Good morning and welcome to the Wednesday, June 17th, 2026 meeting of the defined contribution plans committee.

The meeting is now called to order.

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

Thank you, Chair.

Member Ugani.

Here.

Vice Chair Kang.

Here.

Member Tunsen is absent.

Alternate member Knox.

Here.

Member Hochstra?

Here.

Member Gardella.

Here.

Member Levison.

Here.

And Chair Zalaski.

Here.

Thank you.

I will now do the roll call for the alternate members.

Alternate member Harland is absence.

Alternate member Tran is absent.

Alternate member Anderson is here in the audience.

Alternate member Contreras is absent, and alternate member Bader is absent.

Thank you, Chair.

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

After the item is called, we will no longer accept speaker slips.

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

We will now proceed with today's agenda.

Please rise if you're able for the opening acknowledgments in honor of Sacramento's indigenous people and tribal lands.

To the original people of this land, the Nissan people of the Southern Maidu Valley and Plains Miwok, Patland, Winton peoples, and the people of the Wilton Rancheria, Sacramento's only federally recognized tribe.

May we acknowledge and honor the native people who came before us and still walk beside us today on these ancestral lands by choosing to gather together today in the active practice of acknowledgement and appreciation for Sacramento's indigenous peoples, history, contributions, and lives.

Thank you.

Now please stay standing for the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the Republic for which it stands.

One nation under God, indivisible with liberty and justice for all.

Next up is the approval of the consent calendar.

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

Thank you, Chair.

I have no speakers on this item.

Thank you.

Are there any commissioners who wish to speak on the item?

Murray.

Accidentally says PM instead of AM.

And uh Jacob, I will give you a uh copy of what I have here.

Um item four and five both say the action was received, commented, and provided at direction.

That same thing happened on item three, where we talked about the um the NAGDA award.

So um instead of just saying received and discussed, if it could also say receive commented and provided direction, the direction was to um have me work with Samantha on creating the uh the award application.

Um item six, there was a separate motion to select our vice chair, but there's no vote, separate vote listed.

There was a separate second motion, second, and vote on that.

Um it does say that there was a second motion, but that doesn't list the details of who made that motion and and how that vote occurred and for item seven.

The motion was um not just to name the names of the people who were going to the conference, it was to authorize up to five people and to spend up to twelve thousand five hundred dollars.

So let me give you the written.

Thank you.

That's all I have, Mr.

Chair.

Uh anybody else like to speak on the uh consent?

All right.

Is there a motion and a second for the consent calendar then?

I'll make a motion to accept the consent calendar.

Alright, second.

Second?

All right.

So we have a motion by Brad Hochstra and a second by Jeremy.

And Member Hoekstra, is that does your motion include the edits from Murray?

Yes.

Thank you.

I sorry I should have said that.

All right.

So all in favor say aye.

Aye.

Any opposed?

Any abstain?

All right.

The motion passes.

Let's move on.

All right.

Let's now proceed to the discussion calendar.

Item number four.

The NAGDA conference additional expenditures.

Is there a staff presentation?

Um this item, you know, we want to be as transparent as possible.

When the committee had the discussion at the last meeting about selecting and costs associated with the NAGDA conference, which is in Florida, at the time we went to do, or I, at the time I went to complete all the registration information, there are pre-conference sessions, and after further review of flight availability to get from Sacramento to Florida on the same day to also attend the timing of the pre-conference session.

That's just not going to happen.

So I actually reached out to Murray on this item just to say, you know, this is the issue.

I want to be transparent to the committee.

What do you recommend?

So I'm just bringing this back for the committee's awareness.

And let me see.

Recommendation is to um have the committee pass a motion that there might be additional expenses related to those individuals who are going to attend a pre-conference session on that day requiring one extra night of hotel costs.

Um the committee approved five attendees to go to the conference.

We right now have four attendees that are attending.

So there are um certainly what was approved should be covered in terms of the cost.

We just want to be transparent and make sure the committee is aware that um there will be some additional hotel costs for those attending the pre-conference session because there's no there's no way to get there in time.

We checked Sacramento airport flights to Florida and it just wasn't feasible.

So we're asking or I'm asking the committee just to pass a motion approving um the use of the administrative allowance account funds for that additional expense associated with those participating in that pre-conference session.

But this still keeps us under our budget for what we allocated anyway, right?

That's correct.

Yes, I just think it's important at any time these funds are used in any manner that um there's full transparency on that.

And I I agree.

I think you know, the assumption was it was gonna be uh three nights.

No, it's no, it's four nights, so that's an important uh distinction.

Umilarly, I I'd like to say that for my travel, does anyone have a problem if I pay for a more expensive hotel room but only get reimbursed for whatever the standard rate is that anyone else would be reimbursed if I cover the extra cost on my own?

Does anyone object to that?

I do not, Matthew, you okay with that?

Yes, all right, and then the last thing I just want to let people know is uh in a few weeks I expect to qualify for a companion pass on Southwest.

So if anyone who's traveling to the conference wants to travel the same time that I'm traveling and either hasn't bought their ticket yet or has a refundable fare, um for five dollars and sixty cents, you could ride as my companion, and that would reduce your cost, uh our cost.

So that's all I have.

I'll I'll make a motion to uh you guys can work that out.

Approved.

Alright, are there is there any uh are there any uh public speakers who would like to speak on this?

Thank you, Chair.

I have no speakers on this item.

Okay.

Any other commentary from uh our commissioners?

All right.

Um I'll make a motion to authorize um the um additional funding.

Well, yeah, the additional nights for the up to uh five, although we only have four up to five attendees within the original twelve thousand five hundred dollars.

Uh just a more of a clarification, but um, that accomplish what you're trying to accomplish.

So I'll second.

All right.

So we have a motion and a second.

Uh all those in favor, aye.

Any opposed?

Any abstain?

Okay, the motion passes.

