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City of Missoula 457 Deferred Compensation Plan Response to Provider RFP Questions October 27, 2009 1. On page 3 of the RFP, does the Total Withdrawals amount include the amount of Rollovers/Transfers out? Yes (data provided by current recordkeepers). 2. How many participants have assets in more than one plan? Currently there are seven employees that have assets in more than one plan. 3. Are all of the assets listed in the plans unencumbered? NATIONWIDE: If any of the investments have short term trading restrictions, fees may be assessed by the fund house on the plan termination, transfer or participant payout. The current participant exchange/transfer provision on the Nationwide Fixed Account: Plan Level – Participants may exchange 100% out of the Nationwide Fixed Account. The aggregate total of all participant exchanges and/or transfers shall not exceed 12% of the total amount held in the deposit fund for the entity under the Fixed Annuity as of December 31st of the previous calendar year. There is a limit of four exchanges out per participant, per year. However, if the total amount of the participants’ exchange/transfers made during any one calendar year should exceed 12% of the Plan’s total fixed account value balance as of December 31st of the previous calendar year, no further participant exchanges or transfers will be permitted until January 1 of the following year. If the City terminates the current Nationwide Life Insurance Company Fixed annuity contract and withdraws its assets in a lump sum, a Market Value Adjustment (MVA) could potentially apply. The MVA is the amount that Nationwide Life determines would be the net capital loss, if any, resulting to Nationwide Life if investments were liquidated to satisfy the lump sum withdrawal. The MVA would be calculated using Nationwide Life's current procedures applicable to all contracts of this type and class at the time of withdrawal. If the employer withdraws its assets over a 60-month period (5 years) instead of in a lump sum, the MVA would not apply. ---PAGE BREAK--- Nationwide’s Market Value Adjustment Assumptions Nationwide’s market value adjustment formula assumes that the net cash flow received each calendar quarter had been invested in a 10-year semi- annual coupon bond purchased at par, callable after 5 years at par. The rate on that bond is assumed to be the actual rate earned on investments acquired in that calendar quarter with an average quality of Baa. Therefore, the result is a set of hypothetical assets that reasonably represent the actual portfolio. The hypothetical assets are assumed to be callable at par after 5 years. That means that if the yield on the hypothetical asset exceeds that current market rate (i.e. market rates have decreased), the bond is assumed to be called at the end of the 5-year call protection period. If the bond is already older than 5 years, it is assumed to be called immediately at par. The current market rate, against which each hypothetical asset is compared, assumes that any asset that might be sold would have a rating of Baa. The current market rate is assumed to be the Lehman Baa component of the U.S. Credit index rate. To calculate the market value adjustment: The book value of each hypothetical asset is calculated. The book value is the: - accumulation account balance increase (or zero if the balance decreased), plus - the amount reinvested during the quarter from a prior quarter’s maturing hypothetical asset, less - any hypothetical asset sales resulting from accumulation account decreases (i.e. net cash outflow) in later quarters. In other words, if a calendar quarter’s accumulation account balance decreases more than rollover, the hypothetical assets from prior quarters are liquidated pro-rata until account balance decrease is satisfied. The sum of the book values for all calendar quarters will equal accumulation account balance on the cash out date. The market value is calculated for each hypothetical asset. This is the present value of the hypothetical asset discounted at the current market rate (i.e. Lehman Baa). If the present value were calculated at the hypothetical bond’s original rate, the present value would equal the book or par value. However, since discounting is done at the current market rate, the current market value results. The total market value is the sum of the market values for each hypothetical asset. The market value adjustment is the amount by which the total book value exceeds the total market value. If the total book value is less than the total market value, there will be no market value adjustment. ---PAGE BREAK--- VALIC: Under the terms of the Portfolio Director contract, the cash surrender or withdrawal charge will not apply unless the participant makes a surrender or withdrawal while still in service for transfer to another provider. The charge is 5% of the amount withdrawn or 5% of the amount of any purchase payments received during the most recent 60 months prior to surrender or withdrawal, whichever is less. The surrender charge will be applicable only to the amount withdrawn that exceeds 10% of the accumulation value. The surrender charge will be waived upon either a systematic withdrawal that meets the criteria within the contract, or a no