TCG ppt Financial Planning


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TCG ppt Financial Planning

  1. 1. Employment Agreements and Financial Planning for City Managers Presented by
  2. 2. Today’s Topics <ul><li>TCMA Financial Planning Services Project </li></ul><ul><li>Service Providers for Project </li></ul><ul><li>Financial Planning Concepts </li></ul><ul><li>City Manager Compensation Statistics and Construction of Packages </li></ul><ul><li>Employment Agreements </li></ul><ul><li>Summary and Conclusions </li></ul>
  3. 3. TCMA Project <ul><li>One year project to offer: </li></ul><ul><ul><li>Financial Planning </li></ul></ul><ul><ul><li>Compensation Package Assistance </li></ul></ul><ul><ul><li>Employment Agreement Assistance </li></ul></ul><ul><ul><li>Improved Sample Employment Agreement </li></ul></ul>
  4. 4. TCMA Project <ul><li>Service Providers </li></ul><ul><ul><li>TCG Consulting, LP a subsidiary of TCG Advisors, LP </li></ul></ul><ul><ul><ul><li>Fee-based consultants </li></ul></ul></ul><ul><ul><ul><li>Fee-based investment advisor through </li></ul></ul></ul><ul><ul><ul><ul><li>Regulated by the Securities & Exchange Commission </li></ul></ul></ul></ul><ul><ul><ul><li>Work with many public school Superintendents and School Boards across the nation on compensation packages and contracts </li></ul></ul></ul><ul><ul><li>Adams, Lynch & Loftin, P.C. </li></ul></ul><ul><ul><ul><li>Neal Adams – General Counsel to the Texas Association of School Administrators </li></ul></ul></ul><ul><ul><ul><li>John Lynch – Former Assistant City Manager; works extensively with public law in Texas </li></ul></ul></ul>
  5. 5. Financial Planning Concepts
  6. 6. Total Financial Picture Public Officials Have a Very Different Retirement Picture
  7. 7. Financial Planning: Looking at Your Total Financial Profile *Remember: For Public Officials, this is usually much less important than in the private sector
  8. 8. Steps to Investment Success <ul><li>Know what rate of return </li></ul><ul><li>you must achieve to meet </li></ul><ul><li>your goals </li></ul><ul><ul><li>Goals for your heirs </li></ul></ul><ul><ul><li>Goals for your retirement </li></ul></ul><ul><ul><li>Other goals </li></ul></ul><ul><li>Choose portfolio allocation designed to achieve investment return needed </li></ul><ul><ul><li>Only take the risk you need to meet the goal </li></ul></ul><ul><li>Choose investments within your portfolio to meet goals </li></ul><ul><li>Monitor your investments – are they performing? </li></ul>
  9. 9. So – You develop an investment plan as a part of your Financial Plan . . . What you don’t know about investment products can hurt you
  10. 10. Who is looking out for You? <ul><li>Securities Exchange Commission </li></ul><ul><li>Federal Agency in charge of oversight of the investment industry </li></ul><ul><li>National Association of Securities Dealers </li></ul><ul><li>“ Self Regulatory Agency” (SRO) – How effective is self regulation ? </li></ul>
  11. 11. Current Market Issues <ul><li>Mutual Fund Industry </li></ul><ul><li>Fee Disclosure </li></ul><ul><li>Market Timing (Hedge Funds in VA’s) </li></ul><ul><li>After Market Trading </li></ul><ul><li>Insider Trading </li></ul><ul><li>Lawsuits </li></ul><ul><li>Spitzer/Marsh McLennan Issue </li></ul>
  12. 12. Types of Investments Typically Purchased by Public Employees <ul><li>Fixed Annuities </li></ul><ul><li>Variable Annuities </li></ul><ul><li>Mutual Funds </li></ul><ul><li>Wrap Products </li></ul><ul><li>Trust Platform </li></ul>
  13. 13. Public Employees are Often Easy Targets <ul><li>Do you know exactly what you are paying in fees on your 457(b) accounts, IRAs accounts and other investments each year? </li></ul><ul><ul><li>All fees not typically shown on statements </li></ul></ul><ul><ul><li>Fees can be hidden </li></ul></ul><ul><ul><ul><li>Example: Buried in unit values </li></ul></ul></ul><ul><li>Do you know how to examine a product and determine the fees? </li></ul><ul><li>Sale of Investment Products to Public Employees is typically a “glamour contest” – lots of glossy material and little meaningful disclosure </li></ul>