Um let's move on to item number five: the review of the 2026 first quarter by fiduciary consulting group and the watch status of the investment lineup.

Rosh, it's all yours.

Thank you, Mr.

Chair.

Uh, members of the is Commission or Commissioners?

Committee.

Okay, I want to make sure.

Members of the committee, um, so Rosh Cusano, Fiduciary Consulting Group, artist formerly known as highest group, uh, glad to be here.

Um, this is our first meeting back uh as your consultant.

So thank you all again for your continued confidence in our firm.

I'm joined today by Jason Davidson, uh, who is one of the founders of our firm and also from Sacramento, so uh had a chance to visit with his family last night and uh we'll be helping out today uh as necessary.

But we've got a lot to cover today.

Um we've got a lot to cover in terms of just the fund lineup and and some of the items that are on there, um, largely in part because we really haven't done this particular exercise in terms of going through the compliance uh list as far as the funds for a couple of quarters now.

So we've just got some housekeeping to do, and we do have a few funds that we need to talk about replacing.

Uh, because as you'll see, we're kind of in the holiday spirit, not in a good way.

There's a lot of red and green uh on the compliance page that we need to clean up a little bit.

So uh thank you, Mr.

Chair, thank you, members of the committee.

Uh, what I'm gonna do is just jump around our item.

Is it possible to share uh this computer up on the screen there?

Because are you all seeing?

Probably I don't know if you can see what I'm thank you, Jacob.

Okay, so um we're gonna start off with some market commentary as it relates to uh and then we'll get into the plans.

And so here we are, it's June 17th.

Um, these reports, the numbers that you will see in front of you as it relates to Sacramento's plans are uh is all as of March 31st, which is like a decade ago, really, even though it was just about what is it about eight weeks or 10 weeks ago.

Um, but when this was printed, uh just down in the middle there, you can see uh U.S.

large cap um SP 500 really uh down 4.33 percent uh for the year.

So this was printed on March 31st.

The markets were at their low in 2026 on March 30th.

So we were pretty much at the bottom, um, and you can see that number there, 4.33% to the downside.

There's 310 million dollars over our plan.

So about a third is in that category alone.

And one of the funds we need to talk about today, the MFS large value is kind of in that category in that neighborhood.

Since this was printed, however, I have some good news, and you all hopefully are if you've checked your accounts or you've been watching the news.

Uh, you know that the markets have been pretty resilient here in 2026.

Uh, that same category, the SP 500, where we've got 300 plus million dollars of core money, is up now for the year 9.15% as of this week.

Uh this quarter's been a great quarter.

Uh it's up 14.10%, and what we've seen in the past from Sacramento participants, we saw it in 2022, is we're a resilient lot here in the sense of okay, a little bit of market volatility, doesn't necessarily encourage folks to hit the panic button.

People stay the course, and so we've seen that in 2022.

That's how we got the couple hundred million dollars in gains over the past couple of years, and hopefully that's what we're gonna see as we see the account gains or the the asset gains uh for next quarter.

So hope to have much better numbers for next quarter.

But as you all again know, as if you've been watching the news or paying attention, um things have gotten a lot better than what you see here.

I'm just gonna go to the next page and show you uh down at the bottom here, there's a chart on the bottom left.

So the SP 500, right?

That was that same category that was down four percent uh when this was printed, has 11 sectors or categories within that.

And we hear a lot today about we are in unprecedented times, but we don't so often have charts to actually prove how unprecedented these times are.

This is one of those charts, though.

The bottom left there, first quarter, the best performing category in the SP 500 should be no surprise to anyone in this room, right?

$5.70 a gallon for the cheap gas here in Sacramento.

Energy, right?

It was up 40% for the first quarter, and then look at financials down the bottom there, down 10%.

That 50% delta, 5,000 basis points, that is the largest difference for a single quarter in the history of the stock market between the best performing category and the worst performing category.

So truly unprecedented times that we are in.

Just scrolling through a couple other pages, and then we'll get specifically into Sacramento data.

Um, this chart here, geopolitical conflict going back to 1950, and so uh when this was printed, so at the bottom row there you can see US, Israel, Iran war.

We didn't quite know what the outcome was going to be.

I mean, we still kind of don't, but we have a pretty good idea.

It's it's pretty well crystallized at this point.

We're up about 14% since the conflict.

And if you just look on the right hand side here, and we certainly don't want conflict, we don't want war, but gosh, capital markets seem to respond more often than not in the green when it comes to conflict.

So, what is that saying?

War is good business.

I mean, that's just kind of a terrible saying, but this chart sort of proves it to a degree, at least as it relates to capital markets.

And then this is just one of those time in the market versus timing the market.

Again, Sacramento participants do a really good job of staying the course, but going back to 1990, if I was in that SP 500 and just stayed there, I'd get 10.7% return.

But if I lost the 15 best days, I'd be probably the unluckiest person in the world.

However, um my return would cut down by a third, and then you can just kind of see that stair step down from there.

So there was a lot of uncertainty when these reports were printed.

Um, and we've we've again had a lot of, I think, answers to some of the questions that were still unresolved, even just 10 weeks ago.

Here we're looking at, we've talked a lot in this room about rotation, right?

It's been for so long, it's been, and this is gonna be a theme too as we talk about replacing the funds here today.

Um, there's been growth, there's been um high flying stocks, technology, the magnificent seven, US markets, that's just been a consistent theme for five plus years now.

And there's been pockets of small caps.

Now we see some international uh emergence, but in terms of styles, what about value versus growth?

What about energy and financials versus technology and communications?

And so, what this chart shows us is even though we've had you know that um surge in energy for the quarter, it still hasn't caught up to growth.

And I wish the folks at Morgan Stanley would come up with something better than blue versus blue, to try to make a point as it relates to two different styles of investing.

