BOARD MEETING DATE: October 3, 2003
AGENDA NO. 14

Appoint Trustee for Deferred Compensation Self-Directed Brokerage Account Program

SYNOPSIS:

To provide a broader array of investment options for AQMD employees who participate in the deferred compensation program, staff recommends the appointment of Allfirst Trust Company as trustee for all funds established under a self-directed brokerage account program through Charles Schwab & Company, under the administration of deferred compensation plan sponsor, Hartford Life. Making these additional investment options available to participating employees would not result in any costs to AQMD.

COMMITTEE:

Finance, August 8, 2003. Less than a quorum was present during the discussion of this item; the Committee Member present communicated his concurrence.
Administrative, September 12, 2003, Recommended for Approval

RECOMMENDED ACTION:

Adopt the attached Resolution appointing Allfirst Trust Company as trustee for the deferred compensation self-directed brokerage account program.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Since 1987, management and confidential employees have participated in a deferred compensation plan established under Section 457 of the Internal Revenue Code and administered by Hartford Life (Hartford). In 1989, represented employees also began participating in this plan. Under current plan provisions, employees are permitted to defer a portion of their income on a pre-tax basis and to direct the investment of the deferred amount to any of approximately 50 investment options provided by Hartford. AQMD provides pre-tax matching funds for participating management and confidential employees and executive management.

Proposal

To provide additional investment flexibility, staff proposes offering deferred compensation plan participants the opportunity to establish self-directed investment accounts that would provide access to a much broader array of investment options. However, only mutual funds will be offered. As administered by Section 457 plan administrator, Hartford Life, self-directed brokerage accounts would be under the custody of Charles Schwab & Company (Schwab). To ensure AQMD remains in compliance with all legal provisions for such self-directed accounts, staff recommends the Board appoint Allfirst Trust Company (Allfirst) to serve as trustee for self-directed accounts established through Hartford with Schwab. Allfirst, which provides trustee services for other Hartford clients and which has the necessary accounting systems to ensure an orderly and cost-effective program, will be the holder of legal title to the assets of the self-directed accounts. Appointment of Allfirst is recommended because they have already incurred the cost associated with the development of an administrative system and it would not be cost effective for other firms to incur development costs to support a program the size of AQMD's. The nominal administrative costs associated with the trustee services provided by Allfirst would be charged to those plan participants who choose to participate in the self-directed brokerage account program and would not result in any cost to AQMD.

Participation in this self-directed brokerage account program will be entirely voluntary, and those participants who wish to continue to invest in the Hartford-provided investment options now available may continue to do so. Those wishing to participate in the self-directed brokerage account program will have a much larger choice of investments available to them, but will be restricted from investing in individual stocks and bonds, stock futures, foreign securities, commodities, and precious metals as only a broader array of mutual funds will be available. As with the current program, in no event will AQMD be liable for any investment losses which plan participants may incur.

Hartford has agreed to provide detailed disclosure materials to interested employees to ensure the potential risks and rewards of investing under a self-directed program are made clear. Hartford charges participating employees a quarterly transaction processing fee and has established transaction rules which limit the percentage of each participant’s account which can be invested in a self-directed brokerage account to ensure a cost-effective and orderly program.

Fiscal Impacts

None.

Attachment

Resolution

RESOLUTION NO. 03-

                        A Resolution of the South Coast Air Quality Management District Board to appoint Allfirst Trust Company as the trustee of all funds established under the Hartford-administered Section 457 self-directed brokerage account program.

                        WHEREAS, the Governing Board of the South Coast Air Quality Management District exercises its duty to determine appropriate salary and benefits to its employees, and

                        WHEREAS, one of these benefits is a deferred compensation program established under Section 457 of the Internal Revenue Code, and

                        WHEREAS, to provide a broader array of investment opportunities for those employees choosing to participate in this deferred compensation program, South Coast Air Quality Management District wishes to establish a voluntary self-directed brokerage account program,

                        THEREFORE, BE IT RESOLVED that the Board of the South Coast Air Quality Management District, State of California, in regular session assembled on October 3, 2003, does hereby appoint Allfirst Trust Company as trustee of all funds established under the Hartford-administered Section 457 self-directed brokerage account program.

________________________                    __________________________
Date                                                              Clerk of the Board

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