

Federal Agency in charge of oversight of the investment industry National Association of Securities Dealers

“Self Regulatory Agency” (SRO) – How effective is self regulation?

Current Market Issues

Mutual Fund Industry Fee Disclosure Market Timing (Hedge Funds in VA’s)

After Market Trading Insider Trading Lawsuits Spitzer/Marsh McLennan Issue

Types of Investments Typically Purchased by Public Employees

Fixed Annuities Variable Annuities Mutual Funds Wrap Products Trust Platform

Public Employees are Often Easy Targets

Do you know exactly what you are paying in fees on your 457(b) accounts, IRAs accounts and other investments each year?All fees not typically shown on statementsFees can be hidden

• Example: Buried in unit values

Do you know how to examine a product and determine the fees?

Sale of Investment Products to Public Employees is typically a “glamour contest” – lots of glossy material and little meaningful disclosure

Fee Comparison ExamplesAnnual Fees in One RFP Process Conducted by TCG

(Approximately $200 per month @ 6.00% Earnings After Fees)

Avg Ann Fees - 5 Yrs

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

The Bottom Line: What you have at Retirement(Approximately $200 per month @ 6.00% Earnings After Fees)

$0.00 $10,000.00 $20,000.00 $30,000.00 $40,000.00 $50,000.00 $60,000.00 $70,000.00 $80,000.00

Co 25

Co 24

Co 23

Co 22

Co 21

Co 20

Co 19

Co 18

Co 17

Co 16

Co 15

Co 14

Co 13

Co 12

Co 11

Co 10

Co 9

Co 8

Co 7

Co 6

Co 5

Co 4

Co 3

Co 2

Co 1

Value of Account at End of 20 Years - Fee Illustration Only

How can you assure that you pay the lowest fees?

Become educated Convert all fees to percentage

Ignore the “fluff”

Consider use of unbiased fee-based Investment AdvisorAsk for examples of workAsk for references

Compensation Statistics and

Construction of Packages

Compensation Statistics

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

1 - 2,000 2,001 - 5,000 5,001 - 10,000 10,001 -15,000

15,001 -20,000

20,001 -25,000

25,001 -30,000

30,001 -50,000

50,001 -75,000

75,001 -100,000

100,001 -200,000

200,001 -350,000

500,000 +

Size of City (Population)

City Manager Average Salaries

Compensation Statistics

$0$25,000$50,000$75,000

$100,000$125,000$150,000$175,000$200,000$225,000$250,000

1 - 499 500 -999

1,000 -1,599

1,600 -2,999

3,000 -4,999

5,000 -9,999

10,000 -24,999

25,000 -49,999

50,000+

Size of District (Enrollment)

Superintendent Average Salaries by Size of District

Compensation Statistics

$0$25,000$50,000$75,000

$100,000

$125,000$150,000$175,000$200,000

$225,000$250,000

1 2 3 4 5 6 7 8 9 10 11 12 13Size of Agency

Superintendent & City Manager Average Salaries

Superintendent Salaries City Manager Salaries

The Compensation PackageMarket Value of Contract

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Current Salary Market Value ofPosition

CreativeCompensation

Compensation

Compensation Ideas

Supplemental Retirement Plan/Deferred Compensation

Payment of State Retirement Plan Contributions

Fully Paid Family Medical Benefits

Automobile Automobile Allowance Advanced Degree Stipend Labor Relations Stipend Physical Exam

Extra Personal / Vacation / Consulting Days Paid at Daily Rate

Salary Increases Tied to Other Staff

Expense Allowance Life Insurance Supplement

Do not use as Retirement Plan Disability Insurance Supplement

Buy After-Tax Dues and Associations Severance Agreement Structured Agreement Post Retirement Healthcare

Summary of Employer Paid Plans 401(a):

Defined Contribution• Employer: $42,000• Not Affected by TMRS – a Defined Benefit Plan under

Federal Tax Rules Defined Benefit

• Actuarial Cost of Benefit• Must Coordinate Benefit with TMRS

457(b):Employer and/or Employee: $14,000 to $28,000Use Carefully for Employer $ if Funds “Vest”Over

Time 457(f):

BAD unless carefully structured

Plan Documents Many Tax and Other Issues

Document not required – but:• What happens if disagreement with Council

arises?• Low Tolerance by Councils for Lengthy

Employment AgreementsDocument Defines

• Type of Plan (401(a), 457, etc.)• Vesting• Investment of Funds• Timing of Contributions• Many Other Important Provisions

Be Careful with Deferred Compensation

American Jobs Creation Act of 2004 ("AJCA") Added Internal Revenue Code Sec. 409A

Aimed at abusive deferred compensation of corporations Includes 457(f) arrangements Examples of effect on deferred compensation under 457(f):

Distributions must be made only upon separation from service, death, disability, change in ownership or effective control of the employer, unforeseeable emergency, or at a specified date

The initial deferral election must be made prior to the beginning of the year in which the compensation is earned

Must report on W-2 even if not taxed Violation = Immediate taxation + 20% penalty

Employment Agreements

Employment AgreementsA Win-Win for the City and the Manager

Why Agreements are Increasingly Used in the Public and Private SectorJob Security for individual when the job may

bring controversial decisions• Particularly when the City Council or other governing

body is subject to change for emotional/political reasons

• Helps ensure good decisions in the midst of controversy

Why Agreements are Increasingly Used in the Public and Private SectorAttracting the best candidates

• Moving family, looking at best job – stability is a major factor

• When competition reaches across states, industries, etc.

• The best professionals will look for the best deal – and this often involves an employment agreement

Employment AgreementsA Win-Win for the City and the Manager

Why Agreements are Increasingly Used in the Public and Private SectorOrganizational Stability

• When organizations are in great change, stability at the top is a key factor

• Holding on to top talentThe best talent is always being recruited in any field;

employment agreements can provide incentives to stay with the City

Structures Compensation• No surprises, minimizes disagreements after the

individual is hired• Subjects the individual to less financial pressure due to

changes in oversight body (e.g., City Council)

Employment AgreementsA Win-Win for the City and the Manager

Additional Benefits to the City Getting Ahead of the Trend

In school districts and some other public agencies a Contract is now the Norm

Cities share many characteristics in budgets, staffs, managerial responsibilities, and educational needs

Agreements should be a mutually beneficial document that benefits both parties

Councils and Managers should not shy away from the subject;Managing a city is a business...in many cases the largest

enterprise in the city It makes sense to cover such an important relationship with a

mutually beneficial legal documentIn today’s world, would you buy a house on a hand-

shake?

Summary & Conclusions

How Would You Answer These Questions? Do you have a financial plan?

What are the gaps in your financial plan? In what ways are you and your family "at risk" financially?

When was the last time you reviewed your financial plan? Have your career goals changed? Has your family situation changed? Has your financial plan stayed abreast of these changes?

Do you have an employment agreement? If not, is it time for you to consider one?

Can your current employment agreement be improved? If you were fired Monday, how vulnerable financially would your

family be?

Goals of Our Service

This service is NOT about positioning TCMA members to gouge their citiesIt IS about FAIRNESS

It is NOT about preferential treatment for City Managers It IS about recognizing the UNIQUENESS of the City

Manager position In the end, this is about “not being forced to trade

integrity and professionalism for stability and security"

4201 Bee Caves Road, Suite C-101Austin, TX 78746

Phone: (512) 306-9939 Fax: (512) 306-9959Email: mikecochran@pension-consulting.com

john.pesce@pension-consulting.comWebsite: www.pension-consulting.com

THANK YOU