State of Connecticut

State of Connecticut Office of the State Comptroller
Deferred Compensation (Section 457) Program
Request for Proposals (RFP) - January 3, 1997


The State of Connecticut, acting through the Office of the State Comptroller (OSC), is soliciting proposed from firms qualified to serve as a third party administrator (TPA) for its Section 457 Deferred Compensation Program (457 Program) during the period from July 1, 1997 to June 30, 2001.

OSC anticipates that during the course of the four year agreement it seeks to negotiate the TPA selected will face two over-arching operational tasks, as follows:

Phase 1. Transitioning the Existing 457 Program.
The TPA will be responsible for transitioning the four authorized institutions of the existing 457 Program into the new operational environment and, working with OSC, narrowing the choice of investment alternatives to a reasonable and meaningful number.
Phase 2. Implementation of Mutual Funds in the 457 Program.
During the 1997 session of the Connecticut General Assembly, OSC intends to pursue legislation which will revise the 457 Program so as to allow for direct participant investment in mutual funds; as currently structured, the 457 Program limits investment alternatives to insurance-style "annuity wraps" and life insurance products. Assuming passage of this legislative initiative and its ratification by the Governor, the TPA will be responsible for implementing the establishment mutual funds options in the 457 Program under OSC's direction and guidance.

In selecting a TPA and performing the two operational tasks discussed herein, it is OSC's firm objective for there to be no budgetary impact on the State of Connecticut.


The 457 Program was established in 1974 in accordance with provisions of Public Act 73-578 (codified as Connecticut General Statutes, Section 5-264a). Section 5-264a has been revised several times since 1973, but the benefit offered to state employees has not changed substantially; a copy of Section 5-264a is attached hereto as Exhibit "A". Under Internal Revenue Code, Section 457, state employees can enter into agreements with their employer to defer payment of a defined portion of current compensation until retirement or separation from service. The advantages offered to state employees for participating in the 457 Program include the ability to defer paying income tax on the deferred amount until it is paid or made available to them and, at the same time, serve as a retirement income for their future.

As provided by the Connecticut General Statutes, the administration of the 457 Program shall be under the direction of OSC, which is empowered to enter into contracts with state employees to defer earned income and with other entities to provide the necessary investment vehicles. In the past, OSC has only contracted with insurance companies to act as authorized institutions for the 457 Program; currently, there are four such authorized institutions:

  1. Aetna Life Insurance and Annuity Company
  2. ITT Hartford Insurance Company
  3. Travelers Life Insurance Company
  4. Phoenix Home Life Mutual Insurance Company

The authorized institutions are responsible for explaining the advantages, as well as any disadvantages, to state employees who may be considering participating in the 457 Program. The insurance companies maintain the records of all participants, provide quarterly reporting to each participant, and are the investors of the funds in the 457 Program. Each of the authorized institutions offers a selection of investment possibilities to the participants; however, these offerings are, by statute, limited to insurance-style "annuity wraps" and life insurance products. Although OSC is responsible for "due care" in selecting the providers approving the investment vehicles, the participants assume the risk of any loss from decreases in the values of the 457 Program's assets. The State is liable to the participants for only the pro rata shares of the market value of 457 Program assets.

As allowed under the Connecticut General Statutes, OSC is under contract with a private corporation to assist with the administration and servicing of the 457 Program; this entity, known as the Plan Consultant, is: Financial & Investment Services, Inc. of Cromwell, Connecticut. The Plan Consultant is compensated under agreements it negotiates with the four authorized institutions of the 457 Program. OSC anticipates that the Plan Consultant's responsibilities will be assumed by the TPA and, for this reason, the Financial & Investment Services will be terminated as a function of the RFP.

Set forth in Exhibit "B" are the asset values and number of 457 Program participants for the past four fiscal years. Exhibit "C" allocates these asset values and participant members among the four authorized institutions for the past three fiscal years.

