Good morning.

Good morning.

Member Kang?

Here.

Member Tunson?

Oh, sorry.

Member Gardella?

Here.

Member Levison?

Here.

And Chair Hoekstra?

Here.

Thank you.

We have quorum.

I'm also going to call the roll for the alternate members.

Member Harland.

Alternate Member Harland is absent.

Alternate Member Tran is absent.

Alternate Member Hutchins is absent.

And Alternate Member Contreras is absent.

Thank you.

I would like to remind members of the public and chambers that if you would like to speak on an agenda item, please turn in a speaker slip when the item begins.

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

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

We will now proceed with today's agenda.

And we're going to do the land acknowledgement and then the Pledge of Allegiance, correct?

Correct.

And you would like me to read the land acknowledgement?

Yes.

Thank you.

Please rise for the opening acknowledgements in honor of Sacramento's indigenous people and tribal lands.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

which it stands one nation under God indivisible with liberty and justice for all.

Okay, our first business.

Before we start, I have a question about who the alternate members of the committee are.

I'm looking at the agenda document and it has Jason Bader's name on there,

but I didn't hear his name called for attendance purposes.

So I'm just trying to see who's still on the committee.

Oh, former member Bader is no longer on the committee.

That was an error by the city clerk's office and will be corrected on the minutes.

Okay, and is there an alternate for the seat that member Tunson?

Oh, yeah, for the record, member Tunson is absent.

Exempt employee seats. It's currently vacant.

Are you?

There's no alternate member.

Are you sure about that?

From the information that our office has received, yes.

If there's updated information, we'll get that from HR and we will update.

Yeah, I can look into that after the meeting.

I also think that Crystal Harlan has changed departments or is going to be changing departments.

I don't know the specifics on that.

I'll look that up.

And so Harlan would no longer be a representative for the city manager office as an alternate,

but I'll have to look at that afterwards and follow up with the clerk's office.

Thank you.

That would be the city manager's choice.

He could, she could select anyone.

The only requirement is you have to have money in the plan.

So.

I have a quick update.

Ash Regani, city manager's office.

Crystal just started a new position on Monday.

She's in the process of transitioning out and we are in the process of identifying a replacement.

So that should probably happen as soon as this week.

And all I'm saying is that isn't required.

It's because she changes departments.

Like I said, it's the city manager's designee.

You can designate anyone including someone who no longer works here as long as they have money in the plan.

So she's, you know, she had some experience.

She went to a conference.

So it'd be a good person to keep if that was the desire.

I see.

Yeah.

We'll let the city manager know.

Thank you.

Thank you.

Thank you.

Thank you.

Our first business today is to approval of the consent calendar.

Is there any discussion on the consent calendar?

Yes.

In the minutes for our last meeting, I have two comments.

Two requests for correction.

One was item seven.

In two places, it's refers to the members here as commissioner.

And everywhere else in the minutes were just shown as member.

Maybe that could be changed.

And then in item 10, I listened to the audio.

The wording of the motion was slightly different than in the minutes.

I've given that to the clerk.

It's nothing substantive.

It's just a few words that accomplish the same thing to correct the minutes.

I'd happy to read it if you'd like me to or the clerk has it for.

I'm sorry.

You said they're non-substantive changes?

Non-substantive changes.

We do.

So the office of the city clerk, we standardize our minutes to be action minutes, not city attorney,

maybe you can help me out with the word here.

They're not exact.

It's not exact verbatim minutes.

So we can make any changes that you say on the record right now.

However, that's why it's not going to be exactly as you stated verbatim at the meeting.

Okay.

I'll let you decide how to handle it.

That's all I have.

If there's no other comments, can I get a motion to do we have to vote on this or do we?

Yeah.

Yeah.

I need a motion.

So I can make a motion to approve the meeting minutes.

I make the motion.

I'll second that.

Thank you, Senator.

So I have a motion by Chair Hoekstra with a second by Member Leveson.

I will now do the roll call vote.

Members, please unmute your microphones.

Member Rugani.

Aye.

Alternate members Alasky.

Yes.

Member Kang.

Yes.

Member Tunson is absent and with no alternate member for that seat.

Member Gardella.

Yes.

Vice Chair Leveson.

Yes.

And Chair Hoekstra.

Yes.

Thank you.

The motion passes.

Okay.

Item number two review of the 2025 first quarter by the highest group and watch status of investment

lineup.

Mr.

Rush.

No, you're up.

Okay.

Thank you, Mr. Chair.

Good morning.

Members of the committee.

Appreciate you all welcoming me back after a consultant who really knows what she's doing.

Audrey White was here last time.

Thank you.

So, I am joined today by Tom Braden.

He is director of investments because as you probably notice in item number two, there

are a lot of investments that are in the penalty box, so to speak.

And so, Tom's here to talk about some of those and answer any questions that you all may have.

We also have an item included in item two here, which is to potentially replace the Vanguard

U.S. Growth Fund with one of the three options that are named here.

So, there is an additional document that was included in your packet.

It's towards the latter part of the packet and we'll move to that at the appropriate

time.

But hopefully we have a motion from, we have a recommendation, highest group does today.

And then hopefully the committee is comfortable with moving forward with that recommendation.

So, a lot to do, but I think we can get it all done in a reasonable amount of time here.

And we'll start off, if I may share my screen here.

We will start off with quick comments and I'm glad Tom's here because I think he brought

his crystal ball as it relates to the markets for the next part of the year.

But just an overview on what's happened.

So, everything that's in this report committee is as of March 31st, right?

So, a lot's happened since March 31st, right?

I mean, what a year this quarter has been so far in the second quarter.

But everything in here is as of March 31st.

This was pre-Liberation Day, pre-tariffs, pre-chopiness, pre-a-lot of what's going on geopolitically.

But the comment I wanted to make just here, as we look at this investment quilt, I like

to call it, Tom probably has a fancy term for it.

But when we look on the left-hand side here, so these are all the categories in the City

of Sacramento's 457-401A plans.

And when we look on the left-hand side, we go back to 2009, and then we have each calendar

year represented.

And then the numbers that are in each of these categories is that particular category's

performance for that year.

So, in 2009, emerging markets, which is like international small caps, was up 78.51%.

And then look at high-yield bonds, great year that year, 58.21%.

And then international large caps up 41.45%.

We fast forward to the middle of this chart here, to 2017.

And why am I going to 2017 here?

Well, that was essentially when we had tariffs 1.0.

And the world was a lot different in 2017 than it is here in 2025.

However, if there is a year most similar to 2025 tariff-related, it's 2017.

And when you look at 2017, you see the top two performing categories were both international

categories.

Small cap in that emerging markets category, and then international large caps.

Now we move over to current times, well, almost current times, as of March 31st of this year.

And two of the top four performing categories were international large cap and international

small cap.

As of Monday, international large cap is up 17.97% for the year.

International small cap up 12.2% for the year.

U.S. markets are up about 2.5%.

So for all of this choppiness that we've had, and all this noise that we've had, we've had

some buying opportunities, right?

But we've had, now we're up about 2.5%.

Annualize that out, that would be about a 6% return for the year.

But really, the story in equities so far this year has been that rotation out, away from

U.S. to international markets.

And so how does this all relate to the city of Sacramento?

When we look at our plan in the allocation, or plans in the allocation, typically we see,

so I'm down here hovering in this purple category again, right?

Typically we see around 5% to 7% international.

In Sacramento, we have almost 11% of the core lineup international.

So that tells me that Sacramento participants are really well positioned for what's going on

right now.

But that's not the whole story.

In this $128 million, in this Vanguard target retirement, we've got another 30% of that money

is international as well.

And Vanguard target retirements are actually heavily weighted to international.

And so there's another 38 million or so international.

When you add it all together, the international component in this orange piece, right, our target dates,

and then the actual international core bucket, we're at $123 million.

So 15% of assets in Sacramento's plans are in international.

And so Sacramento participants are really well positioned for what's been going on here so far in 2025.

So what's going to happen for the rest of the year?

I don't know.

Tom, would you like to provide any commentary for the committee?

Good morning, committee, and thank you.

It's very nice to be here.

And thank you, my colleague, Roche, for his more than generous comments.

I'll just kind of parlay the words of our investment committee that oversees our wealth management branch,

which has a lot of market strategists and whatnot reviewing markets regularly.

At this juncture, as just an outlook, as Roche has probably already reminded you many times,

this is not a tactically managed plan.

This is a long-term buy and hold type of investment situation.

But for our more tactically managed portfolios, for the remainder of the year,

we generally see little room for disappointment in the equity markets.

Things we notice in the near term that tend to be indicative of underperformance, for example,

our valuations for U.S. equities being above their long-term averages,

bonds offering yields relative to equities that are fairly competitive compared to the average.

Other aspects, such as people exiting the labor force, corporations not being able to pass through

as much of their prices to consumers as they have in the past,

tends to converge into potentially a lower earnings environment over the near term

in a backdrop of high valuations and bonds looking relatively attractive.

So in short said long, we're not exceedingly optimistic for the long term,

not only optimistic for the remainder of the year for equities, nor highly pessimistic.

So, participants in Sacramento's plans, I mean, the takeaway is just stay the course.

Yeah. In short. In short, yeah.

Well, what's nice is we've got a history here, and thank you, Tom, for that.

So in 2022, when we had interest rates climbing the way they did, and I didn't, we haven't even talked about interest rates, right?

Fed's meeting in about 45 minutes here to kind of tell us what's going to happen.

Probably nothing. Spoiler alert.

But the comments, I think, will be very interesting.

But when we look at the market gains in 20 or loss in 2022, we were down $124 million.

And that was the year where interest rate hikes just created such a headwind.

I mean, everything was angry that year with the exception of commodities and real estate.

And so Sacramento participants did not panic, though.

And how do we know that? We look at 2023 and 2024, and we easily gain that back, or our participants easily gain that back up $98 million in 2023 and an additional $93 million in 2024.

So hopefully that's the case again.

We've got the nationwide team and Rick, and hopefully you all, as you talk to some of your constituents and delegates, you know, folks just staying the course.

I think there have been some good buying opportunities so far this year.

And ultimately, in the long run, the choppiness will benefit Sacramento participants as long as they do what they did in 2022, which is to stay the course.

I believe we checked the overall assets as of this week, or what are they at now, John? Do you have it?

Just the different comp was...

658, was that right?

Yeah, that's exactly right.

So...

We'll have to get you on the microphone if we're going to put this part on the record.

So I'll reiterate that. Thank you, Jacob. Sorry about that.

So $620 million as of March 31st for just the 457 plan.

Just that plan alone earlier this week was at $658 million.

So we're up about probably 6% or 7% across the board.

Likely, our $801 million is in the 850 or so range for our participants.

So good news seems like everybody is staying the course so far this year.

Just another quick comment committee.

We've talked in the past about...

Let me...

Sorry, this is...

It's a little better for you all to see.

I'm trying to...

How's that? Is that...

Fine. Good. Okay.

Jeremy's giving me the... Thank you.

So cash flows down $3 million for the first quarter.

First quarters tend to be the quarters where we have more money flow out than other quarters.

Even that being said, though, still a little bit alarming that we have, you know, on an annualized basis $12 million or so leaving the plans collectively,

especially with all the great work that you all have done negotiating the super low fees that Sacramento participants have and the great fun lineup that Sacramento participants have.

So hopefully we have some slowdown to that leakage that we see between now and the end of the year.

We can get back into positive territory where we were...

Is that happening with other clients as well?

Yes, it is.

Yes.

Is there anything we can do to try to address the outflow?

I would, in short, potentially identify where's the money going?

Is there something we don't have in the plan?

Likely not, but is there something we don't have?

And then put together a campaign, work with the nationwide team, Jill, a retention campaign that maybe highlights some of the new features to the plans, features that maybe folks don't know they have in the plans,

and then just remind everyone about the very low fees within the plans, Murray.

So, yeah, I do worry about the 2.3% fixed account, right?

I mean, that's...

Let's call it what it is.

That's not competitive, right?

So that's why we have an agenda item today to talk about potentially adding a money market to the core lineup, right?

We're not going to make that decision today, but we're going to talk more about it.

And I would like to know, to your question, Murray, maybe that's a reason, right, that folks are leaving.

Are they moving out because of the lower than market rate on the nationwide fixed account?

You know, it seems to me that the entity that has the greatest interest in making sure that the dollar amount of our plans remains high

is the company that earns a percentage on the value in the plans.

I just don't hear strategies coming from nationwide about, you know, we're noticing this.

We're talking to the customers.

We're figuring out why they're leaving.

We do get a list of, you know, where the funds are going to,

but sometimes it seems like we're more concerned than nationwide.

Nationwide gets a percentage of what's in the plan, and as the value goes down, their income goes down.

That is all correct.

Nationwide is concerned.

I met with virtually.

I met with the nationwide fixed income and finance team actually on Monday.

It was a timely meeting because we talked specifically about the city of Sacramento, about your 2.3% rate.

You're not alone there.

I don't know if that makes you feel better, but you're not alone.

Nationwide is concerned in that sense that across the country right now,

most plans that have the fixed account are earning that 2.3 or so percent rate and assets are leaving.

And so nationwide is not able to, because there's no new inflows, positive cash flows coming into the fixed account.

They're not able to take any new money and invest it at the higher rates.

So we're in this downward spiral.

Nationwide is coming.

They are getting creative.

They are floating some ideas out to us at highest group that potentially could end up here on a committee meeting agenda in the near future.

I do understand your comment and your point.

I, they are very concerned about this, this trend that is occurring.

And particularly if the, uh, participants who are taking their money out are, are thinking that they're finding a less expensive option and they're not.

Now maybe they're getting more handholding and they're getting individual attention that, that, you know, we, we don't offer.

Uh, pro account is not anywhere close to that, but, um,

um, Ross, you're saying these are across all the funds across cashflow.

Yeah, Brad.

Yes.

So across the majority of plants, not just nationwide, uh, other record keepers.

We are seeing outflows.

Well, I had a thought about that.

Um, it's fair to say mathematically that the baby boomer generation holds a lot of these assets and they're using them for healthcare or for,

or for longterm care, or, you know, so I'm from that standpoint, I'm not as alarmed.

You know, that's, I just want to throw that out to the committee as a thought as well.

Very fair point.

Yeah.

So anyway, that's, that's all, that's all I'd say.

Yeah.

Very fair point.

And I think, uh, back to the comment earlier about, you know, attending conferences, one of the conferences that I think many of you have been to the NAGDA conference,

there has been a focus on the word decumulation, right?

We talked for years and years, decades about accumulating assets.

There's still not enough discussion about, okay, how do you spend it?

And how do you spend it in a, in a, in a, uh, a meaningful fashion so that you can protect the low costs that you have, say, for example, here in the city of Sacramento's plans and not necessarily roll it out to some retail or whatever it might be.

But to your point, there's a huge amount of money Sacramento included that is from that baby boomer generation kind of at risk money.

And so we want to figure out ways to protect that as best we can.

So I think that's something, you know, Jill's talked about that Jill's the nationwide communications person that's assigned to city of Sacramento.