charge minimum required distribution. In addition, applicable surrender charges are waived if the participant elects an annuity income option, or (ii) upon payment of any death benefit, or (iii) total and permanent disability, or (iv) the withdrawal and any earlier withdrawals during the same contract year do not exceed 10% of the accumulation value, or no purchase payments have been made for the five years preceding the date of surrender or withdrawal, or (vi) the participant is at least 59½ years old and the contract is at least five years old, or (vii) the contract is fifteen or more years old, or (viii) the participant has retired or separated from service, or (ix) the withdrawal is for the purposes of a hardship or unforeseen emergency as governed by the Plan document. ICMA: ICMA-RC charges no financial market value adjustments or deferred sales charges of any kind. ICMA-RC retains full discretion to release employer- initiated PLUS Fund withdrawals in an orderly manner over a period of up to 12 months from the date ICMA-RC receives written notification from the Employer that it has made a final and binding selection of a replacement for ICMA-RC as administrator of the Employer’s Plan, or a replacement investment option for the PLUS Fund under the Employer’s Plan. This restriction on employer withdrawals from the PLUS Fund does not apply to participant directed withdrawals from the Fund. Many mutual funds have adopted policies and procedures designed to discourage frequent trading of fund shares. Funds may assess redemption fees for assets that have been invested for less than a period of time defined in the fund prospectus. All redemption fees assessed by third-party mutual funds are collected by ICMA-RC and remitted back to the specific mutual fund to which redemption fees apply. As of September 30, 2009, only the Fidelity Diversified International Fund would assess a redemption fee (1%/30 days) on assets transferred on instruction from the plan sponsor. SUMMARY NOTE: Some of the assets in these plans may be further restricted. It is the general intent to transfer all non-restricted assets to the selected program going forward. Any restricted assets will be transferred to the new program at a later date subject to the requirements and restrictions applied. ---PAGE BREAK--- 4. Are there any plan level and/or MVAs with the VALIC and Nationwide plans and, if so, please provide the amounts. See the response to question #3 above. 5. What restrictions exist, if any, on the assets held by Nationwide and VALIC? See the response to question #3 above. 6. Are there any encumbrances on any of the assets of the vendors? See the response to question #3 above. 7. Does the Employer have the ability as well as the willingness to transfer all assets to the selected provider? See the response to question #3 above. 8. How important is the Self-Directed Brokerage Account to the City? A self directed brokerage account service is a service that the City expects that the recordkeeper will be able to provide. 9. What is the desired service level by the City? The City requests that you make your best proposal for services that you are willing to offer. 10. Is there currently a CDSC/MVA? See the response to question #3 above. 11. Do you expect all assets to transfer on a mutually agreed upon date? Yes, subject to any restrictions that may apply. 12. Is a company disqualified if using an outside recordkeeper? Bids have been requested from recordkeepers directly not from intermediaries. However the City will evaluate all responses. 13. What is the breakdown between fixed and variable assets? Please refer to the asset summary data. 14. What surrender charges, MVA's or restrictions are currently attached to the assets within the plan? See the response to question #3 above. ---PAGE BREAK--- 15. How many actual eligible employees are there? There are approximately 450 eligible employees. 16. Would the plan consider allowing more than one vendor in the plan? The City has issued the RFP and will evaluate the bids made by each of the submitting vendors. 17. Based on the primary objectives of the plan, how many investments is the plan looking to offer based on it's goal of simplifying the investments? The City is looking for a flexible or open architecture investment platform in which it can optimize the investment menu for its participants. 18. Based on the primary objectives of the plan to lower participant and plan expenses, do the current providers charge an administrative fee and/or a daily asset charge? The City is looking for your best offer of services and pricing. In the RFP we have requested that you quote your fees on both a fixed fee for service (administrative fee) basis, and a basis point method (daily asset charge) basis or combination thereof. 19. How important is individual investment advice at the local level? Individual onsite meetings at the local level are important. These meetings can be group meetings or individual meetings. We have asked for the number of service days you are willing to offer. We are interested in hearing about your investment advice or guidance process for individual meetings and the tools or methods of deliver of that advice. 