However, um the top one here is growth, and you can just see there's been times of pretty significant dispersion between growth and value, and then it's tightened, but value just has not been able to overtake growth, and so it's interesting to just see that that style has still stayed growth, growth, growth.

And now, of course, since March 31st, it's really picked up.

And then the last comment I just wanted to make as it relates to um our plans, and we'll get into our plans.

Is uh this is the quilts, right?

We look at this on a regular basis, and if you go all the way to the left, that's from 2010.

All the the categories here, that's the return of each of those categories.

These are primarily the categories in our plans.

There's a couple of exceptions.

Commodities, for example, really is not a category in our plans.

You can get to it through the brokerage.

Uh, but you can just see on the right hand side there, so that's the first quarter.

Look at commodities, 24.4%.

And then the next best performer, mid cap, 1.2%.

So huge difference.

And then it's like, well, wait a minute, why don't I just jump into commodities?

But then if you go back and you look what's kind of generally down in the bottom, it's commodities, right?

Uh, a client had made a really interesting point, I thought, and we've got a lot of money as it relates to target date funds.

If you were to take the target dates and assign them one of these categories, it would really be this global balance category.

And look how it kind of almost looks like a belt, right?

Just sort of holding everything up.

There's an exception here in the first quarter, but I bet by the end of this year it'll be somewhere in the middle again.

And so we've got now we look at Sacramento's plans, right?

So we've got about 200 million dollars in that kind of red block category, and that would be the asset allocation, the Vanguard target retirement.

So these are the funds that we potentially could talk about as it relates to one of the items on today's agenda, the CITs.

And so overall, 929 million as of March 31st.

Are we over a billion, John Stagel?

We're just under.

We're just under one billion as of now.

So we're we're right there.

I was talking, we're right around 97, 907.

970 billion for the record.

That's good.

I didn't, if it was a billion, I would have felt bad because I didn't bring balloons.

So we're we're getting there, everybody.

We're close.

Um top left, you can see fixed income uh 200 million dollars, and then the majority of that is in the nationwide fixed fund.

Uh that fund we've had some discussions in this room about that fund, right?

The rate of return on that fund around 2.4%, sluggish, but now we've got our Vanguard money market fund that you all voted to add a few quarters ago.

Uh, you can see about three million dollars in there, rate on that's over three percent.

So participants that aren't necessarily getting what they should out of a capital preservation preservation fund in the nationwide fixed now.

Thanks to you all, at least have the money market fund as an option.

Rosh, what I see on that page is uh when you add up the percentages that are in the three funds that we're considering replacing, it's about 11.6 percent of our assets.

Um I don't see that as a problem, but I just I just took note of that that will have an impact on our on our participants in a positive way.

Yes.

Uh when we made the fund lineup overhaul in 2021, we impacted 58% of the lineup then, so and it was significant, but I don't I don't know more.

I mean, you were on the committee then I don't know if there was a lot of like negative feedback as it related to that kind of change, and we are gonna see potentially uh if you all didn't hear it.

I don't know what's with Samantha heard things back in the office when we made the big change in November of 2021 and overhauled 20 or 25 out of the 30 funds in our lineup remapped them to something else.

I missed I couldn't hear the first part.

Was there did you experience any kind of negative feedback after from uh employees after that happened?

The only negative feedback I received was one was from one individual related to the one fundrafund.

Which I also the same individual has provided additional feedback over time, and I have to remind the individual that you also have to pay attention to what's going on in the market, right?

Like things go down, things go up.

It's not specific about one fund being bad in the circumstance in which the individual I said the market's down this percentage.

I'm you know, I'm uncertain what you think would be happening in this fund.

Oh, well, I just I don't like it when my money goes down.

I just want it to always go up.

So that's all I've heard.

We're being asked to replace funds that are underperforming.

That's correct, Ash.

Yep, that's right.

Yeah.

And they're also, and we're following our process, we're following our investment policy, you'll see all of that.

Yeah, but that's right.

So uh the funds that are underperforming are in, so first one up here, MFS value, so about fifty-six million dollars, six percent of assets, and that that's the largest of the three, and then the other fund or the other two funds, the next one is the American Century mid-cap value.

This fund has kind of been a chronic underachiever, it was on watch off watch in 2023 or so, and then back on watch again over the past year or so, uh, 14.8 million dollars in that fund, and then the last fund that we're looking at, potentially replacing here.

I just got to scroll down a little further.

It's another MFS fund.

MFS stands for Massachusetts Financial Services, it's the MFS International Diversification Fund, uh, about 37.2 uh million dollars, four percent in that fund.

The good news is we don't do a lot of fund changes here.

We did change the Vanguard growth fund out for uh JP Morgan large cap growth, but really other than that and the big fund overhaul that we've had, it's been consistent for our participants.

So that's that's what you want to try to minimize that disruption.

But to your point, Ash, it's like at some point though, if they're underperforming, that's our job, right?

To be like, okay, we got to get something else for you so that you can make more money here.

And we certainly don't want you and your company to fear coming to us with requests to make changes when it's appropriate.

That's what that's what your contract uh requires you to do.

So I'm gonna skip ahead here to um the compliance page in our uh report, our quarterly report.

Um, and so on the this page is synchronized up to our investment policy statement, and what I mean by that is if a fund underperforms its peer group and its benchmark for the trailing five-year period, and that's all stated out in the investment policy statement, it gets a red dot.

If the fund is red for two consecutive quarters, we place the fund on watch again per the investment policy statement.

If there's been four quarters consecutive where the funds been on watch, read, I'm sorry, where the fund's been read out of compliance, then we have the option, we don't have to, but we have the option to go out and find a replacement for that fund.

And so the three funds that we're talking about today are all beyond the four quarters of being out of compliance, and so you can you all can see when funds were placed on watch.

So back to the nationwide fixed, you may wonder, well, why can't we talk about suitable replacements for that?