Um, and so I think potentially if she does speak with the committee again here this year, um, that may be something we talk about further about just retention campaigns.

I understand that, um, we don't have the percentage breakdown of outflows, but, um, what are the main sources of outflows?

Are we counting self-directed options, uh, distributions, rollovers?

Are those kind of the main buckets or?

In short.

Okay.

Yeah.

I'll go to the page.

Sorry, John, do you want to go up there and I can go to the page that way, uh, they can get it on the mic.

Um, in short, it's a combination of all ash.

Um, but you're going to have culprits.

What page are we on?

Page 10 of our report.

Okay.

So it's going to be the usual suspects where you're going to have Schwab fidelity.

Sorry.

I haven't even looked.

Uh, yep.

There we go.

So top five Vanguard fidelity.

Gotcha.

This is also fidelity, by the way, national financial Schwab.

This is just the, okay.

Yeah.

We track all rollouts.

We put the top five in our quarterly report, which shows you where the rollouts are going.

We had 5 million rolling out.

Uh, conservation is a major effort of nationwide.

It's one of our biggest focuses.

We reach out to retire or to people over 55, um, at least quarterly for, for conservation.

And mainly through email.

Uh, we have a lot of targeted messaging.

If, uh, we also track, uh, calls in.

We also track emails in.

And Rick is, uh, again, a major proponent of keeping money in the plan.

I mean, without his efforts, these numbers would be a lot larger than they are.

So, we don't want to lose a dollar, but unfortunately when someone decides to move, we can't stop them.

Nor do we know most of the time that they're even rolling out because there's online distributions, there's forms.

So, when they make the decision to roll out, the money is gone.

There's an, there's kind of an assumption out there that when people leave service with their employer, they have to take the money.

I hear it every day.

And that assumption, it, it just lives out there.

And it's unfortunate because they don't have to take the money.

Um, so they have to start their RMDs at some point, but that's usually not for many years away.

So, this report shows the current quarter.

It has all the different types of distributions.

You can see that over half are rollouts.

And so, um, it's, it's nice to speak to them prior.

So, Rick's efforts are prior to retirement, but then there's also many opportunities to speak to retirees as well.

And so, again, we want to conserve.

Uh, we'll keep an eye on this and do our best to conserve those assets in the plan for sure.

And I definitely understand conservation is an interest in nationwide, but as committee members, I'm, I'm sort of a new member to the committee.

So, I'm really just trying to understand our scope and mission.

Um, is employees and retirees, our interest in conservation is, is it just as simple as minimizing fees overall or what?

Um, so just to play devil's advocate, if, you know, employee separates from the city, they decide to roll over their funds to Vanguard.

I'm, I'm not alarmed by that.

So, I'm trying to get some persuasion the other direction.

And I would argue that the industry is not, I mean, with ERISA plans.

And I've worked for those large vendors.

Um, they're not much concerned that rollouts happen.

Rollouts are going to happen.

A plan of this size, these numbers are actually fairly small percentage wise.

Uh, but we don't want to lose a dollar like I said.

But you, you can see where it's going and these are the top name.

Well, at least three, at least three of the five are top names everywhere.

With, with every plan I work on, we see, we see Vanguard, Fidelity, Schwab.

And it's not mainly because of those names, but they have, they, they have prior relationships most likely with these firms.

Uh, everyone wants to roll your money out when you separate service.

Uh, everyone knows five or ten people that work in the business that want your rollover.

You've worked many, many years to accumulate the money and it's gone in a second.

And we don't like that because we've had them as customers for decades.

And then to roll out is just simply, you know, not, not what we're looking for.

And so it's, it's a major effort of ours to keep money in the plan at all costs.

So like Ross said, if there's anything out there that, that you want added, we're happy to add those, add those types of products.

People are getting advice here and people are rolling over to familiar names.

And again, most likely they have these relationships already established.

Ash, are you asking why should we be concerned as a committee?

Exactly.

Okay.

So I'll tell you why I'm concerned.

A couple of reasons.

Um, there is, um, an ability to get lower class, lower cost shares if we have more money available.

So we couldn't even be having the discussion about collective investment trust unless there was a hundred million dollars in the, um, the target date funds.

Uh, we had a couple other occasions where we were able to move to a lower, uh, lower cost share of the same fund because we had a significant amount of money in that fund.

So it's, uh, uh, an ability to get a lower cost on scale.

The other reason is I have a personal interest in making sure people have a good retirement.

And if they're, if they're moving their money out to get something that's cheaper and gives them better service.

Great.

I'm just not convinced that that's always the case.

I think some people, I, I took a distribution, uh, a few years after I retired thinking I was going to buy a vacation home.

I didn't do it.

Uh, and then I had this cash that I couldn't put back.

And so I, I started calling around.

What's it going to cost for someone to take just to handle this?

Just to handle it, be a record keeper.

And it was, you know, 50 to a hundred basis points.

I was paying one and a quarter basis point where I was with nationwide.

It's like, uh, that's ridiculous.

So, um, it's making sure people have the right savings so that they can retire safely and comfortably.

Those are my two main reasons.

Got it.

I can add on in exactly what Murray said, you know, the size of our plans do allow the investment.

We're stabilization, um, to be a scenario in which fees are very low.

If you go out and shop around, um, and look at what other options are out there.

Even our fees for the managed, um, account services that nationwide offers on our plan, I think are the lowest that we can even get to.

Um, and all of this is about helping people have money in retirement to pay their costs.

Health insurance alone easily for one person until you, even if you become Medicare eligible, you're looking at $1,000 a month right now.

So, um, other, and we've done things to add on to our plan to encourage people to stay in our plan, such as you can take a loan if you're separated from, you're no longer working.

You don't have to be an active employee.

Um, so we've added, I think as many of these kind of options that still make your money accessible without taking a quote unquote distribution.

Um, even after you no longer work here.

I, every once in a while I have someone contact me cause they've gone to a new public employer and they want to roll their money from our plan out to their new employers plan.

And I have a conversation with them.

Um, do you actually understand the fees that you're going to be charged in this new plan?

Some of them just want the simplicity.

They can't manage multiple things.

They want to see their money in one account, one total, and they just don't have the bandwidth.

They don't have the bandwidth to manage money here and there and anywhere else.

Um, but I do always encourage them be absolutely certain of what rolling your money out to this other plan is going to cost you.

A lot of these other record keepers are hiding fees in your returns.

You don't actually see them on your quarterly statement.

We do show them on the quarterly statement.

Um, and some of them that I talk to are just like,

I don't think they look into it and they just want the simplicity of seeing their balance in one account.

No matter how much I try to encourage them to make sure they're making the right decision.

And once they research it, if they still want to do it, they can, they can do it at a, at a later date.

But, um, I, I talked to a lot of people that they have no idea what the fees are going to be at their current plan.

And I think they even have difficulty getting answers to that.

The fees are buried.

Um, but a lot of them just like the simplicity, but our goal is to have this vehicle that supplements a CalPERS retirement.

If you reach that point to qualify for that.

Um, this is a retirement plan.

It's designed to encourage people to save more money from retirement and make sure as much money that they're contributing into that stays in it.

And that's where our low fees and promoting how low the fees are for our plan are really important to try to communicate out to our participants.

Thank you.

Yeah, I just want to, that's a very good point.

I was just thinking, you know, we, in my department, we recently lost our director, uh, to El Dorado County.

And, you know, chances are, she took a big chunk of money with her, you know, and I mean, you can't blame them.

I mean, cause that's, they have their, you know, their version of nationwide or fidelity or whoever.

And nationwide they have, okay.

So they're full money out.

You guys get to keep the money though.

See, it rolled out of our plan to their plan.

Yeah.

So, but I mean, how do you track that?

You know, I mean, there's, we have a lot of employees that leave the city and they probably leave our plan to another plan in a different county or state or, you know, city.

I would be interested in knowing if nationwide can provide for just the, not so much the distributions, but any rollover.

Like, is there any way for us to find out, uh, like the age brackets of those individuals?

Cause I know that also I've talked to folks who, once they reach RMD status and they have like, maybe they have an IRA somewhere, a 401k, like to manage their RMDs and make sure all of that they're doing what they're supposed to be doing.

I do find that they try to just combine everything, um, to, to one account to, you know, make sure they're staying on top of their RMD.

Um, so I would be interested in knowing if there's any way for us to just on the, those rollovers and transfers, can we, is there any way to provide us just an age breakdown for these participants?

And to see that, that might be really a helpful tool as well to think about what's going on with those rollovers or transfers.

Yes, we can run a full report on every distribution, every rollout, every transfer, every company that goes to every age, uh, full details.

Uh, do you want this for 2024? Do you want, what's the timeframe? I can have that run for you.

If we could just do like a rolling back 12 month period, you know, one snapshot of a year.

Um, the RMD age recently changed, right?

Yes.

And now it's 73.

Yeah. So, um, yeah, I think the last, I would be great if we could at least get one year snapshot of data on those age brackets.

You know, if, if we're looking at, I think we might see those in the typical working age, let's just say under 60.

Um, that might tell us something, but if we see a percentage and they're over a certain age and somewhere that's near the RMD status,

it just sometimes maybe they're trying to simple simplify their life and have one account to manage.

Yeah. Yeah. We'll do. And we just got an older auto rollover too. So not to name names, but yeah.

Agreed. We'll get that for you, Samantha. I can make the request right now with that.

So on the fees, I just jumped, uh, to a page in our report and I'll be quick on this, but I just want to put some context in here.

So, uh, the national average per plan sponsor.com, uh, on all fees in plans. These are plans that are 650 million.

So they're pretty close in proximity to city of Sacramento. Cause we're at 801, uh, 54 basis points.

So that would be 0.54%. So what does that mean? If I have a hundred thousand dollars, that's $540 a year that I'm paying in fees.

That's everything that's to my record keeper. If there's a plan admin fee, like, you know, for, to pay for plan expenses and then investment fees that go to MFS, Vanguard, whatever it might be.

So in 2020, we city of Sacramento were at 43.8. So we were already lower than the national average.

Well, than the current national average, that national average was higher back then, but you can see the great work the committee has done here, uh, just over the past few years.

So it speaks to the points that we've been made so far about, yeah, there's been reductions in the nationwide record keeping fees.

And you see those in this chart down below these fees, by the way, are baked into this one up here.

So that's why I'm kind of just staying on this one chart, but we've seen this reduction, the stair step downward, which is exactly what you want to see as fiduciaries for your participants.

And this 15.6 basis point reduction that you all have negotiated for your participants since 2020, the dollar figure there is, I calculated one $1,250,341 per year.

So that's money going back now into participants accounts that they wouldn't have had had you all not been doing the great work you've been doing over these years.

And so that's just taking this number on the right and reducing it from the 43.8 basis points.

When you go back through each of the calendar year ending totals on this page, the committee has actually saved since 2020.

So that's just an annual number that I gave you the 1.2 million.

Um, the committee has saved participants well over $5 million just since 2020.

And so back to the points, the ability to continue to save, it's important that we keep those, those assets in the plan.

So hopefully that's helpful context right there.

I was going to pivot slightly in our report here.

Um, let's zoom out.

Very aware that it is not the holiday season, despite all the red and green that is currently on the compliance page.

Um, back to the staff report and the agenda item.

So there's a lot going on.

So this page here, one of the big reasons you have highest group peers is to really watch over the investments, right?

The investments that we all put in to place for our participants to be able to select world class investments.

And occasionally, not very often, um, we have pages like this where it just seems like the various investment options kind of can't get out of their own way for, for different reasons.

Um, I think Tom's going to talk just about a couple of them quickly, give us the 30,000 foot level, and then we can, we can go from there.

Um, and see if you have any questions about each.

But I did want to just, um, start off with really, despite all the red that we see here, there is only one potential action item for us here today.

And that is to replace the Vanguard U S growth fund with those funds that we have for your consideration here, uh, in just a few minutes.

So everything else is kind of a holding pattern.

So while you're on that page.

Yeah.

I see that it says that one half of the funds in the target date suite are out of compliance.

Yes.

I'm not seeing how they're out of compliance.

Maybe you could explain that.

Oh, sure.

Yeah.

So they're out of compliance.

Uh, thank you for the question, Murray.

Uh, sorry, Mr. Vice chair.

Um, so if we go to the, um, to the, to the page here, uh, any pick some of the ones that are out of compliance, the five year trailing per for a lot of numbers on this page, right?

This is the performance of each of these funds based on the quarter year to date, one year, three year, five year.

Let's stop there.

That is the number that is matched up to our investment policy statement.

Right.

So the funds have to outperform their index fund, their index and their peer group.

So this number has to be below 50.

So I, and if they do not, they receive a red light.

And so six out of the 11, I believe is the number, uh, or six out of the, we have 20, 70.

So six, so six out of the 12, uh, of the Vanguard target retirement funds.

Here's another one here are doing just that they are underperforming their benchmark.

And they are underperforming their peer group.

And they are underperforming their peer group.

I only counted five.

That's why I was asking.

Oh, uh, no, it should be six.

Let me see here.

So we've got three there.

And then there's three here.

And I only count 11 total, not 12.

Oh, I'm sorry.

Five.

Five of the 10, uh, Mr. Vice chair, with a five year trailing return, uh, underperform the policy criteria.

Okay.

So you're saying 10.

Does that mean that the internet, uh, the target retirement income fund is not part of the suite?

Um, uh, no, Mr. Chair, that is part of the suite.

The 20 70 does not have a five year return.

So that is not considered in the count.

Okay.

Thank you.

And I was counting the new bean as a, and so I appreciate the call.

Five out of 10 is 50%.

Now I got it.

I thought it was five out of 11.

Okay.

So do you, would you like us to just take Tom to just take a couple of minutes and kind of walk through maybe starting with MFS value?

What is going on with each of these funds and just kind of a, why we're not too concerned or how, what is the committee's preference here?

I I'd like to hear.

Yes, please.

I don't think it's going to take you that long.

Right.

Um, no, very good.

Uh, thank you.

And I do not believe it will cause because we have a high level, um, kind of explanation for all say for the Vanguard fund, which we'll discuss.

Rewinding since as, as Roche pointed out, since our measurement period is for the trailing five years, the trailing five year period as of, um, goes from the second quarter of 2020 through the first quarter of 2025.

Uh, uh, was the start of a very strong bull market.

Uh, uh, was the start of a very strong bull market.

Uh, during that period, for example, the S and P 500 returned about 18% on an annualized basis.

That's nearly two times its long term average.

That in turn was the result of lots of fiscal stimulus and things like that and economic growth boosting stocks.

Within your plan.

Uh, we may notice that a lot of the underperforming funds are within the equity category, because most of the funds are in equities to begin with.

And are managed by either MFS or American century.

Those particular managers tend to follow a slightly less aggressive style than the broader market and tend to lag when the market does, uh, is on a strong upswing.

Uh, the, I believe each of, um, the MFS funds plus American century, which, uh, outperformed for the trailing five years did, uh, or excuse me, which underperformed for the trailing five years did outperform during the first quarter as Roche pointed out was a pullback.

