Amendments are being made to update the name of the Florida Retirement System (“FRS”) defined contribution plan from the “Public Employee Optional Retirement Program” to the “Florida Retirement System Investment Plan” in accordance with the ...

 

STATE BOARD OF ADMINISTRATION

RULE NO.: RULE TITLE:
19-13.001: Role and Responsibilities of the State Board of Administration of Florida
19-13.002: Role and Responsibilities of Division of Retirement within the Department of Management Services
19-13.003: Role and Responsibilities of State, School District, and Local Employers Participating in the Florida Retirement System
19-13.004: Role and Responsibilities of Third Party Contractors

PURPOSE AND EFFECT: Amendments are being made to update the name of the Florida Retirement System (“FRS”) defined contribution plan from the “Public Employee Optional Retirement Program” to the “Florida Retirement System Investment Plan” in accordance with the statutory change to Section 121.4501, Florida Statutes, to indicate that the administration of qualified domestic relations orders for the FRS Investment Plan no longer is handled by the Division of Retirement, but instead, as indicated in proposed amendments to Rule 19-14.004, F.A.C., by the FRS Investment Plan Administrator; to delete information regarding contributions which will be set forth in amendments to Rule Chapter 19-11, F.A.C., and to delete unnecessary language.

SUMMARY: To update information regarding the roles and responsibilities of the various entities providing services to the Florida Retirement System Investment Plan. There are no other rules incorporating these proposed rules.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: Upon review of the proposed changes to the rules, the State Board of Administration has determined that the rules do not meet the statutory threshold for ratification by the legislature. There will be no impact on economic growth, job creation or employment, private-sector investment, or business competitiveness, and no increase in regulatory costs as a result of the proposed amendments.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 121.4501(8) FS.
LAW IMPLEMENTED: 112.3173, 121.091(5), 121.4501(4), (5), (8), (9), (10), (14), (15), (19), 121.71, 121.72, 121.73, 121.74, 121.76, 121.77, 121.78 FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW (IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):

DATE AND TIME: Monday, June 4, 2012, 9:00 a.m. – 11:00 a.m.

PLACE: Hermitage Room, the Hermitage Centre, 1801 Hermitage Blvd., Tallahassee, Florida 32308

Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 5 days before the workshop/meeting by contacting: Tina Joanos, Agency Clerk, Office of the General Counsel, State Board of Administration, 1801 Hermitage Blvd., Tallahassee, Florida 32308, [phone], [e-mail]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULES IS: Ruth A. Smith, Assistant General Counsel, State Board of Administration, 1801 Hermitage Blvd., Tallahassee, Florida 32308, [phone], [e-mail]

 

THE FULL TEXT OF THE PROPOSED RULES IS:

19-13.001 Roles and Responsibilities of the State Board of Administration of Florida.

(1) The State Board of Administration of Florida (“SBA”) is responsible for establishing, implementing, and administering the optional defined contribution program, called the “Florida Retirement System Investment Plan” or “Investment Plan” “Public Employee Optional Retirement Program” (“PEORP”), in accordance with Section 121.4501(1), Florida Statutes. The SBA is the Plan Sponsor. and Tthe plan documents consist of the Florida Statutes and rules adopted thereunder. The Summary Plan Document (SPD) is a summary of the plan documents for the convenience of members participants. The SPD can be changed by the SBA at any time without prior notice to Florida Retirement System (FRS) members. The SBA’s primary responsibilities are set out in subsections (1)(a)(2) through (1)(n)(13), below. Each of these major responsibilities involves additional decisions which then in turn need to be implemented. Those decisions, to the extent they are not solely on a case-by-case basis, are adopted by rule. With regard to all of the responsibilities set out below, Tthe SBA must ensure is responsible for ensuring that all of the following those individual responsibilities are carried out:.

(a)(2) Hiring The SBA has hired general and specialized consultants to assist in the implementation and on-going operation of the Investment Plan PEORP. Their roles and responsibilities are found in Rule 19-13.004, F.A.C.

(b)(3) Hiring The SBA has hired a third party administrator (“Administrator”), educational service providers, investment option providers, and has entered into a contracting with the Division of Retirement (“Division”) within the Department of Management Services to provide certain administrative services. Their roles and responsibilities are found, respectively, in Rules 19-13.004 and 19-13.002, F.A.C.

(c)(4) The SBA is responsible for Aadhering to and enforcing the fiduciary standards and responsibilities required by certain sections of the Employee Retirement Income Security Act of 1974, which are incorporated in Florida law in Section 121.4501(15), Florida Statutes.

(d)(5) The SBA is responsible for Ccoordinating with the Division of Retirement within the Department of Management Services (Division) in providing the education component described in Section 121.4501(10)(c) and (d), Florida Statutes, and a communication component to provide information to employers as described in Section 121.4501(10)(f), Florida Statutes, and maintaining has a contractual relationship with the Division regarding certain administrative activities.

(e)(6) The SBA is responsible for Pproviding information to Investment Plan members PEORP participants on a quarterly basis, pursuant to Section 121.4501(11), Florida Statutes.

(f)(7) The SBA is responsible for Oobtaining and maintaining the tax qualified status of the Investment Plan PEORP and for compliance with the federal Internal Revenue Code.

(g)(8)(a) The SBA is responsible for Ddirecting and monitoring the activities of all vendors providing various services to the private contractors as those contractors function in the on-going operation of the Investment Plan PEORP. These vendors contractors include the third party administrator, the education service providers, and the investment product providers.

(h)(b) The SBA is also responsible for Ddirecting and monitoring the activities of the Division of Retirement within the Department of Management Services with which the SBA has an interagency agreement for provision of services. Note that the Division is both a contractor with the SBA to provide some administrative services and coordinates with the SBA with regard to educational services.

(i)(9) The SBA is responsible for the transition Movement of assets from the defined benefit plan program to the defined contribution plan program upon the election of a member to transfer and is responsible for making such adjustments to plan accounts and member participant accounts as are necessary to process election reversals and prior period corrections to contributions and accompanying payroll data.

(j)(10) The SBA is responsible for Ddeveloping an investment policy statement for the program.

(k)(11) The SBA is responsible for Cchoosing, monitoring, and terminating investment options in Investment Plan; PEORP. The SBA is responsible for mapping account balances of members participants in the event of investment option termination;. The SBA is responsible for distributing all data regarding these investment options for presentation to members participants;. The SBA is responsible for and rebalancing and reconstituting multiple manager investment options and also the three balanced options provided in the investment policy statement utilizing information from a registered investment advisor and fiduciary to the Florida Retirement System.

(l)(12) The SBA is responsible for Iimplementing the confidentiality provisions in Section 121.4501(19), Florida Statutes.

(m)(13) The SBA is responsible for Ddeveloping all contracts used in the Investment Plan PEORP;. and

(n)(14) The SBA is responsible for Aall rulemaking for the Investment Plan PEORP.

Rulemaking Specific Authority 121.4501(8)(a) FS. Law Implemented 121.4501(1), (4), (8)(b), (e), (9), (10), (14), (15), (19) FS. History– New 10-21-04, Amended________.

 

19-13.002 Roles and Responsibilities of the Division of Retirement within the Department of Management Services.

(1) The Division of Retirement (Division) within the Department of Management Services is contractually obligated has entered into a contract with the State Board of Administration of Florida (SBA) to provide the following certain administrative services, in accordance with Section 121.4501(8)(b)1., F.S., which:

(a) Determine membership eligibility and employer participation eligibility;

(b) Collect and process employer and employee payroll contributions and payroll-related data;

(c) Forward employer and employee payroll contributions and payroll-related data to the Investment Plan third party administrator, including date of termination and leave of absence indicators, if available;

(d) Calculate members’ participants’ Pension Plan benefit, calculate the accumulated benefit obligation and calculate any buy-back amount for those members participants who elected the Investment Plan but subsequently elect to return to the Pension Plan;

(e) Maintain and provide access to the Florida Retirement System database;

(f) Provide telephone support regarding employee or employer questions on the Pension Plan and contribution processing, but transfer general retirement plan choice, enrollment and financial planning telephone calls to other education and administration providers third party contractors;

(g) Administer the disability benefits for the Florida Retirement System;

(h) Administer the health insurance subsidy for the Florida Retirement System;

(i) Determine employee vesting requirements in the Florida Retirement System, as required by law; and

(j) Administer qualified domestic relations orders for the Florida Retirement System; and

(j)(k) Notify the SBA State Board of Administration of any employees who may be subject to forfeiture of benefits, in accordance with Sections 112.3173 and 121.091(5), F.S.