That is the one fund in our lineup that is tied into the low record keeping fee that nationwide also provides us, that 1.25 basis point record keeping fee, and so to have such a low record keeping fee nationwide, doesn't give us as high a rate of return as they would if the record keeping fee were higher, and so the way we look at it is there's only a hundred million dollars in there, and so in terms of overall allocation, it's only about 11%.

So we feel as though, why not get the lowest possible fee for as many participants as we can, and that's why the record keeping fee is as low as it is, and the nationwide fixed account crediting rate is also low.

We can't if we unplug that and we replace the nationwide fixed fund, because nationwide makes revenue off of the fixed fund with another fund, then that 1.25 record keeping fee goes up to like seven or eight basis points for everyone.

So this particular one, we're kind of stuck with it on the nationwide fixed.

There's another one there in case you're like, what's the fixed elite?

That fund is specifically for the PEP plan.

It's very similar to the fixed, a little bit different in terms of the rate slightly, but it's very similar to the nationwide fixed account.

MFS value you can see, fourth quarter 2024.

American century second quarter of 24, MFS international diversification.

We also have a recommended action here today, everyone, not to replace a fund, but to place the fund on watch, and that is the Vanguard International Growth.

So this is the third quarter.

Again, we sort of missed it last quarter.

We weren't here.

This is the third quarter where this fund's been out of compliance.

So our recommendation is to place this fund on watch.

Uh it has been it has been hitting some headwinds based on its regional allocation and based on where the fund is invested.

It's a little bit more growth yet overseas, it's kind of been the opposite values outperform growth here in the U.S., as you saw by that chart, it's been the other way around.

So as we look at our funds, and we'll just take a little bit deeper dive in just a moment, but MFS value.

So why is the fund, you know, kind of on the chopping block here today?

You can see uh for the quarter, it's in the 49th percentile for the one year, it's in the 87th percentile.

I don't want to be in the 87th percentile.

I want to be low, I want to be in the 13th percentile.

Because what this means is I'm just beating 13% of my peers, and then versus its benchmark right here, the Russell 1000 value, you can see down 5.7%.

So there's two strikes, and then really the key metric, everyone, is the five-year number, and it's not so great there either.

And what's important too is if we look at the trailing five-year calendar years, this is kind of like okay, is it going to get any better?

And there's just no real periods of compliance for this fund where there seems to be a light at the end of the tunnel, and that's why on that 56 million dollars or so, okay, it's time to make a change.

Hey, Rosh, yes, Brad.

I have a question about the bench about the benchmark for that fund.

Yes.

Uh, how do you is that the top performing fund in that category, or how do you arrive or choose that one, or how does that work?

Yeah, so the uh benchmark would be any funds that are so the Russell 1000 value are gonna be stocks that are like energy, financials, um, all those about a thousand or so stocks in that particular index, and so all the funds that try to beat that index are gonna be in that category, and then their goal as active managers, MFS's goal is to say, hey Brad, I got you this much more than the index got you.

Okay, and so in their case, unfortunately, you can see you go along that navy blue band, that's the return for MFS value, like five year 8.62, which isn't bad.

If I'm a participant, it's like okay, but right, this is our role, right?

Where if I just put the money in the index itself and didn't have anybody manage it, 9.43 would have been my return.

So you're not getting me my money's worth.

And so then you can see it drop down another row.

We're at 81 basis points below 0.81%, and that places us in the 74th percentile.

Does that answer your your question?

I was just kind of wondering, how did is Russell 1,000?

Is that the the benchmark for that particular category?

Yes.

Okay, yeah.

I was just wondering how you came up with Russell 1,000.

Yeah, because we want to make sure we've got all the apples and the in the apple truck, so to speak, and the oranges and the orange truck.

So next the next one's the SP 5000.

That's the blend, and then look at here you go, right?

Russell 1000 growth.

So that's gonna be where all the mag seven's gonna live, right?

So the NVIDIA's and all exact of the world Russell's an index provider most oh sorry Russell's an index provider most large cap value or large cap growth managers will use that benchmark as the benchmark to beat when they're an active manager meaning we're paying them to beat that benchmark and then you didn't ask us specifically but the peer group that we're using the US large value or the U.S.

large growth peer group which is in those that gray portion there is Morningstars peer group and again the managers that are managing your money on an active basis meaning we're paying them to beat understand that they're being benched to these two things that's the like an industry standard.

Industry standard and also it's in your written investment policy statement so in a way we're also processing it via policy so it's kind of like regardless of what benchmark you manage or decide to follow policy for us is to follow this industry standard benchmark.

It might be a remedial question on my part I just want to try to wrap my brain that's a lot of information here so I'm just trying to understand it all the bigger picture of it.

Thank you.

So the others uh you can see American Century mid cap value uh the five year number on this one fifty eighth percentile you can see underperforming its benchmark and it had a great 2022 but just not been good since really mediocre at best and so again this is where it's like okay it's time to look for something maybe a little bit more consistent for our participants this is the one that has about 14 million dollars in it and then MFS international diversification five year number on this one uh you can see again 65th percentile so had a good 2024 but back to that whole comment about if you go back the past five years what is in that cake right there's not really a whole lot of glimmer in there there's just this 24th percentile year so one good year out of five and then you know even shorter term not getting much better that doesn't give us a whole lot of assurance that this fund is going to get off of you know or back into compliance anytime soon which again back to what we're we're talking about here today uh time to make a change uh just a another comment on our quarterly report and then we can get into some of the other items here if that's okay okay I'm seeing heads on excellent um you all have done an amazing job for your participants we've talked about this in the past but I just want to bring it up again um if I'm a Sacramento participant and I had $10,000 I was paying 43.80 cents in fees on that uh about five years five plus years ago and now I'm paying about 31% less I'm paying thirty dollars a year in fees that's all in right that's that's my nationwide fees it's it that's all the costs that's the the plan uh plan fees as well and then any investment costs so all in uh national average last we saw in 2024 we haven't seen an updated number it was 54 was the national average uh we're at 30 here at the city of Sacramento 30 point one basis points the difference between the 43.8 and the 30 point one on our 929 million dollars is 1.2 million dollars a year in lower fees and so we can't obviously we know you know past performance no indication future results what can we control we can control fees and you all have done an amazing job at that uh lowering fees for your participants and you should be commended which is why I always stop at this particular page I know it's not the most exciting page but it's kind of a great job committee page all right any quote any other questions on do you have to do anything more any other questions on our report.

Yeah, I just I want to kind of make sure we're kind of continuing down this path of understanding how we're trying to achieve this concept of alpha where we're looking for funds that outperform their their benchmarks that they they correspond to.

The alternative one alternative to that, the dominant alternative is to invest in passively managed index funds that have much lower costs.

And so I'm just wondering what is kind of your firm's perspective on this.

I'll just say as an individual investor, I just try to avoid actively managed funds as much as possible because I don't want to try to you know be a make choices about what I think is going to do well is not going to do well.

I can just track the index.

And so actually, if you could go back to the slides earlier that kind of showed um how certain funds were compared in their performance against the indexes, if you could go to like the SP 500 or one of the other index funds, I think it'd be helpful for the committee to just see how the it's basically plus or minus on the index, it's basically zero, you know.

And one of the benefits of that is number one, there's no surprises because it's basically passively managed, it's an algorithm that drives um what those funds hold because it's designed to hold the funds that are in the index.

And then I don't know, so what like I'm just curious like what's what's your perspective on this?

Do you think we have the right balance of passively managed fund index funds versus actively managed funds?

I just love to hear kind of more about that as we kind of lead into this discussion on fund uh choices.

So short answer is yes, in the sense of we have an index fund in each of the primary categories.

We've got a bond index, US domestic, and then international index.

What's interesting, and I'm glad you brought me back to this page, Ash, when you look at the Fidelity 500, it almost kind of is like a good way to look and see, well, where would I want to index?

Look at the ranking of the Fidelity 500 index.

That means that 83% of large cap blend actively manage funds cannot beat the index.

And then we can scroll down and do a similar exercise for the next you know, mid cap 66% cannot beat the index, small cap.

Oh, wait a minute.

So this is kind of maybe getting into an answer like 33% cannot, so 67% are beating the index.

So maybe if I'm looking for active management, maybe small cap US, that's maybe a spot that I would want to look for active management.

What about the international category?

That's kind of a 50-50.

But to your point, more often than not, especially in this bull market that we've had, uh, it's been harder for active managers to beat the index.

Great example.

The fund that we added to the lineup, the trailing five-year number, it's 1.86% below the index, and it puts it in the top 24th percentile.

So, still underperforming the index, but it's outperforming 76% of its peers.

Um, I guess Jason, as from a firm perspective, do we have an overall thought process on indexing?

Menu construction for us has always been to give participants like you, it sounds like the option of indexing in every category they can, right?

In the last five years, it's been tough to beat that type of allocation.

Um this has been a concentrated tech-led market that may not always exist, and it has been a tough market for active managers to add value.

Um our position is that won't always be the case, and that managers that are paid to outperform if selected correctly should.

Um there are certainly investors across the you know, bandwidth of investors, Vanguard, um, you know, uh pioneered this that say don't don't try, right?

It's difficult to do.

And I I don't disagree with that.

I will say, as a consulting firm, and that's not just us, it's you know, there's a little bit of an inherent bias because our job is to try and find managers that outperform indexes, some categories and sometimes we do.

Um, and uh, you know, that that's just I just want to say that.

Um, the vast, vast majority of our clients give participants the option of having an active outperform and an index if they don't want to take that.

Um there are some clients, and again, it's very few that offer just indexes, but in that vein, you you understand this.

You will never outperform the index if that's your only choice, and that's kind of the dilemma for committees to deal with, right?

Do we want to have a situation where a participant could potentially outperform?

So I think in a nutshell that that's it.

Your menu looks like most of the industry menu, right?

Um, so and I don't think we're um you know lacking in anything for somebody that wants to be able to index and uh beyond that.

If you want to index in style specific categories, like I want to be all uh large cap growth index, you have the access to those types of things through the brokerage window.

So hopefully that answers your question.

Thank you.

So we took a couple of minutes and talked about our current quarterly compliance.

Uh wanted to skip ahead and just show everyone.

There's a lot, this is an eye chart, right?

But um what we're looking at here though is going back, and again, thank you, City of Sacramento, for asking us to do this because it does really help in terms of context, historical context for each of the funds in our lineup, so we can just see, okay, when were they compliant?

When did they fall out of compliance?

And this is quarter by quarter going back almost five years now to 2022.

And so our funds that are in the penalty box, if you will, right now, are MFS value.

So you can see that right here, seven quarters.

American century mid-value, uh, that's actually nine quarters.

I thought that I I'd recall that this one was on watch, but maybe that was just it's been on watch for so long.

Um that now it's at what nine quarters, and then here's international diversification of five quarters.

So remember the IPS, right?

Four quarters, and then we can say, okay, eject button, you're out of here.

So we are well within our policy to be able to say to these funds it's time to go.

And had we met had you been here at the last meeting last quarter, would would you have brought forward any of these for us to consider at that time?

Likely the MFS value and the American Century mid-cap value, the international diversification may have gotten another quarter, but as you all can see, it really didn't, it didn't uh wow us this past quarter.

For me, that's the advantage of us meeting on a regular basis every quarter and having having your report uh every quarter that we we don't fall behind and and lose an opportunity to to make a decision about replacing a fund and not have to wait five or six quarters when we should have done it earlier.

We can always do it earlier.

I mean, the policy gives us the opportunity to make replacements at any time, but you know, we like to follow the best guidelines in the in the policy, and uh but we don't have to.

