BY KEITH OVERLY AND RICHARD T.WISSLER. Automation Leads to Improvements in Ohio Deferred Compensation Project

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1 BY KEITH OVERLY AND RICHARD T.WISSLER Automation Leads to Improvements in Ohio Deferred Compensation Project

2 The Ohio Deferred Compensation on Ohio Business Gateway program won a 2008 GFOA Award for Excellence in Government Finance. The Ohio Deferred Compensation Program, which administers the 457 plan for all state and local government employees in Ohio, was able to increase the security of its data while reducing errors and the overall cost of operations. The key was increasing automation. During a review of its security policies and practices, transmitting sensitive data and funds via the U.S. Postal Service was identified as a potential problem. As a result, the program began researching its options to increase automation of data and deferral payments. LOOKING AT INCREASED AUTOMATION The program had just completed a comprehensive review of its physical and electronic security policies and practices, including an independent security audit, to enhance the protection of participant data and to prevent identity theft. During this review, transmitting sensitive data and checks through the U.S. Postal Service was identified as a potential opportunity for identity theft. Program officials thought that increasing automation would have other benefits,in addition to improving security.the program had always prided itself on being cost conscious, and reducing or eliminating postage expenses would be another way to lower expenses.automation could also eliminate data entry,reduce mathematical errors,and make sure none of the data employers require would be overlooked. In 2006, the Ohio Deferred Compensation Program began researching options to increase automation of data and deferral payments. The initial thought was that the program would develop its own transactional employer Web site to collect data and funds. But after some additional research, the program approached the Ohio Business Gateway (OBG) about the possibility of using its site. The program was familiar with OBG because it used the OBG site to file its own employee state income tax withholdings. WORKING WITH THE OHIO BUSINESS GATEWAY The OBG is a nationally recognized, collaborative initiative of state and local government agencies and an important part of Ohio s digital government strategy. OBG Electronic Filing offers Ohio businesses a time- and money-saving online filing and payment system that helps simplify business relationship with government agencies. Ohio businesses can use OBG Electronic Filing to submit selected filings, registrations, and payments with the State s Department of Taxation, Bureau of Workers Compensation, Department of Job and Family Services, and Department of Commerce. Local governments also work with OBG Electronic Filing, enabling businesses to file and pay selected Ohio municipal income taxes. By offering a single Web site for electronic filing, OBG Electronic Filing makes it easier for businesses to comply with multiple regulatory requirements. Furthermore, OBG Electronic Filing directly benefits government by helping reduce administrative costs and improve quality, lowering barriers to developing online applications, and providing significant exposure to OBG Electronic Filing s growing number of business users. Working with the OBG, the Ohio Deferred Compensation Program used this existing Web portal to automate the process by which it notifies, bills, collects, and reconciles 457 plan deferral payments by employee participants. The program created an application that connects to its internal record-keeping system, allowing employers to view, change, The Ohio Deferred Compensation Project About the Program. The Ohio Deferred Compensation Program was created by the Ohio state Legislature to administer the 457 tax-deferred compensation plan that is available to all state and local government employees.the program, which has assets of more than $6 billion, administers more than 190,000 participant accounts. Employers withhold deferrals from employee s paychecks and send them directly to the program. Daily record keeping is maintained in-house. About the Ohio Business Gateway Project. Although the program s actual billing and payment application is secure, information about the project is available by logging on to the Ohio Business Gateway at Additional information or a copy of the user guide for the application are available by ing the program at rwissler@opedc.net. August 2009 Government Finance Review 41

3 or print reconciliation reports,upload files,and make deferral payments on the system or outside the system. Program staff worked with the OBG to design the new system in a way that would meet the program s business requirements. The system needed to let employers transmit deferral data, funds, or both in a secure manner. It also needed to have internal controls built in to prevent invalid data from being processed, and to ensure that deferrals were tracked and invested in a timely manner. The program s finance department was responsible for testing the system to make sure it met those requirements, and now the department acts as the help desk for employer questions about the nontechnical use of the system. The project went live on the OBG Web portal in July 2007, although it was treated as a pilot for the first six months because it was new and innovative.the project was not promoted during that period and was used by only those employers that discovered it on their own as they used the OBG site for other business filings with state departments and agencies. Marketing the availability of the site began in earnest in 2008 through s in addition to stickers placed on paper bills, encouraging employers to use the OBG site. As of March 2009,315 employers,representing 32.9 percent of participants, were actively using the OBG Web site. Combined with employers that were already using other means to transmit data and funds electronically,more than 60 percent of all participant deferrals are now processed by secure electronic filing. HOW IT WORKS Now an integral part of the OBG Web site,the project allows the deferred compensation program to collect payment on an employer s outstanding deferrals that are payable for a specific payroll period (see Exhibit 1). Participating employers can: access an express function to upload data files directly from their payroll systems Exhibit 1: Employee Contribution Billing The Employee Contribution Billing page allows employers to add and edit employee contribution information and reconcile their contribution bill with the Ohio Deferred Compensation Program. 42 Government Finance Review August 2009

