||575 Administration Drive,
Santa Rosa, CA
||Monday through Friday,
8:00 am to 5:00 pm
Deferred Compensation, under the direction of the Treasurer - Tax Collector, administers three employee benefit pre-tax savings programs on behalf of County employees. These programs are intended to encourage employees to save additional funds for retirement. They are the voluntary 457 plan, the mandatory 457 plan and the 401(a) plan. Under the 457 plans, the section currently administers 4,038 volunteer accounts and 1236 mandatory accounts. Under the 401(a) plan, the section administers 719 accounts.
These programs have basic differences in regulations and restrictions,
and separate plan documents. There is one principal provider for these
programs, Nationwide Retirement Solutions. Employees may have two or three
different accounts and employees may access their accounts in person at
our office or on line by visiting http://www.Sonoma457.com.
For information on the Sonoma County Employees’ Retirement Association (SCERA), visit http://www.scretire.com or call (707) 565-8100.
Voluntary 457 Plan
The 457 Deferred Compensation is an employee benefit, pre-tax savings program intended to encourage employees to save additional funds for retirement. The Treasurer-Tax Collector has administered this program since the 1970's. The voluntary program, open to all permanent County employees, now includes County paid deposits for SEIU employees and other bargaining units. This benefit for SEIU employees was added in 1996, and nearly doubled the number of deferred compensation participants.
Mandatory 457 Plan: PST
There is also a separate, mandatory deferred compensation program
that was initiated to comply with changes in the Social Security laws.
This is intended to supply a retirement program to temporary employees,
or permanent employees who are not covered under the current retirement
system. Permanent, part time employees who work under 40 hours a pay period,
and all extra help, are enrolled in this program. Deposits in this program
are held separately from the voluntary plan, and are subject to different
regulations than the voluntary accounts. Temporary employees move in and
out of this program during peak periods, and most accounts are short-term
A new retirement program was added to the deferred compensation program in 1997. This is a 401(a), defined benefit plan. The deposits are still pre-tax savings, but the plan has different regulations under the IRS Code. The 401(a) plan is used to deposit the County paid benefit for the Board of Supervisors, Department Heads, Management, and Confidential employees. The funds in this plan were formerly deposited with the voluntary 457 plan. Now employees who have had this benefit have two (or more) accounts, with different rules. This has added to the education we need to supply, and increased the paperwork and administrative duties of this office.
Glossary of Terms
Mutual fund companies are legally permitted to charge mutual fund investors .025% to 1.00% of fund assets annually for sales, promotion, and marketing expenses. These 12(b)-1 fees, which are a part of a mutual fund’s expense ration are payable to sales associates and service providers. See also Expense Ratio.
A 401(a) plan is a defined contribution retirement savings plan in which Sonoma County Management and Confidential employees have a percentage of their salary deposited as a benefit.
A 401(k) plan is a defined contribution retirement savings plan for which the plan sponsor is typically a corporation.
A 403(b) plan is a defined contribution retirement savings plan for which the plan sponsor is typically a foundation or nonprofit organization
A 457 plan is a defined contribution retirement savings plan for permanent county employees working 40+ hours per pay period, which the plan sponsor is typically a government entity.
See Variable Annuity
Asset Class Descriptions
Asset classes identify funds that tend to have similar investments objectives and strategies, generally react in a similar manner to market fluctuations as other funds in the same class. Spreading your investment selections across several asset classes, a technique known as asset allocation can help maximize your total return based on the level of risk you are willing to accept. Asset allocation does not protect against a loss in a declining market.
Balanced funds are funds that seek both income and capital appreciation by investing in a generally fixed combination of stocks and bonds. Risk and return is typically moderate to low.
Bonds are loans or debt instruments issued by governments or corporation that need to raise money. When investors buy a bond, they are actually loaning money to the government or company. Bonds are issued for a set period, during which interest payments are typically made to the bondholder. Bonds are generally a more conservative form of investment than stocks, and usually provide a more steady flow of income. Typically, bonds have a lower long-term total return than stocks.
Some providers offer trading platforms that allow participants to invest in mutual funds that are not offered through the plan’s investment option line-up. These brokerage windows generally also allow participants to trade in individual stocks and other investment instruments that would otherwise not be available through the plan. There are generally additional setup costs for plan sponsors as well as annual and transaction costs for participants for this feature.
Some providers offer plan services bundled together in a one-stop-shopping package. These services include investment, record keeping, administration, and education services. Many bundled service providers can offer entire range of administrative services such as Form 5500 preparation, plan documents and amendments, trustee services and more. To increase investment flexibility they may create alliances with investment management/mutual fund companies. Costs for offering a bundled/alliance plan are generally lower than an unbundled offering.
Custodians/trustees – typically banks, insurance and trust companies, and mutual fund companies – safeguard plan assets. This function is separate from record keeping which tracks individual account activity and balances, but the record keeper does not necessarily handle plan assets.
Defined Contribution Retirement Savings Plan
In a defined contribution retirement savings plan, participants may direct their own investments through individual accounts. Investment returns and account balances depend upon the amount of participant and/or employer contributions, as well as investment performance.
The Economic Growth and Tax Relief Act of 2001 is a piece of legislation that made significant changes in several areas of the US Internal Revenue Code, including income tax rates, estate & gift tax exclusions, and qualified retirement plan rules.
The Employee Retirement Income Security Act of 1974 is “a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans,” according to the Department of Labor. The term ERISA is now used to refer to a series of laws and rules since 1974 that govern the organization, administration, governance, and oversight of retirement savings plans.
The expense ratio of a mutual fund pays for the costs of running a fund: asset management, administration and operation, and sales and marketing. The portion of the expense ratio that covers account servicing and sales costs are referred to as 12(b)-1 fees.