And I would say for MFS value in particular, you are not our only client that holds that fund, and um we are replacing that fund across our clients and they're doing it now, right?

So you're you're at the quarter where most of our clients got the recommendation to replace it, so you're not behind in any regard.

I noticed the uh nobeen real estate is also five quarters at the bottom.

Yeah, that one's five quarters.

We're of the mindset to let that one marinate a little bit longer because if you go back and we do that same exercise on the trailing five year of the calendar years, there's a little bit more light at the end of the tunnel where this fund can get back into compliance.

In the case of real estate funds, it's really what kind of real estate do you own, and a lot of it's been data centers.

If you're underweight, so back to the AI play, right?

If you're underweight to data centers as a real estate fund, you're probably trailing other real estate funds.

That's the case with new V.

However, they are digging themselves out of that ditch, and so that's why we're like, okay, let's not hit the eject button for this one right now.

So great point, great observation, Brad.

This is where we do, per our policy, have that flexibility to say, all right, let's wait it out a little bit longer.

Seems probably gonna be the case, just uh foreshadowing for international vanguard international growth.

We're gonna place that one on watch, but that may actually be a couple more quarters as well because it's kind of a similar situation where it's digging itself out slowly.

Okay.

I know I want to be mindful of it.

And am I correct in remembering that you've told us in the past that your firm is actually talking to some of these funds not a sum.

You're probably talking to all of these fund managers and asking them and telling them that this is what you notice and what's their plans to improve.

So you're not just waiting for the results to come through and that's right, yeah.

And and and we've done this before.

If if it makes sense too, we can have those managers come and talk to the committee, you know, where where appropriate when we don't have a packed agenda like we do today, but I think that may be a good exercise in the future, right?

Or billion dollar plan.

Let's have them come in and talk.

Right.

So far, I'm I'm uh satisfied that you're the ones who are talking to them.

Well, thank you.

Um, but I mean if you see an advantage to having them appear before us, I wouldn't do it just.

I I know I think I I several years ago I probably did suggest that that we do that more often.

I remember looking at the agenda for um BART committee, and they regularly have the funds come in and talk to them.

I think there are several billion dollar plans.

I think they don't have a social security, so they do some investments in lieu of social security.

Uh and I thought that seemed like a good idea, but I've changed my mind on that.

Uh, but if you think that there's an advantage to having them come here, we certainly can.

I don't.

I think uh we've already had the firm that I would say should come in, which is Vanguard.

They've been here, and maybe we just have them come every couple of years as long as we're still in that target date suite because there's just so much money in there and so much money going there, that I think that make that might make the most sense.

Okay.

Uh I want to be mindful of time.

I know we've got a lot still to cover here.

Um, if it's okay with the committee, can we can we go into the searches of the different funds?

Is that work for everybody?

It's part of it's part of our agenda, Mr.

Chair, is that cool?

Okay, thank you.

Um, so we're gonna we're gonna start off.

Uh I guess I'll just go in order of the the book.

They kind of are a little bit out of order in terms of where they are in the lineup, but it I don't think it matters really that.

But before we start this piece of it though, it it would uh it would help me in the future if we made the replacement item a separate item on the agenda because you know the the whole um putting what on watch and taking off watch is is one set of decisions, but now we're into a much more elaborate decision-making process.

Okay.

And I'd rather have you know two motions, two votes, two different uh agenda items if that's possible.

We don't do it that often, but um, so if I'm hearing you, I I do want to be mindful of that.

Then we do have a recommended action as it relates to not the search documents, and that would be to place Vanguard international growth on watch for performance reasons.

The way it's been written, we we have to follow that for this agenda.

Okay, got one item and recommendation.

I can tie it all up nicely for you though.

Um, I'll defer to the um city attorney's office, you may make separate you may take each um part of piece of it and do a separate uh motion on that and vote.

Correct.

Is this on?

Correct.

Uh, you mean you may make motions and and amend the motions as well.

So, more than one motion for the same item, even though it may be written separately in the recommendation.

Correct.

Okay, thank you.

As long as we remain on uh the topic that was uh noticed on the agenda.

That's the only constraint, so just to kind of make sure that we're keeping this all organized, um, would it make sense to go ahead and then basically consider and vote on the three that we're looking to drop, and then in turn a separate item would be the three replacements and take them and take them like that.

Looking just at the recommendation, I think items one and two would be one motion, and then item three would be a separate motion, which is the replacements.

I think that's yeah, so it's basically exactly.

Can I clarify?

Is the question at hand asking the committee if they want to go ahead and um do the motion on one and two and then have the discussion about three and then make a motion, or we're waiting until the discussion is fully complete to say here's motion one, here's motion two.

I feel like maybe that's that part of the question right now.

Well, I think probably wait until they're they're done with everything, and then yeah, we have all the information so we can make our decisions then.

Yep, I just want to make sure.

Everybody okay with that?

Yeah, okay.

If we can refer to maybe numbers one and two and three within item five, for purposes of record clarity, because the item are the actual item numbers, right?

So you're referring to numbers within item five, all right.

So I think we got that straight, so continue.

All right, thank you, Mr.

Chair.

Uh, we're gonna go in order actually, as we're talking that through.

Um, I think it may just make sense.

We've talked about these funds in a specific order, so let's go through the searches in that order.

Large cap value, mid-cap value, international.

Does that work for everybody?

It's all part of item five.

We're just gonna go in that order.

Okay.

So um the search documents are all approximately 20 or so pages, 25 pages each.

They follow the same format, so it's gonna start to look pretty familiar by the time we get to the third one here, but the content's obviously gonna be different, right?

The reason why each of these funds has struggled is gonna be different, and then we've gonna have different replacement uh options and a different recommendation for each of these, and so uh starting off with our large cap value fund, uh 55.9 million dollars in the MFS value.