As apparent from the growth in the number of participants reflected in Exhibits "B" and "C", the 457 Program has been popular with state employees. However, even with these increases in participation and asset value, the administration of the 457 Program has remained shared between OSC and the four authorized institutions and relatively uncomplicated. OSC maintains a full-time staff of two who process the necessary paperwork for contributions, distributions, and any changes ordered by participants; with the advent of the TPA, OSC intends to assign both employees other duties within its Retirement and Benefit Services Division. Additionally, a portion of the activities of two OSC Managers is devoted to the 457 Program and typically involve such matters as hardship withdrawals, review and approval of investment vehicles, compliance issues, and problem resolution of a general nature. In recent years, the Plan Consultant has performed specialized functions on an as needed basis.


Set forth in Exhibit "D" to this RFP are the responsibilities OSC intends to delegate to the TPA for the 457 Program; Exhibit "D" also lists responsibilities OSC intends to delegate to Investment Advisors (including Special Advisors) along with those it plans to retain.

In the text which follows, certain of the responsibilities OSC intends to delegate to its TPA are highlighted and discussed in detail:

A. Meetings with OSC
The TPA will be required to meet with OSC representatives from time to time to report on the status of the 457 Program, provide performance information as requested by OSC, and prepare such written reports as OSC may reasonably require.
B. Meetings with Employees
The TPA will submit a proposed education program to OSC for prior approval. The TPA will conduct regular education and enrollment meetings for employees (meaning "persons eligible for participation in the 457 Program") around Connecticut in accordance with the approved educational program, and will participate in meetings scheduled by state departments and agencies as requested by OSC.
C. Personnel
The TPA will use licensed agents for enrolling participants (meaning "any employee who has elected to participate in the 457 Program"), and will be responsible for maintaining all licenses and registrations required in order for the TPA's personnel to fulfill the duties required by this RFP.
D. Telephone Services
The TPA will maintain a toll-free telephone number with sufficient incoming lines for the volume of inquiries from participants, as well as a service for hearing impaired participants. The TPA will provide personnel to answer inquiries over the telephone and shall provide an interactive voice response toll-free telephone system to enable participants to obtain current, personalized information concerning their accounts, as well as general information concerning the 457 Program. The interactive telephone system will ensure access security of participant accounts. Information to be available through the interactive telephone system shall include at the minimum:
  1. the participant's account balance for each investment vehicle;
  2. the participant's current payroll deduction amount and allocation election; and
  3. the current share value for each investment vehicle.
Such system will be available at least twelve (12) hours per day on all business days. Further, participants must be able to provide telephone authorization for transfers of assets on a daily basis. The TPA will record on tape and retain for eighteen (18) months all transfer instructions given by telephone. The TPA will advise all participants of the availability of its toll-free numbers.
E. Communication Materials and Forms
Communication materials and forms respecting the 457 Program will be designed, produced and distributed at the TPA's expense and will be approved in advance by OSC. Communication materials to be provided by the TPA will include but are not limited to:
  1. a brochure explaining the 457 Program and investment alternatives for participants;
  2. materials relating to asset allocation and savings goals to assist participants in selecting an appropriate investment mix;
  3. an explanation of how to read the statement of account;
  4. an explanation of the distribution options permitted under the 457 Program and the applicable tax treatments; and
  5. other materials necessary to apprise employees and participants of the provisions of the 457 Program.
The TPA will also prepare all forms necessary to administer the 457 Program.
F. Policies and Procedures
The TPA will prepare and maintain a current manual of policies and procedures governing all aspects of the 457 Program including a copy of all communication materials and all forms, and shall provide OSC with copies of such manual.
G. Enrollment
The TPA will enroll eligible employees in the 457 Program and process changes in participation using forms prepared by the TPA and approved by OSC. Enrollment responsibilities will include but not be limited to:
  1. educating employees regarding all aspects of the 457 Program and the effect of their participation on their current take-home pay and their future retirement income;
  2. providing each participant with a copy of all necessary materials, including applicable prospectuses and 457 Program documents;
  3. ensuring that all forms and authorizations submitted are complete and on file with the TPA; and