So, that is part of the reason why we are not, um, recommending action for these many funds which show, uh, to be out of compliance.

It's the market context and their particular management style and also their performance within expectation over the near term.

If those expectations don't hold true going forward, we may come up with recommendations.

But I think that's the 30, maybe 20,000 foot explanation.

Thank you.

Thank you.

Tom, any comments on Vanguard, um, target retirement, just the suite as far as the underperformance for those five out of the ten?

Uh, yeah, it's, that's also a pretty, um, available high level explanation.

As Roche pointed out, that suite has more exposure to international stocks than your typical peer.

They have, for example, 40% of their equity allocation is allocated to international stocks.

It's more typical for it to be 30 or 25% for more, for their peers.

And, um, as mentioned over this trailing market environment, the S&P 500 in particular has been the strong spot.

We have seen reversals of that, uh, for, in the last quarter and more strongly quarter to date.

Um, per your policy metrics, the, the suite is in compliance, a quarter to date.

Um, but that's the explanation for the trailing market period.

Uh, they're kind of less exposure to the U.S. equity market, uh, than peers causing them to lag.

And I'll put you on the spot here on Nuveen.

Any comments on that particular, uh, fund as it relates to the real estate?

Seems to be stubbing its toe just a little bit.

Uh, none quite as, uh, poignant as that.

That fund is, uh, it's a similar explanation as applies to MFS growth.

It's a more conservative style, not heavily, but modestly.

And that's, that's contributed to a lot of its underperformance over the trailing market period.

So when we look at these numbers committee, um, like for Nuveen,

um, like for Nuveen, for example, uh, we can see it's losing.

So in the five year, I like the five year cake, so to speak, we've got calendar years right now,

still 2020 where it was in the eighth percentile.

So beating 92% of peers, but now that's starting to roll out of that five year number.

And the five year number for Nuveen, you can see 72, 87, so not great.

So Nuveen's really got to get their act together.

This fund may potentially become, you know, another fund down the road.

You know, again, unless we start seeing these eights pop up again, uh, in the near term that we could be replacing.

And to Tom's points, I, I was, I just kind of did the same thing.

Uh, I get, I, so here's the five year on MFS mid cap growth, 54th percentile right there.

But you can see now it's in the 19th percentile for the quarter.

So it's going in the right direction.

Whereas Nuveen kind of going in the wrong direction.

Look at American century mid cap value in the fifth percentile.

So beating 95% appears.

And then MFS large cap value in the 11th percentile.

So beating 89% appears.

So all these funds trajectory for now, anyway, as of this report, at least headed in the right direction.

Except for Nuveen.

So, but per our process, we're going to wait it out another quarter.

Another quarter it's out of compliance.

Then we place it on watch.

Then we have two more quarters.

And then we kind of decide, are we going to replace it or not?

Sometimes we have funds like, for example, Vanguard U.S. Growth, where it's like, okay, let's just hold, hold, hold and see if they can get their act together.

That has not been the case for Vanguard U.S. Growth, which is why we have that item here today.

Any further questions about the very active compliance page today?

So glad Tom's here right now.

And I just want to confirm that the Fidelity U.S. Bond Index Fund is not shown as failing because it's an index fund.

And it's considered a passive investment.

And it, you've talked about wiggle room.

That's correct.

I think when Audrey was here last time, I asked her what marginal tracking error meant.

And she said 15 basis points is considered, within 15 basis points is considered marginal tracking error.

This one's only eight basis points, so it's still okay.

Is that, would that be correct?

That's exactly correct, Mr. Vice Chair.

Okay.

As a side note, I would feel more comfortable, we can talk about this later, if our investment policy statement was, was more specific as to, instead of marginal tracking error and not really understanding what that means, if, if it, if it has a specific number, but I have some other comments later I'll, I'll bring up about that.

Okay.

Okay.

Okay.

Are you all ready to talk about Vanguard U.S. Growth?

Yes, please.

Okay.

Thank you, Mr. Chair.

All right.

So, Vanguard U.S. Growth has been in the lineup for four plus years.

It, uh, replaced a very popular fund here at the city of Sacramento, the Fidelity Contra Fund.

When it replaced the fund, Vanguard U.S. Growth was in the top 10% versus peers.

Great performer.

Great performer.

It is the flagship fund for Vanguard in terms of actively managed funds.

Um, however, Vanguard has done a couple of, has done a number of things over the four years, um, that have caused the fund to have bigger headwinds than we would have liked to have seen.

Uh, first off, from a structural standpoint, uh, the fund had some of the underlying pieces allocated to an index quantitative where it's like it's an actively managed strategy.

It should maybe potentially be all actively managed.

However, that structure had also put the fund in the top 10%.

So, it was kind of like, okay, it's working, uh, until it's not.

And so, structurally, Vanguard made the adjustments, um, and the fund dug itself out of the hole a little bit.

I'm going to scroll to a page here to just show you all.

So, it started to dig itself out of a hole, uh, in 2023 and 2024.

Not, 2023 was a good year.

2024, good to mediocre.

Uh, but it's sort of slumped again here.

And so, um, to the, to the equity selection in terms of, it's been underweight to the Magnificent Seven.

We all know who that is.

Uh, and it's also had some challenges in terms of some of the security selections within the portfolio.

Shopify and Moderna in particular, uh, where this fund has been heavy, heavier weighted to those strategies than say some of its peers.

All of those, the structural elements in terms of how the funds managed and then just the actual decision making, the tactical execution by the managers within the fund have led us to this point to say, you know what?

We've run out of patience, Vanguard US growth.

There are too many great US growth funds.

There are too many assets, especially here at the city of Sacramento, $103 million of total portfolio assets in this particular category.

So it's time to make a change.

So all that being said, I'd be happy to turn it over to Tom to maybe just talk through the options that we have presented here to you today.

I did want to just mention there are three options despite it looks crowded here at the top of the chart.

One of the options has a mutual fund version.

And then I'm glad you made the comment about CITs earlier.

There is a CIT version that is available for a hundred million or more.

This is the JP Morgan strategy.

We're a little too close to the hundred million right now in JP Morgan.

Actually, if we went to the CIT and then dropped below, they would take us back to the mutual fund version.

So we would probably want to wait it out to get to the CIT, but we wanted to at least include it in the search just so you could see what performance for the CIT does versus the mutual fund version.

And if we end up going in that direction for the mutual fund, we have that CIT option pretty close down the road here for that strategy.

Tom, take it away.

Okay.

Very good.

Since there's so much content in this report, just to make sure I stay on track and don't overshoot time budget, is there a rough time budget that would be best for the committee?

I can't speak for everyone, but I think you have the floor as long as you need it.

Okay.

Okay.

Very good.

I'll try to err on the side of being succinct, but if there are additional questions, then please, of course, fire away.

Taking one step back before we go through the individual candidates versus the incumbent, just as a background, when we do perform a manager search, the question arises of how do you come to these candidates to begin with.

Our screening process, just as a background, is we'll screen the universe, which in this case is about 300 names for those that meet basic investment policy criteria, which in this case was also about 9%.

And then pick over those and pick over those remaining candidates, looking for things like tracking error, composition, performance stability, expenses, institutional presence of the shop as well.

And at that point perform more of a qualitative screening action before going then to comparing the candidates against each other.

So that background has let that general approach has led us to these three candidates.

Roch pointed out, JP Morgan large cap growth, fidelity blue chip growth, and Putnam growth opportunities as potential alternatives for the incumbent.

On a high level, they think they are different flavors.

We would not want to present you all with three versions of more or less the same thing.

I'll start from, I guess I would say, most aggressive to most conservative.

The none are highly aggressive, but relative to each other.

Fidelity blue chip growth would categorize as probably the most aggressive of the three, if you will.

They tend to be a little bit more concentrated, perform most strongly to the upside, and lag most strongly to the downside.

In aggregate, over the trailing market period, that's equated to the highest performer of the three, albeit with more volatility and tracking error.

Tracking error, if it assists, if it helps, is more or less how much a fund tends to bounce around relative to its policy index.

It's a specific term, but that's the general concept.

JP Morgan is what I put somewhere in the middle.

Their approach tends to match that of the index in terms of its overall risk profile to the upside, to the downside.

It will be diversified between about 60 and 90 stocks.

And the management takes a unique approach there.

While they're, in addition to performing their own analysis, they'll incorporate the price actions of the broader market.

Just the aspect is called momentum of stocks.

Where they'll say if such and such a stock tends to be performing really well or performing really poorly, we may trade in correspondence with that.

Because the market may know something we don't.

That aspect is particularly strong in the U.S. growth space.

Putnam, I would call, I would call, Putnam growth opportunities, I would describe as the closest to the chest, if you will, candidate of the three alternatives.

It tends to be more diversified and have, and match the overall risk and return profile of the index most closely.

One page that I'll briefly draw your attention to that I think kind of reflects this, these differences, is page seven.

The upper left-hand part of the table, of the table at the top, there's a term called beta, which, what it represents is how much a fund has tended to move with respect to its applicable index.

So, a fund with a beta of zero, or excuse me, of one, means that for every one percent that the benchmark moves, that fund has tended to move one percent.

It doesn't mean it will.

It just means it has.

And it's somewhat indicative of its risk profile.

So, beta above one means a fund may be a little more aggressive.

Below one, maybe a little bit more conservative.

So, from what you see in that, in that column, you can see your current option, Vanguard, has a beta of 1.15, which also explains part of our disappointment with the strategy.

We would expect, during a market environment where the Russell 1000 growth has returned almost 20 percent for the trailing five years, a strong upmarket for this fund to have turned in outperformance, which hasn't been the case.

JP Morgan's beta is just about one.

Fidelity blue chip growth is a 1.15, which kind of represents, which kind of matches our characterization of it as the most aggressive of the alternatives.

Another column, these are all a bit eclectic, so I can fast forward if need be, that I think just kind of represents our perspective on the funds pretty well.

So, you go over three, tracking error versus index, that's a reflection of how much each fund has tended to bounce around.

I think the punchline of there is that Vanguard and Fidelity tend to bounce around most with respect to the index, meaning sometimes really strongly in compliance, sometimes really strongly not.

JP Morgan, a little bit lower, and Putnam Growth Opportunity is lower than that.

I think that's a high-level characterization of each of the alternatives we're putting in front of you.

A good chunk of the rest of the report we feel is good to create, to produce, though not necessarily to review in a committee meeting.

One that I will stop on before moving forward is page eight.

Expenses are, actually if you could scroll back up, sorry.

Sorry.

So, the question of expenses arises.

Vanguard U.S. growth is an extremely low cost option, especially for an actively managed fund at 22 basis points.

The alternatives we presented for you as well are also competitively priced.

You can see the JP Morgan large cap growth is 44, Fidelity at 40 basis points, Putnam at 50.

The average large cap growth, that's the average expense ratio for the peer group, 93 basis points.

So, all still very well below category average.

And the collective investment trust that Roche referenced is 39 basis points.

So, even though these are more expensive than Vanguard, they are still, we would call it, we would say, very reasonably priced for this category.

I have a question.

Yes.

What would a percentage number have to get to for you to say it's not reasonably priced?

We typically, I mean, within this industry, we would say I would, for this one, I'm kind of picking a number, 50 to 60 basis points.

That would be, for us, too high for this particular category.

It varies per category.

We don't have a hard and fast rule say it has to be higher than the category average.

But in this case, that's me kind of making up a number on the fly, but I think it's still.

Is Putnam just there, Tom, because their performance and their overall strategy is something that even though their fees on the higher end, you're okay with the other components of it?

Yes.

I mean, the net of fee performance is still competitive.

And it's a different, and it's a unique alternative versus the other two as we saw it.

So, Tom just said an interesting phrase there, net of fee performance.

So, Vanguard at the lowest, 22 basis points.

And then we can see all of our others here, just going back to that front page.

All of these returns.

So, the five-year returns, this is per year.

But Vanguard with the lowest fee, net of fees, 16.12% per year.

And then JP Morgan, which, you know, essentially is double the fee, but is earning over 500 basis points or 5% more net of fees than Vanguard.

So, pretty compelling story if you're JP Morgan or Fidelity or Putnam, for that matter, saying, yeah, you're paying us more, but look what we're doing.

I guess I have the flip side of that question, which is the options presented to us today are all actively managed funds.

These funds all track the Russell 1000 growth index.

Clearly, there's index funds available at much lower costs that track the same index.

And so, I'm just curious why we aren't considering any of those options today.

No, that's a very fair question, especially in this case.

We still, U.S. large cap growth, not just even over the trailing market cycle, but over rolling market cycles, has been a regularly difficult spot for active managers to beat.

Yet, there are still active managers within it that have done so regularly, like the ones you see.

Fidelity and many of their competitors do offer ultra low cost exposure to options in that space.

So, we can present those as well.

The, kind of the bit of apprehension we have, particularly at this point in time, is that the large cap growth space is very concentrated.

So, what does that mean?

So, say about the top largest 10 holdings constitute about 60% of the index.

These are me, I'm using approximate figures, of which you know, Microsoft, Apple.

But if, you know, one of those names has an earnings event, say a Tesla or what have you, that can create, that's something that could, you know, they could lose.

That's not to say active management would get that correctly either.

But that concentration is somewhat, is what leads us to still offer active management in the space.

So, let's see.

Let's see.

Shall I continue, I think I could, if it's okay with the committee, I think I could jump to some of the pages towards the end of the report,

that I think give a good characterization of the risk and return profile of these options relative to one another to help formulate expectation.

The middle part of the report shows composition of each of the, of each of the options.

Oh, that's all right.

Okay.

So, which I'm happy to, happy to cover as well.

But, just for, I think I'd go to page 18 to tell the story.

The middle part of the report shows the composition of each of the holdings, each of these options relative to each other.

And they're all pretty close within those, along those lines.

But, yeah, let's go to, let's say, page 18, if that's all right.

And so, what these last couple of slides do, I won't ask you to, you know, try to digest them each, because there's a lot of content on these pages,

is they show how each of these funds has performed over time using three-year snap, rolling three-year snapshots over the trailing, I believe, seven-year period.

These, this first page shows the batting average versus the index.

I'd say, and the, the takeaway, what you'd want in this is a fund that's, funds that have regularly outperformed their index, or at least their category average.

And, higher is better, though, 60% is a pretty good number in this space.

And here you see Fidelity and J.P. Morgan tending to show the most consistency in terms of regular, frequency of outperformance.

The next page, again, I'll just kind of give the punchline rather, and, but leave you to ask questions if you like, is up capture and down capture.

What you can see here, the story that you draw from this, is Fidelity has tended to perform the strongest to the upside and the weakest to the downside.

J.P. Morgan somewhere in the middle, and also Putnam growth, Putnam growth opportunities being somewhere closest to one.

The remaining two slides, I'll just kind of describe for you, give kind of the same, give kind of a character, give performance that kind of matches the characterization that I've, that we've given it earlier in this description.

A higher tracking error for Fidelity and Vanguard, lower for J.P. Morgan and lowest for Putnam.