Uh it's about six percent of assets, and so this fund's been on watch since 2024.

Um, and what's what's been the challenge?

A lot of it, um, there's only sixty-two holdings in this fund uh in total, so it's pretty concentrated funds.

I'm sorry, seventy-two.

I knew that number was wrong when I said it, seventy-two holdings in this fund.

Um, what MFS does uh is they buy and hold and they stick it out as it relates to the stocks that are in their portfolio.

Well, what does that mean?

You know, in typical in the Russell 1000 value benchmark, the turnover in the funds, around fifty-five percent of each funds that are in that category, MFS their turnover is 10%.

So that means they're like, nope, we're not selling it.

We don't care if it's going down, down, down, we're gonna stick it out.

And so sometimes that really helps, but in a bull market where we've had all this flight to growth, and your style has been out of favor, and you've just been stubborn about maybe moving a little bit in that direction, not a lot, uh, it's really hurt.

And so um some of the stocks that they have in the portfolio, um, Texas Instruments, Accenture, Nestle, Target, these are all names we know.

Um, those are all fun, those are all stocks that have really created some of those headwinds uh for MFS.

So that's listed there in terms of the overall.

I mean, I just gave you a little bit more commentary than what's listed.

Um, and then our process where you're like, Well, gosh, you know, FCG highest group, how'd you come up with just four?

How many funds are in this category?

So this category has 990 funds, exactly.

So you think that money management's a big business, right?

And so of those 990, how do we come down to four?

Well, some of those funds aren't even open.

Some of those funds have management changes, some of the funds themselves are being sold.

Some of the funds may not be appropriate for defined contribution plans like we have in Sacramento, maybe the fees are high.

So all of those filters go in, and our team comes up and says, okay, here's your short list.

So the top three funds to consider.

I said four because we're also including our incumbent for this category, large value, are Vanguard equity income.

So that's an actively managed Vanguard fund, Putnam large value.

So these are all apples, apples, apples.

They're all in that large value space.

And then Columbia dividend income.

And so you see the ticker symbols.

So we're not talking collective trust, we're talking actual mutual funds of each of these funds.

And so we've got additional information coming in this report here, and I'm just gonna go through.

I think what we really all want to see is okay, show us what's your performance looking like.

And we have boxed out because there's a lot of numbers on this page, everyone, the five year, because that's our investment policy statement number that we need to see.

And there's MFS value again, you know, kind of looking at it just by itself, 8.62, not bad.

But then if you look at that compared to the other funds that are on there, not as good as what our participants could have had.

And so we start thinking about okay, what makes the most sense here?

You can see there's kind of an outlier, right?

Already, just in that first chart.

One of these is really outperforming, and then we see versus the index.

So that Russell 1000 value.

How is the fund performed on the five-year?

Only one in the red.

Unfortunately, it's the one that we have, and then you can see the other three as well, and then those peer group rankings that we talked about, that silver uh banner that's in our report, and MFS value in the 74th percentile, and then you can see now we're oh now we're talking the five trailing five year, all of these other three are in the top quartile.

Putnam large value, you can see really is a standout.

Um, just on those um performance numbers at the top, are those net of fees?

Thank you, Ash.

Yes, they are.

So that's where Putnam at 52 basis points, MFS at 44, Putnam's.

Well, I'm paying you more, but look at what you're getting me, right?

You're getting me 450 basis points or 470 basis points more for the additional eight basis points that I'm paying you, you're worth your money.

Thank you for asking that question.

So then we just repeat that similar um those similar charts and that information, but we go by calendar year, so you can just kind of see how the funds have performed, calendar year, net of fees versus the index, peer group rankings.

When you see any of these outlying red, typically it's sector, you know, they might be a little bit heavier, invested in financials or materials or whatever might be in that particular sector was out of favor that year, and so those are that's part of the reason why you can see some of those underperforming numbers.

But what we want is we want consistency, and that's where again we go back and we look at that five-year number, and all these three are in that top quartile consistency over the long term is what I'm trying to say there.

The other thing I'd add on the year over year, because I like it gives you a some perspective.

Is did the five-year outperformance come from one really good year and a bunch of so-so or bad years, or were you consistently outperforming in each of every one of those five years?

Because you can get a good five-year number by having a blowout year once, and the rest ho hung.

And in this case, you're seeing managers that have been pretty consistent in their outperformance regardless of the calendar year we're looking at.

And on the flip side of that, Jason, I mean you look at MFS, it's like did they have just one terrible year, or have they had just consistently bad years, and unfortunately, it's the latter for them.

And so uh just skipping down.

Uh I like the up capture, down capture, where it's now we start talking about risk, right?

We start talking about alpha.

We start talking about okay, what are you getting me?

How much risk are you taking, and then how much return are you getting me?

And so, in the case of the up capture, if the index makes me a dollar.

If I just go back to that conversation about just putting the money in the index, how much are you gonna make me?

And so, in the case we have one fund here that's outperforming in an up market, so up capture, where Putnam's gonna make me about a dollar three, $1.04.

In a down market, how much are you gonna protect me?

So if I lose a dollar, and you can see MFS value, okay.

You're only losing me about ninety-two cents, but once again, you can see the others are all protecting me and my money a lot better on the downside.

We take these two charts, we mash them together, and now we get this dot plot where it's like I want to be north, and I want to be over towards you know, the the eastern quadrant here.

And so you can see less risk, more return, and again, there's a real outlier here.

The five year period, and then we also, and I know this is our investment policy statement.

This is key, the five year, but in this particular case, right?

Because we don't want to be changing funds out on a regular basis here.

Uh we also want to factor in the 10 year.

And you can see Putnam once again, just five year, 10 year.

This particular chart is gonna come in handy for another one of our searches, the five year to the 10 year, by the way.

So as far as fees go, MFS value, 44 basis points.

Vanguard, no surprise here at anyone, right?

