PURPOSE

The purpose of this staff report is to request City Council approval of a Trust Agreement between the City of Burbank and Washington Trust Bank to provide trustee services for the City of Burbank Voluntary Employees� Beneficiary Association (VEBA).

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.

Over the last two years, there has been dissatisfaction with the service level provided by the VEBA�s third party administrator, Benefit Strategies Group, and another third party administrator was actively being sought.  On June 17, 2003, the City Council adopted three resolutions approving the following professional services agreements:

�         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.

At that June 17^th meeting, the City Council was notified that in addition to these three agreements, the City was negotiating a new Trust Agreement with Washington Trust Bank and once the agreement was completed it would be placed on a future Council agenda for the Council�s review and approval.                          

ANALYSIS

On July 1, 2003, the City terminated its professional services agreements with Benefit Strategies Group and entered into 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 VEBA.

Currently, Arrowhead Trust is providing trustee services for the Plan.  The impetus to change trustee companies is based on the recommendation of these new providers.  Their desire to transfer trustee services from Arrowhead Trust to Washington Trust Bank is based on the fact that they have built a prior working relationship with this trustee which will allow them to provide a higher level of service to the Plan.

Washington Trust Bank has been providing fiduciary services for employee benefit plans and pensions since 1975 with over $112,000,000 in managed assets, plus over $312,000,000 in non-managed assets. They are proposing to provide the following services:

�         Assist with the selection of investment funds;

�         Monitor claims account balances for investments;

�         Process buys and sells within the account;

�         Provide custodial services for plan assets;

�         Collect interest, dividends, and principal that becomes due and payable on assets;

�         Assist the third party administrator in establishing various claims accounts;

�         Assist the third party administrator, on a daily basis, with the movement of money for payment of claims;

�         Provide the third party administrator with a monthly portfolio statements;

�         Provide the third party administrator with interest and return information on the assets by the 2^nd business day following 

      month end; and

�         Provide Internet access to the investment manager via a password protected site.

FISCAL IMPACT

In addition to an annual trustee fee of $300.00, asset-based fees will be assessed based on the level of assets in the Plan as shown below:

            Assets                                    Asset-Based Fees

            $100,000                                .325% on the first       $100,000

            $500,000                                .275% on the next       $400,000

         $1,000,000                                .225% on the next       $500,000

         $2,000,000                                .150% on the next   $1,000,000

      $10,000,000                                .100% on the next   $8,000,000

      $20,000,000                                .070% on the next $10,000,000

Currently, there is approximately $1,300,000 invested in the Plan.  At this level, trustee fees would be $3,300.00 per year.

The trustee fees associated with this Plan would be paid by the VEBA Trust. 

RECOMMENDATION

Staff recommends that City Council adopt a proposed resolution approving the proposed Trust Agreement with Washington Trust Bank to provide trustee services for the City of Burbank Voluntary Employees� Beneficiary Association effective July 1, 2003.

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