So, to sum it, to sum it up, I would say kind of going back to the original descriptions of the alternatives presented, Fidelity is probably going to give you the strongest upside performance.

J.P. Morgan somewhere down the middle, if passed as prologue, and Putnam somewhere closest to what the index provides.

So, with that, there's certainly skipped over more than a few pages of this report, but I think in the interest of time, it might be fair for me to pause and request questions, or be open to questions.

Mr. Chair, Murray?

I am having great difficulty being comfortable with a recommendation for Fidelity blue chip growth.

I realized that over the past five years, it was in the top 1% of its peers, and over the past 10 years, it was in the top 3%.

But that last quarter, it was in the bottom 6%, and it lost 13.04%, and it underperformed its index by more than 3 percentage points.

It's just, is this just the wrong time to be selecting large cap stocks?

I would, I hope I didn't cut you off, were there additional questions?

No. Okay, thanks.

For that, I would actually say that is somewhat par for the course for such an option.

In this particular, this particular strategy has more of a cyclical tilt, and so as you can see in prior, prior years, say 2023, outperformed by 13%.

I wouldn't say, put it so much on the environment as a whole, as the manager's tendency to be more aggressive and more cyclical, relative to peers.

And so the funds that, let's say, in the first quarter, that were in the, say, the top 25% of their peers, that were they, that was just kind of unusual for that quarter, and the rest of the, you know, the 3-, 5-, 10-year period.

I'm not talking about the funds that you're presenting, but the funds that we're not seeing.

And that's why they didn't make the list. They had an unusual first quarter, but over the history, they're just not as good as the ones you're presenting. Is that?

Yes. The one quarter of, is not exactly noise, we would say, but it's somewhere close to.

And there's going to be so many quarters that bounce one way or the other, we have to look at the long-term averages to draw, to, we think that's better to draw conclusions from.

I'd love to hear Patrick's comments on what we've got.

Well, I just had one quick question.

Ross, you mentioned with regard to the J.P. Morgan options.

So they require $100 million for the CIT.

We're about 103.

What would we have to get that to, to kind of lock in where we could just go with that and not have to turn back?

Thank you for that question, Patrick. About $110 million.

Okay.

You know, just with what, you know, our job over in the treasurer's office, we're managing money for the city.

We're more of a conservative bent, obviously, because of our, our role as, as, you know, making sure that we maintain our principal and cash flow.

So obviously, you know, I'm going to look at things more from a bit of a conservative side, but also where we need to try to get a little bit of the, you know, growth if we can.

And even going back to where, what we looked at earlier, it does seem like the plan is getting a lot older, which I think is why we're seeing some outflows.

You know, it's just natural that we don't have as many younger employees contributing while we're having more people retire.

Because looking at the stats before, it looks like retirements are up over the, you know, quarter to quarter, which is just inevitable, I guess, when, when we see plans like this, particularly with, you know, the city's demographics with their employer or employees.

So I do think maybe a more conservative option, although, you know, going too conservative again is we're going to miss on, on some upward swings in the market.

So, I mean, just reviewing this before we came in and looking at the options as they've gone over them.

I mean, I think the JP Morgan ones make sense.

Again, because we do have the option to get into the CIT if we get to grow the assets and that's a pretty significant savings over what their fees are for just their normal fund.

And that is our recommendation, by the way, is JP Morgan.

It's the most consistent over the 10 years.

I mean, it's really easy to see.

Thank you, Patrick.

I'll just speak for myself and say that I'm, today I'm not ready to support any of these options.

I would much prefer a passive index fund approach, but, you know, I'll defer to the rest of the committee if you all want to move this forward.

Is that all for your presentation, Tom and Rauch?

That is all.

Thank you.

Okay.

Thank you.

So what are you looking for out of us today?

Do you want us to do a recommendation to move the money?

Is that what you're...

Yes.

Our recommendation is to map Vanguard US growth to JP Morgan large cap growth R6 shares and for that to occur as quickly as administratively possible.

And we would, yes, we would appreciate the committee's consideration on that recommendation.

So, referring back to the recommendation in the staff report is asking the committee to pass a motion recommending holding those funds listed on watch for quantitative reasons.

And then, um, you've been provided the options to replace the Vanguard US growth admiral fund.

There is no requirement by the committee to pass this exact motion as it reads on the document.

Um, you know, whatever the committee discusses.

Mr. Chair, but...

And if someone puts forth a motion, then we'll see how that plays out with the voting.

Okay.

If you're looking to do a motion right now, I would caution you to wait.

We're, we're, we're not done with, um, the explanation of all the items in, in, um, item two.

So I hate to have us move it and then suddenly item two is over and then we have to move on to item three.

I, I don't think that, um, highest has any other specific things to present.

So at this point it would be questions from the committee for highest or nationwide to answer.

Uh, I have a few.

Is there any part of your presentation at all or from, from nationwide that before I start asking questions?

No, please go ahead.

Okay.

All right.

Let's see.

I just do with my questions.

I just had it.

Come on.

Sorry.

Okay.

Um, first of all, I, I had heard from, um, staff and committee members from some other agencies

about some change in the name of the highest group.

And I went on the website and it, it doesn't really exist anymore.

Can, can you tell us what's going on with your company?

Yeah, sure.

Uh, so in 2021, Morgan Stanley bought highest group, uh, in 2022, Morgan Stanley bought cook street firm out of Denver.

Highest group and cook street are similar in the sense that we focus on institutional retirement consulting, just like what we do for the city of Sacramento, no conflict consulting.

You pay a set fee.

There's no, you know, additional services or ancillary anything.

There was another firm as part of that, uh, cook street acquisition, a milliman shop out of Dallas as well, similar structure.

Um, so Morgan Stanley, um, in 2023 said, okay, we're going to make all of these entities one.

And we're going to call it Morgan Stanley institutional investment advisors.

And we're going to have a tax ID for all these entities, but they're going to be separate from the rest of Morgan Stanley, like E trade and all these other retail Morgan Stanley's.

And so that's, that was done in 2023.

And so then Morgan Stanley based on the lack of efficiency of like, okay, highest group cook street milliman, like let's just do all, let's make this all one name.

And so, uh, you could argue it might not be the most creative name.

Um, but they said, okay, what does these firms do?

They're fiduciaries, they're consultants.

How about this?

Uh, fiduciary consulting group at Morgan Stanley.

And so, uh, that name was changed in April.

And, um, the team that supports the city of Sacramento has not changed.

Our tax ID has not changed.

There's no new contract required.

Um, my email now has changed as is Tom's, uh, and our name has changed.

As you can see though, the reports are still, there's still a lot of highest group out there.

Um, I think it will be a series of questions.

There will be a series of quarters.

Where you'll see that diminish more and more.

And eventually it'll just be all fiduciary consulting group.

The reports may very well look exactly the same as they do for now.

Uh, now for a while.

And then those might change a little bit as well.

Cook street does a lot of really cool things with, with some of their reporting.

So, um, that's the update on the name change.

I don't know where that was going to go in the agenda.

So thank you for asking.

Okay.

And so your, your independence remains the same.

Yes.

Okay.

There's actually, um, when we were acquired by Morgan Stanley, there's a, uh, one of our plans up in Alaska had, uh, Morgan Stanley funds.

And those funds were taken out of the lineup due to any potential conflicts.

So.

And, and, and, to add Mr. Vice Chair, no Morgan Stanley funds have been placed since our acquisition four years ago by our groups or Cook Street or Millam and Dallas.

Okay.

Um, let's see.

In the, there's, there's, uh, further along in the report, there's, you know, two pages of detail about each of the funds that are in our lineup.

And last quarter, um, it was a busy meeting.

I didn't have a time to ask about it, but the last quarter, the index fund for the target dates was the morning star lifetime allocation moderate fund.

And this quarter it's back to being the vanguard's own index.

I don't know why it changed for the fourth quarter of 2024.

Um, nor I, Mr. Vice Chair, I wasn't privy to that report.

I think we will simply have to review if that's all right and get back to you.

The vanguard, uh, retirement income index is the appropriate benchmark to measure performance against, which is what you see in this report.

Okay.

Take a look at the, your, your, last year's fourth quarter report.

That's how I, how I saw it.

Um, Rosh, I, I hope Audrey is going to be able to see what you see in this report.

And I hope Audrey conveyed to you the appreciation I presented at our last meeting for the historical stoplight report.

That is a great addition to our information.

Thank you again very much for, for doing that.

Uh, that's the one that's up on the screen now.

Thank you.

Um, it's, it is very red, but that's what it's designed to do to, to draw our attention to the history behind where something used to be.

And now it's okay, but just don't forget that we had a bad, a bad run and Vanguard us growth is the one that's the reddest.

And we're talking about possibly replacing that.

Um, but it's very helpful to, to look back and, and see.

So thank you again for, um, putting that together.

Um, thank you for the request.

Yeah.

Murray, are you done?

No.

Okay.

Continue on.

Thank you.

Um, this, um, isn't highest directly, but it's in the report.

It has to do with the Schwab self directed brokerage.

Uh, did we, I thought we decided that we were not going to allow people to invest in cryptocurrency in Schwab.

And I see that the names of some of the funds have Bitcoin and crypto in their fund names.

Right.

So maybe I'm remembering wrong.

Oh, I thought crypto became an option.

Oh, um, many years ago from requests from city treasurer's office.

Oh, okay.

I spoke with Schwab.

We have a contact that I work with.

They don't allow direct investments in cryptocurrency, but I believe, I think I heard the word ETF.

There are, there are some ETFs that the plan does allow.

So plan does allow ETFs and some of the ETFs do purchase cryptocurrency.

They don't allow direct investing though.

And they're not going to change that at least in the near future, but there are still ways to get it.

But that would be the only way that I'm aware of that they could get it.

Okay.

Sorry for remembering that incorrectly.

Thank you for correcting me.

Um, and then back to the, um, investment policy statement.

So I, I had some comments earlier about, um, about that.

I, I think there's some language in there that's inconsistent.

So when one place it says that funds are to outperform their asset class or benchmark,

and they're also to rank above the 50th percentile.

And then, uh, elsewhere it says, um, that we should consider taking action if a fund is below the benchmark and below the median.

So the, the inconsistency is if you're right at the benchmark at 50, at 50 percent or you're right at the, uh, I'm sorry, right at the benchmark at like, you know, same, same, same number, same percentage, or you're right at the, at the median at the 50 percent.

And so one, and one says you gotta be 49 or better, or you gotta be 0.01 or better.

And the other one's saying take action if it's below.

And it's there, you know, there's that right in the middle where it's a little inconsistent.

So I, I, plus the inter, the issue about the, uh, marginal tracking error.

Um, we haven't had a chance to look, we're supposed to do an annual review of the investment policy statement.

We haven't seen it and, uh, we made some recommendations in September, 2023.

Can I assume that's not yet gone to council or is it we're still waiting for a direction from the attorney?

Yeah, I don't have any update on that.

So we're, I guess that's precluding us from even talking about what would our next round of, of changes be.

But, um, that's on my radar to, to clean that language up, make a decision one way or another.

I just think on the marginal tracking area, if we, if we don't have a number, then it looks like we're playing favorites for somebody.

Because, you know, 12 basis points sounds good this time and 16 another time.

And let's, let's be very clear.

And it's, it's still something that we can make a decision not to follow the policy.

So it's not law, but I'd like to have the policy be, be more clear.

Um, I think.

And, and then my last has, uh, is a request to Samantha.

At our last meeting, I had asked if it would be possible to, on the, uh, health reimbursement arrangement page,

to put a note just reminding us when the last regular payroll contribution was for the SPOA and 522 plans,

so that we can just be reminded that generally those plans won't be increasing.

They won't be making contributions because they're, all their new contributions are going elsewhere.

And I, I know that particular page will, will change probably the next quarter, September 30th.

But yeah, that page will go away.

Those plans are collapsed into one.

I mean, it does, I think it references there's no contributions to the plan on the page.

There's no year to date.

Okay.

So, oh, so the report will just be one.

The two individual SPOA plans and the two individual 522 plans become one plan in the nationwide,

one nationwide PEP plan for 522, one nationwide PEP plan for.

But they still won't be getting regular contributions into them.

They're not active plans.

Right.

So maybe just some way to, if nationwide's doing the report.

Well, they will also be incorporated into HIAS's report.

I don't know yet what nationwide's document will look like related to it.

But we'll see that in our December meeting at the end of the third quarter.

We'll, we'll be reviewing that at our December meeting.

Just something to think about.

Just those, those plans aren't going to be getting any new contributions.

They're not making unless somebody gets rehired and they have to do some retroactive payments.

But in general, they're not contributing.

So it'll look weird.

I think if it just says, you know, what's your contributions for the quarter zero.

It's just a reminder that they stopped contributing as of a certain date.

That would be helpful.

And I think that's, that's all I have, Mr. Chair.

Thank you.

Thank you, Vice Chair Levinson.

Are there any other comments from the committee?

Clerk, are there any members of the public who wish to speak upon this item?

Thank you, Chair.

I have no speaker slips.

Thank you.

I would, I was talking with the clerk and I would like to make a motion that we go with

our group and our, I'm sorry, I want to say HIAS, but I can't remember.

It's okay, Mr. Chair.

Producer, you can call us HIAS anytime.

Anyway, I want to make a motion that we keep the nationwide fixed fund, the MFS value R6

and the American mid-century cap value R6 funds to be held on watch for quantitative reasons.

And we stopped there.

I'm sorry.

I think, wait a minute.

I might.

Yeah.

I just want to make a motion to keep all those on watch.

And then we'll stop there.

And then I wanted to do a separate motion about the switching the fund to the fatality.

So anyway, that's where I want to stop on that is make a motion for that.

Just like we discussed.

No second.

Okay.

I'll second that.

I'm sorry.

Was I unclear with that?

What I'm asking?

You can find that on the second motion.

I was unclear on the second motion.

Oh, yeah.

The first motion basically we're just keeping all the stuff that they recommend on watch,

on watch.

And then we're going to, the second motion I want to talk about changing the fund that they

recommended us to change.

So.

I'll second that.

Okay.

Thank you.

Sorry for being unclear.

Thank you.

So I have a motion from Chair Hoekstra with a second by Member Kang as discussed here.

So I'm going to do the roll call vote now.

Please unmute your microphones.

Member Raghani.

Yes.

Alternate members Alasky.

Yes.

Member Kang.

Yes.

Member Tunson is absent with no alternate member.

Member Gardella.

Yes.

Vice Chair Levison.

Yes.

And Chair Hoekstra.

Yes.

Thank you.

That motion passes.

Does anybody else want to make a motion or am I going to do it?

I'll do it.

That's fine.

I'd like to make a motion to go with our recommendation that we go with the JP Morgan large cap growth R6 fund and change from the Vanguard, I believe it's the Vanguard fund we currently have.

I'll second that.

So I have a motion by Chair Hoekstra with a second by alternate member Zalaski.

I'll now do the roll call votes.

Member Raghani.

No.

Member Raghani.

No.

Member Zalaski.

Yes.

Member Kang.

Yes.

Member Tunson is absent with no alternate member.

Member Gardella.

Yes.

Vice Chair Levison.

Yes.

And Chair Hoekstra.

Yes.

Thank you.

The motion passes.

Thank you.

All right.

Moving on to item three collective investment trusts.

Yes.

Can I just ask nationwide one quick question so that all the committee hears it at once.

The timing to be able to make this switch.

I realize we didn't talk about that because usually it has to, it's like not tomorrow.

There's a, there's a timing associated with that, right?

Just so the committee understands that the next quarter we may.

There's a process for everything.

I'm pulling it up now.

Just one moment.

Okay.

So, yeah, we'll just need an email.

And the next available, so today is, let's see.

The next available date would be September 12th.

Okay.

Thank you.

And so just an email and then which of the plans are affected.

So it would be the 457, all the 401 As.

We'll have to take a look at the, at the PEP.

We'll have to make sure that that fund is also part of that rollout.

So, but September 12th is the next available.

Okay, thank you.

I just need just an email by July 11th is the, is the deadline to, for intake.

Okay, thank you.

So for the PEP mapping, John, just to be clear, participants will map Vanguard to Vanguard in August, which is around the anticipated mapping of that.

And then that will all map with the 457 and 401 to JP Morgan, September 12th.

Okay.

Thank you.

Sorry.

That just my own brain working through that one.

Okay.

What I'm hearing is that the health reimbursement arrangement, initially the August 4th date, nothing changes.

The communications doesn't have to change because this is taking effect a month later.

That's correct.

Everything will get mapped as planned when the money moves, starts moving the night of August 4th, and it will all get mapped because this fund will not even be available to us until September 12th.

And then we will send out a participant notification 30 days prior to any participant in any of your, any of your plans that have money in that fund.

And they will get that roughly 30 days prior.

And we already have a template that we've used before.

So we'll be sharing that with you, Samantha.

What was that July 11th date that you mentioned?

What was happening then?

By July 11th, Shelly is the plan administrator has to have an email to Nationwide notifying them that the city wants to,

switch the funds out.

Yes.

We have one set date each month for all of our, all of our fund changes.

And so we just have intake deadlines.

And so as long as we get it by a certain date, then it's, it's locked in for September 12th.

We have plenty of time.

Okay.

Item number three, collective investment trusts receive any comment.

I will.

Oh, sorry.

Yes.

And we can get a little bit more.

And once Roche has or highest talks about these and the city.

I'm sorry.

The committee has further discussion.

We have learned more about what it will take for the city to implement these collective and trust investment trusts.

Um, such as a significant amount of paperwork and documents for every plan.

Um, all of those documents will need to be reviewed by the city attorney's office before any authorization is given for the city to sign any of these documents.

Um, we've learned more that, you know, it's a pretty heavy lift to be able to implement these.

So, um, we do want to hear from the committee today, um, about do they truly want the city to pursue these collective investment trusts in making the switch?

Uh, we will start working on the getting the documents for the city attorney's office to review, um, and hope to come back, um, at the next meeting for the formal recommendation and an update on when the city would actually be able to finish all these documents, execute them and, and the timing of this switch.

Can I ask what changed from our last meeting when it was reported several times during the meeting that the item today would actually have the recommendation to make the change in case we were ready to make the change?

Um, I don't, I mean, the way the report is written is based upon the information we've received since then on the significant amount of information that we've received.

The significant amount of documents it's going to take to review.

Um, and the ability to work on all of that.

I, you know, it's just, this is the way collectively the report was written for today.

I didn't think the attorney's office would even be willing to start looking at documents until the vote had taken place.

And then, um, well, I think our concern is.

They're going to need to look at them and they're going to need to have an understanding if, if what the other party, there's no willingness to change anything in those documents.

It's unusual for our legal team at the city to not question a lot of things within the documents, which they should be doing to make sure that if the city signs on anything, they are meeting the standards.

Um, so I think we just don't really have an understanding right now of what the city attorney's office is going to come back with and say this, this language needs to change in order for us to give authorization to sign these documents.

And I don't know well enough at this point that the other party, um, will have any wiggle room on that.

So, um, we, we definitely need to get a better understanding of all of that and, um, make sure that the committee does a formal recommendation.

We can actually implement it.

All right.

Well, I appreciate that.

They're going to start the conversation.

Yeah.

Before the, yeah.

I mean, yeah, I mean, we're used to making a recommendation and it taking a while.

I mean, the health reimbursement arrangement, we were, we were prepared to make a vote last year in March.

We delayed it in April and to June thinking that nationwide would make some improvements to their reimbursement process.

And yet March, June didn't matter.

We're not implementing till August of this year, 14 months later.

So it's, it's not ideal.

It's not ideal to have it take that long, but, um, we're, we're used to it.

So, um, so let's hear about collective investment trust.

Okay.

Okay.

Uh, thank you all.

Um, so I just wanted to start with, uh, the item that's attached or that's linked here for this particular, uh, agenda item.

And on the left hand side, uh, just some characteristics or features of mutual funds, which we have currently as our investment options in the city, Sacramento lineup.

Um, and on the right hand side, just some comparative features.

This is a somewhat limited, but pretty high level.

These are the most important differentials between the two, um, strategies, a mutual fund on the left, collective investment trust on the right.

Collective investment trust, limited qualified plans.

What that means is retirement plans.

And that's why, um, Vanguard, JP Morgan require paperwork to be filled out from the city of Sacramento saying, yes, we authorize that this 401 a plan is a qualified retirement plan to be able to be a part of this collective investment trust.

And then that has to be done for each of the four 401 a plans plus the 457 plan.

And then there's additional documents as well.

So that is a cumbersome process, but certainly one that, um, you know, once I think clients are comfortable with it and hopefully the parties are agreement with the language that's in there.

Um, then we can move on and actually take a look further at, does this make sense for city of Sacramento participants?

We're getting the sense from the committee that, yeah, maybe we do want to move forward here.

Um, our clients, uh, in large part have adopted collective investment trusts, uh, where applicable.

And that applicable part is important because as was mentioned earlier today, um, you know, not all plans qualify, right?

So we have a hundred million dollars now, 128 million in, in target dates.

And so, uh, once we hit that hundred million mark, so we're well over that threshold, uh, for Vanguard, where we can move into the collective investment trusts.

Uh, as far as the regulatory body goes, uh, just to finish out this particular chart for mutual funds, they are registered.

Uh, so you have an NAV, you have a ticker symbol securities and exchange commission, the regulatory body for the CITs, not the SEC, but it's the office of the comptroller in the case of Vanguard in the state of Pennsylvania.

So there is oversight. There are fact sheets. There is all the same information, same glide path, same underlying portfolios, management, et cetera.

But there's no ticker symbol, right? There's no registration. I can't just get a collective investment trust through an IRA or through Charles Schwab.

So back to kind of that exclusivity that we have at the city of Sacramento and that we can potentially provide to our participants is we can get them these ultra premium share classes such as CITs or collective investment trust.

So in the case of the target dates, what does that actually mean? And you're going to be like, Rosh, what?

So total savings, we would end up moving, uh, from our current, uh, our current mutual fund versions.

I was going to say R6, but the North, the R6, uh, the current mutual funds, uh, on that $128 million, which are at eight basis points down to the collective investment trust.

So there's different share classes. Once we hit 500 million, we can go to six and a half, but we're not quite there yet. We will be. Um, so we can go to seven and a half basis points.

So that half a basis point savings for participants that are in target dates is $6,422 per year. So just on the savings aspect of it, not a whole lot.

Not a whole lot. I was surprised how low that number was. Right. Well, cause it's because we're already so low to begin with. Now, when you're just talking a half of a basis point on a hundred, yes, that's a big amount of money, but it's still just a half a basis point. It's $6,000.

So why do plans consider moving from mutual funds to collective investment trust? The story starts to be in the returns of the collective investment trust, which are net of that half of a basis point fee.

But then if you start to notice, so the CIT is right here. So this is the 2025. So we have this orange right here. And so, uh, the expense ratio, seven and a half basis point on the CIT, eight basis points for our current option that participants have.

But you look at the returns and there, there's a difference greater than the half a basis point. That's where it starts to become compelling to move into collective investment trust. What's happening here?

Not always though.

Not always exactly. Thank you. Uh, but what's happening here? Vanguard.

In the case of these target dates is on any international exposure. As we mentioned earlier, there's international exposure in these target dates.

They are paying the tax remediation. So whenever there's any tax exchanges that occur, Vanguard is actually paying them for the collective trust only, not the mutual fund versions.

When Vanguard picks up that tax bill for investors that equates out to three or so one to three basis points, depending on the vintage.

So now we start. Go ahead and Samantha question.

Uh, is there another way that maybe you could phrase what you just said in a more basic, like, why does an investor have this tax event? Is it when dividends are paid out?

Is it like, is there a way to rephrase this at a lower?

Um, yes. In, in short, in, um, in a mutual fund for, uh, for dividends on foreign stocks, they still have to pay a little bit of tax to certain countries.

In a CIT, they don't. Um, this is, that's as simple as that.

And that not paying in a CIT sums to about one to three basis points in extra return for it versus the mutual fund.

That was pretty succinct, maybe too succinct.

So if there are questions on the subject, I think, um, and if anyone else is also a little confused, please speak up.

So, um, just, I have, I'm 457, 401A plan here at the city.

Some, I'm invested in these van, in a Vanguard target retirement fund.

I have an individual brokerage account at Vanguard, and I have money there invested in the exact same Vanguard, um, target date account or fund, right?

Um, now in my individual brokerage account, I am getting a 1099 on dividends, and I will see foreign tax on there.

But I don't see anything like that in my investments in my 457 or 401A.

My dividends are getting reinvested.

And, um, so are participants in these plans and these funds seeing this now, this, this foreign taxes?

Where do we see this?

Um, I would say it is not seen.

Okay.

It is simply paid from the net asset value of the fund.

I got you.

Okay.

Thank you.

So there's no paperwork or accountants or anything like that.

And then.

It's like they're, they're, they're paying rent on their buildings.

They're, they're sending mailers out at an expense.

This is just another expense that they have.

And when they have the expense, it reduces how much we earn.

Okay.

Essentially, yes.

Yeah.

It's just less that goes back into investors' pockets.

And so as long as Vanguard knows that a plan can qualify in that the sense that it is a tax deferred plan, uh, in the case of our 457, 401 A's, then for the collective investment trust, Vanguard is willing to pay those tax dividend, the taxes on those dividends.

Uh, and we see it.

Uh, participants wouldn't necessarily see it because they're not going to see this comparison graph here.

But if you go down these charts, you can see, generally speaking, the line above the orange is going to be slightly better, one to three basis points, in some case a little bit higher than the actual orange banner.

And that's where we do see that particular outcome.

So, um, benefits to participants, uh, are.

The immediate $6,000, uh, in terms of the cost reduction, but then a performance boost.

That's what Vanguard actually calls it.

I don't think that's their technical name for it, but a performance boost in terms of the overall, um, uh, performance of the funds based on.

The international international tax remediation, which is a fancy way of saying what Tom just explained here.

And so, um, more and more plans are moving to collective investment trusts.

Um, and, you know, years and years ago, it was harder for record keepers to record keep collective investment trusts.

Now, because you have something called a Q SIP, which is just a fancy way of saying, well, if there's not a ticker symbol, do we have a fund identifier anyway?

Yes, we do.

Yes, we do.

It's a Q SIP and more and more participants.

I mean, not as many people read the newspaper anymore looking for ticker symbols necessarily.

You can load in all this data into whatever software you need.

Um, so a lot of the headwinds that collective investment trusts had years ago, they don't necessarily have them.

Um, and so for a lot of the reasons we're talking about today, plans that do qualify are now just starting to move in that direction.

I wasn't here at the last meeting.

However, uh, Vanguard may have mentioned this more of their target dates now are in collective trust than are in retail or they're, than they're in the mutual fund version.

Um, for the reasons that we're noting here today, just a lot of plan sponsors are moving in that direction.

So, um, all of this being said in general, uh, I know we're just talking about the target dates, but it's a more compelling, um, even a more compelling discussion for JP Morgan.

As we saw those numbers, um, as it relates to, we'd actually reduced potentially from 44 basis points down to 39 basis points.

And there was an even bigger performance boost, mostly based on the tracking error, uh, into the positive as it relates to JP Morgan.

Um, and why is it different in the collective trust versus the retail?

It's just based on cash flows, right?

Every couple of weeks, money's going to come into retirement plans.

Money comes in and out of, uh, the mutual fund versions more so on a daily basis.

So the cash flows are just different, which causes that underlying performance tracking error to be a little bit different.

It's like, why am I looking at a 2025 fund and a 2025 fund and the performance is just a little bit different or JP Morgan.

Large cap growth, JP Morgan, large cap CIT.

The performance is not exactly five basis points better.

It's even better than that.

It's because of the cash flows coming into the portfolio.

Back to the point you made earlier.

Sometimes that works to the negative, which is another thing that we always look at when we do recommend CITs to our clients.

Does it make sense?

Yes or no.

Um, in these particular cases, we believe it does make sense to move to the CITs.

If the city and all the paperwork and everything, um, is, is something that you're comfortable with.

Um, in both, um, in both cases, uh, once we get, you know, another 7 million or so under our belt for the JP Morgan.

But we're there for Vanguard, um, but certainly, uh, defer to the city as far as process and, uh, reviewing.

We would assist with all of that, by the way, as it relates to the paperwork, um, in terms of filling out what to fill out.

Uh, and there will be questions back and forth, et cetera.

Vanguard is, um, they are setting their ways to a large degree.

So, um, but they do bend, uh, as it relates, uh, to requests from our clients.

So, uh, I would imagine we'd probably have a few things here at the city of Sacramento that says, it's got to be this particular way.

Take it or leave it Vanguard.

And I think eventually they would, they would acquiesce.

So it's a lot of information.

I'll stop there, please.

Um, I have a question.

So can you reiterate what it would take to get from the seven and a half basis points to the six and a half basis points?

It looks, it looks like we currently have $128 million in, uh, target date funds.

We need to be at 500.

Oh.

Yeah.

All right.

However, let's hold out hope.

Vanguard is continuing to move those numbers downward.

So if they have a $250 million bogey, which Tom is negotiating with them all the time about, come on, Vanguard, then we're getting closer.

But we're, yeah, we're a bit a ways from that.

Got it.

I mean, I'll just speak for myself and say, I mean, it seems like a lot of administrative burden.

And I don't know that the benefit cost is there.

I'm, I'm actually mostly concerned with how this gets explained to plan participants.

It, it sounds a little kooky.

It takes a little bit of time to kind of wrap your head around.

What is this CIT thing?

Why is it different than, you know, um, something you can buy on the open market that has a ticker symbol?

So I, I don't know.

I'm not, I'm not fully convinced.

I'm not, I'm not really persuaded either way at this point.

Um, but just recognizing there is, you know, I guess the one other thing I'll flag on kind of administrative capacity, which would just be, I know, um, the September 2023 update to the, um, investment policy has not yet gone forward.

And so that's just an example of, you know, if we continue to pile on, you know, administrative requirements and, you know, I don't know how much progress we'll be making as a committee, but that's just me.

I, I, I have a couple questions.

Um, as someone who monitors my ticker symbols right here on my phone a few times a day, cause I'm obsessive.

Um, as with, I know there are no ticker symbols myself as a participant.

What am I going to go look at to see how this is doing?

The nationwide website, the nationwide website.

Okay.

Okay.

And then just a reminder for the committee as well, the, if we move to these, um, CITs, they will not be implemented for the PEP plan.

We will have, um, stick with our other target date funds that we have.

And then for the compliance piece, um, for the CITs is the compliance.

We'll still see this U S fund target date.

Yes.

And then what does the compliance look like with the CITs for 401A and 457 and the non CITs for the PEP plan?

It'll just, it'll be a lot longer list.

Okay.

All right.

But we will see them.

And in fact, had we had CITs this quarter, I think only two of the CITs were out of compliance versus the five or so of the mutual funds based on their performance.

So the CITs did do a little bit better of the Vanguard target retirement.

So I'm going to interject right now.

I need to make a motion to extend the meeting for an additional hour.

So I'm going to make a motion that we extend this meeting for an additional hour.

Second.

I have a motion by chair Hoekstra with a second by member Rogani.

I'll now do the roll call vote.

Please unmute your microphones.

Member Rogani.

Yes.

Members.

Member Zalaski.

Yes.

Member Kang.

Yes.

Member Tunson is absent.

Member Gardella.

Yes.

Vice chair Levison.

Yes.

And chair Hoekstra.

Yes.

Thank you.

The meeting is extended.

Thank you.

I have a quick question.

Going back to you're using the Vanguard target funds for the, you know, the examples here.

And you mentioned one of the main benefits is not paying foreign taxes.

So for each of these options, what kind of exposure do we have to the international markets?

And does it vary based on, you know, what kind of time horizon we're looking at?

It does, starting with the last question, yes, it does vary based on the internet, based on the time horizon.

For longer dated funds, it's about 40% of equity exposure.

And that's of which, longer dated, so say that's about 2040 and beyond.

So it's about 40% of equity exposure.

And equity exposure goes as high as 90% of the total.

So about 36% in international equities.

For international bonds, it's about 30% of the total fixed income exposure.

So that's about 40% total exposure to international stocks and bonds for longer dated.

It, that mix stays the same year over year.

So it doesn't, it's not like 65% U.S. equity, 35.

It stays at 60-40, regardless of the date.

But the amount of equity exposure starts to shrink at about 2040.

And at the retirement date, it's about 30% equities, 70% fixed income.

So that's, and for shorter dated ones, as if this doesn't already have too much detail in it,

they also include allocation to short-term U.S. treasury inflation protected securities.

So it, it drops in short as you get closer to retirement.

I have a question.

If, if we switch to these and down the road, the city, you know, something happens and we want to get out of these,

because we want to now offer, we're unhappy with the performance over a period of time.

We're done with Vanguard.

Now we want to offer Fidelity target date lineup as an example.

What does it take to get out of these?

It's just like any other fund change.

No delays or anything to that matter.

And I don't know enough to know what other kind of target date fund, non-Vanguard target date fund options are out there.

I am aware of Fidelity.

Is, are the, the hundred million, the, the dollar requirements pretty consistent against CITs and, and other options or?

No, it's, it's a mixed bag across the board.

And we, the fiduciary consulting group, have negotiated also deals with other fund companies.

So in the event that, that we do get to that point, we have other low cost active and passively managed suites to consider.

Okay.

What other target date funds with CITs do your other clients use?

The main alternatives that we use are T. Rowe Price, American funds.

We also have some with State Street.

That's not to say those are the only, there are other competitive alternatives out there, but just for our mix of business, those have tended to be the ones we've made the most use of.

And American funds were the ones that we moved out?

Nope.

That was American Century.

American Century.

American Century.

Thank you, yes.

All right.

And I have one more question.

So speaking from just an individual's perspective, these are, and I think you mentioned it earlier, but these are just as liquid as just a typical mutual fund.

That's correct.

Okay.

I had a question.

I noticed the regulatory body is different.

Does one of them have a better track record than the other one, or are they just from a, you know, fraudulent point of view?

Or, you know, I don't want to switch and not be as, you know, safe, so to speak, you know, like as far as regulatory and fraud or anything else, like disorder.

Go for it, Mr. Sean.

Go for it, Sean.

Go for it, Sean.

Go for it, Sean.

Go for it, Sean.

So I would actually say, just given the clientele, it's hard to make an all-encompassing statement for these.

But what I will say is that collective investment trusts, for that investment vehicle, the Vanguard is held to a fiduciary standard of care,

which does not apply in the case of a mutual fund.

So just the same, I have not seen regulatory action in at least pertaining to Vanguard or many of the other players in this space,

regardless of the investment vehicle.

So it's, I would say I don't, we don't have elevated concerns on one side or the other or see a track record,

at least pertaining to this group, this investor group and these investment vehicles.

Thank you.

Good question.

Kind of a topical comment here, not meant to be political at all, but, I mean, the Securities and Exchange Commission is a federal agency

that is facing some cuts to its labor force, whereas the office of the comptroller would be, in this case, state of Pennsylvania.

So, you know, haven't thought of that necessarily in the past, but that is something just to also think about.

But, I mean, the SEC is not going anywhere, you know, necessarily.

Ross, your report indicated about a $6,400 savings based on the lower expense ratio, which is fairly insignificant.

Are you able to put some sort of estimate on, let's say, for the last quarter or for the last year,

if our participants, with the mix that they have and the amount of money that they have in their target date funds,

if they had been in the CIT version, what would the gain in their, you know, through performance,

what would that have translated to an increase in their, in the value cumulatively to their funds?

Mr. Vice Chair, I can answer on Raj's behalf.

We can certainly perform the exercise as just some back-of-the-envelope math.

Since, you know, for example, the fee savings is one-half of one basis point, and that's $6,400,

and the value expected to be added from the dividend tax reclamation ranges from one to three basis points.

You can estimate that to, you know, conservatively be still only $18,000 a year, a bit higher.

Yeah.

Whoa.

Are there any other comments from the committee?

Sorry, just out of curiosity, the J.P. Morgan fund that was just approved,

would that be part of this process as well since they offer a CIT or that needs to be a separate standalone process?

And then does this create a slippery slope for the remaining Tier 2 funds?

So the last question first, I don't believe this creates a slippery slope.

It would be a separate process, Ash, in the sense that we'd want to have a process with J.P. Morgan, a process.

Ideally, you would try to combine it all into one lump of a process, but I don't know necessarily if, you know,

it seems like we're a little further away on the J.P. Morgan side.

And the other thing is we don't get the flows into J.P. Morgan cash flow like we do in the target dates.

Those receive significant cash flows every quarter.

You know, J.P. Morgan, they get cash flows, but I think it's going to take a little while to get to $10 million.

Anyone else?

Are you done with your presentation as far as that?

Yes.

Okay.

For the record, we had no public comment on this item.

Thank you.

I was just going there.

Now you're good.

We're both on it today.

Okay.

I'm just talking out loud here.

I was really excited about this originally because of the cost savings and the better performance.

But when I...

It's kind of fizzled out, didn't it?

Yeah, that's where I am.

Yeah.

Yeah.

Yeah.

I think...

Not that we should say no, but I just...

I don't know whether the pushback from participants, because of the concern that, like, Samantha raised about, you know,

how do I look it up and why is it different is just enough justification...

It would override the justification of, like, oh, you're going to save a lot of money.

Oh, how much?

Well, as a group, $50,000, $40,000, $30,000.

What do I get out of that?

A buck or two.

I don't know.

And I think, Marie, that speaks to why the item right now is, like, a continued discussion and direction instead of a formal motion.

Because when I saw numbers and I had a recent meeting with Rosh and Tom, just keep...

We keep learning about this continuously that, from our perspective and the plan administrator's perspective,

it felt a little too soon at this meeting to ask for a formal recommendation.

And wanted to hear more of this discussion today.

They be able to get a sample of all these documents, have the city attorney's office look at it,

have an understanding from their perspective of what might be some roadblocks for them,

and evaluate how we get over those roadblocks and come back and say,

okay, are we doing this or not?

Make the formal recommendation, and this is what it's going to take to get it done.

Some of us were a little like, oh, wait a minute.

That's the number.

Underwhelmed.

And knowing our everyday participants and kind of what they're looking at and what they want to know,

what they understand.

And then also knowing how to get out of these.

What other CITs are available if we wanted to get out of these in the future and switch to something else.

So it just felt like an item that a lot more discussion needed to occur in today's meeting.

The JP Morgan savings would be about $52,000 a year.

So that's significant.

Rosh, I think you maybe have oversold it in the month leading up to today.

Well, I think what we've got to think about, too, is we have a negative cash flow,

and our plan, you know, money's going out of the plan,

and are we going to drop below thresholds at that point for the CITs?

I think you'll be all right, though.

I think you will because the flow's coming into the target dates.

Really, it's frankly the fixed account that's our biggest challenge right now.

Okay, it wasn't that long ago when we were in the high 90s and Rosh started talking about it.

Now we're at $128 million.

The first quarter overall wasn't great.

Of the reports that you're looking at today are from the first quarter.

We had $3.5 million come into the target dates in the first quarter alone,

so just in terms of cash flow in.

And then we had the $2.1 million transfer in as well, so about $5 million in the first quarter.

Maybe we could shelve this for a while and talk about it in a year or so.

I mean, that's just throwing it out there.

I would suggest that the committee say,

staff, continue to pursue what it takes to get this done.

You'll learn more before the next meeting.

Come back with an update at the next meeting.

I think the conversation needs to continue to happen now that I've learned

what it takes administratively to get this done.

So I wouldn't want to wait and shelve it completely.

I just think the conversation needs to continue to happen so that

when we absolutely want to pull the trigger,

we can pull the trigger and have a specific timeline.

That would be my recommendation as staff.

I appreciate that.

For the committee to consider, then verbally directing staff to.

Unless the committee is firmly against even going forward.

Correct.

Absolutely.

Of course.

Yeah.

Would that be a motion?

No.

It would be a conversation.

Okay.

I think it's worth monitoring.

Sure.

I mean, it sounds like different vendors have different terms.

So, like, obviously it sounds like JP Morgan gives you a little bit better deal

than Vanguard right now.

But if Vanguard were to kind of loosen up or negotiate better terms,

it might be worth keeping on the table at least.

Because right now it doesn't seem like for sure with those targeted funds

it's worth going through all the paperwork and other things to do it.

But potentially in the future.

Especially if they do get their processes streamlined more.

And it's not as much of a burden to, you know, to get everything submitted for them too.

And I, you know, HIAS does have a responsibility to bring this information forward to the city and the committee

and make sure that everyone is aware that this is sitting out there.

These are the impacts.

These are the pros and cons.

So, of course, as time goes on, their responsibility remains the same to continue to communicate about these

and make sure the committee understands the options that are available and what they mean.

So, I don't want it to be perceived as high as pushing one way or another for something to happen or not happen.

But overall they do have a responsibility to make sure we're all informed of these options.

I appreciate knowing about it.

I just, my expectations were high.

That's all.

Based on what I, I couldn't even imagine what the, what the benefit to the participant would be.

And now that I see it, it's, if I had known earlier, I still would have wanted to know more about it.

But I would have had more reasonable expectations.

That's all.

Well, if you want to continue to pursue that, I think that's a great idea.

I mean, is the sense of the committee that.

That's where I'm at.

Anybody, please speak up.

Should we, should we not continue?

Is there a sense that we, it's like, you know what, we're done with this.

Don't even bring it back or don't talk about it for another year.

I think we need to hear that, right?

I don't necessarily feel that way.

I think it's premature to, to want to move forward with this.

But it seems like an ongoing discussion seems appropriate.

Do you feel so?

No, I think we need to continue the discussion.

I'm not ready to say no at this point, but not ready to pull the drawers, I guess.

Yeah.

Jeremy?

Jeremy?

Yeah.

I think we compare the first quarter.

If we can compare potentially the second quarter and the third quarter and see what the differences are.

I mean, it could lean one way or another.

So I definitely want to keep the conversation open.

So, Rosh, as part of the HIASIS quarterly report,

could we have something just within that where there is taking a look at this page right here,

where it's really easy just to see this part of the comparison,

if it's possible in the next couple quarterly reports to continue having something like this,

I think would be helpful.

Yes, just this page here or then also the performance pages as well.

Performance page, too.

I think, yeah, we'd have to see that.

With another, you know, even a back-of-the-envelope estimate of,

based on the dollar amounts here,

this is what the difference in return would be for our participants.

I just want to be able to quantify it.

So if we want to sell it at some point,

I want to be able to articulate a good reason why we've made people's lives a little more challenging.

I had one more question.

Did we hear about, like, the tax savings for the dividends for the,

it was for international funds only, right?

I didn't hear a cost associated with that.

It was lower basis points and a little bit increased revenues, but then what the tax...

About that $12,000 in addition to this, so $12,000 to $30,000-ish, in addition to this,

this is just pure cost savings right here, Jeremy.

That additional, when Tom quoted $18,000, $12,000 or so.

Yeah.

Better at performance.

Yeah.

Okay.

So you're saying it's 1% to 3%, then we take the 6,000, which makes it 12% to 36,000.

Approximately.

Back of the envelope.

Yeah.

So we're talking about 18,000 to 42,000 difference.

Thereabouts, yes.

Yeah, thereabouts.

Okay.

Total that the participants would see for an annual.

That is correct.

There's still no public comment, correct?

Correct.

Okay.

Is there any more comments on this item?

All right.

Let's move to item number four, money market product review.

Receive and comment.

Okay.

So HIAS has provided another document, the May 2025 document.

It was requested to bring more information back.

And they can certainly go through the pros and cons of adding this money market fund.

Again, yes, this is a review and comment item.

You will see in the staff report, and I'm sorry, let me get to it right here.

The direction at this point, in order for writing a specific recommendation for the committee to pass a motion,

you'll see in the staff report, the city is concerned that adding a money market fund may discourage participants

from investing in options that offer greater long-term growth potential for retirement savings.

Additionally, the plans already offer the nationwide fixed fund, which provides a guaranteed return

and serves a similar low-risk purpose.

So therefore, staff has not brought forward a specific action for the committee to recommend

and have brought this back for further review and discussion.

And based upon the discussion today, we can certainly bring it back for formal recommendation.

So with that, I will turn over to Roche to review the updated information.

And I believe the options for the money market funds that are being presented.

Yes, thank you, Samantha.

Thank you, Mr. Chair, committee members.

So we've talked a bit about money market options as a potential addition to the core lineup.

We did this about 18 months ago, maybe two years ago.

And at the time, it was kind of, well, you know, interest rates, they were high.

They're going to start to come down at some point.