  4. monitoring participants' elections and contributions to comply with any Internal Revenue Code contribution limitations.
The TPA will provide its personnel with access to all equipment reasonably necessary to properly enroll and educate employees, including but not limited to laptop computers and overhead projectors.
H. Contributions
The TPA will:
  1. process employee contributions consistent with the terms of the 457 Program and the OSC payroll system;
  2. reconcile contribution amounts with OSC; and
  3. direct immediate investment of employee contributions in accordance with instructions from each participant.
I. Administration
The TPA will perform all administrative and recordkeeping functions necessary to ensure accurate accounting of the assets in the participants' accounts and to provide for the efficient and prudent management of the 457 Program. Among other things, these functions shall include reconciling participant accounts to investment advisor accounts.
J. Records
The TPA will establish and maintain records for the 457 Program containing such information to enable the TPA to generate the reports to employer specified in Paragraph N hereof and the participant reports specified in Paragraph O hereof.
The TPA's 457 Program records and participant records will be maintained in accordance with generally accepted accounting principles, the most recent Governmental Accounting Standards Board Statements, the 457 Program documents, and the Internal Revenue Code and the Regulations promulgated thereunder, all as in effect from time to time. Such records shall be maintained in a format and on a medium mutually agreed upon by OSC and the TPA.
The TPA will maintain contingency plans for system backup in the event of disaster or malfunction.
No records of participation in the 457 Program that are created or maintained by the TPA may be destroyed by the TPA without the prior written approval of OSC.
The TPA agrees that all records regarding the 457 Program shall be the property of OSC. Upon expiration of the engagement pursuant to this RFP or in the event of its termination for any reason, the TPA will provide the OSC records kept by the TPA pursuant to this engagement (including without limitation, the tapes retained pursuant to Paragraph D hereof). Such records shall be furnished to OSC within five (5) calendar days after OSC's written request therefor, pursuant to reasonable written instructions given by OSC. The TPA will also provide the OSC with a full written accounting of the status of participants' accounts under the 457 Program.
K. Plan Benefit Payments
The TPA will disburse benefits from assets under the 457 Program to participants in accordance with written instructions given by the participant and in compliance with the 457 Program and applicable requirements of the Internal Revenue Code, including appropriate withholding taxes and reporting of distributions.
Distributions will be effected on a monthly basis or more frequently as shall be mutually agreed upon by the TPA and OSC. The TPA will offer direct deposit services to participants electing periodic payments.
In addition, the TPA shall develop a policy for distributions from small accounts in accordance with the provisions of the Small Business Job Protection Act of 1996.
L. Bank Accounts
To facilitate benefit distributions, withdrawals and correction of errors, the TPA will maintain one or more custodial bank accounts with financial institutions, which accounts shall comply with all applicable requirements imposed on 457 plans. The TPA will provide copies of bank statements for the accounts to OSC upon request.
M. Transfer of Assets
Funds must be transferred without charge and may be transferred from a provider only for the following reasons:
  1. to move participant's monies to another provider;
  2. to distribute funds to participants or their beneficiaries;
  3. to correct errors; or
  4. to compensate the TPA for administrative fees in accordance with a method and amount agreed upon in writing in advance by OSC and the TPA.
N. Reports to Employer
The TPA will provide the following reports to OSC and such additional reports as are agreed to by the TPA and OSC from time to time. All reports shall be submitted in a format and medium approved by OSC.
  1. Financial information required for reporting of deferred compensation plans as outlined in the most recent applicable Governmental Accounting Standards Board Statement.
  2. Quarterly and fiscal year to date financial statements detailing beginning balance; receipts (specifying new deferrals, transfers and investment earnings); and disbursements (specifying benefit withdrawals, death benefit withdrawals, hardship withdrawals, transfers out, market value adjustments, investment losses and all expenses charged).
  3. Quarterly 457 Program summary financial reports summarizing quarterly activity for the entire 457 Program in aggregate total form, year to date activity, and inception to date activity for the total of all investments, included in the 457 Program covering the elements in Paragraph N 2 above.
  4. Quarterly participation status reports for the 457 Program and for the total 457 Program showing:
a. the number of participants actively deferring, number of participants
receiving periodic distributions, number of inactive participants, and
total participant accounts maintained by the TPA; and
b. number of transfers within the 457 Program.

