Music

Chair, staff is ready when you are.

Good morning.

Welcome to the 25th of September, 2024, Defined Contributions Plan Committee meeting.

The meeting is now called to order.

Will the clerk please call the roll and establish a quorum?

Members please unmute.

Member Koval?

Member Harland?

Member Hezler?

Member King?

Member Levison?

Member Tonson?

Chair Hoekstra?

And alternate member Dator?

It's not here.

Alternate member Contreras?

It's not here.

Alternate member Contreras?

It's not here.

Alternate member Kirtlin?

Not here.

Alternate member Knox?

It's not here.

Alternate member Tran?

It's not here.

Alternate members Zalaski is also absent today.

Thank you.

We have quorum.

Thank you.

I would like to remind the members of the public and chambers that if you would like to speak on

agenda item, please turn to speaker slip when the item begins.

You will have two minutes to speak once you are called in.

After the first speaker, we will no longer accept speaker slips.

We will now proceed to with today's agenda.

Please rise for the opening acknowledgement in honor of Sacramento's Indigenous

people and tribal lands.

To the original people of this land, the Nissan, Nissan, that's the top one.

Nissan on people, the Southern Maidu Valley and Plains, Miwak, Pat Wynne, Wintun,

and the people of the Wilt and Rancheria, Sacramento's only federally recognized tribe.

Maybe we acknowledge and honor the native people who came before us and still walk beside

these ancestral lands by choosing to gather together today in the active practice of

acknowledgement and appreciation for Sacramento's Indigenous people,

history, contribution and lives.

Thank you.

Please stand.

We will now do the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the Republic for

which it stands, one nation under God, indivisible and liberty and justice at all.

Okay.

Today we are going to do things a little out of order.

We are actually going to skip the consent calendar for now and go straight to item number

four on the agenda and that is fiduciary training.

We have a gentleman or woman online.

Thank you.

I don't know who it is.

The same is Craig Favar and he is an attorney in which Blackwell, he has a big background in

the federal law and provides advice to government entity two because the

RISA applies to private side pension and defined contribution plans.

Anyway, that is that worked with push blackwell before it is a national firm.

I don't know how many attorneys they have, hundreds of attorneys.

This is a well regarded firm.

Okay.

Excellent.

Can you all hear me?

Yes.

I am trying to turn on my video and it says that the host has stopped it and I am glad to speak without video.

But I am not sure what I am doing wrong.

I apologize.

Would you like me to proceed, I guess, Jeff, without video?

We are working on getting the video going if you could be up to the chair if they want to wait or proceed.

I think we can stand by for a minute.

I want to just tell briefly about my firm.

I sit in Kansas City and I head up our employee benefits and executive compensation group.

And we have, I think, probably, we are a national firm with maybe 21 offices.

We of course have attorneys throughout the country.

We have a pretty robust.

We call our virtual office which work from home.

So we have attorneys throughout the country as well.

And I am very pleased.

I have been practicing law for about 30 years in this space, explicitly in this space.

And I am very, very thankful to speak to you.

We are still working on that a little bit.

We will give them a little bit longer.

I mean, an alternate approach, I think, is several mental periods having handed out right?

We could see the bleed if they are not at the course of the system.

We could see the bleed to a patient and that would certainly be a way around it.

Well, maybe before we do that, I just have a couple of questions about Mr. Kovar's background.

I could do that before the...

Okay. This is Murray Levison.

I understand that you are working in Missouri.

That is where you are office.

Yeah, I sit in Kansas City, Missouri.

So can you just give us a little background in terms of your prior experience,

dealing with California clients, public agencies, agencies that have labor agreements that need to be negotiated with the unions?

Sure, sure.

So as I said, I have been practicing this area for 30 plus years.

I have represented all types of clients, public clients, public betrayed clients, private clients, as well as governmental employers, church plans as well.

My particular expertise is dealing with mostly a risk of the federal law.

But as we will talk about in our slides, federal law is grounded in common law.

And these fiduciary concepts, which we are going to do our training today, speak to that.

And so it is a very...

There is a lot of crossover.

In terms of my union experience, again, just significant experience with union matters in particular.

Representing both employers that have union contracts.

And then of course, we also represent some tech partly plans, unions themselves with respect to their own pension plans.

So I am one of 12 attorneys that practice in this space.

And again, that's our hundreds of years of collective experience in this area.

Thank you.

Thank you.

Are we ready to proceed?

Yeah, I think we're ready for your presentation.

Thank you.

Excellent. Thank you.

And I'll...

My slides are not extensive.

We won't have to go...

You know, we won't talk about every specific line item.

But I think we'll go through this.

And some of this is going to be intuitive because I think you already know what your responsibilities are.

You take them serious as you should.

But this exercise is really to demonstrate.

And it's always a fantastic reminder, as long as you've been doing...

Many of you may have significant experience in this area.

But it's always good to take a step back and remind yourselves why we're doing this.

And what our responsibilities are.

So my first slide.

Slide two is...

And I'm not seeing it on the screen, but you guys can follow along.

Plan sponsors have increased responsibility.

Okay.

And really, the point of this slide is just to...

To emphasize the importance of...

Of this space, retirement plan space, generally.

And again, I know you already have the Wall Street Journal and other articles.

And this has just been a tremendously growing area.

So sponsors have increased liability.

They have fiduciary responsibilities, which we're going to be talking about today.

You know, and that's...

Investing and administration and all those types of things.

So there are fiduciary responsibilities.

Another hot area, and in one of the areas of responsibility of plan sponsors, generally,

is there's been a focus on participant education and the participant experience and communications outcomes of our retirement savings.

As we've shifted from the pension world, as you all know, to the defined contribution account-based world.

That's a very significant area.

The third piece here is talking about just the evolution of technology and administration.

A lot of our plans that were forever historically administered in-house have all been outsourced.

And so another significant area is outsourcing of our plan operations and really relying...

Reliance on third-party vendors to help us with our retirement plans.

And we just don't have the capability to do that in-house.

And we shouldn't. I mean, there's outside experts.

This next slide, as Jeff noted, and we'll talk about a little bit more in detail, you know,

the California Code, Code sections 53-12 through 214 specifically authorize the city and other local agencies to adopt the deferred compensation plans.

And those deferred compensation plans are sort of qualified...

We call them qualified plans under the Intral Redmond Code.

And those plans, these are just references to the Intral Redmond Code section 401A is a true qualified retirement plan.

That's where the city puts its match money.

And then 401K, 401B, and 457 B plans are similar plans that are typically involved in employee money.

And admitted you may be, you know, I think most people are familiar with 401K and 401B plans.

401K being the profit taxable entities, 401B being tax exempted.

And 457B is sort of a unique animal that's really tied to governmental employers.

And so the city, all of these types of plans are to find contribution plans.

And the city has a 401A plan and a 457B plan.

Okay, all of them are account-based plans, participant account-based plans, meaning that when we retired the value of our benefit, unlike a pension plan, the value of our benefit in a defined contribution plan is our account balance.

Next slide, slide four.

So again, very important.

Arissa is a federal law adopted in 1974 that regulates retirement and health and welfare plans of employer, employer sponsored retirement plans and health and welfare plans.

So adopted in 1974 is a very prominent law and it really does two things.

It has a significant reporting and disclosure obligations.

And then it also imposes the fiduciary obligations.

Again, those fiduciary obligations and the way the statute is written is sort of based on common law fiduciary principles, which we'll talk about.

Importantly, very importantly, is government plans like the city's 401A and 457B plan are exempt from Arissa.

Okay, so the fiduciary responsibilities under Arissa.

Just flat out exempt. Don't the statute does not apply to them.

Importantly, I mentioned the California statute.

Importantly, however, the government plans and practice, okay, are administered.

And many of the fiduciary responsibilities are essentially because of the state law are going to be really traditionally aligned with, with Arissa.

And so we can, we can safely and properly look to Arissa principles or guidance as to our fiduciary training.

Specifically, the California statute 53 to 13.5 B says, it says that when we have these participant directed plans, where participants are given a choice to invest their own account balance among various funds.

And it says that neither the trustee nor the city will be responsible for any investment losses that are the result of those individuals own investment decisions.

Okay, and the statute specifically refers to section 404C of Arissa.

So again, even though our plans, the city's plans are not subject to Arissa, the statute refers back to Arissa section 404C, which is a very important code, very important section that that release fiduciaries of responsibility for participant investment decisions.

Okay, and we'll talk a little bit about 404C in a moment.

Next slide, what makes somebody a fiduciary? So this is, this is really a definition of fiduciary pulled straight from black law dictionary.

And, and again, this is intuitive. And I think something most, most people understand this. A fiduciary is a person who has a legal duty created by a voluntary and knowing undertaking to act primarily for the benefit of another person in, in connection with those matters.

Okay, and in a very simple example is that is a trustee of funds as a fiduciary obligation to the beneficiary of the trust and to act in a fiduciary capacity and, and really in the best interest of the party of the beneficiary for which the person acts as a fiduciary.

And, and again, I think that's a pretty intuitive understand concept in one that this committee understands, but that's important to understand.

Next slide. There are different types of fiduciaries. And, and this is important too. A fiduciary can be.

And, and this is a responsibility of the person who has a fiduciary responsibility. So, I can be a, I can be an investment fiduciary.

But not an administrative fiduciary. I can be a successor fiduciary and, and, and only responsible for fiduciary, you know, have fiduciary responsibility going forward and pass fiduciaries. I'm not responsible for pass fiduciary duties.

The point I'm trying to make here is that all of the fiduciary duties in the universe can be split up and I'm only a fiduciary with respect to those matters, which I contractually knowingly and voluntarily accept to take responsibility for.

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the person that's responsible that has the fiduciary duty for the administration of the plan.

Again, we don't administer these plans anymore like we used to in-house and so we outsource the

administrative functions and to third-party record keepers and third-party providers.

But that is still a delegated plan administrator responsibility.

Another type of fiduciary is a trustee and again a fiduciary trustee is someone who holds

assets typically in custody for the benefit of another person. Okay? And again, trustee can take

on different fiduciary roles. There's a concept of a directed trustee. So in other words,

I may be a trustee or my business may be a trustee but it may be a directed trustee in the sense

it's not actually investing assets, it's following direction and so it's a directed trustee

and it has a very limited role. Mostly almost custodial. Okay? And then the fourth type of

fiduciary is an advisor, an investment advisor. Okay? And investment advisors are individuals that

provide investment advice for a fee. They're paid. They're professionals that are doing this for a

living and and have that expertise. And there's really two types of advisors, investment advisor.

There's an investment advisor that makes recommendations and is a consultant but doesn't necessarily

have the ultimate discretion to make an investment change. So they make recommendations but

somebody, another party that the participant or another fiduciary has to pull the trigger and

follow the recommendation or not. And then another type of investment role is where the

someone is hired to be the investment manager and actually has the discretionary authority

to make investments. Okay? You would often see again in the old days you used to see in the

defined contribution world, it was not uncommon to have a pooled pooled set of assets and you would

hire a professional manager to manage the pool for the benefit of all the beneficiaries.

In today's market, we don't typically see investment managers in that sense because we have

participant-directed accounts. Participants are able to self-direct their investment,

their election, self-directed accounts among various investments offered by the plant. Okay?

Next slide.

Before you move off that slide, can you go back to it? I'm trying to understand the different

entities that we have here. So to put the theoretical into the practical. So you're saying the plant

sponsor, that's the City of Sacramento Municipal Corporation. Essentially the City Council acting as

in that regard. The plan administrator, we have the Human Resources Director.

The trustee is that, for instance, nationwide that holds the funds in trust.

Correct. You're the custodial, that's a separate custodian arrangement. And then the advisors,

we have the highest group. There are three, twenty-one consultants, so they don't have discretion

to make changes but they take direction from the committee. Where does the committee fit into this?

They make recommendations to the committee. Correct.

They make recommendations to the committee and then the committee makes the decision about how the,

which funds are in the process. The committee does not actually make the decisions. The City

makes recommendations for the, basically, the plant administrator. Well, if Mr. Kovark has read the

the city's organizational documents, he's seen that in the investment policy statement,

the committee has the direction to, has the authority to make those decisions about which funds.

It's an advisory body and you know that we've interpreted that language to basically stand for

the fact that this committee only makes recommendations. If that were to change, absolutely.

The committee could be commenting. I'm trying to change to the way you want it to be, then we

would be advisory. But I'm trying to figure out where does the committee fit in this,

this four columns here that you have on that chart? Sure. So, I wouldn't put you

on the four columns on the chart. I would not put you in the far right. That's really,

that concept is in talking about a paid investment advisor. You refer to them as the highest

group. Is that right? Yes. Okay. I think what this committee is, and again,

I think this is a delegated committee. The committee created by the City.

And I know there's been some question about how to interpret the investment policy and the

by-law of the such. But to me, this is a delegated committee created by the City. That's been

delegated a fiduciary responsibility. And I think I would view it as a delegated,

sort of under the blue side, the blue column. They've been delegated a fiduciary responsibility

to assist with the investment review of the investment line up offered to these cities and

employees. Okay. This committee does not have any plan administrative responsibilities.

Okay. To my knowledge, I don't think so. I mean, I think the way I read the by-laws and the

IPS is that it's really an investment committee. Okay. But I think it falls under a delegated

committee under the plan sponsor. Okay. Thank you. Yeah. And you interact with the with the highest

group, right? And to Jeff's point, and I don't think we need to get into this, but the point being

is you're helping the city, right? You're helping the city make decisions with respect to the

core line up. Yeah. Okay. Next slide. This is, again, we don't need to get into this too much,

but but the key things here is plan administration, plan management, investments. These are all types

of these are the core sort of fiduciary activities. All of these can be delegated, right? And

into different individuals, different committees. So I can be a fiduciary or a member of a

committee that has a limited responsibility or should just, you know, one of these roles or even

a subset of one of these roles. Okay. The next slide. I, again, I think these are intuitive,

but critical and important. Okay. And no matter how long you've been doing this,

it's always good to hear this. Okay. And this is when you come into these meetings or you act as a

committee, this is always good. You have a duty of loyalty. Okay. As a fiduciary, you have a duty

of loyalty. That's it's sometimes referred to as the exclusive purpose rule. Okay. When you act,

you're not acting in on behalf of yourself, your friend, you're acting on behalf of the participants

of this plan, right? That the, the, the employees of the city. Okay. And the retirees of the city. Okay.

How, how are you, the orange bullet here, the orange box? How are you sort of judged and what

standard are you held to? So as a fiduciary, you're going to perform your duties with the care

skill and diligence as a subject matter expert and it's called the duty of care or prudent person

standard. Okay. Now, I'm guessing that not all of you on this committee are investment,

are in the investment consulting or investment management business. But that's okay. Committee

members don't have to be necessarily all investment people as they're, you know, as they're day,

as they're day to day jobs. But what will, if you're on a committee and what do committees do,

common committees do is they go and they hire experts. Okay. So they work with people who are in

that business and that's, that's sort of a duty of care and how you would, you would interact.

Another general fiduciary concept as it relates to defined contribution plans is that

when you offer these planned, these self-directed plans, you have to offer a lineup, a core lineup

that's broad and diverse and gives people the opportunity to diversify their, their investments

across different styles. And I know that your plans set up that way. You also have a duty to follow

the terms of the plan, fiduciaries. And again, this may not be this committee, but have the duty to

select, monitor other fiduciaries and service providers, right? There is a duty of the city,

or perhaps this committee, I think it's above the city, to monitor nationwide and make sure that

they're doing everything they're supposed to be doing in a proper way. And then the last thing is

there is a concept of, and I'll talk about this if we get a moment, if we don't run a time, I'll talk

about this, but there's also a sort of a duty to monitor and pay only reasonable and reasonable

plan expenses, right? And again, there's been a lot of litigation over the last 10, 15 years with

respect to, to find contribution retirement plans, not so much in the government space, of course,

because of the way limitations on liability, but clearly in the non-governal space.

Next slide. This is, again, we don't need to belabor these bullets. And you guys do all this

thing, you do all these things, but these are sort of steps that you can take to make sure that you

are memorializing your, and taking the appropriate fiduciary steps. Okay? And in one of the critical

points in terms of fiduciary liability, fiduciary prudence is, it's called procedural prudence,

right? And so it's very important that you have formal meetings that you maintain, you maintain

the minute meetings, you have investment policy statements, you periodically do fiduciary training,

which Jeff suggested, and this is, you know, this is again, this is an example of all these things

are, or what you do to, to, to maintain and, and demonstrate that you've taken steps to fulfill

your fiduciary responsibilities. Okay? And again, I know you work with your, your investment advisor

to periodically review the funds and performance and expense ratios and all that. So those are all

fiduciary best practices as it relates to divine contribution plans. Next slide. Before you go on,

can you explain what plan compliance review would look like? The fourth bullet down.

That would be, that would be compliance review would be more of an administrative matter,

to make sure that the way that the plan is operated on a daily basis is conforms with the plan

document. Okay? And a simple example would be, the definition of, you know, when somebody makes

an election that, I want to defer 10% of my pay into the 457B plan, you want to make sure that,

that 10% deferral percentage is applying against the right definition of pay. Okay? That's an

example. Okay? That our match, that our commitment to our match is, you know, what we're doing in

practice are payroll aligns with our plan document. Okay? Is an administrative function or do

committees, committees, outsource that to, I don't know, outside auditors or how does that handle

normally? Well, it's an internal function. It's an interaction between your record keeper and the

city, right? But it's going to be part of your HRIS system. Okay. And then a very easy to make

mistakes in that space, but that's what that's getting at. Okay. And then on the next bullet on

documentation, the minutes for our meetings are action minutes only, so they don't discuss,

they don't cover that we may have talked about an item for an hour and a half and said, okay,

that's an interesting recommendation. We're not going to, we're not going to take action at this

time. So there is a video, like we're being recorded now, is it adequate to have the video or do

they need to be in written minutes? No, I think, I think, uh, memorialize again in video would be

fine. Okay. Thank you. Yep. Yep. The next slide again, we, we already talked about this, and I'm

going to, I'm going to speed through some of these because I don't want to, I have a limited time

here and I want to make sure we get through these. Again, we talked about this, the prudent person

standard is the way that fiduciers are generally, uh, are generally viewed. Okay. Um, good faith. Okay.

Generally speaking, um, it's the process and procedural prudence overrides the outcome. Okay.

So in other words, we will never, ever, ever have the best investment funds offered to, you know,

made available to our participants, right? Um, you're chasing your tail. We will never have it.

But that's not, that that's not the importance. The importance is that we are thoughtful, we're

deliberate. We, we evaluate it. We ask questions and we reach a decision through this procedural prudence.

That's the core. That's the key. And if we do that, we're fulfilling our fiduciary responsibility.

The city is a member of the National Association of Government Defined Contribution Administrators,

Magda. And at their conference, in your conference last year, the closing session was a discussion

of challenges of being fiduciaries. And one of the speakers was Wendy Dominguez from, uh,

Innovest, a investment consulting firm in Colorado. And she referenced the Uniform Prudent Investor

Act during her presentation. How, how does that apply if it, if it does to the work that we did?

It's going to be the same stuff, Murray, that we just, we've talked about. It's, it's, it's, uh,

it's going to be the same. It's going to follow the same

prudence and uh, standards and, and the same, it's essentially what we've talked about.

Her, her point was that she felt that the Uniform Prudent Investor Act

put a higher standard on public plans because the private plans have to act as, uh, you know,

a typical person. And she said in the prudent prudent investor act, it's the, uh, the typical investor.

And she said it's more like an informed investor. Uh, and she felt that that was a higher standard.

And I'd never heard of it until that, that presentation. So that's why I'm, if it's something

that we're held to, I think we should know about it. If it's, if it's not, then, um, maybe it was

extraneous information. Yeah. Well, I will, uh, I will reach back to Jeff with my thoughts on that.

And he can share that with you. Okay. Thank you. Thank you.

I mean, again, my, my, my, my, my, my, my comment to you, don't lose sight of the, uh,

forest among trees here. Um, the, uh, these are self-directed plans, right? We're, we are not

responsible. This committee is not responsible. City's not responsible for the individual, uh, investment,

decisions made by your participants. Okay. And so you are offering a broad array of investment

options and working with your outside investment consultant, um, to monitor those. And so again,

I, I guess I, I'm, I'm pretty confident, right? If you're going through those steps that you

are fulfilling your, do share responsibilities. Okay. Next slide. Um,

again, this is just a, this is a concept of duty to monitor, um, your service provider oversight.

Again, this may not, this, I guess, could, could absolutely apply to this committee in terms of,

one of your service providers is, um, uh, your, your investment consultant, right? And so you have

a duty to, um, you know, do you need to have a duty to, and you meet with your investment consultant,

you know, what they're doing for you. But one thing you should do is you should, you should

benchmark and evaluate your investment consultant. Um, and your investment consultant will be glad

to share that help you with that benchmarking information, um, because they don't, you know,

they're, they, they're confident in their fees. And so they can help you. But it's prudent and smart

to benchmark your, uh, your consulting fees. Similarly, you should, you know, periodically

bench, benchmark nationwide. And make sure that the expenses and, and, uh, fees, charge are,

are aligned with the market. Okay. We generally recommend, and it's hard. The, I mean, the,

you can have informal benchmarking, right? And that might be something, um, that every single year,

you get up, you get an expense from, you know, you have a, you have a, during one of your meetings,

you, you have a, you set aside 10 minutes to talk about the expenses and get a benchmarking update.

Um, and really confirmation that your, your expenses are aligned with market, okay? And that,

and that can really should be in, should be more moralized every year. And then

sometimes, and again, this, there's no hard and fast rule here, but doing them work complex and more

robust, um, evaluation every three to five years or even five to seven years is something that,

that many people do. The next slide, um, again, I, I, I'm going to rush through these last slides.

Uh, 404 C. Marissa, I'm, you know, we all know that we're not, this plant, these plans are not

subject to a rissa. However, they, they, they sort of refer to them and, and provide relief.

This is a, the critical section of the, of a rissa that would also apply to the 401A and 457P plan,

it basically relieves fiduaries of any response, any liability for investment decisions made by

planning participants in, in participant directed plans, okay? And the key here is in order to get

this relief is, it's very important that participants be aware and notified and have access and

give, be given the opportunity to self-direct their accounts, right? You wouldn't be relieved of

fiduary duty, uh, wouldn't be really relieved of fiduary liability. It participants in practice

did not have the ability to self-direct their accounts, okay? And so you all work with your record

key burn, again, your record keeper does this, but participants are provided with, uh, summary

information, you know, they're obviously provided with perspectives, but they're also provided

with or have access to fund information sheets. Um, uh, they have daily access to change their

investments, they have a diversified opportunity for investments across all spectrums,

you know, large mid-side, the small cap, blend, growth, value, etc., international, you'll have all

those and they have the opportunity to change their investments. Literally, 404RC requires,

they only change their investments, you know, once a quarter, be permitted to change their investments,

once a quarter, almost all DC plans are in a daily record keeping environment today, okay?

So again, your plan will be set up to do this. The next slide. Again, this is reiterating many of the,

the prior slides about, um, providing participants with information so that they are making their,

they have the ability to make informed elections and investment decisions, um, and, um,

that's what this slide is talking about, okay?

Next slide, I just want to mention this to you really quickly, um, not sure all of these apply to you,

um, but here's some general friends we're seeing in the defined contribution world,

one of the things aside from having a core lineup, um, some mini plans, um, I doubt this is happening,

is often in the governmental plan space, but I'm not, I can't say that with 100% certainty,

is that many plans and additions of the core lineup will offer a brokerage window, okay?

And that's where you have the opportunity to invest in funds outside or publicly traded stock,

individual securities, depending upon how you set it up, outside the core lineup, okay?

Another, um, another trend that we're seeing is that, um, plans are offering

participants the opportunity to hire typically through the record keeper, uh, a manager,

so that you're, you're, you're paying an additional fee to have it,

perfect your account professionally managed, and the selling point, um,

that made by these advisors is that they can work with participants to not only take into account

their current retirement plan assets, but they can also take into account outside assets,

including personal IRAs or, you know, just investments outside and in other situations to better

manage your account. Cybersecurity is a huge area. Again, I'm not sure it falls into the

purview of this committee, um, but certainly the Department of Labor as it relates to non-governmental

plans, views this as a significant fiduciary step, and so, um, you're, you know, you're working with

a ginormous, uh, vendor, and I assure you that they are putting lots of efforts into cyber security,

but it's important that fiduciary committees discuss and make sure they're aware of what their

vendors are doing in terms of cyber security, the bit of huge ginormous area. We're seeing, uh,

a trend towards offering funds, um, that are, um, that are sort of private equity, uh, with a,

with a focus on private equity alternatives. Um, again, I'm not suggesting that that is a,

the right fund or the right investment alternative for the city, but, but we're seeing that as a trend.

Um, ESG is another trend. This has been sort of a hot button topic, uh, by the Department of Labor.

Obviously, with the change in, in, in the administrations, um, this is, and some of the, uh,

court challenges, this is, uh, you know, it's not clear that this is really taking hold in

retirement plans, but, but, uh, for a while, we were seeing ESG focused funds, and that sort of

died down. The last thing is cryptocurrency investing, you know, fidelity was promoting that,

and then with, um, uh, obviously that, I think that's fallen out of favor and, and again,

you would want to talk with your investment consultant, but I think funds, core funds focused on

cryptocurrency, I think universally from a, in the legal space that I work in is, is, is, is,

is a horrible idea. I wouldn't, I wouldn't offer it as a core of fund in your, your lineup, um,

and, and I would bet money that your advisor would say the same, but we do see that.

The last slide here, um, again, not, not necessarily, uh, focused so much on you all, but I just,

over the last, um, this is just an example, but this litigation is going on for, for, for 10 or 15

years, fiduciary litigation, uh, in the, in the retirement space has been ginormous. They're now

pushing it over to pension size, and they're also trying to get it, the plan of spars trying to

get it into health and welfare space as well. And there's been, you know, meaningful and significant

recoveries, um, through both Department of Labor initiatives, but mostly through civil litigation.

Okay? And, um, and this is sort of, this is consistent with, you know, the reasons for your

having a committee in, in today's training session. I apologized, Jeff. I took way too long.

Does anyone have any questions? Um, and I, and I, again, I want to apologize, but I very appreciative

of, of you all sitting through this session and, um, and asking me to, to participate.

Craig, I have a question. What does ESG stand for? What does that mean? In ESG investing?

Environmental, social governance, um, climate, you know, um, like not investing in tobacco,

funds, guns, those got it. Okay. Why did it change that, you know, that focus? I, uh, I should know

what ESG, but that's, but that's the concept environmental, social, governance, but that's what

it's getting at. ESG focused funds. Are there any other questions for Craig?

All right. Thank you. Uh, thank you for your presentation, Greg, and the training. Uh, I want to thank

Jeff and Samantha for hooking it up. Oh, so it's all Jeff. Thanks, Jeff. Appreciate it. Thank you.

Okay. Thank you. Have a good day, y'all. Thank you. Thank you. And for the record, there was no

speaker slips for this item as well. Thank you. Okay. Let's shift back. I have this. Uh, we're going

to go to our second business of today and it's to the approval of the consent calendar. Clerk,

are there any members of the public who would wish to speak on the consent calendar?

Thank you, Chair. There are no speakers for this item, either. Okay. Thank you.

All right. Moving right along. Uh, sorry. I have some corrections to be made to the minutes.

Okay. I was just going to say let's go to other. They're on the consent agenda, so I didn't want to.

Okay. Yeah. Let's go to item number one, approval of the Defiant Contribution Plans Committee meeting minutes.

Go ahead, Murray. Okay. Um, in item number two at our meeting last week, I'm sorry, last last time in June.

The exact language of my motion was to keep Vanguard U.S. Growth Admin fund on watch that is for

quantitative reasons and make no other changes to the investment lineup. I'd listen to the recording

with the languages there and it's not written that way exactly. I think it's written the way the

staff report was written to in a recommendation. So I'd like to ask that be corrected.

And then on item five at our last meeting, again, the wording that I made for the motion was

Brad Huckstruck King, Tonson, Crystal Harlan, Sandy, Hetzler, and Murray, Levison are authorized to attend the 2024

NAGDA conference in Phoenix and to have all related conference expenses paid by funds held in the

administrative allowance account up to a maximum of $11,000. In addition, members Colville and Kang did not vote yes, they voted no.

And member Tonson was not in the room when we had the vote so he did also did not vote yes.

And then finally, it's just a little awkward that the motion to extend the time, which was done during

the meeting between items four and five that that item in the minutes appears at the end.

And I don't know if that standard practice or if it makes better sense to place it in the minutes where

it actually took place in the meeting. So that's more of a comment. And that's all I have.

So I would move the adoption of the minutes as amended.

Okay, so you want to have them adopted and changed and you're making it.

I was two and five that have factual errors. I'd like those to be.

I'm unclear. Is this something we need to vote on? Or we can just move it and do it.

The question to the clerk's ideas.

I'll second Marie's motion. Okay.

Are we are you passing a motion to accept the changes or to pass the consent calendar?

I thought rather than

uh adopting the consent calendar as amended correct. Yeah.

So yes, it would be the standard vote process. Okay. It's just an amended

minutes so we'll go back and make the order. Okay.

All right, so it's been moved and seconded. So by committee member

coville and levison. So we need to take a vote please.

Thank you chair. Members please unmute from the vote.

Member coville. Yes. Member Harlan. Yes.

Member Hetzr. Yes. Member Kang. Yes. Member Levison. Yes.

Member Tonson. Yes.

And chair Hoaster. Yes. Thank you motion passed as amended. Okay.

Bear with me here. So um now we're we're going. I will be going to number two item two.

I have a question on two. I know that's also on consent. That's why I was.

Oh, I see. Used when we would be voting.

Okay. Well, I thought we voted just for the first item.

So we're we've approved the committee means. Okay.

Or the committee means. What? Yeah, they can.

I'm confused. I'm sorry. I'm fair with me.

The motion was to approve the consent calendar which does include items one and two. Okay.

However, you did have some questions on item number two.

I did. I just we were going to give mission square the 12 month notice to get out of the plus fund.

I just I don't think we'd seen when that was done. I was looking for the date when that was given to them.

That was originally done a year ago and then because the RFP process took so long we provided them an updated notice confirming the termination date.

Or our planned asset transfer date. So that has that went to them has been accepted and they've assigned their decommissioned manager.

So did we need to I mean it was just as a courtesy we updated it or the original notice wasn't sufficient.

Um,

the city believes the original notice was sufficient and based upon information that we have on other agencies giving mission square notice

and not requiring them to submit an additional notice. We stand by that our original notice was sufficient.

But just to make sure that mission squared does not give us any problems we gave them an additional notice and we have a formal response back from them from I don't know

five different people at mission square at this point that everything is fine and that they acknowledge that all assets can transfer on our planned date.

So is there like a no earlier than date because we gave a new notice there's like a new 12 month period that they're considering to be in place.

No, we do have the opportunity potentially to move things sooner but we don't see how we could accomplish that with everything that we need to do and in working with

our transition manager assigned from nationwide who has quite a bit experienced transition mission square plants the nationwide.

Myself the director of HR nationwide we feel most comfortable with the planned transition date that's in the report.

Thank you. It's all right.

Thank you. Okay.

We will now proceed to the discussion calendar and that is we're going to go to item number three review of the 24 second quarter by the highest group and watch

the status of investment lineup. This is for Ross and yeah, but that's all we need right now. We'll do speaker slips later. Okay. So Ross you're up.

Thank you, Mr. Chair. Good morning, everyone.

Rochkuzin, Ohio, a group for the record. Can I share my screen please? Thank you very much.

And I want to make sure does everyone have this on their monitors in front of you as well. Okay, great. So there's 154 pages. We're going to go through every one of those.

I'm kidding. We're going to skip through here pretty quickly. I don't know if maybe I'll try to do the Craig take a page from the Craig chapter here, but we do have a lot of content to cover.

Most of it's good. There's a couple of items in here. Everyone that I would like to see a little bit improvement on and I think we already mentioned one of them.

Vanguard, US growth. Good news is Vanguard will be here next meeting most likely so they can tell us about the Vanguard, US growth and give an update then. But I do have an update at this meeting as well. I just wanted to stop here at the quilt slide as I like to call it.

Which shows all the categories really in Sacramento's for four when a 457 plans and they're all color coded. So generally anything that's in purple is going to be international.

Anything international stocks I should say anything in blue is going to be US stocks. And there's a navy blue box that tends to really drift to the top really going back to 2013 or so. And that's large cap.

Right. So it's in P 500 growth value the magnificent seven that's all going to be in that category. And in Sacramento we have 34.9% of total assets in that specific category.

And so when we look at our plans and we look at how low our fees are when I heard Craig talk about that I was like, oh, maybe he's seen our fees maybe he hasn't but I almost wanted to say, hey, by the way.

One and a quarter basis points here at the city of Sacramento the national average is 17. So I think you all are doing a great job with the low fees. But low fees are one thing.

Performance is something else. And we or your participants I should say as I say we the collective we are beating the closest benchmark to the plans for the one three year past performance.

There actually it's a push on the three year largely because of the fact that 34.9% is in this blue box in Sacramento's plans.

And then the other good news is you see all these different categories. We have about 15% of total assets in target date funds the Vanguard target retirement funds and those funds encapsulate everything on here.

So while we just don't know right like look at 2022 commodities real estate the worst performing category. I'm sorry look at 20. Yeah the best performing category in 2022 and then in 2023 they're the worst performing category.

So we just don't know obviously what's going to happen here in the future. But having a target retirement fund we've got everything in there and we don't necessarily have to worry about that.

So when we look at the overall plan assets for Sacramento. So this is the 401A plans and the 457 plan. We have 700 so this is as of June 30th so it's probably a lot higher. It's actually been a pretty good third quarter. Usually third quarter is kind of the grumpy quarter out of the four quarters of the year.

And September is usually not a great month. But I actually saw a stat today. I don't know if you all saw it. S&P's up about 1% so far in September. Nasdaq up about 2% Federal Reserve kind of gifted everyone.

50 basis point reduction last week when I think it was probably a 50 50 in terms of was it going to be 25 basis points or 50. Federal Reserve came out. They said it's going to be 50 basis points.

Markets rejoice temporarily by the end of the day they had sold off a little bit. But then when chair Powell came out and reiterated how confident they are in their course forward.

The markets the next day reacted overwhelmingly positively and they have been pretty much in that zone ever since and so it's been a pretty good quarter for the third quarter especially in the market. So that's a long winded way of saying.

We're likely over the eight hundred million dollar market this point across all the plans.

So 24% of total assets is in fixed income so that was that green box on the quilt we just saw most of that in the nationwide fixed fund so about 120 million dollars in the nationwide fixed fund.

And then there's our 34.9% in large cap. And so the fidelity 500 index right there in the middle at 111 million that's our index fund.

And so that's going to be stacked up where you've got Apple about seven or eight percent of that Microsoft Nvidia those three stocks alone are about 20% of that particular fund.

And then one of our problem children that we have here investment wise and it has been chronically now for a number of quarters is the Vanguard US growth. This is an actively managed fund.

So Vanguard will will essentially pick from that list of the S&P 500 and they'll overweight some stocks versus others contrary to or not contrary but they will have their preferences as it relates to what they feel are the best stocks to get the best performance.

They've missed a little bit and we'll talk a little bit about that here shortly. And then our other problem child as it relates to the funds right now that are

underperforming is American century mid cap value some of you on the committee that were on the committee a few years ago might recall this fund had a short period of time where it underperformed back in 2021.

It's back in that underperformance penalty box kind of like how John and I feel sitting here right now.

And that it has been underperforming in 2023 and then for second quarter here in 2024.

It has 11% of the fund even though it's a mid cap US stock fund 11% of the fund is international.

And so that's creating a little bit of a headwind for American century mid cap value. And so we have now two consecutive quarters of that fund underperforming.

Craig had talked about during his fiduciary training the brokerage and so there's the number there just so we all have as a line of sight.

8.3 million 1.1% of assets across all the plans in the self directive brokerage option.

Any questions? Any of this?

Okay. Historical plan allocation just going back to 2017 where it just under 30% in fixed income. A lot of this is the market kind of taking care of things but it's nice to see this number dropping.

And so Sacramento participants utilizing their 401A 457 plans as an investment vehicle not just a savings vehicle because you know calpers we've got that big chunk over there.

That's our secure retirement piece so good to see that folks are using the investment or the retirement plans as it as it relates to investing versus just saving.

And we're seeing that in terms of the overall allocation to fixed coming down. I'm just going to blow this up a little bit.

Couple of numbers I'll focus on in this particular page. A lot of numbers on here. But one thing I like to see and this is where I always look at Rick, good job Rick.

In terms of transferring when we look under the hood, what are participants doing as they go on their device as they talk to nationwide professionals whether it be on the phone Rick whatever it might be.

Are they freaking out are they panicking is money going into fixed income that's usually what happens when that when folks are a little bit nervous and that's not the case here in Sacramento.

So again part of that narrative of we've got folks that are investing money. Why is that important when we look at over here year to date in 2023 just in market gains.

Sacramento participants made $150 million last 18 months.

$150 million.

That wouldn't have happened if participants were just sitting primarily in the fixed accounts.

So kudos again to the committee to the education that's being provided to Sacramento participants. I mean that's a that's a large city plan just in market gains over the past 18 months.

And what I also like to see on this page here too net cash flow. Starting to see that get plugged up a little bit that kind of leak in the boat.

We talked about this at recent committee meetings you know potentially as one of our campaigns as far as maybe retention of assets.

And so it's nice to see at least you know year to date we're down 2.9 million still so we've got a little bit of the hole in the boat where we take all the contributions and all the distributions out.

Do we have a positive number or a negative number. We have a negative number but the good news is look look at second quarter.

We're getting a little bit above water again in terms of overall cash flow. Why is that important because we can't just rely on the markets right we need to also rely on organic growth within the plans.

We're going to get to that billion dollar mark soon but it'd be nice to have the actual growth of cash flow aid.

What's been tremendous market gains for Sacramento participants recently.

Rush you mentioned a couple times already the the nationwide fixed fund. I remember that at our last meeting.

Alternate member Bader had a question about the crediting rate. I don't recall how we resolve that.

Are we going to have a further discussion about that when when yeah I don't remember how we.

Yeah so we've been having we highest group of having discussions with nationwide.

We had a discussion with their CFO on a call about two weeks ago.

The the challenge that nationwide is facing right now this is across the organization and this is very relevant to Sacramento.

We specifically named Sacramento in this conversation.

There because of money market rates being around 5% right now and our fixed account at 2.3 and

it's not unusual to see are in common to see these fixed accounts at 2.3 2.1 whatever it might be.

Money is flowing out of these fixed accounts. So nationwide and the portfolio managers that run

these funds are not able to take new money coming in and purchase securities at the higher interest rates.

The 5% 4.5% because money's not coming in right now. Money's flowing out.

And so it's a bit of a conundrum that they're in because it's like well if you can't raise your rates.

Money's going to continue to roll out of your fixed products.

It's a long-winded way of saying at this time we don't have a resolution from nationwide.

We potentially could discuss this with the committee at a future meeting.

One option we did discuss this at the last meeting for your consideration would be to potentially add a

money market fund. That would introduce 90-day equity wash rules moving from the fixed account

to the money market and back but it would at least be some temporary solution potentially until

the fixed account rate can maybe catch up but I think it's going to be a long time for that to happen.

Participants do have the brokerage window and through that brokerage window they can get money market

our rates but you got to kind of go find those. As participants it's not sort of a low-hanging fruit.

Sorry that's long-winded. There's no really easy answer right now and I think a lot of it is the fact that the money is flowing out of the nationwide fixed account.

John do you I mean you talked to your internal team about even just raising our 2.3 percent?

Yeah each quarter I put in a finance request to try to get that rate higher.

So as time goes on I'm pretty confident that our rates will will start to increase and so I will continue putting another request in for next quarter.

Fourth quarter the rate will be held held again at 2.3 so we'll ask about Q1 of 25.

The you may have you may have actually seen this I bet you did.

In our report so on the performance page the nationwide fixed fund the five-year trailing rate is 2.12

The five-year treasury which is its benchmark which is what we use as a benchmark for capital preservation funds whether they're stable value like the plus fund over a mission square or the nationwide fixed fund.

So this is a commonly used benchmark.

This fight was 2.27 so this is the first quarter where it is under-performed its benchmark.

So this fund because there's no peer group here we actually are going to send an updated report.

This is the first quarter that the nationwide fixed fund this should actually be right here.

So apologies to the committee for this being green we're going to make sure we get you an updated report where the nationwide fixed fund.

There still would be no recommendation for our IPS because it's the first quarter of under-performance but

and then the question is what do we even do about it right because our 1.25 basis point record keeping fee that all participants pay that really low fee.

That's tied to the relatively low rate so if nationwide were to say okay we can go to 3.5%

they're going to have to raise that 1.25 record keeping fee it's levers right they're going to have to raise that to make four basis points whatever it might be.

So essentially you have all the populations subsidizing the higher rate.

It's not ideal so we're trying to find that balance right where we have a competitive fixed account and low fees

and it has been a competitive fixed account until rates went up you know what is it now 20 months ago and it just hasn't been able to turn around mainly because of the outflows.

In terms of the fund performance compliance page I skipped ahead here but we've got our two problem children Vanguard US growth was placed on watch about well a little over a year ago.

And so our recommendation is to keep this fund on watch.

The fund is actually underweighted to the magnificent seven so that's Apple Amazon and video etc.

It's underweighted by 7% to the magnificent seven the magnificent seven collectively Tesla the others that are in there

earned 110% return in the second quarter.

So even just a slight underweight to the mag seven is hurting active management it's hurting this fund that in a couple of stock selections that they missed on Shopify

Airbnb door dash and then the other one is Moderna they've missed on those they've either gotten in at the wrong time gotten out at the wrong time or they're overweighted.

And so this fund is highest group clients collectively have over a billion dollars in this fund Sacramento $113 million so certainly not a small drop in the bucket at all.

We are concerned that highest group about this fund and we believe the clock is ticking quicker than it has been.

We appreciate you all being patient with this fund and this strategy.

It is Vanguard's largest actively managed fund.

It is about 45 billion in assets. It's been around since 1959. They sub advise out.

What I would ask of the committee and our recommendation whether they were coming in next quarter or not would be let's hold one more quarter.

And then let's potentially make a decision at the next meeting here.

But we do have Vanguard coming in at the next meeting and I think that it will be good to hear them.

Talk about why this fund has struggled in recent years.

I have a question to what you just said you said potentially make a do something at the next meeting.

So is what you're saying that highest might come to the December meeting with a recommendation of a fund to replace that or is this something you've already done with some of your other public sector clients?

Are they already considering a different fund?

We've talked to the Vanguard portfolio team of this fund.

We are starting our analytic team is starting the conversations internally about what are the next steps.

So we wouldn't come with a fund replacement. What we would come at the next meeting potentially is okay we've heard from Vanguard.

We've been patient. We would like to go conduct a search.

So we would start that search process with the approval at the next meeting and then come back in the what would be the March meeting with potentially five or so replacement candidates for the fund.

We're not there yet but I guess this is just me verbalizing socializing. I think what we're all thinking in this room is like okay when is this thing going to turn around?

It started to it had a great 2023 right here. It was in the 18th percentile see that we want that number to be lower meaning it was beating 92% of its peers.

It returned 45.31% in 2023. It's index 42.68 so it outperformed its index and we were like okay here we go.

They restructured the fund. They got rid of some of the Vanguard quantitative pieces in it and they allocated that over to Wellington and right when they did that the fund started to take off again.

But then year to day mediocre in the 49th percentile and so our five year numbers just sort of stuck in the mud right now at 52.

It's in the 52nd percentile and it's 400 basis points below its index. That's that's not acceptable for $113 million in our opinion.

And you're not alone as I mentioned you know where we have it. City of Seattle's another good example they have a couple hundred million dollars in it.

So you know we have grown impatient and we appreciate your patience this far.

It'll be interesting to hear what Vanguard has to say about this at the next meeting.

They cannot be surprised that we are having the type of conversations already started kind of starting them right now about this fund.

Are any of your other clients less patient than we are?

No everyone's sticking it out at this point.

So back to the recommend so the other fund they're actually right here conveniently next to each other.

The other fund that's just this is the second consecutive quarter of underperformance and so per the IPS place the fund on watch.

It's in the 59th percentile and it's 38 basis points below its index. That's the American century mid cap value.

This is the one I mentioned just a moment ago 11% headwind in terms of international allocation.

This one also kind of it's like strikeouts and homerun. Sorry I know we're then to baseball season but where it's like it's in the top you know sixth percentile in 2022 which was a terrible year by the way for everybody except this fund it seems.

And then but then in 2023 just you know went to the other side of the spectrum.

So we're we're recommending more patients with this fund certainly this is just the first really worth the second consecutive quarter but our recommendation is to place the American century mid cap value on watch for quantitative or performance reasons.

I have a follow up question the fidelity 500 index fund and then this Vanguard go up or back here the other direction.

Unless they stop like page keep going keep going stop so we have the fidelity 500 index fund and then the Vanguard US growth which you said is you know Vanguard selecting from.

That's the S&P 500 right I think I'm I'm just I'm a fidelity 500 person so um.

But when you go back and look at the dollars invested in either it's fairly similar do you have any thoughts as to.

Is it an investor seeing just the name Vanguard and likes it so it's picking it or someone sees fidelity and likes it and picks it.

I mean it's I just find it interesting that it's fairly.

It can be in terms of the dollars invested and is that fidelity 500 index fund set up similar to how Vanguard is selecting.

Okay yes so fidelity is going to be 500 stocks and it's going to be weighted as I mentioned most of the mag seven at the front with Berkshire half away thrown in there too.

And then it's going to drop down but you're going to get all 500 right with Vanguard US growth.

The nut they there's like 111 stocks in there okay so they're picking from that list and they are not shy to even go maybe a little outside of the S&P 500 with like a Shopify or a door dash although I think they now are a part of the S&P 500.

But they generally stay within that bucket of the S&P you might recall Samantha too a few years ago when we made the fun line up change actually the money that's in Vanguard US growth was in a fidelity product.

And the money that's in the fidelity 500 index was in a Vanguard index.

Yeah so we kind of switched.

And I when we made the fun line up changes to the system when I moved things and the fidelity index is still a lower cost index than the Vanguard index by the way it went and a half basis points.

Yeah okay thank you.

I had a quick question Rush.

Often on the you may or may not know on the Vanguard US growth how often do you think they pick and choose from those 500 funds.

One month one to quarter.

They look at it daily I'd say once a week from going to give you an answer.

Okay I'm just curious how that works.

Yeah there so there's three sub advisors in that product.

The three sub advisors are Wellington, Genesis and Bailey, Gifford.

And then each of them gets around 30 to 50 or so stocks the total is about 111 total.

But they do try to buy and hold as best they can.

I think right now because of their struggles they're they're making some changes probably a little bit more expeditiously than they normally would because I think they know like where this is the Vanguard flagship actively managed fund and it is not acceptable for the fund to be out performing its index and its peer group.

When you look back only three out of 16 times not okay.

So good question though thank you.

Sure.

And I just want to stop at the fees here so we talk about the fees a lot or I do anyway at each of the meetings because I'm proud to be your consultant.

I hope that you're proud when you see all the work that you've done.

You know Sacramento participants going back to 2020 repaying on average on a hundred thousand dollar account for hundred and thirty eight dollars a year and fees.

And now here we are in 2024 and they're paying 278 dollars a year and fees.

That difference equates to 1.2 millions 1 million two hundred nine thousand dollars per year in lower fees that you all have negotiated your

for your participants in an ongoing fashion as the plans continue to grow that number in savings is going to also continue to grow.

And I just I get really excited because I think about that 1.2 million is now money in participant accounts that's going to compound in terms of interest.

And that's how we're going to get to our billion dollars collectively a lot sooner.

When you look at this chart here and I went back and I got the year end assets for each year so in 2021 2022

and then went back and applied the reduction of fees to each of those years based on the year end assets.

And in total this chart committee you have negotiated 3 million 79 thousand three hundred dollars approximately in lower fees for your participants since 2020.

And then ongoing it's another 1.2 the number I just gave 1.2 million dollars a year.

So just great great numbers especially in light of what Craig was just talking about with regard to litigation that's out there.

The national average is 54 basis points.

We're at 20 so we're half that in Sacramento.

And on the overall plan administration fees we've got the nationwide record keeping fee.

And then we've got the 18 dollars per participants or total costs or 2.5 basis points that participants pay that number the national average.

And this is included by the way in the 27.8 that national average right here is 17.

So great job.

And Ross to that point I was going to bring it up later but I'm happy to bring it up now.

The there's a new method of calculating the criteria for a NAGDA award the Art Capel Presidents Award.

And they've changed the criteria and there's now an ability to submit an application in the category of achievement over several years.

And what you just laid out even going back to 2015 when we we did an RFP that hadn't been done in 20 years from 2015 till today or next year in the spring when that application is due.

I would I would really like the committee to support putting in an application.

Having Ross helped us with all the good work that that we've all done and the results that we've achieved are our participants.

And give us and highest and our participants and credit I'd really like to see that happen.

That's something that you help your clients with?

Certainly. I mean you all have done the heavy lifting we're just glad to be here for the ride.

I'm happy to see the performance to go with the low fees too especially even with our our Vanguard problem right our Vanguard US growth problem.

And so we hear what you tell us but I think there's a broader audience that would that would want to hear that whether it's our peers or our participants or the City Council to know that we're not just up here four times a year.

Not in our head and we're not really paying attention we're doing some really great work and our participants millions of dollars are saved.

That is something that is noteworthy.

I think the application is due sometime in the spring they don't have a date yet.

What's if we do if we do this what's the process for for moving forward.

Maybe at our March meeting we talk about it again.

Yeah I think I know you've been you and John are both then on the awards committee.

I don't know if this is a this is a board decision or the awards committee.

It would be a can you mean it says nagged a board decision or awards committee decision.

It's a particular category that we could apply for is that the awards committee decision or is that the I don't know who did I'm not on the committee anymore so I'm happy to help.

So because now I'm not on the committee but okay I'll make a note to talk about it again in March.

Okay.

I hope there's support amongst the committee to to to do that.

Thank you.

I mean you all are some of you were at nagged and I think I don't know if that came up like in your peer to peer discussions or in your breakout groups but hopefully you know if you do talk to some of the other agencies out there I mean it's it's very hard to be what Sacramento participants are are paying what you all have done for them so hopefully you know you

you felt that as well when you're at nagged.

I just wanted to finish up and I'll just add that sitting on that committee for three years we didn't get many types of analysis like that to be able to vote on and discuss.

So I think it would go a long way I think that plans would be really interested in those numbers.

Yeah. From reading the short summaries that about the award winners most of them were you know you did something in 2022 and you had some results in 2023 and then you got recognized in 2024.

It's a it's a one year thing but when I heard about and saw that this there was a category for sustained achievement would cover the kind of things that we've done in the last nine or 10 years I thought it's a perfect fit.

I also included in our pack I skipped a lot of pages here but I just wanted to go to this because this is a new page so you all have asked us to provide a look back in terms of.

Thank you for doing that that looks so.

You're welcome I'm glad I'll I'll let Matt know he's a little nervous what you what you think about this so I'll pass that along.

So we do need to actually turn this light red here for the nationwide fixed on this particular report as well but you can just see the look back here going back to 2021 and then in terms of overall compliance really with the exception of Vanguard US growth.

Ever you know the funds have generally been well behaved we did have our mid cap value you know moment back here in 2021 there'd actually been a quarter before that as well and then MFS mid cap growth this was just a manager change here so the funds been performing you know the left side just so we know what we're looking at is performance and then the right side is qualitative so if there's a management change or style drift or the you know firm is sold to another.

Parent company those are reasons why potentially that.

Right hand column would be lit red and so that's what happened with MFS mid cap growth but succession planning's been in place the fund is is.

Is been well grounded in terms of its overall trajectory and so we generally put them on watch for about a year maybe a little bit less and that was the case for MFS mid cap growth and then we've got our 20 65 fund which has had two quarters of it.

Being out of compliance and that's mainly because this particular fund only has two other peers in its peer group and so it's easy for this one to get knocked out of compliance and so overall though as a look back and we did put in language as far as what constitutes quantitative or performance versus qualitative down below so hopefully that's helpful too as you're reading it so you don't have to go back and go away to minute what was it again that gets it you know to do.

To turn red versus green so hopefully that's.

The header page of that document before the chart it refers to it as an on watch summary I it appears to me it's really more of a summary of investment policy statement failures I mean because these aren't necessarily if it's one quarter.

We can change whatever it's not what whatever you feel the name that's easy to do so we were just taking a crack at it even the small print in the under the chart so little we we don't say that they have to be.

Make it bigger like a reading.

Oh it's their page it doesn't have a page number it's that's it's the chart that he just had up.

So the one from the regular report yep so passive.

Oh to rank above the 50th percentile actually our IPS said it has to a failure is below the median so I think 50% is okay.

So the the the the the the the the the the the the the the the the the the the the the chart says it has to be above the 50th percentile which would be 49 but I think ours says a failure is below the median so we're.

It's a little bit semantics but it's a different it's a different number okay.

But thank you again for putting that chart it gives us this that historical perspective that I was looking for and particularly if you're coming onto the committee and you're hearing about you know one quarter maybe it doesn't sound so bad but if you see the history particularly for Vanguard US growth it.

It also shows that we're paying attention I mean that it's the documentation that we heard about in the producer training and what was your.

Yeah I mean you could think through it or think it through and then let us know too we but we're open to changing this if you don't have any.

On the spot suggested language get back to us and we can take a crack at it but I think I understand your intent and we can.

It's not on watch it's not on watch summary because some of these aren't on watch right it's something else so what you call it the IPS failures.

I'll let Matt know we'll put a CFA to use see if this CFA schooling can have come up with a better title than that again thank you for doing that and then you also have the ones that are off watch and so that's another historical record that it allows us to look back and see how we're doing.

We also had a name change on one of our funds so we had.

It's called new being now he was TIA craft had a had a fund and they just simply changed the name.

Do we ever notify the participants when a fund changes names and would it have been appropriate for either one of highest or nationwide to at least let the committee know that.

You'll see the new name in your report I don't know why it wasn't in the report last time we met in at the end of June and the name change was in May.

That's something we tell our participants are just I stumbled on it I was doing some rebalancing in May and I was looking for TIA craft and didn't see it in the list.

This report was as of 331 though so it would change.

But verbally I mean that at our last committee meeting would have been would have been nice to have heard hey by the way at your next meeting you'll see TIA craft is not going to be on the list thing and you'll see new being real estate they've just changed their name.

It caused me some just brief I do you know I just did an internet search what happened oh they announced this in January they made the change in May.

And you know we only tell them when we actually change the actual fund the actual when we do the mapping which I forgot to ask when we were doing the HRA.

I didn't see on the timeline when we would be involved in deciding how we map the existing funds to the new fund.

And the interest of time can we move on from this and keep going with his report.

Thank you.

Yeah that's that's all I have in terms of this report I know we've got some nationwide items in here too but I'll defer to John on any of that so thank you Mr. Chair.

I had a question are you willing to cover the nationwide portion of the report I'll be for John.

It was are we are you going to make a presentation on that or is this or is that next I'm sorry.

I'll defer to John on it since it's his material but I'm happy to have a question.

Okay.

Let me know the page and I'll go to it.

Page six.

Okay.

Patient or pizza?

Yes.

It has to do with the 450 yeah 450 seven B plan.

Okay right we have in the second block down on the left we have 5,000 and 38 participants.

With a balance in the plan and not as a net positive for the quarter of 11 people.

However if you go over to new enrollments we have 32 new enrollments or 34 new enrollments excuse me.

And so my question is I'm just doing simple math here we basically lost 23 people from the plan is that correct.

Is this the difference.

The number it just means that in the second quarter we enrolled 34 and the quarter prior to that we enrolled the difference.

So we probably shouldn't even have a quarter change because it's really irrelevant.

So we had 69 enrollments in the first quarter and 34 in the second which is a difference of 35.

So that's all it says.

So it really means nothing it just means that we enrolled 34 in the second quarter.

So it's not it's not losing participants is that we just enroll 35 fewer in the second than the first.

Oh so it's like a rolling.

Yeah.

It's just a one quarter look back of that of that number and we.

So in the prior quarter you had 104 new enrollments now you've got 69 which is 35 less than the prior quarter.

Also of January to March we enrolled 69.

So April 1st to June 30 we enrolled 34 and so the 35 is just the difference between the two quarters.

Right well that's not what I was going to so but we have only a net gain of 11 participants on the whole plan.

That correct so we enrolled some we lost some so that we lost 20 23 that's more accurate than the enrollment the enrollment is just looking at how many.

Again new once we got I'm just trying to understand yeah so they took with them 4,288,020 dollars.

That's what transferred out of the plan.

Yeah we have a distribution section so that consists of many types distributions amongst amongst many hundreds of participants in that period of time.

Yeah so the plan grew slightly and then we also will list out all the distributions with all the different reasons and different money types and the different amounts for each.

Okay so now we're getting to the question I really want to ask.

Is that I believe you guys refer to that as leakage last.

Is that an acceptable amount of leakage in your professional opinion?

Yeah the market's changing we we've seen it happening more often than we have in the past and I think there's a lot of aggressive financial advisors out there that are trying to pick off these accounts.

It's like you spend your whole life building a house and then just walks away in one day so we want to conserve money in the plan.

A lot of people still think they have to take it.

There's a lot of misinformation out there a lot of really aggressive financial advisors that they grow their plan to 100,000 or 500,000.

I was working with a woman in Monterace she has 1.2 million financial advisors are salivating over that when you separate service they want that money.

They want to do anything they can to roll that out to them because they're getting compensated on assets in most cases.

So it's a challenge to keep money in the plan at times it's been more of a challenge lately than we've seen.

So there are many different reasons why I think that people are looking at buying or kind of chasing rates they're trying to find investments that they can't get in the plan.

With self-directed it should really minimize that but a lot of people don't know their self-directed available or don't want to pay that annual fee to have self-directed.

Maybe they want to buy treasuries maybe they want something else trying to chase maybe a little bit of a higher rate temporarily.

So lots of reasons why people will tend to roll over but a lot of it's just financial advisors being very aggressive with your employees which is definitely what we see.

So when someone separates from the city it's well the question is well gosh what are their options what are they what are they have to do the answers they don't have to do anything.

Some people think because in the 401k world and I worked in that in that world sometimes they give you 60 days to get your money out of the plan so they force you out.

That's not the case so some there's a lot of misunderstanding in the market.

Okay thank you. I do have one more statement but it involves with you. We do have 5,038 participants.

We have 2,845 active participants that are contributing and I phoned a friend and I found out we have 4,028 employees that are eligible to be in the plan.

So the actual career eligible employees to participate is a little bit lower I would say by probably maybe it's not much it's about 100 but I just want to clarify.

Okay okay I thought they were the same.

Anyway my point of what I was getting to is I did the math and basically 70% maybe a little less now. 70,71% are actually of our employees at the CIS Sacramento are actively contributing to the plan.

And is that a good number? Is that a I don't know a whole lot about that is that a fair number is that a great number is it a okay number can you give me some insight on that please.

Yeah if you look at deferred compensation plans sort of across the country at all sizes without a match like the city has participation rates are close to about 50% maybe in high forities on average.

So when you're over 50% you're considered doing okay. We rarely see plans that are over 70% with participation rates in the government market so I would say it's very good.

Thank you.

And then I also want to remind the committee that here at the city of Sacramento the for someone even voluntarily participate in the 4047 plan there are many required mandatory participation for one a many have to contribute to that the retiree health they have to contribute to that they have to contribute to Cal PERS their portions of that so.

I just like to remind everyone to collectively think about everything that people have to have a mandatory contribution to and we still have this number voluntarily electing to contribute to the 4047.

There's a lot here that we have to we're forced to contribute to we we have to pay in a social security here which is unusual not well non safety does which is unusual in the public sector in this region that also have to contribute with social security.

First is just per so just something for committee members to remember when they see this number everything else that employees are required to contribute to really great.

Okay.

Yeah on behalf of nationwide Brad I'm and Rick and all of our associates I'm very proud of that number.

Rick's really hard for people to get away from like he will I just witnessed him Rick and myself and a member of my team went to a meeting with outgoing council members and staff to prepare them for everything they need to know when they depart in December and Rick went through his whole thing of all the reasons that you need to know that you do not have to move your money out of these plans.

And then we have a separate document that's made available so we just did that a few weeks ago I think Rick and there is a lot of time spent by nationwide informing participants why all the myths about moving your money out you don't have to the great things about leaving it in the city of Sacramento plan.

From my office we wouldn't give them the opportunity we do the same communication especially with those retiring we have a document we give them that explains you know again all the myths about no you don't have to move your money anywhere and these are the benefits of the city's plans.

Samantha about what percent of people who retire do you physically see or have contact with.

If they're retiring actually retiring from the city of Sacramento I would say above 90 percent I mean they we have paperwork that they have to fill out with us most of them even if they're not eligible for a city retiree health contribution they're still eligible to enroll.

On our plans and you can't do that without filling out forms with us and transferring over to those so the rate is pretty high it's you know sometimes we get the notice from CalPERS the person's retired the department that doesn't know nobody knows that we try to make contact you have these options available to you we never hear from them again but that percentages is a few a year do that but the rates pretty high.

Do you ever see people who may have left the city five years ago and they're retiring now.

No because you're only eligible for retiree health if you retire within a certain what is it 120 days from date of separation so yeah I mean they'll call us and try but they're not eligible so.

Yeah Catecia said if you're going to retire make sure you retire and start right away I remember her saying that.

So thanks again for mentioning that at NAGDA there was a lot of discussion about auto enroll and a lot of a lot of cities and counties are looking at auto enroll to try to get that participant participation rate up as high as possible it's challenging to get over 70 once you're there you mean you're really in sort of the elite category the only way to really get above that would be to look at your bargaining.

Groups and possibly at auto enrollment and auto escalate to your plan and so I've had three plans reach out to me since NAGDA into that are interested in doing that I wanted to know kind of the basic concepts behind it and sort of the nationwide capabilities were able to support you of that something that the city was looking at but to try to get

participate up that would that would be the way to do it but again really really proud of that number that you mentioned.

Are there any more questions for John or Josh.

John there last meeting you said that you had done the survey a survey last year and that you would be bringing the results to us at this meeting.

We have survey results I will include that in the next report we're also we're also doing a second survey this year as well so we're going to have those those results probably within six months so we will include those very.

Anyone else.

I should know we're coming up to the second hour okay.

I'm going to close this out and then we'll discuss that.

Thank you clerk or what.

We have a recommendation.

Thank you Chair there are no speakers for this item.

Thank you.

All right.

Yeah.

Can you marry her excuse me.

Levison made a motion to.

Oh okay.

I wanted to make sure no one from the.

Yeah okay.

So I moved to keep Vanguard US gross annual fund on watch status for quantitative reasons.

Place in American Century mid cap.

Value of our six months on watch for quantitative reasons.

And they know the changes today.

I'll second that motion.

Thank you members please unmute for vote.

Member Koval.

Member Harland.

Member Headsor.

Member King.

Member Levison.

Member Tonson.

And Chair Hockstra.

Thank you.

Motion passes.

Okay before we go any further we're going to need to I'm going to need a motion to extend the meeting.

I have a.

I have a statement.

Member Per council rules and procedure chapter eight section D6 city established legislative bodies.

She'll automatically adjourn after two hours unless extended by a two-thirds vote of the members present.

But in no case she'll an advisory body meeting exceed three hours we will need to take a vote to extend the meeting past.

12.01 for an additional hour is their motion to extend the time.

All right. Is there a second?

I'll second the motion.

And members, please unmute for vote.

Member Covell?

No.

Member Harland?

No.

Member Headsler?

Yes.

Member Kang?

No.

Member Levison?

Yes.

Member Tonson?

No.

And Chair Hoekstra?

Yes.

Thank you. Motion does not pass.

Okay.

The meeting will adjourn at 12-1.

Okay.

Thank you.

Thank you.

Okay.

Moving on to item number five.

I do share a review.

I think this is me.

Talk fast.

All right.

This will be three minutes.

Hold me to it, everyone.

All right.

We just had the NAG to conference.

Our fiduciary newsletter that comes out

talks a lot about the fiduciary rule

that has been discussed for 10-plus years now.

Mainly with the aim to hold those brokers, advisors,

et cetera, that are rolling money out of Sacramento plans

to the same fiduciary standard that we are held to in this room.

It has started and stopped a number of times.

It is now in the abyss yet again because of while it's an election year.

And also this next item down in our newsletter,

the Chevron doctrine potentially could limit some of the authority

that say a department of labor has.

So it's just a lot of mess as it relates to the fiduciary rule.

Hopefully at some point we get something in place.

I just don't think it's going to be any time soon.

And then just the last quick comments at NAGDA.

We talked during the Washington update talked about

what would happen if there was a sweep on either side of the political aisle

or if there was a split.

And so what they talked about was back in 2017,

there was a push to have all pre-tax contributions,

not just the age 15 over, wrothified, all.

And because we're an election year and candidates tend to promise

all kinds of tax items that will need to be taxed.

Both sides of the aisle, a lot of promises,

got to pay for those.

And so low hanging fruit for those promises is to potentially go in

and tax retirement plans, including 457, 401A.

What the folks at NAGDA said was they're already ahead of that process

and talking with members of Congress,

many of whom were not there in 2017.

And so they need to, they being the lobbyists in NAGDA,

educate the members of Congress, this Congress that is not okay,

that is not low hanging fruit,

leave retirement plans alone, they need to stay pre-tax.

So it was, to me, very interesting to hear about that.

Good to know that they have our back.

They did say it's going to be a little bit of an uphill battle,

but they feel relatively confident that they will be able to keep

the retirement plans pre-tax.

And then they talked also about potentially some kind of 401X plan,

which would just be one plan fits all.

So there would be 403B, 457, 401K.

That's way down the road, but just conceptually talking about that.

And that was about two minutes.

So that's the update as it relates to legal and regulatory,

happy to answer any questions.

Might be done before 12 o'clock.

Well, that was easy.

So we go to item number six.

There is no vote required on that.

I'll ask Ivan.

Item number six to find contribution plan.

Committee follow-up log.

This is you, right?

Yeah, this is a standing item.

In the report, I think I already communicated this out,

but correct me if I'm wrong.

The 2025 meeting dates worked with the clerk's office

to get us back on a schedule that works for multiple parties

and being able to have our quarterly reports in time.

So they're not so delayed coming to the committee after a quarter

and so those are in the report.

They'll be going to council, I think,

pretty soon for final approval.

And then there are some items added to the follow-up log

that I wanted to just quickly ask.

I know we talked a little bit about fixed fund and money market

discussion today.

I can certainly follow up with Rush on at December's meeting.

Will we be at a point to have an itemized discussion

about that?

And if so, we can put that on and then identifying a meeting

to discuss long-range goals.

Right now, we're tentatively looking at that

for the first meeting of March,

unless the committee has a different opinion on that.

And then just as a reminder for any committee members

who have requests for agenda items,

this would be now the time to request those to get them

on the log, or usually that can also happen during member comments.

One item to follow-up on is number six here.

I just want to state that we are awaiting from I'm working

with the finance department on required 401A reporting

from the California State Controllers Office

and getting that information incorporated

into the city's annual comprehensive financial report.

Can the vendor who does that do this for us as well?

What the cost would be to do that and the timing of that?

And there's a variety of forms that have to be filed electronically,

similar to what the vendor has to do related to the city's

annual comprehensive financial report.

So we are working on that and awaiting information from the vendor.

If the existing vendor can't do it, then we'd have to put out

for either an RFI or an RFP to find a vendor

that can do it for the city.

And then also a Rothschuss reminder,

additional educational and collective investment trust

is expected at December's meeting.

So if there's any additional items now that a committee member

would request to put on the log for a future meeting,

that would be this now would be the time to do it.

I just had to ask a question on that.

Would it be okay to have Vanguard also talk about collective trust?

Yeah, I think I think committee members are looking for all,

you know, relevant education on what are they?

How do they work?

Why would we want to pursue that?

Why would we not?

Yeah.

Great.

Earlier in the meeting, I mentioned the possibility of a neged award

application if we could add that.

And then in November of 1975, the City Council adopted a resolution

establishing the city's first deferred compensation plan.

So we have 50 year anniversary coming up next year.

We don't know if there's anything we'd like to do to recognize

that we were in on before even the 457 existed in the IRS code.

The city was doing a deferred compensation plan.

We have 50 year history to celebrate of helping people get ready

for retirement.

So it sounds like from prior discussion,

that discussion of an Agda award submittal would need to occur

at the March meeting based upon Agda's timing of those.

Is that correct?

I don't know the timing.

Yeah.

Okay.

Their website yesterday said spring.

Okay.

They don't have a date.

So I don't know if March would be, do we do it or not?

Or do we do a draft?

I don't know how far along we have to be in March.

Okay.

I have an item.

I wanted to ask the committee for a dedicated laptop for the chair

that would remain with the chair and future chairs.

And it would be paid for out of the administrative account

and be completely separate from the city.

I've been going to meetings and stuff and I don't have a laptop.

And I think it is a good idea to have a dedicated laptop for this position.

And I want to get thoughts from the committee on that.

I want to separate it from the city like I said just because

it's paid for by, you know, committee or not committee, but you know,

plan members and it really doesn't have anything to do with the city on that.

On that half anyway, at least that's my opinion.

Are there any thoughts from anyone on that?

Well, we are.

Or yeah, certainly adding it to a huge adding it to the log for a future agenda item.

Sure.

Yeah.

Okay.

Maybe we could incorporate that.

We're doing the budget in December meeting as well.

Thank you.

Is that correct?

Hey, got it.

We are doing the budget method at the December meeting.

Okay.

Is there any more, any more agenda items?

Just member, I think I can't see the time.

Oh, it's 11.57.

Yeah, we're in front of you.

It should just be member comments.

Yeah, well, I just want to make sure.

Yeah.

Yeah.

As I did last year, I can put something together that lets the full committee be aware of what

presentations there were in the Ag to Conference.

Yeah, if you want to submit whatever you'd like to submit, we can put that on the information

only at the next meeting.

Sure.

Okay.

Are there any other ideas or member comments for ideas and questions?

Any one on the committee?

Okay.

And then the last item is public comments.

Members not on the agenda.

Thank you, Chair.

We have no speakers for this item and for the record, there were no speakers for item

five and item six as well.

Thank you.

All right.

Well, thank you everyone for showing up and today's meeting is adjourned.

Thank you.