  14. 14. Fee Comparison Examples Annual Fees in One RFP Process Conducted by TCG (Approximately $200 per month @ 6.00% Earnings After Fees)
  15. 15. The Bottom Line: What you have at Retirement (Approximately $200 per month @ 6.00% Earnings After Fees)
  16. 16. How can you assure that you pay the lowest fees? <ul><li>Become educated </li></ul><ul><li>Convert all fees to percentage </li></ul><ul><ul><li>Ignore the “fluff” </li></ul></ul><ul><li>Consider use of unbiased fee-based Investment Advisor </li></ul><ul><ul><li>Ask for examples of work </li></ul></ul><ul><ul><li>Ask for references </li></ul></ul>
  17. 17. Compensation Statistics and Construction of Packages
  18. 18. Compensation Statistics
  19. 19. Compensation Statistics
  20. 20. Compensation Statistics
  21. 21. The Compensation Package Market Value of Contract <ul><li>Compensation </li></ul>
  22. 22. Compensation Ideas <ul><li>Supplemental Retirement Plan/Deferred Compensation </li></ul><ul><li>Payment of State Retirement Plan Contributions </li></ul><ul><li>Fully Paid Family Medical Benefits </li></ul><ul><li>Automobile </li></ul><ul><li>Automobile Allowance </li></ul><ul><li>Advanced Degree Stipend </li></ul><ul><li>Labor Relations Stipend </li></ul><ul><li>Physical Exam </li></ul><ul><li>Extra Personal / Vacation / Consulting Days Paid at Daily Rate </li></ul><ul><li>Salary Increases Tied to Other Staff </li></ul><ul><li>Expense Allowance </li></ul><ul><li>Life Insurance Supplement </li></ul><ul><ul><li>Do not use as Retirement Plan </li></ul></ul><ul><li>Disability Insurance Supplement </li></ul><ul><ul><li>Buy After-Tax </li></ul></ul><ul><li>Dues and Associations </li></ul><ul><li>Severance Agreement </li></ul><ul><li>Structured Agreement </li></ul><ul><li>Post Retirement Healthcare </li></ul>
  23. 23. Summary of Employer Paid Plans <ul><li>401(a): </li></ul><ul><ul><li>Defined Contribution </li></ul></ul><ul><ul><ul><li>Employer: $42,000 </li></ul></ul></ul><ul><ul><ul><li>Not Affected by TMRS – a Defined Benefit Plan under Federal Tax Rules </li></ul></ul></ul><ul><ul><li>Defined Benefit </li></ul></ul><ul><ul><ul><li>Actuarial Cost of Benefit </li></ul></ul></ul><ul><ul><ul><li>Must Coordinate Benefit with TMRS </li></ul></ul></ul><ul><li>457(b): </li></ul><ul><ul><li>Employer and/or Employee: $14,000 to $28,000 </li></ul></ul><ul><ul><li>Use Carefully for Employer $ if Funds “Vest”Over Time </li></ul></ul><ul><li>457(f): </li></ul><ul><ul><li>BAD unless carefully structured </li></ul></ul>
  24. 24. Plan Documents <ul><li>Many Tax and Other Issues </li></ul><ul><ul><li>Document not required – but: </li></ul></ul><ul><ul><ul><li>What happens if disagreement with Council arises? </li></ul></ul></ul><ul><ul><ul><li>Low Tolerance by Councils for Lengthy Employment Agreements </li></ul></ul></ul><ul><ul><li>Document Defines </li></ul></ul><ul><ul><ul><li>Type of Plan (401(a), 457, etc.) </li></ul></ul></ul><ul><ul><ul><li>Vesting </li></ul></ul></ul><ul><ul><ul><li>Investment of Funds </li></ul></ul></ul><ul><ul><ul><li>Timing of Contributions </li></ul></ul></ul><ul><ul><ul><li>Many Other Important Provisions </li></ul></ul></ul>
  25. 25. Be Careful with Deferred Compensation <ul><li>American Jobs Creation Act of 2004 (&quot;AJCA&quot;) Added Internal Revenue Code Sec. 409A </li></ul><ul><li>Aimed at abusive deferred compensation of corporations </li></ul><ul><li>Includes 457(f) arrangements </li></ul><ul><li>Examples of effect on deferred compensation under 457(f): </li></ul><ul><ul><li>Distributions must be made only upon separation from service, death, disability, change in ownership or effective control of the employer, unforeseeable emergency, or at a specified date </li></ul></ul><ul><ul><li>The initial deferral election must be made prior to the beginning of the year in which the compensation is earned </li></ul></ul><ul><li>Must report on W-2 even if not taxed </li></ul><ul><li>Violation = Immediate taxation + 20% penalty </li></ul>
  26. 26. Employment Agreements