Rulemaking Specific Authority 121.4501(8)(a) FS. Law Implemented 112.3173, 121.091(5), 121.4501(8), (10) FS. History–New 10-21-04, Amended 10-25-07,________.

 

19-13.003 Role and Responsibilities of State, School District, and Local Employers Participating in the Florida Retirement System.

(1) Employer contributions.

(a) All state, school district, and local employers who participate in the Florida Retirement System (FRS) (employers) have the following duties and responsibilities:

(a) are responsible for making Remitting all the employer and employee contributions required by Parts II and III of Chapter 121, Florida Statutes. These include the contributions for the benefit of members participants in the Investment Plan Public Employee Optional Retirement Program (PEORP), in accordance with Section 121.4501(5) and with Part III of Chapter 121, Florida Statutes, and also include the contributions for administrative and educational expenses, disability benefits, the health insurance subsidy, and social security.

(b) When an employer requests an adjustment to retirement contributions or accompanying payroll data for prior periods, the following applies:

1. If an employer’s adjustment negatively affects a PEORP participant’s account balance in either the contributions or the accumulated benefit obligation transferred from the FRS defined benefit plan, and the PEORP participant’s account balance is less than the monetary impact of the adjustment, then the employer will be granted an adjustment not to exceed the PEORP participant’s account balance; or

2. If an employer’s adjustment is with respect to a former PEORP participant (.i.e., who has terminated FRS-covered employment and has taken a full distribution of his or her account balance), the State Board of Administration (SBA) will communicate to the former participant the obligation of the former participant to repay the amount of the adjustment to the employer.

3. However, neither the SBA, nor the PEORP Trust Fund, nor the Florida Retirement System Trust Fund shall incur any loss or gain as a result of an employer’s negative adjustments for a PEORP participant or a former participant.

(b)(2) Education. of all employees which shall occur at least annually.

(a) In the natural course of administering their personnel functions, all FRS employers shall at least annually communicate to all employees This shall consist, at minimum, of a communication indicating that the FRS is composed of two retirement plans; that employees have the option to decide in options as to which FRS plan to participate enter; that employees have multi-media educational resources from the FRS to educate them concerning inform their FRS plan choice; and that employees have statutory deadlines by which enrollments must be made. Employers shall use educational materials supplied by the SBA and the Division to communicate such information, but not to the exclusion of any educational materials they may independently develop. Employers are solely responsible for the accuracy and completeness of any educational materials they develop.

(b) Employers may request all Pprinted educational materials and videos may be requested from both the SBA and from the Division or from their agents. Under no circumstances shall employers be deemed to be agents of the SBA, the FRS, or both.

(3) Employers are not agents of the SBA or the FRS.

Rulemaking Specific Authority 121.4501(8)(a) FS. Law Implemented 121.4501(5), (10)(h), 121.71, 121.72, 121.73, 121.74, 121.76, 121.77, 121.78 FS. History–New 10-21-04, Amended________.

 

19-13.004 Role and Responsibilities of Third Party Vendors Contractors.

(1) The Third Party Administrator (TPA) provides administrative services in the operation of the Investment Plan Public Employee Optional Retirement Program (PEORP) other than those provided by the Division as set forth in Rule 19-13.002, Florida Administrative Code. The Administrator also provides and enrollment processing for the Florida Retirement System (FRS).