We may just be adding an option that we're just going to end up taking away

because the nationwide fixed fund is going to be higher eventually again, like it always had been.

But that hasn't been the case, right?

Interest rates have been stubborn.

They've been sticky.

And so the nationwide fixed fund also has unfortunately, you know, hit some tough times.

The rate is 2.3%.

And so that's why we're having conversations separately with nationwide.

And so I appreciate you all asking us to go and look for some money market solutions.

There's no recommendation here today like there was, as Samantha had mentioned, for the large cap growth fund.

However, we did a search, and I believe there was a request as well.

Could you look at money market funds that might have some international or corporate bonds as well, some exposure to that?

Our team looked at over 900 money market options within the Morningstar database,

and they were of the ones that had international or corporate bond exposure.

None had outperformed the options that we have here today on a three- and five-year trailing.

And then some had minimum initial investments of $250 million.

So they are out there.

They're just hard to get, and they aren't performing quite as well as what we have here.

However, even though we do have some options to consider potentially at a later meeting, what are the pros and cons?

So back to your point earlier, thank you for teeing that up to a degree, Samantha.

As far as we want you all committee members to just kind of know what's out there, right?

Our participants, we've got $120 million, or they have $120 million in the fixed account, you know, earning 2.3%.

So I think it's incumbent upon all of us in this room to have a discussion about, well, what else is out there, right?

And so the pros, as you can see, in terms of they're faster to adjust to higher interest rates, right?

Fed changes rates, they go up.

Fed changes rates to the negative, they go down.

Relatively low management expenses.

There's no liquidity provisions to worry about.

So very easy-to-administer type investment options on the surface.

However, they've been underperforming for years and years based on the fact that interest rates have been zero for years and years or pretty close to that.

And so even plans that we do have that have money market funds, it would be a side car, if you will.

It would be a separate fund, but it would sit next to the nationwide fixed account as a separate investment option.

We do have plans.

They don't have a very high take rate, you know.

So is it just visibility?

Is it participants that are just used to that nationwide fixed account, whatever that might be?

And so some of the cons as it relates to money market funds are when rates go down, they're going to be quicker to adjust down.

And they are considered a competing option.

As I just mentioned, they sit next to the nationwide fixed account.

So if I'm a participant and I want to transfer out of the fixed account to a money market fund, I can't just do that.

I actually have to move out of the nationwide fixed account to another fund for 90 days and then move into the money market fund.

And that's just because of capital preservation funds, fixed accounts, stable value funds.

The way that the contracts within those funds are written is they have to know cash flows in and out.

One of the ways that they can kind of keep a lid on things is to have this 90-day equity wash rule.

So we talk about making participant lives a little bit more difficult.

This would be something that would make lives a little bit more difficult because now we would have this equity wash rule that we don't currently have today.

Yes, we'd have a money market fund, but we'd have this restriction in place.

Go ahead, Samantha.

And it's possible within that 90 days that that money market return is changing.

It's possible.

Up or down, either way, but it's going to change potentially.

Sorry, just to clarify, are you saying that it can't be part of your paycheck deduction allocation?

It can't go directly out of your paycheck into the money market?

It can go into the money market.

If you have, for example, right now, Ash, if you have 10% of your current portfolio is in the nationwide fixed account and you want to move that, let's say there's a money market also available in the lineup,

you want to move that 10% or a portion of it to the money market, you have to put it somewhere else before you can go to the money market for 90 days.

So, and you could, but your new contributions, you could say, I'm going to go right into the money market.

That is okay.

So, if your money from your paycheck goes to either your 457 or 401A, you can log into your nationwide account and say, I want new money coming in to be invested this way.

I want money that's already here to be invested a different way.

That's done within your nationwide account.

Right.

The reason why it's confusing for me is I'm a self-directed option PCRA participant.

And so, I have certain funds that go directly to nationwide fixed.

And then as soon as it hits, I pull them out, put them into Schwab.

It's kind of painful to do that every two weeks, but I do it.

And so, I'm just, that rule, that 90-day rule doesn't seem to apply in that scenario where I'm pulling it directly out of the nationwide fixed account as soon as it hits out of my paycheck.

Am I, I don't, I feel like I'm missing something, but.

No, it wouldn't.

If you were to pull that out of your nationwide fixed and want to go into a money market fund, not Schwab, then that's where the 90-day rule would apply.

Oh, okay.

So, it's only for money market.

That is correct.

Yep.

So, um.

Rosh, in the, in the report, though, on the, that second bullet point on the cons, where it says generally, and later it says typically, for this plan, it is a requirement.

Yes, it is.

Okay.

I didn't know why you were being vague there.

Well, we, we've got clients that have it, have had it waived.

Oh.

Okay.

Okay.

Okay.

But that's a different animal than the nationwide fixed account.

Okay.

So, that's why we're saying generally and typically here.

Yeah.

But, but, but we weren't talking generally.

I think we were talking, well, maybe we were.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

So, the investment options potentially to consider as the money market option.

So, I'm trying to do this without toggling back and forth.

But, if you remember that plan data roll up here, I can show you.

Whoops.

I can show you all really quick.

Trust.

Have faith in me, everyone.

I'm going to do this fast.

So, right here, when we look at our roll up, we could potentially add a fund right in here.

So, that's where it would live, this money market discussion that we're having.

And then, this fund would, if there was like an angry emoji looking at the money market fund, that would be the nationwide fixed fund.

Because now, potentially, the money market fund would start taking some of the flow that would be going to the nationwide fixed account.

The nationwide needs so desperately to buy at current rates, it would start potentially diverting to the money market fund, potentially.

Because, when you look at the one-year returns on the money market funds, and this, again, is for participants that really look at things.

We're not at 2.3%.

We're at 4.83%.

4.28%.

4.29%.

So, much better performing.

And, the reason we didn't talk, I think, at length, or look at, we didn't have such a big analysis the last time we talked about this,

was because we kind of felt like the 4.8% was going to be, okay, one and done.

You know, one year, and then we're going to be back down in the twos or so, and nationwide is going to be off to the races.

And, here we are now a year and a half later, and that's not the case.

So, back to that comment again, thank you for that, of just making sure the committee knows what's out there,

and does it make sense from a structural standpoint, kind of knowing the pros and cons,

to just add a money market option to our lineup for participants,

knowing that we're going to have a 90-day equity wash and all that.

That's something that we could consider potentially at a future meeting.

And, I don't think that this narrative is really going anywhere, because interest rates don't seem to be going anywhere.

What did the Fed do?

Does anybody know?

Did they not change?

No change?

Well, and then, I mean, we see the year-to-date and the quarter as well.

Is there a reverse situation where I want to move my money out of the money market fund into, back into the nationwide fixed fund?

Is there a 90-day wash on, I can do that immediately?

Yes.

Okay.

And, you can move your money from a small cap fund into the money market,

and then take your fixed and put it into the small cap.

Yes.

And, still accomplish it, like write that today.

Just that one relationship.

Yep.

From fixed to money market has to wait 90 days.

But, you can, there's ways to go around.

Is that right?

I want to make sure.

I believe so.

Yeah.

I would need to check on the money market in both ways.

I would need to check, but I don't think so.

I would need to check on that.

So, for the record, money market both ways.

Nationwide is going to confirm on that.

But, typically, it's definitely going out to money market from nationwide fixed.

Typically, coming back shouldn't be an issue either.

Because, again, nationwide wants the money.

I think Rick Watson is going to get a lot of phone calls on that.

He would.

He would.

For the clients that have added it, though, Riverside County, for example, large nationwide plan,

they have money market.

And, you know, there's like $9 million in the money market.

They have a billion dollars.

There's $9 million in the money market fund.

They've had it for about two years now.

So, it hasn't had a huge, like, surge, you know, in total.

And, I don't think we hear a lot about equity wash issues or, yeah.

Because, it'll notify the participant, right, the website and everything.

You'll get, as a participant, you'll get notice that, hey, you can't do this.

This is how this has to work.

But, it still is something that encumbers participant flow that we don't currently have today.

Is there anything you want to add, Tom?

And, we're looking at, for the column for the quarter, that's only through the first quarter.

Right.

I think that was another consideration on why there wasn't a direction to bring forth a specific recommendation.

Because, of what's been going on.

And, you know, what's the next quarter, current quarter we're in and the next going to look like.

Is this something that we want to look at for a couple quarters to monitor before saying yes?

Keeping in mind, I realize there's the discussion around the nationwide fixed fund.

But, that's also a guaranteed amount if you put it in there.

Which was supposed to be our stable value fund that makes people feel comfortable.

They put it in there.

They know what their return should be.

When keeping in mind that these are plans designed for hopefully long-term savings to grow your income for retirement.

So, we just want to make sure the committee has a really thorough discussion about this.

And, a level of comfort moving forward.

And, it's okay if that means let's see what another quarter does with these money markets.

Like, are they jumping back up to 4%?

Rosh or Tom, could you touch on maybe what drives the changes in these money market returns?

For instance, I know we just asked, like, did the feds make a decision today?

What causes these money market returns to go up and down?

Well, I'm sure, Mr. Rosh could also say, it's almost entirely a function of short-term interest rates.

So, fed decisions and then everything that keys off of that.

Short-term interest rates and money market funds adjust to that with a very slight lag.

But, that's almost the entirety of it.

Just to, for example, the current yield on the Vanguard Federal is 4.2%,

which is right on top of the federal funds rate average.

And, on that point, I do think there's a little more urgency around,

this decision.

You know, interest rates are not likely to stay at this level for, you know, the long term.

And, so, I do take a little bit of exception to the staff concern about discouraging, you know,

participants from investing in options that offer greater long-term growth.

You know, earlier we talked about this idea that people are potentially leaving the plan

because they're not able to access these stable returns.

And, you know, not everybody is looking for long-term growth.

Different people are at different phases of their careers and their sort of readiness for retirement.

And, you know, people should, as there is a glide path in the target date funds,

someone who's managing their own portfolio a little more actively is going to want to pull out of equities

and kind of rotate into a money market.

And, so, if we don't give them that option, they may go elsewhere.

I don't know what the data says on that, but I'm just a little concerned we might have missed the boat already,

given that, you know, I don't know.

My own personal perspective is I think we're likely due for a recession,

and that's going to cause interest rates to go down.

But, you know, we don't all have crystal balls.

And, so, I guess big picture we're talking about whether or not we give participants this option or not

and to deprive them of that option in the current environment where interest rates are higher

and they can get these higher returns.

I think we're sort of doing our plan participants a little bit of an injustice there.

So, I would personally be in favor of a little more urgency in moving this forward

and selecting one of these money market funds to be an option.

I agree with you, Ash.

You know, I had asked a similar but slightly different topic a year or two ago

for a review of the pro account because I was also very concerned about compromising long-term growth potential

for retirement savings, the same concern that I hear coming from management at this point.

And I wanted to make sure that people who were spending 30, 40 basis points extra using pro account,

I wasn't sure that they were getting 30, 40 or more basis points added value in their returns.

And we started to have that discussion and I never felt like it got completed.

We learned that Anaheim took a different approach and reached out to, I think it was their under 40-year-old people

who to give them a better explanation of, you know, you've got target date funds.

And maybe at your age with this many years of working ahead of you, maybe you can just, you know,

be aware that they cost very little.

Pro account, it's not an individual managed thing.

You don't get individual consultations.

You're in one of 46 groups.

And they change you very slightly every three months because one of my funds, one of my plans is in the pro account.

Just wanted to see what, how it all worked.

So I had that concern and we didn't get that recommendation that I thought we were heading toward.

So I appreciate, Samantha, that you've expressed that reluctance.

I had that very same concern about preserving long-term growth for our participants.

And that's why I was looking at pro account.

And I still have that concern.

But I'm with Ash that I think we need to give people this one additional option and then maybe we figure out which one to do.

John, I have a question for you on timing.

If you could be a mic for this.

I have a question for you also.

And then also I would just, I don't know if we've heard from the committee which specific fund that the committee would be interested in adding.

But, John, is there a similar timing to be able, let's say we were to add this, is this something that could get added right away?

Is this another thing where, oh, you know, the plan administrator notifies you to add it and then it's a month?

What's the timing of adding the fund?

How does that work?

Yeah, in theory we think it would be faster.

Let me check.

I don't want to commit right now and then not meet expectations.

I can check with Kim.

And I can get you an answer probably in less than five minutes.

I just need to check with her.

Okay.

And then for our attorney, does the committee have the ability to put forth a recommend, make a motion if they want?

You're saying right now at this meeting or in general?

Yeah.

If the committee said we actually want to make a motion to recommend something today, can they do that?

Yes.

I think that as agendized, I think there's enough notice that they can make a recommendation on it.

Okay.

Hi, John.

My question is, is there on the nationwide, because basically this is for people who are going to switch and move their money in and out of this,

they're managing their own account, which is what I do.

Is there something you could put like on there, like a pop-up saying, hey, when you move your money into this,

if you want to move it out, you know, to like a disclaimer, so to speak,

if you move your money into this money market account that, hey, you're going to have to wait 90 days,

you're going to have to move it into another fund before you move it back to the fixed fund.

Is there any way they could add like a pop-up to the website that would inform them just to thwart all the calls that Rick Watson could potentially receive on this item?

There would be disclaimers on there, yes.

Okay.

On both sides.

Okay, good.

Yeah.

Rick's knowledgeable and has been trained on all that.

He's already aware of that.

Rick's worked on other plans that have that provision in place.

Okay.

So he's the expert on making those explanations.

Right.

Just, you know, if I'm doing it myself at home, I see, okay, now I know I can't do anything for 90 days or has to go somewhere else.

Yeah, it's in plain English out there.

So people will be aware there will be no confusion.

And Kim Arter responded, it would go through the normal fund release program,

so it would be about 60 days to add a money market fund.

So if we added one, let's say today, then it would be September, it would be the same date as the fund change.

There just wouldn't need to be a participant notification, but it's allowed to go through the same release timing-wise.

So we're looking at September, I think it was the 12th, to add one if there was a decision made today.

Yeah.

So it would be, if we waited for next quarter, it would be waiting for next quarter plus two months after that.

So it would be five months.

And then there's also money market funds available in Schwab.

As we know, those are also options to consider.

If someone needed one right now, they could get one in Schwab.

And there's many out there to choose from.

And then, so back to the recommended funds.

I don't know, maybe I missed it, but I wasn't sure if there was something specific being recommended.

Right, I was just going to ask that.

Out of the three you've shown us, is there one you recommend?

Yes, Mr. Chair, our recommendation for that is Vanguard Federal Money Market Fund.

That fund we have broadly used across our clientele.

Highest performance, lowest expense, very large institutional presence.

It's the base of our rationale.

I was going to suggest the same fund for the same reasons.

Lowest expense, mainly.

Are you getting yourself in trouble by adjusting a motion?

Yeah, if you want.

I mean, the floor is yours.

No pressure.

So are we recommending, are we taking action?

What is the, I mean, I think the intent is to ask staff to move forward with this process of making money market fund available,

and specifically the Vanguard option that's presented.

But are we just recommending?