  27. 27. Employment Agreements A Win-Win for the City and the Manager <ul><li>Why Agreements are Increasingly Used in the Public and Private Sector </li></ul><ul><ul><li>Job Security for individual when the job may bring controversial decisions </li></ul></ul><ul><ul><ul><li>Particularly when the City Council or other governing body is subject to change for emotional/political reasons </li></ul></ul></ul><ul><ul><ul><li>Helps ensure good decisions in the midst of controversy </li></ul></ul></ul>
  28. 28. <ul><li>Why Agreements are Increasingly Used in the Public and Private Sector </li></ul><ul><ul><li>Attracting the best candidates </li></ul></ul><ul><ul><ul><li>Moving family, looking at best job – stability is a major factor </li></ul></ul></ul><ul><ul><ul><li>When competition reaches across states, industries, etc. </li></ul></ul></ul><ul><ul><ul><li>The best professionals will look for the best deal – and this often involves an employment agreement </li></ul></ul></ul>Employment Agreements A Win-Win for the City and the Manager
  29. 29. <ul><li>Why Agreements are Increasingly Used in the Public and Private Sector </li></ul><ul><ul><li>Organizational Stability </li></ul></ul><ul><ul><ul><li>When organizations are in great change, stability at the top is a key factor </li></ul></ul></ul><ul><ul><ul><li>Holding on to top talent </li></ul></ul></ul><ul><ul><ul><ul><li>The best talent is always being recruited in any field; employment agreements can provide incentives to stay with the City </li></ul></ul></ul></ul><ul><ul><li>Structures Compensation </li></ul></ul><ul><ul><ul><li>No surprises , minimizes disagreements after the individual is hired </li></ul></ul></ul><ul><ul><ul><li>Subjects the individual to less financial pressure due to changes in oversight body (e.g., City Council) </li></ul></ul></ul>Employment Agreements A Win-Win for the City and the Manager
  30. 30. Additional Benefits to the City <ul><li>Getting Ahead of the Trend </li></ul><ul><ul><li>In school districts and some other public agencies </li></ul></ul><ul><ul><li>a Contract is now the Norm </li></ul></ul><ul><ul><li>Cities share many characteristics in budgets, staffs, managerial responsibilities, and educational needs </li></ul></ul><ul><li>Agreements should be a mutually beneficial document that benefits both parties </li></ul><ul><li>Councils and Managers should not shy away from the subject ; </li></ul><ul><ul><li>Managing a city is a business many cases the largest enterprise in the city </li></ul></ul><ul><ul><li>It makes sense to cover such an important relationship with a mutually beneficial legal document </li></ul></ul><ul><ul><ul><li>In today’s world, would you buy a house on a hand-shake? </li></ul></ul></ul>
  31. 31. Summary & Conclusions
  32. 32. How Would You Answer These Questions? <ul><li>Do you have a financial plan? </li></ul><ul><ul><li>What are the gaps in your financial plan? </li></ul></ul><ul><ul><li>In what ways are you and your family &quot;at risk&quot; financially? </li></ul></ul><ul><li>When was the last time you reviewed your financial plan? </li></ul><ul><ul><li>Have your career goals changed? </li></ul></ul><ul><ul><li>Has your family situation changed? </li></ul></ul><ul><ul><li>Has your financial plan stayed abreast of these changes? </li></ul></ul><ul><li>Do you have an employment agreement? </li></ul><ul><ul><li>If not, is it time for you to consider one? </li></ul></ul><ul><li>Can your current employment agreement be improved? </li></ul><ul><li>If you were fired Monday, how vulnerable financially would your family be? </li></ul>
  33. 33. Goals of Our Service <ul><li>This service is NOT about positioning TCMA members to gouge their cities </li></ul><ul><ul><li>It IS about FAIRNESS </li></ul></ul><ul><li>It is NOT about preferential treatment for City Managers </li></ul><ul><ul><li>It IS about recognizing the UNIQUENESS of the City Manager position </li></ul></ul><ul><li>In the end, this is about “not being forced to trade integrity and professionalism for stability and security&quot; </li></ul>
  34. 34. THANK YOU 4201 Bee Caves Road, Suite C-101 Austin, TX 78746 Phone: (512) 306-9939 Fax: (512) 306-9959 Email: [email_address] [email_address] Website: