Page 9 - NovDefComp

COUNTY OF SAN MATEO
DEFERRED COMPENSATION PROGRAM

POLICY
BUDGETED FUND BALANCE & RESERVE

PURPOSE

To establish conventions for each year’s budget process for determining minimum
amounts that should be budgeted beyond each year’s planned expenditures in the
Deferred Compensation Trust Fund.

Each fiscal year begins and ends with a balance that reflects the cumulative difference
between the trust fund’s revenues and expenditures. The amount of that fund balance
can be managed, as necessary and appropriate, by increasing/decreasing revenues (i.e.,
administrative reimbursement rate) and/or increasing/decreasing expenditures (e.g.,
costs for consultants, staff, etc.).

This policy establishes conventions for determining each year’s budgeted fund balance
so that revenues and expenditures can adjusted accordingly.

POLICY

As part of its process for determining revenues, rates and plan expenditures, the
Deferred Compensation Advisory Committee (DCAC) shall maintain targeted reserves
in the Deferred Compensation Trust Fund to pay for 1) the next request-for-proposals
process and 2) unanticipated expenses.

• Reserve for Next Request for Proposals—As a matter of County procurement best
practice, the term of vendor agreements is 3-5 years. In the deferred
compensation program, the major vendor agreement is with the “bundled”
provider (i.e., third-party administrator, investments provider and
communication/education provider). And while longer agreements and
relationships (and less disruption) are preferable, periodic request for proposals
are a necessity as part of the DCAC’s fiduciary responsibility.

For the cost of those requests for proposals, $50,000 should be held in reserve.

After each request for proposals, this reserve should be replenished as soon as
practicable, depending on subsequent years’ revenues and expenditures.

• Reserve for Unanticipated Expenses—This contingency reserve is for
unanticipated expenditures, expenditure increases and/or revenue decreases.
The convention for this reserve is 25% of that year’s budgeted expenditures. If
this reserve is ever expended, it should be replenished as soon as practicable,
depending on subsequent years’ revenues and expenditures.