PURPOSE

The purpose of this staff report is to request City Council approval of the following professional services agreements for the City of Burbank Voluntary Employees� Beneficiary Association (VEBA):

�         Consulting Agreement between the City of Burbank and VEBA Service Group, LLC;

�         Administrative Services Contract between the City of Burbank and A.W. Rehn & Associates, Inc.; and

�         Engagement for Legal Counsel between the City of Burbank and Katten Muchin Zavis Rosenman;

In addition to these three agreements, the City is negotiating a new Trust Agreement with Washington Trust Bank.  Once the agreement has been completed it will be placed on a future Council agenda for the Council�s review and approval.                          

BACKGROUND

On November 25, 1997, the City Council approved the establishment of the VEBA, an employer-sponsored welfare benefit plan authorized under �501(c)(9) of the Internal Revenue Code.  This type of IRS-approved trust allows employees, on a collective basis, to accumulate funds in a pre-tax account for the purpose of paying for retiree medical benefits.

When the VEBA was initially established, the City entered into a professional services agreement with Benefit Strategies Group to provide consulting, administrative and legal services for the Plan.  In addition, the City entered into a professional services agreement with CNA Trust to act as trustee for the Plan.  Since then, the City has changed from CNA Trust to Arrowhead Trust, but still remains with Benefit Strategies Group.  In addition, the VEBA has been administered internally by a committee comprised of both City and union representatives.

The VEBA Committee recommends that effective July 1, 2003, the City terminate its professional services agreements with Benefit Strategies Group and enter into the above-referenced agreements. 

ANALYSIS

Over the last two years, the VEBA Committee has been dissatisfied with the service level provided by Benefit Strategies Group and has been actively seeking another third party administrator for the VEBA.

Instead of contracting with one company that provides consulting, legal, and administrative services, the VEBA Committee recommends contracting with three separate companies that specialize in providing their particular service.  These three companies, although separate, still work closely together.

The benefits associated with changing service providers include:

• More responsive and accountable administration, consulting, and legal advice;

• Processing of participant statements on a timely basis;

• Processing of payment requests on a timely basis; and

• Increased-level of customer service between participant and third party administrator.

In addition, the proposed service providers will also provide these enhanced benefits:

• Weekly payment cycles (currently, payment cycles are semi-annual);

• Monthly posting of fees, payments, distributions, and investment losses and gains (currently, postings are done semi-annually which distorts investment gains and losses); and,

• Participant directed investments (currently, investment decisions are made by the VEBA Committee).

These Agreements provide for an initial term of one year, effective July 1, 2003 and will be automatically extended for successive renewal terms of one (1) year each unless either party elects to terminate the Agreements ninety (90) days prior to expiration of the initial term or a succeeding renewal term. 

FISCAL IMPACT

Consulting fees include:

1. A one-time set-up fee of $3,000; and,

2. A monthly fee equal to $.20 per month per participant account plus .029166% on the first two million dollars of Average Monthly Assets and .020833% of the Average Monthly Assets in excess of two million dollars of the Trust.

Administrative fees include:

1. A one-time set-up fee of $1,000;

2. A monthly fee of $.80 per active employee account per month, $2.30 per separated employee account per month, and .004167% of the Average Monthly Assets; and,

3. Processing expenses including: postage, printed envelopes, stationary and billing forms, printing costs, and audit expenses.

Legal fees include:

1. A maximum fee of $8,000 for the review, revision, and transition of the existing Plan and trust instruments, including documentation and submission to the IRS of a request to update qualification under �501(c)(9) of the Internal Revenue Code;

2. An annual fee of $2,000 for routine work such as reviewing reports, tax returns, and other materials as requested, and reviewing developments and providing advice and recommendations; and,

3. Additional charges will be assessed based upon this company�s standard hourly billing rate (currently at $415/hour) for extraordinary services that are requested.

All fees associated with this Plan will be fully paid by the VEBA Trust, with the exception of $6,000 which was included as part of the Burbank Police Officers� Association (BPOA) salary and benefits package effective July 1, 2003.

RECOMMENDATION

Staff recommends City Council adoption of a proposed resolution approving the proposed professional services agreements with VEBA Service Group, LLC, A.W. Rehn & Associates, Inc., and Katten Muchin Zavis Rosenman to perform consulting, administrative, and legal services, respectively, for the City of Burbank Voluntary Employees� Beneficiary Association effective July 1, 2003.

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