Quarterly distribution status reports showing the number of participants and beneficiaries initiating distributions during the quarter, and by reason (termination, retirement, hardship, death, age 70).

Participants' quarterly statements in alphabetical order.

Quarterly reconciliation reports of the TPA's 457 Program records to investment advisors' records providing in summary form, a statement as to whether there were any discrepancies, and if so, identifying the discrepancies and the actions taken to resolve them.

Monthly performance reports for each investment vehicle, its benchmark for the same period, peer group performance, and the difference between the vehicle's performance and the benchmark performance

Annual reports of Internal Revenue Services (IRS) compliance activity including:

  1. number of participants and beneficiaries receiving distributions during the calendar year; number of W-2 forms issued; number of W-2P forms issued; number of 1099 forms issued; total taxes withheld and remitted to the IRS; and, if requested by OSC, copies of reporting forms;
  2. reports to OSC and providers detailing participants potentially exceeding annual contribution limits and corrective action required prior to calendar year end;
  3. reports detailing name, last known address, last employing agency, social security number, and account balance of inactive participants over age 70 who are not currently receiving distributions complying with Internal Revenue Code, Section 401 (a) (9); and
  4. other reports as may be necessary to show compliance activity in regard to IRS requirements enacted after the effective date of the engagement under this RFP.
O. Participant Reports
The TPA will provide to participants quarterly statements of their accounts in a format mutually agreed to by the TPA and OSC. Statements shall show at a minimum:
(a) 457 Program name;
(b) the participant's name, address, social security number, date of birth,
(c) the period covered by the statement;
(d) reporting of beginning balance and ending balance;
(e) withdrawals;
(f) market appreciation/depreciation;
(g) contributions calendar year to date; and
(h) contributions from participant's enrollment to date.
Where applicable, reporting will include the number of shares associated with each transaction, the beginning and ending balance, and the share value. Statements will be mailed to the participants within twenty-five (25) calendar days of the end of the calendar quarter.
In addition, the TPA shall provide participants with prompt written confirmation of all transfers, and advance notice of potential noncompliance with any federal requirements. The TPA will make reasonable efforts to maintain current addresses for all participants.
P. Compliance with Internal Revenue Code
The TPA recognizes that the 457 Program is intended to qualify under Section 457 of the Internal Revenue Code and agrees to administer the Program in a manner consistent with the applicable requirements of the such Code. The TPA shall be responsible for ongoing monitoring of:
(a) the structure of the 457 Program;
(b) contributions by each participant; and
(c) benefits distributed to each participant.

The TPA will prepare documents and forms necessary to comply with such requirements and, if necessary, to obtain approval from appropriate federal agencies as may be required to ensure full compliance with the laws and regulations governing the 457 Program.

Q. Audit
The TPA will annually present to OSC the results of a financial audit of the 457 Program, conducted by an independent certified public accountant acceptable to OSC. All fees for the audit shall be borne by the TPA. The audit shall include a management letter, financial report, observations, and recommendations.
In order to be considered, each firm responding to this RFP must, at a minimum, possess the following qualifications:
  1. Organizational Experience

    The firm must have been in operation for at least five continuous years as of December 31, 1996.

  2. Professional Experience

    The key professionals must have at least a three year history while at the firm of providing administrative services for Section 457, Section 401(k), or Section 403(b) (collectively, the "Subject Product") plans as of December 31, 1996.