See Variable Annuity.
International Stock Funds
International stock funds, also known as foreign funds, contain stocks from companies located outside of the United States. Most international stock funds seek long-term growth of capital. These funds typically have higher risk due to political factors, currency fluctuations, differences in accounting standards and foreign regulations, as well as higher return potential. Risk and return is typically high.
Large-Cap Stock Funds
A large-cap stock fund invests mostly in stocks of larger companies. Typically, large-cap stocks are companies with market values greater than $10 billion and include blue-chip and fortune 500 companies. They are typically more mature, diversified companies with many products and services. The goal of this type of fund is usually steady growth of capital. Risk and return is typically moderate to high.
Loads are fees that are assessed when a fund is purchased (front-end load) or at the time of sale (back-end load). Back-end loads are typically reduced or eliminated after a given period of time.
Investment funds charge a management fee for the costs of running the fund. Mutual fund fees are charged as expense ratios. Variable annuities charge a “wrap fee.” Privately managed/collective funds charge revenue sharing or shareholder servicing fees.
Mid-Cap Stock Funds
Mid-cap funds contain stocks from companies with market values between $2 billion and $10 billion and often include companies that are well established and growing. Risk and return is typically moderate to high.
A mutual fund is a pool of individual investments – selected with a specific investment goal in mind and managed by a professional investment manager – in which shareholders own a representative portion. A mutual fund may consist entirely of stocks (or certain types of stocks), bonds, or money market instruments; or, it may include a combination of them. Some mutual funds have a pool of just a few individual holdings while others, such as an S&P 500 index fund, may hold hundreds of individual stocks and/or bonds.
OBRA stands for Omnibus Budget Reconciliation Act of 1990. This is the act that created the PST Plan.
Overall Morningstar Rating
Morningstar rates mutual funds from one to five stars based on how well they have performed (after adjusting for risk and accounting for all sales charges) in comparison to similar funds. Within each Morningstar Category, the top 10% of funds receive five stars, the next 22.5% four stars, the middle 35% three stars, the next 22.5% two stars, and the bottom 10% receive one star. Funds are rated for up to three time periods – three -, five-, and 10 years – and these ratings are combined to produce an overall rating. Funds with less than three years of history are not rated. Ratings are objective, based entirely on a mathematical evaluation of past performance. They are a useful tool for identifying funds worthy of further research, but should not be considered buy or sell recommendations.
According to the Department of Labor, the “persons or entities who exercise discretionary control or authority over plan management of plan assets, have discretionary authority or responsibility for the administration of the plan, or provide investment advice to a plan for compensation or have any authority or responsibility to do so” are considered plan fiduciaries. Plan fiduciaries assume both corporate and personal responsibility no only for decisions they make, but in some cases also for decisions made by others.
The price of a share of stock divided by earnings per share.
The price of a share of stock divided by book value per share.
PST stands for the Part-time, Seasonal & Temporary employee’s 457 plan. Funds are deposited into this plan for all employees working 39 hours or less per pay period in lieu of social security. The combined total of employee/employer contributions total 7.5% Participation in this plan is mandatory for these employees.
Record keepers are responsible for the tasks associated with tracking participant accounts. Some of these tasks include providing daily, weekly, or monthly valuation; processing investment transactions; handling participant requests for loans, QDROs (Qualified Domestic Relations Order), etc; maintaining electronic platforms; and producing participant and plan sponsor reports.
Investment fund companies are permitted to rebate some of their fees to other plan service providers through transactions that are referred to as revenue sharing. For example, many fund companies contract the job of tracking individual account activity to other providers. In turn, fund companies may compensate these providers for their services by way of 12(b)-1.fees and other administrative fees. This reduces the overall cost of the program.
S & P 500 Index
A market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. It measures the movement of the largest issues. Standard and Poor’s chooses the member companies for the 500 based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. Since mid-1989, this composition has been more flexible and the number of issues in each sector has varied. The returns presented in Morningstar’s® Principia® Pro for the S&P 500 are total returns, including the reinvestment of dividends each month.
Investment fund companies assign share classes to their funds as a way of indicating various underlying fee structures (i.e., Class A, Class B, Investor). These funds have the same underlying investments, but their fees vary depending on their share class designation. Some class shares include front and/or back-end loads. Others have higher expense ratios than others.
Small-Cap Stock Funds
Small-cap funds contain stocks from companies with less than $2 billion in capitalization, including many start-up companies. Small companies can grow much faster than big companies, but small company stocks tend to be more volatile than the stocks of larger companies. Over the long term, an investor in small-cap stocks must be willing to accept a higher level of risk resulting from potentially higher market volatility.
Total Net Assets
The month-end net assets of the mutual fund, recorded in millions of dollars. Net-asset figures are useful in gauging a fund’s size, agility, and popularity. They help determine whether a small company fund, for example, can remain in its investment-objective category if its asset base reaches an ungainly size.
Unbundled providers, including Third Party Administration (TPAs), allow plan sponsors to pick and choose among a variety of vendors. In this case, the plan sponsor is providing the bundling service and may require additional internal staff to manage the plan. As with any highly tailored approach, fees for unbundled plans are often higher than a bundled approach.
Variable annuities are insurance company contracts; the returns earned by participants are tied to those of comparable mutual funds and other investment products. For example, the returns of an S&P 500 Index variable annuity would be similar to those of an equivalent mutual fund. In a variable annuity a “wrap fee” covers the cost of administration and management and may also cover the cost of an added insurance benefit risk (i.e., mortality risk).
A wrap fee “wraps” or bundles together the various fees associated with managing a variable annuity, including investment management, operations, administration, and marketing.