(2) The Administrator’s TPA’s primary duties and responsibilities are to:

(a) Maintain the Investment Plan PEORP database;

(b) Process new employee enrollments into the FRS Pension Plan defined benefit plan and Investment Plan PEORP and to process existing employee enrollments, via the exercise of the employees’ one-time Second Election, pursuant to Section 121.4501(4)(e), Florida Statutes, into either FRS plan;

(c) Transmit election information to the Division and to the State Board of Administration of Florida (SBA);

(d) Maintain a database of Investment Plan PEORP beneficiary designations;

(e) Transfer Investment Plan PEORP employer and employee contributions to the investment product providers, after contributions have been received from consolidated by the Division;

(f) Provide Transmit aggregate accumulated benefit obligation data segregated by investment product provider to the SBA;

(g) Maintain Investment Plan PEORP member account data and such data as is sufficient to process Second Elections by existing employees;

(h) Implement account transfers at the request of members participants;

(i) Implement withdrawals from account by electronic means phone, over the SBA’s website, or by mail;

(j) Implement distribution of Investment Plan PEORP benefits to Investment Plan members or beneficiaries retirees or survivors or designated companies;

(k) Provide quarterly statements to members participants;

(l) Distribute written material;

(m) Provide phone response service on a toll-free line to assist members participants and employers to accomplish any required responsibility; and

(n) Provide recordkeeping for all Investment Plan PEORP data within its responsibilities, including monitoring of monetary limits imposed by the federal Internal Revenue Code.

(o) Administer qualified domestic relations orders (QDROs).

(2)(3) Multiple providers Educational services are provided by multiple providers hired by the SBA, in accordance with Section 121.4501(8)(b)3., Florida Statutes, furnish educational services. Subsections (8) and (10) of Section 121.4501, Florida Statutes, require educational services to be provided to all members of the FRS, both during the initial election period for choosing either the defined benefit plan or the defined contribution plan and to support Second Elections. Educational services are also to be provided regarding retirement planning, including offering financial planning guidance on matters such as investment diversification, investment risks, investment costs, and asset allocation. Therefore, the educational service organizations were hired to provide a variety of services.

(a)(4) One internet or more educational services providers furnishes internet financial information, and guidance. More specifically, this provider companies create posts technical education content and provides the following services on the internet:

1.(a) A defined benefit/defined contribution benefits projections calculator;

2.(b) A variety of other analytical financial and retirement planning tools;

3.(c) Investment guidance, which includes communicating general investment and financial information and risk and return modeling of investment options and optimized combinations or asset allocations, within a single member participant-directed tax-exempt retirement account, under the following requirements:

i.1. Online modeling services will be based on generally-accepted investment theories that take into account historic returns of different generic asset classes over defined periods of time;

ii.2. All material facts and assumptions that may affect a member’s assessment of the different asset allocations shall either be specified in the online modeling service or entered into the online modeling services by the member;

iii.3. To the extent that an asset allocation generated by the online modeling service identifies any specific investment option available under a member participant-directed and tax-exempt retirement account, the online service will have fully incorporated and considered all investment options available within that retirement plan, as well as all household assets, except that the member must enter into the online modeling service non-FRS retirement account investment universes and household assets;

iv/4. Any asset allocation, or specific combinations of investment options, communicated to members will be accompanied by a disclaimer that it is based on the information provided and is not individualized to reflect all of the particular needs of the member that may be relevant to his or her investment decisions, and that in applying the asset allocation to his or her individual situation, the member should consider his or her other assets, income and investments (including, for example, equity in a home, IRA investments, savings accounts and interest in other retirement plans) as well as his or her investments within the account for which the guidance is provided; and

v.5. There will be an objective correlation between the asset allocations and other information generated by the online modeling service and data supplied by the member;

4.(d) Investment advice, which consists of communicating optimized combinations of specific investment options across multiple member participant-directed tax-deferred or taxable accounts, under the requirements that the advice is rendered on a regular basis to the member, pursuant to a mutual agreement with the member that the advice will serve as a primary basis for the member’s investment decisions with respect to the member’s multiple member participant-directed account assets and is individualized based on the particular needs of the member participant. Use of the terms “recommended” or “advice” or forms thereof, in an online modeling service does not constitute the rendering of advice in the absence of requirements set out in the preceding sentence.

(b)(5) Another education provider furnishes one-on-one employee and employer education and counseling. More specifically, the provider company:

1.(a) Conducts seminars and workshops for employees and employers;

2.(b) Provides one-on-one, face-to-face, employee financial counseling, when requested;

3.(c) Provides telephone support of education and guidance regarding:

i1. The defined contribution plan design and the investment options;

ii2. Defined benefit/defined contribution choice information;

iii3. Retirement planning; and

iv4. Support of the online modeling service through which investment guidance or investment advice is rendered.