  3. Plans Under Administrators

    The firm must have a minimum of five (5) plans in the Subject Product, each with at least 5,000 participants, in operation as of December 31, 1996. Preference may be given to firms with substantial experience in Section 457 plans.

  4. Warranties

    If selected, the firm must be willing to include in its contract with OSC the warranties contained in Exhibit "E" to this RFP.

  1. Attached hereto as Exhibit "F" is a questionnaire which, upon completion, will constitute each firm's response to this RFP. At your firm's option, you may either affix your answers directly to the questionnaire, or generate a document which restates its inquiries and contains your replies thereto. Regardless of how you decide to proceed, each firm's submission may not exceed fifty (50) pages, exclusive of exhibits.
  2. At your firm's option, an executive summary may be included with your proposal.
  3. Each firm must submit an original plus five (5) copies of its proposal in loose-leaf binders to: STATE OF CONNECTICUT
    Retirement and Benefit Services Division
    Office of the State Comptroller
    55 Elm Street, Third Floor
    Hartford, Connecticut 06106
    Attention: Steven Weinberger, Division Director
  4. Firms who have questions regarding this RFP should submit them in writing to Mr. Weinberger at the address set forth above no later than 4:30 p.m. on Friday, January 17, 1997. Answers to such questions will be transmitted on or before Monday, January 20, 1997. No phone calls will be accepted relative to this RFP.
  5. Proposals must be received on or before 4:30 p.m. Friday, January 24, 1997.