4 manually reconcile the records they maintain with current participant records maintained by the program print only a bill and then submit the payment outside the OBG systems, if desired view a deposit history of prior deferrals made on the OBG days per year of investment earning for new deferrals. Assuming 100 percent participation in the electronic fund transfers and an average annual rate of return of 8 percent,the program s participant group could earn an additional $200,000 to $300,000 annually on expedited deferrals. view an employee change report including those employees whose deferral amount has changed since the last BASIC CONCEPTS This project embodies several important concepts, in addition to data security and cost savings. It eliminates the inher- pay period The project also uses the existing OBG payment manager processes to distribute and settle automatic clearing house payments with the program s financial institution. ent security weaknesses of transferring data and funds by paper through the mail by using the OBG s existing security, payment, help, backup, maintenance, and other applications. At the same time, by becoming a partner in an existing Web COSTS AND SAVINGS The program s share of the cost for portal project established by several independent governmental jurisdictions,the project encourages developing this project was approximately Program officials thought that cooperation between jurisdictions $155,000.OBG and its consultant also resulting in cost savings, along increasing automation would devoted approximately 2,050 hours to with ease of use for the users. have other benefits, in addition to the project, and the program devoted The program also makes innovative approximately 850 hours. Although the improving security. Automation use of technology by using an existing benefits of data security and enhanced could also eliminate data entry, Web portal designed primarily for businesses service to the employers were the overriding reduce mathematical errors, and that have liabilities with the state considerations for pursuing this of Ohio and by building an application make sure none of the data project, savings are expected in a number of areas. If 100 percent of the employers require would be for public entities to transmit deferrals and related data. This application employers used this application, the program could save approximately $38,000 per year in paper and mailing costs. The employers would also save overlooked. allows for timely reporting, provides instant access to information and data 24 hours a day, and eliminates the delays associated with the postal system. $20,000 in postage annually. The project will also reduce the time and effort required for employers to process the billing statements and deferrals. Improved accuracy will mean that And that improved timing for depositing and investing funds results in greater investment earnings and higher account balances at retirement. program staff will spend less time working with employers to The ideas and principles behind this project are widely correct errors. Fewer errors will mean fewer delays in crediting individual accounts and investing participant deferrals, transferable. The concept of cooperating on a common Web portal and then building individual applications for specific since a single reconciliation error can prevent the entire jurisdictions can be adopted by any group of organizations. remittance from being invested until the error is corrected. The training and technical skills that users need are minimized Additionally, under the paper and mail system, several investment days are missed while deferrals travel through the U.S. Postal system. Under the OBG system, participant deferrals are normally received and invested within 24 hours. For participants who are paid biweekly, this can result in an increase of two to three more days per pay period or 52 to 78 more because the program is simply another option on an existing system that many employers are already comfortable using.all applications on the OBG system are standardized, so implementation is simplified and the probability of employers using the system is greatly increased.the automated application was also designed to mimic the format of the existing August 2009 Government Finance Review 43

5 Exhibit 2: Ohio Business Gateway s Home Page A new consolidated homepage allows access to any service or transaction offered on the Ohio Business Gateway, including Ohio Deferred Compensation. Links at the top of the page provide quick access to historical filings and administration tools. 44 Government Finance Review August 2009

6 Exhibit 3:The Deferred Compensation Program s History Page A history page provides easy access to completed transactions including confirmation numbers, filing dates, and receipts. paper-based system. This specific application could be used by any organization collecting payments from multiple employers, however, even without a common portal. ADDING FEATURES As a result of continued growth and feedback from users, the OBG made a number of important enhancements and added features that were available starting March 30, These features include: improved navigation throughout the site, including fewer screens during the login and checkout processes The training and technical skills that users need are minimized because the program is simply another option on an existing system that many employers are already comfortable using. easy access to any service or transaction offered on OBG using a new, consolidated home page (see Exhibit 2) an enhanced checkout process that combines confirmation of filing and payment in one step quick access to all historical filings through a history link at the top of the new home page (see Exhibit 3) the ability to define or limit the specific OBG services users can access The ability to authorize service providers, common remitters, accountants, and other representatives to use OBG on behalf of the employer August 2009 Government Finance Review 45

7 CONCLUSIONS The system the Ohio Deferred Compensation Program created to increase the security of data and payments and prevent the possibility of identity theft has had a number of other positive effects. It reduces postage expense, repetitious data entry, mathematical errors, and the potential for overlooking required data, all of which can be a problem with paper-based systems. The project also demonstrates cooperation between jurisdictions, innovative use of technology, cost savings, data security, timely reporting, and improved timing for depositing and investing funds. The creative approach the program took in using existing technology greatly simplified its practices and will decrease workload as it improves data security and saves money. KEITH OVERLY is executive director of the Ohio Public Employees Deferred Compensation Program. He has been member of the GFOA s Executive Board and is a former chair of the GFOA s Committee on Retirement and Benefits Administration. RICHARD T. WISSLER is assistant director, administration, for the program. 46 Government Finance Review August 2009