20. Will the City allow the investment options to be offered through group variable annuity contracts issued by life insurance companies? Fund expenses will be provided, however, they are different investments than similarly named mutual funds offered by the money manager and investment returns may be higher or lower. Mutual funds are preferred, but the City will evaluate the RFP responses of each respondent. 21. What is the total number of eligible employees in the City? See the response to question #15 above. 22. On the assets listed within the RFP on page 3 of the doc file, VALIC is shown with $2,025,720 in plan assets as of 06/30/09. In the Attachment A - Asset Summary pdf file, the breakdown of assets shown for VALIC is indicated as $1,489,168 as of the same date. Is the status of the $536,552 discrepancy known and which figure should be utilized in determining the total existing plan assets for our response? The other 2 provider's numbers do match in both documents. See the revised Attachment A for VALIC below. ---PAGE BREAK--- 23. Does the city intend a complete take over of existing assets by the potential new provider or are they going to freeze existing accounts as are and start fresh contributions to the new provider? See the response to question #3 above. ---PAGE BREAK--- Fund Name Ticker or CUSIP Asset Class Assets as of 6/30/09 Total Fund Charges Money Market Money Market I Fund N/A Money Market 20,521 $ 1.51% Money Market II Fund N/A Money Market 9,713 $ 1.30% Stable Value / Fixed Short Term Fixed Account N/A Stable Value / Fixed 5,029 $ N/A Fixed Account N/A Stable Value / Fixed 525,762 $ N/A Intermediate-Term Government Government Securities Fund N/A Interm Govt 506 $ 1.66% Inflation-Protected Bond Inflation Protected Fund N/A Inflation-Protected Bond 67 $ 1.65% Intermediate-Term Bond Capital Conservation Fund N/A Interm-Term Bond 1,926 $ 1.68% Core Bond Fund N/A Interm-Term Bond - $ 1.52% Long Government Vanguard Long-Term Treasury Fund Inv N/A Long Govt 24,718 $ 1.25% Long-Term Bond Vanguard Long-Term Investment Grade Inv N/A Long-Term Bond 15,538 $ 1.28% Multi-Sector Bond Strategic Bond Fund N/A Multisector Bond 52,657 $ 1.64% High Yield Bond High Yield Bond Fund N/A High Yield Bond 3,057 $ 1.74% World Bond International Government Bond Fund N/A World Bond 5,238 $ 1.68% Balanced / Risk-Based Asset Allocation Conservative Growth Lifestyle Fund N/A Conservative Allocation 414 $ 1.60% Vanguard LifeStrategy Conservative Growth Fun N/A Conservative Allocation 271 $ 1.47% Asset Allocation Fund N/A Moderate Allocation - $ 1.71% Moderate Growth Lifestyle Fund N/A Moderate Allocation - $ 1.62% Vanguard LifeStrategy Moderate Growth Fund N/A Moderate Allocation 687 $ 1.47% Vanguard Wellington Fund Inv N/A Moderate Allocation 215,552 $ 1.60% Target Retirement Date AIG SunAmerica 2015 High Watermark Fund N/A Target Date 2011-2015 - $ 2.43% AIG SunAmerica 2020 High Watermark Fund N/A Target Date 2016-2020 - $ 2.43% World Allocation Global Strategy Fund N/A World Allocation 7,431 $ 1.73% Large Cap Stock Broad Cap Value Income Fund N/A Large Value 6,885 $ 1.85% Core Value Fund N/A Large Value - $ 1.83% Value Fund N/A Large Value 399 $ 1.85% Large Cap Value Fund N/A Large Value 5,493 $ 1.56% Vanguard Windsor II Inv N/A Large Value 157,836 $ 1.64% Core Equity Fund N/A Large Blend 15,008 $ 1.80% Global Social Awareness Fund N/A Large Blend 39,497 $ 1.65% Growth & Income Fund N/A Large Blend 1,210 $ 1.85% Stock Index Fund N/A Large Blend 120,705 $ 1.35% Socially Responsible Fund N/A Large Blend 299 $ 1.31% Vanguard LifeStrategy Growth Fund N/A Large Blend 420 $ 1.46% Blue Chip Growth Fund N/A Large Growth 12,826 $ 1.85% Growth Fund N/A Large Growth 116,941 $ 1.95% Large Cap Core Fund N/A Large Growth - $ 1.85% Large Capital Growth Fund N/A Large Growth 58,329 $ 1.78% Nasdaq-100 Index Fund N/A Large Growth 6,278 $ 1.55% Aggressive Growth Lifestyle Fund N/A Large Growth - $ 1.59% Capital Appreciation Fund N/A Large Growth - $ 1.60% Lou Holland Growth Fund N/A Large Growth 16,653 $ 2.35% Mid Cap Stock Mid Cap Value Fund N/A Mid Value 23,445 $ 1.80% Mid Cap Index Fund N/A Mid Blend 165,049 $ 1.38% Ariel Appreciation Fund N/A Mid Blend - $ 2.19% Ariel Fund N/A Mid Blend - $ 2.07% Mid Cap Strategic Growth Fund N/A Mid Growth 6,768 $ 1.84% Mid Cap Growth Fund N/A Mid Growth 3,779 $ 1.60% Small Cap Stock Small Cap Special Values Fund N/A Small Value 8,907 $ 1.90% Small Cap Value Fund N/A Small Value 10,858 $ 1.70% Small Cap Fund N/A Small Blend 10,793 $ 1.95% Small Cap Index Fund N/A Small Blend 92,256 $ 1.42% Small Cap Aggressive Growth Fund N/A Small Growth 13,269 $ 1.99% Small-Mid Growth Fund N/A Small Growth 13,222 $ 2.00% Small Cap Growth Fund N/A Small Growth 1,267 $ 1.91% Specialty Science & Technology Fund N/A Technology 47,891 $ 2.00% Global Real Estate Fund N/A Real Estate - $ 1.95% Health Sciences Fund N/A Health 24,754 $ 2.17% World Stock Global Equity Fund N/A World Stock 31,034 $ 1.97% International Stock Foreign Value Fund N/A Foreign Large Value 101,076 $ 1.86% International Equities Fund N/A Foreign Large Blend 6,166 $ 1.52% International Growth I Fund N/A Foreign Large Growth 16,554 $ 2.01% International Small Cap Equity Fund N/A Foreign Small/Mid Growth 770 $ 1.75% Total Assets $ 2,025,720 City of Missoula 457 Deferred Compensation Plan Current Breakdown of Assets and Fees Attachment A - VALIC As of June 30, 2009