Yeah.

I would take a different view.

I would say that the bylaws and the investment policy statement make it clear that the committee has the authority to add, change, replace funds in the fund lineup.

Just like we did on the watch and the replacement, I don't see this as any different.

I have one more clarifying question for Nationwide.

Is the money, is this money market fund allowed in the PEP plans?

Would we be able, it will be able, the PEP plans can have a money market fund as well?

To the best of our knowledge?

Yes.

Okay.

They are available in HRA plans, yes.

Okay, so I think that too, if committee is putting forth something today to specify that it's 401A, 457 and the PEP plans.

Sure.

Okay.

Jacob Redberg, Office of the City Clerk.

Question for the City Attorney's Office.

So this agenda was publicly noticed with the recommendation that this was a review and comment item.

Can you again state for the record if the City Attorney's Office is okay with taking a motion on this item today, although it was not agendized that way?

Yes.

I think there's enough public notice that this topic is being discussed.

And because the action item is a recommendation, it's non-binding on the plan administrator that we can move forward with it.

Thank you.

Thank you.

So in that case, I would not be able to vote yes.

Because I voted no on that motion.

Why not just make a motion on the agenda item at hand?

Yeah, I think it should just be kept clean.

Yeah.

And make sure that it includes a clear statement that it's the 401A, 457 and the PEP plans.

Plans.

So I'll go ahead and make a motion to add the Vanguard Federal Money Market Fund to the fixed income asset class in the plan participants fund options.

I'll second that motion.

Thank you.

I have a motion by Member Raghani with a second by Vice Chair Levison.

I'll now do the roll call vote.

Members, please unmute your microphones.

Member Raghani.

Yes.

Yes.

Alternate Member Zalaski.

Yes.

Member Kang.

Yes.

Member Tunson is absent.

Member Gardella.

Yes.

Vice Chair Levison.

Yes.

And Chair Hoekstra.

Yes.

Thank you.

The motion passes.

Thank you, everyone.

Item number five, administrative allowance account budget for calendar years 2025 and 2026.

Yeah, this item is being brought back from a prior meeting, and you will see that Chair Levison did all the work on this.

Item pretty much.

In the main staff report, there is just a high-level summary of the information, and then there are a series of documents that were prepared by Vice Chair Levison, who I will certainly, if you want to provide any statement or overview,

but what's before you today is a recommendation to pass a motion approving the administrative allowance account budget for calendar years 2025 and 2026,

as proposed by Vice Chair Levison.

First, I want to thank my colleagues on the committee for their willingness to table this item at our last meeting and allow this, I believe, an improved version to be brought back to you today.

And I want to thank Samantha for taking the time to meet with me and work with me on this.

Actually, over the last two years, I had several versions of this.

I made an attempt in the multi-page background section to cover category by category, where we started from the first time this committee adopted a budget in 2021,

to how the money got spent and what we're recommending to be changed or adopted in this proposed budget, and then going forward a couple years into some projections to see how that all lays out.

The only piece that I think we didn't really know what to do with, but left it in as a recommendation anyway, was the kind of a member education,

where originally we had put some funds in there, but never identified any use for the funds.

Again, this original budget in February, or early in 2021, we were just early in our committee's existence.

We didn't really know what nationwide in education might be able to provide for us, and we made an estimate of, I think it was $4,000 a year that we thought we might use for

kind of unknown education of our participants and left it at $5,000 as a recommendation per year going forward, but still don't have a particular need identified or a cost identified.

And the staff report says, if you can't come up with one now, we could take it out and put it back to unanticipated expenses, but that was the only questionable piece.

But this budget allows for savings of 20% of the cost of an anticipated RFP per year, so that the end of the five-year period, the cost of the RFPs are going to be covered for the period that's covered in the report.

We meet the reserve requirement of having 50% of our annual operating expenses in a reserve for unanticipated expenses.

That's covered.

And then currently there's a bit in the unallocated, unrestricted fund balance, but that slowly gets built down, moved down in value over the next four to six years.

We still have the, we've made some estimate about what the cost would be for a, the next contract for investment consultant.

Samantha recommended a particular figure and that's been added to the budget.

And so, you know, there are some estimates here, some projections on what things could cost in the future.

And to the extent that those are accurate, then the budget seems to work quite well.

Anyway, happy to take questions from items or how things were calculated as they were.

I have a question about the allocations for the conference and trainings.

Mr. Chairman, can you go over the rationale for why the budget should be increased to 12,000 again?

Well, it would, at an average cost of about, you know, $2,500 that would allow four to five people to be able to attend.

The last, the conference this year is in San Diego.

Last year it was in Phoenix the year before in Seattle.

So those were closer, maybe a lower cost for airfare.

And the next one is in Florida.

And the one after that is in Texas.

And so there was a thought that, you know, a couple of years earlier it was in Baltimore.

Those tend to be a little higher for travel costs.

And so there are, there are some rotations.

So we just got through a rotation where the conferences were nearer and were probably more direct flights available from Sacramento.

So it was just looking at how, how things might increase in cost over time.

And then, uh, with, uh, hotel costs as well as travel costs.

Is there any more comments on the budget?

No.

Is there any, uh, comments on the budget?

No.

No.

Is there any, uh, clerk, is there any public comments?

Who wish to speak on this item?

Thank you, chair.

I have, uh, no speaker slips on this item.

Sorry for my, I do have additional questions.

Okay.

We can go back.

About the participation, uh, the participant education and events, the, the 4,000 that was, um, you know, kind of, I think it's 5,000 each year into the future.

And if we don't have any projected, um, events or expenditures, what happens to that money?

Is it just stay, does it just stay in the pot?

And then we.

It would, it would move to the un, unallocated.

Um, the, the unrestricted fund balance?

Unrestricted.

Yeah.

Whatever isn't used stays within the admin allowance account.

Yeah.

Yeah.

The, the money doesn't go away.

It's just, it's, it wouldn't be, it wouldn't be in that particular line item.

So it would be in the, we're not sure where it's going to go line item to be saved for.

Okay.

For some future allocation.

But in the future, if we had something like, let's just say we, you know, we've had this in our budget for the last couple of years, we haven't used it.

We don't plan on doing anything with it.

Um, if we remove it from the budget for 2025 and 2026, and we, and for some reason in 2026, we decide we want to do some sort of education or event that would require some expenses.

We would still have some funds left over.

We're just not budgeting for it for that year, but we could be used funds from the unallocated portion or no.

Or anything that's not spent.

I mean, this is, you know, I would view this as a bottom line of estimated expenditures per year and not every line item is going to come out to the exact dollar amount.

Some may be a little bit more, some may be a little bit less.

Um, but whatever is not spent remains within the admin allowance account to allow discussion on something that money does need to be spent on.

I will say that on the participant education events in the middle of all of this from the first budget that was done to now we renegotiated the contract with Nationwide, which I think we added in a marketing that we've, we've now have, um,

um, more opportunity, um, within that contract for Nationwide to pay for marketing.

So, um, we are utilizing funds to pay for the notices on the PEP plan transition.

Um, and so I just think, you know, we just don't know what might happen that we need to do some educational material notice something related to these plans.

So it's good to just have a line item budget for this.

Um, and, um, whatever is not spent is not spent.

It remains within the account.

It would be moved to a different area in the account.

And then at the start of the new year, it would be replenished from that year's revenue from the admin.

Yeah, anything not spent basically just becomes a part of the unrestricted fund balance that sits in there.

And then that dollar amount before 5,000 is replenished from that current year's.

Not if it's not budgeted.

Right.

If the budget is zero, then, then, you know, right.

But right now it's right.

It's fine.

What?

Excuse me.

It's, it's proposed at 5,000, but we're, we don't have a, a, a, a year for it.

Correct.

And so, so right now the way this is written though, it's basically replenished.

Whatever we don't use goes into the one.

If we spend zero, but we've budgeted five, then yes, then the.

And then again, and then the amount gets replenished from that year.

Yes.

Because if it stays the way it's proposed, there's 5,000 budgeted in each of the next two years.

Right.

It, but we're going to, this is an annual process, but the, the, the, the fee and expense

policy requires that we do an, a multi-year budget every year.

So we will do presumably another two year budget next year and we can rethink.

In very basic terms, we have one savings account.

Right.

We have the admin allowance account.

All the money is going into the savings account.

Yeah.

And this is just showing where it's.

We have, we have specific purposes within that savings account that we've, or, your

mark to, to hold in that savings account.

And then what we say are the proposed expenses for 2025.

We're just going to pretend that 96,000 sits in our checking account.

And at the end of the year, whatever we don't spend, it's going to go back into our savings

account.

It, but it all stays within the admin allowance account.

So it's not like if, if we don't spend the $5,000, we don't have that $5,000 available

to us to spend on something else.

It all just is held within the account.

The only time any money comes out of the account, if there's an, is if there's an actual expense

that occurred to reimburse from it.

It's not like in the general fund, if you don't spend it, it goes back to.

Goes away, right.

Yeah.

Somebody else.

And this is not a spend it or you lose it.

It, it stays.

But in order to manage, um, one thing we don't want to have happen is we don't, we don't

want this unrestricted fund balance to grow to a dollar amount that then participants wonder,

why do I have to keep paying this fee?

You've let that unrestricted fund balance grow to a hundred thousand.

You still want me to pay a dollar 50 every, you know, what's happening.

Um, so that's one thing.

And then we know that there will be future expenses that we're probably going to have

that we want to keep these reserve funds for to pay for that.

Um, and so that leaves us with, you know, looking at to manage that unrestricted fund balance.

We want to have a budget each calendar year to kind of allocate, how are we going to spend

the money manage that unrestricted fund balance, but nothing comes out of that admin allowance account

unless there's an actual re reimbursable expense that occurred for instance, someone went to

the conference, purchased a flight, they turn in their receipts, then they get reimbursed

for it out of the admin, admin allowance account.

Yeah.

Or we pay for an RFP.

Correct.

Thank you for explanation.

Are there any more comments?

Uh, clerk, are there any comments from the public on this matter?

Uh, thank you, chair.

There are none.

Okay.

Um, I need a motion to approve the admin allowance account budget for calendar years 2025 and 2026.

I'll move that.

That means it's going to be with the 5,000 allocated for education that we're not sure what we're

going to spend it on.

Okay.

As long as you understand that.

Yeah.

I'll second it.

Excellent.

I have a motion by members Alaska with a second by chair Hoekstra.

Please unmute your microphones.

Member Raghani.

Yes.

Member is Alaska.

Yes.

Member Kang.

Yes.

Member Tunson is absent with no alternate.

Member Gardella.

Yes.

Vice chair Levison.

Yes.

And chair Hoekstra.

Yes.

Thank you.

The motion passes.

Thank you.

Okay.

Item number six, fiduciary review.

And I want to confirm the meeting has to end at 1 PM.

Is that correct?

That is correct.

Yes.

So, um, Rosh, I do know that you had some specific things that on your, um, right.

Did you have something specific on the fiduciary?

Uh, I'm trying to remember.

I thought I was off the hook.

I thought I was done for the day.

Um, yeah, the, I guess there is an item that's not on here that you all may have seen.

Uh, it's part of the reconciliation act and that is that, um, 401k, 457, 401a plans, um, seems every few years, like seven or eight years, uh, legislators get, want to get their hands on the tax revenue from pre-tax contributions to all of these plans.

And so there was a concern by many agencies.

It was voiced at last year's NAGDA in Phoenix that, uh, because of the costs, uh, associated with some of the bills that were presented by either side, uh, during the election that there was going to have to be a source of that revenue.

So, um, one of the sources of revenue, low hanging fruit is retirement plans, making them all Roth everything.

And so, um, I think gets, you all probably know, uh, not having heard, uh, the bill has gone through, there's different versions in Congress and the house.

Neither of them are in the Senate.

I should say neither of them include, uh, Rothifying our retirement plans.

So we are safe again for now until probably about six or seven years from now when we have all new legislators in and there's another push, um, to Rothify all pre-tax contributions.

But that's not on the, um, newsletter here because it actually happened since this was published to now, but I think that's probably the biggest ticket item that in the section 603, um, which is the Rothification of any,

uh, age 50 and over catch up contributions.

Those will have to be on a Roth basis for any participants that pay into FICA, um, that make over $145,000 starting next year.

So.

And three minutes to spare.

All right.

Thank you.

Are there any comments from the committee?

Yeah.

Um, I don't know when it would be appropriate, but at some point,

I would like the opportunity to review our investment policy, um, just to have a discussion about it.

Um, it'll, I didn't really want to get into it today, but it'll kind of help me explain, uh, the no vote I, I took.

And I think there's an opportunity to talk about kind of a default preference for passive versus actively managed funds.

So hoping we can tee that up for a discussion at some point.

Okay.

Are there any other comments?

Number six, the fiduciary review.

Yeah.

Uh, that.

I thought we were on ideas and questions.

Yeah.

That's cool.

I was going to bring that up.

And what we'll do is if you want, we, you can ask for an agenda item for that if you want.

So are there any other comments on the fiduciary review?

Are there any comments from the public?

No.

Thank you.

Okay.

That is not a voting one.

All right.

So what you said, member comments.

Yeah.

So I'll just restate the opportunity to talk about the policy statement and review it.

Um, potentially along with the other items in the bylaws, the fee and expense policy statement, and the summary plan descriptions.

Just, I'm a new member.

So it would just be helpful to kind of have that discussion.

So Samantha, could you make that an agenda item?

Because this is our only forum to ask for an agenda item.

Mm-hmm.

Thank you.

Are there any other comment, member comments?

Yes.

Okay.

Uh, the contract for HIAS expires, I don't know, January 31st, February 1st.

Um, not sure what the plans are for having a discussion.

Do we want to negotiate exclusively with them?

Do we want to do an RFP?

We can't negotiate exclusively with them because the value we know is going to be more than $100,000.

Okay.

Even though it's not the city's money that's paying for them.

Correct.

The city is the, the city is the one who's signing the contract.

The contract is with the city.

You're saying there will be an RFP process?

Yeah.

And how do you, okay.

So can that be an agenda item for next meeting then?

Yeah.

The plan is to bring the draft, um, the draft RFP at the next meeting for review and then

have it opened after that meeting.

Thank you.

Sounds great.

Well, we're tick tocking here.

And then, uh, I, I, I've asked, uh, John, uh, several times to what, when are we going

to see the results of, I'm not even sure what year survey at this point that we've been waiting.

I can't remember the last time we reviewed the results.

And these are annual survey requirements that are in the contract and in the, um, uh, performance,

uh, Jacob Bradberg with the city clerk's office.

The time is now 1 PM.

The meeting has reached three hours.

Uh, the meeting is now adjourned.

Thank you.

My apologies again.

I'm sorry.

The meeting is now adjourned.

Thank you.

My apologies.

I'm sorry.

I'm sorry.

I'm sorry.

I'm sorry.

I'm sorry.

Normally you are adjourned.

generals all right, each sale makes it empty for a moment.

I'm sorry.

I'm sorry, come on.

You must urge the time to get its alleged