Request for Proposals and Response Phase

January 3, 1997 Release of RFP by OSC
January 17, 1997 Questions due at OSC
January 20, 1997 OSC answers questions received
January 24, 1997 Proposals due at OSC
Review and Selection Schedule
January 27 - February 7, 1997 Reading and Scoring or Proposals by Screening Committee
February 10 - 21, 1997 Semi-Finalist Interviews1
February 24 - 28, 1997 Finalist Interviews2
February 28, 1997 TPA Selection3
March 3 - April 14, 1997 Contract Negotiations
July 1, 1997 TPA Conversion4
  1. Semi-Finalist Interviews. Firms selected as semi-finalists will be expected to make a presentation to a four member Screening Committee, which is being assisted by representatives from RogersCasey, at OSC offices in Hartford, Connecticut. Each presentation will be followed by a question and answer period. The number of firms to be selected for semi-final interviews has yet to be determined; however, the expectation is that the number will not exceed four.
  2. Finalist Interviews. Firms selected for a final interview will be expected to make a presentation, followed by a question and answer period, to the State Comptroller and certain members of her staff at OSC Offices in Hartford, Connecticut. The number of finalists to be selected for interviews has yet to be determined; however, the expectation is that this number will not exceed two.
  3. Selection of the TPA is expressly conditioned upon a site visit by up to four OSC representatives, to be conducted at a mutually agreeable date and time. All expenses incurred by OSC in making the site visit shall be borne exclusively by the TPA and treated as a cost of responding to this RFP.
  4. TPA Conversion. It is OSC's expectation that, following the successful conclusion of contract negotiations, the TPA will engage in a work plan designed to make Phase 1 of this RRP fully-operational on July 1, 1997.
Each proposal will be evaluated by a Screening Committee using the following criteria to determine which contractor is most capable of implementing OSC's requirements, as follows:
  1. Contractor's experience with and ability to do the specific work, including experience in the administration of Section 457 Programs.
  2. Contractor's understanding of the project's purpose and scope, as evidenced by the proposed approach and the level of effort.
  3. Competitiveness of proposed cost.
  4. Availability and competence of personnel.
  5. Conformity with specifications contained herein.
  6. Demonstration of commitment to affirmative action by full compliance with the regulations of the Commission on Human Rights and Opportunities.
  7. At the option of the Screening Committee, an oral presentation.
OSC reserves the right to award in part, to reject any and all proposals in whole or in part, to waive technical defects, irregularities and omissions if, in its judgement, the best interest of the State will be served.
Conformance - All responses to this RFP must conform to these instructions. Failure to conform may be considered appropriate cause for rejection of the response.
Delivery of Responses - RFP responses must be in sealed envelopes upon which a clear indication has been made of the RFP reference title, as well as the date and time the proposal is due. The name and address of the vendor must appear on the envelope. FAX responses are not acceptable.
Structure of Response - Contractors must structure the responses as outlined in this RFP.
Exclusion of Taxes from Prices - The State of Connecticut is exempt from the payment of excise, transportation, and sales taxes imposed by the Federal Government and the State. Such taxes must be excluded from quoted prices.
Signature and Responsible Persons - The proposal must be signed by an authorized official. The proposal must also provide name, title, address, and telephone number for individuals with authority to negotiate and contractually bind the contractor, and for those who may be contacted for the purpose of clarifying the information provided.
"Not to Exceed" Quotations - All cost estimates will be considered as "not to exceed" quotations.
Any contractor responding to this RFP must be willing to adhere to the following conditions and must so state in its submission:
  1. Acceptance or Rejection by the State - The state reserves the right to accept or reject any or all proposals submitted for consideration. All proposals will be kept sealed and safe until the deadline for submission has passed.
  2. Conformance with Statutes - Any contract awarded as a result of this RFP must be in full conformance with statutory requirements of the State of Connecticut.
  3. Ownership of Proposals - All proposals in response to this RFP are to be the sole property of the state, and subject to the provisions of Section 1-19 of the Connecticut General Statutes (Freedom of Information).
  4. Ownership of Subsequent Products - Any product, whether acceptable or unacceptable, developed under the contract awarded as a result of this RFP is to be the sole property of the state unless stated otherwise in the RFP or contract.
  5. Availability of Work Papers - All work papers and data used in the process of performing this project must be available for inspection by the State of Connecticut Auditors of Public Accounts for a period of three (3) years or until audited.
  6. Timing and Sequence - Timing and sequence of events resulting from this RFP will ultimately be determined by the state.
  7. Stability of Proposed Prices - Any price offerings from contractors must be valid for a period of one hundred eighty (180) days from the due date of contractor proposals.
  8. Oral Agreements - Any alleged oral agreement or arrangement made by a contractor with any agency or employee will be superseded by the written agreement.
  9. Amending or Canceling Requests - The state reserves the right to amend or cancel this RFP, prior to the due date and time, if it is in the best interests of the state.
  10. Rejection for Default or Misrepresentation - The state reserves the right to reject the proposal of any contractor which is in default of any prior contract or for misrepresentation.
  11. State's Clerical Errors in Awards - The state reserves the right to correct inaccurate awards resulting from its clerical errors.
  12. Rejection of Qualified Proposals - Proposals are subject to rejection in whole or in part if they limit or modify any of the terms and conditions and/or specifications of the RFP.
  13. Contractor Presentation of Supporting Evidence - A contractor, if requested, must be prepared to present evidence of experience, ability, service facilities, and financial standing necessary to satisfactorily meet the requirements set forth or implied in the proposal.
  14. Changes to Proposal - No additions or changes to the original proposal will be allowed after submittal. While changes are not permitted, clarification at the request of the agency may be required at the contractor's expense.
  15. Collusion - By responding, the contractor implicitly states that the proposal is not made in connection with any competing contractor submitting a separate response to the RFP, and is in all respects fair and without collusion or fraud. It is further implied that the contractor did not participate in the RFP development process, had no knowledge of the specific contents of the RFP prior to its issuance, and that no employee of the agency participated directly or indirectly in the contractor's proposal preparation.
  16. Expenses - Contractors who respond to this RFP, including semi-finalists and finalists, will not be reimbursed by the State for any costs and expenses incurred in connection with this process, such as travel expenses relating to an oral presentation and costs incurred by OSC representatives on any site visits.

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