(c)(6) Other education providers focus on printed educational material. More specifically, the companies:

1.(a) Create the education campaign and the overall deployment strategy;

2.(b) Research, monitor, and measure the education campaign;

3.(c) Create the look, theme, and branding for the education campaign;

4.(d) Determine message positioning and delivery; and

5.(e) Assist in graphic design and the content of the website.

(d)(7) Another education provider focuses on the MyFRS website. This provider coordinates software application integration and the design and content of the MyFRS website among the other educational service providers, the Administrator TPA, the Division, and the SBA.

(3)(8) Investment options for participants in PEORP are provided by Mmultiple providers hired by the SBA, in accordance with Section 121.4501(9)(a), Florida Statutes, furnish the investment options for Investment Plan members. Section 121.4501, Florida Statutes, is generally constructed as an unbundled architecture, meaning that neither the TPA nor the education providers are permitted to offer investment products, and as a consequence, the SBA has hired multiple institutional investment managers and providers of mutual funds. The SBA has also hired several bundled providers to provide various combinations of administration, education, and investments.

(9) The Some of the providers are unbundled institutional investment managers, which manage assets in a particular asset class and in a particular style, and which. They are responsible solely for money management. Other providers are

(10) The bundled providers which provide mutual funds or investment options in collective trusts which are their own funds or funds contracted for or from another money management group. Some bundled providers provide solely their own funds; others provide solely other fund family’s funds; and others provide a combination. An additional investment provider has been hired to offer annuities to retiring members.

(11) Each investment manager:

(a) Has authority and discretion, delegated by each manager’s contract, to invest employee payroll contributions deposited with the custodian and recorded by the third party Aadministrator for individual Investment Plan PEORP accounts;

(b) Transmits product values and performance data to the custodian; and

(c) Is monitored by manager monitoring guidelines incorporated in each of their contracts.

(12) An additional investment provider has been hired to offer annuities to retired participants.

(4)(13) The custodian, provides custodial services for certain assets of PEORP. The custodian is hired by the SBA, pursuant to Section 121.4501(8), Florida Statutes, is required to do the following:.

(14) The custodian’s primary responsibilities in acting as the custodian for the PEORP are to:

(a) Hold cash, non-cash and all securities delivered to it or which are held in accounts established by it, or in the Federal Reserve book-entry system;

(b) Invest contributions that it receives, transfer amounts among investment funds, or liquidate securities, after receipt of proper instructions from the SBA, Administrator TPA, or Investment Managers;

(c) Release and deliver securities held as directed by the SBA;

(d) Maintain a database of securities registered in the name of the Investment Plan PEORP;

(e) Remit or credit income;

(f) Communicate with the SBA regarding registered investment company shares and fund securities;

(g) Lend securities;

(h) Determine the value of assets; and

(i) Calculate rates of return of investment products.

(5)(15) Miscellaneous consultants have been hired by In accordance with Section 121.4501(8)(e)1., Florida Statutes, the SBA has hired consultants to assist the SBA in the implementation and the operationsal of the Investment Plan phases for PEORP. Their responsibilities may include, but are not limited to, the following are to:

(a) Assisting in the selection process for the third party Aadministrator, the educational vendors, and the investment product providers;

(b) Assisting in all general investment product reviews;

(c) Assisting in the evaluation and selection of annuity product providers;

(d) Consulting on all phases of the asset transfer program, the educational program, and general Investment Plan PEORP matters;

(e) Consulting on unbundled investment fund design;

(f) Assisting in the selection and evaluation of all investment product providers;

(g) Assisting in developing and implementing investment product manager monitoring guidelines; and

(h) Makinge recommendations for retention and termination of investment product providers.

Rulemaking Specific Authority 121.4501(8)(a) FS. Law Implemented 121.4501(4), (8)(b), (e)1., (9)(a), (10) FS. History–New 10-21-04, Amended_________.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Ron Poppell, Senior Officer, Defined Contributions Programs

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Trustees of the State Board of Administration

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: April 24, 2012

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: March 16, 2012