This is not an index fund, this is an actively managed fund, but 17 basis points, and then there is Putnam at 52 and Columbia 54.

Um, so you there are CITs available for these strategies, but when we go back and look at the performance of the CITs, it's a little bit choppy relative to the mutual fund.

So our recommendation would be to move to the mutual fund first, and we will continue to monitor the CITs to make sure if tracking error makes sense or not, and then potentially if the CIT does make sense, we would move into that particular product.

But at this point, we don't think that they make sense.

And then the report goes into sectors.

So we had looked at that sector chart, right?

In terms of energy, how well that did versus financials for the first quarter.

So then we take the overall allocation of each of these funds across those sectors.

You can see the allocation, but what I like better is what's the allocation versus the index.

So again, this kind of paints the story as to what's under the hood for each of these funds.

What about versus peers?

And then we just do size breakdown in terms of small cap, mid cap, large cap.

You can see the majority of these funds are gonna be in that large cap value space.

A lot of blue, right?

That's our large cap.

How much does it deviate?

So the tighter or the or the smaller bar charts here means it doesn't deviate from the index too much.

The bigger bar charts and MFS value, right?

Shouldn't come as much surprise.

If we're not having the kind of turnover that our peers have, if we're just buying and holding, then we're gonna look a little bit different than the what the index does because we're not necessarily moving with the index.

We're not saying moving with the index is right, we're hiring an active manager, but you also start to kind of wonder well, are you second guessing yourself?

Are you maybe not making the decisions you should be making, making the trades you should be making?

And so you end up potentially with a little bit different look and flavor to the index as it relates to that.

And so skipping down, I just wanted to show you all uh finish this particular um search with with a couple of comments on the fact sheets.

So we have a fact sheet for each of the funds.

Uh, it looks a little different than the fact sheets that's in the back of your report for the MFS.

Um, the multiple managers, so kind of a team of assistant coaches, been running the fund for 9.2 years uh on average.

There's the expense ratio.

The fund size is $53 billion, so it's a massive fund.

These are all huge funds.

But what's interesting to me here is look at MFS, what they're anticipating in terms of outflows over the next few years.

And so if you're a bull and you continue to think that this is going to be an upmarket, if I have to keep selling stocks, then I'm gonna be struggling buying stocks.

And so you see that kind of outflows 34% of the portfolio, 27 billion dollars.

Little bit of a concern, especially when you only have 72 holdings right here.

And then here's the allocation in terms of the style, majority concentrated in value, and then we do that similar for each of the options, and so you can see Putnam, so kind of the opposite in terms of flows.

It's okay to have negative flows, but that's a bit of a tilt downwards for MFS large value.

And um, so 108 holdings on Putnam, 72 on MFS, Vanguard's 200, I believe, uh yeah, 204, and then Columbia's like 80, 84.

So our recommendation, you probably already know it, but our recommendation as it relates to large value would be to recommend replacing MFS large value with Putnam large cap value.

I'm just curious, um, how did MFS value end up in our plan in the first place?

Was that per your recommendation?

That was prior to us.

That was one of the funds out of that 42% that's stuck around.

Yeah, but that fund had its time prior to this run-up in the bull market.

That the challenge MFS has is that sort of buying and holding, and they just don't chase like for example, um, when you look at the top 10 holdings of of some of the others, you might see a um an Amazon or a Google at times because they feel as though that particular stock is undervalued based on its PE and all those factors.

MFS just won't do that, they're just not gonna go and chase those sort of growth stocks, and it's just really hurt the mash.

I have a question about the timing.

If we do go with your recommendation, when does that take effect?

Roughly 60 days.

Thank you.

And that's a good question too, Chi, because um potential what we doing three, 11%, you know, it's not ideal, but then it's kind of like okay, you just sort of do them all at once, one notification instead of multiple for participants.

Yeah, I don't think they're taking the action here.

Um, I I will add one more thing to give you some comfort on the Putnam.

Um, you know, policy looks at five-year performance periods so you're always wrestling with what good or bad number comes out of that five year, and what does that leave us with?

Um Putnam has a very good um cash of strong returns that will hang around in the five-year policy period for a good period of time, and um I I think it gives you some some level of uh cushion forever having to address this fund as an underperformer in the lineup.

So that's the other part of this that I like about the Putnam fund.

Um, it had the highest sharp ratio.

I'm bringing that up, Ash, because you asked about alpha.

Um, that's a risk adjusted return measure, and the up down capture, as Rosh pointed out, means it plays offense when the market's going up very well, and it plays defense when the market's going down very well.

So it's there's not a lot not to like.

And Putnam is owned by Franklin uh Templeton.

So it was part of Empower.

It is was in power sold at about two years ago.

And so um Franklin is renaming some of the strategies to be called Franklin instead of Putnam.

This particular fund as of right now will still remain the name Putnam.

If the name does change to Franklin, that's not gonna change the managers or the strategy or the portfolio or anything along those lines.

So for now, this is still Putnam large value, but just wanted to give you that heads up that we are seeing some name changes to the Putnam family.

Thanks, John.

Y'all ready for mid-cap value?

All right, let's go.

So uh this is gonna look similar, but now different information.

And so we're talking about the 14 million dollars that's in American century mid-value.

Now this fund has been on watch for a long time, couple years.

Uh we've been patient with the fund.

Um it had a great 2022.

If you might recall, it was in the six percentile.

That was when everybody seemed to have a bad 2022.

This one did well.

We were cautiously optimistic that as it protects on the downside, we were gonna see that again in those periods of time where we've had some hiccups in the market, say last first quarter last year with tariffs, first quarter this year, and it just hasn't happened.

And so that's where it's like, okay, it's time to time to make that change.

And so uh we've got three mid-cap value funds here for your consideration, uh, T Row price mid-cap value, John Hancock discipline mid-value, and then harbor mid cap value.

And you can see the five-year numbers again, net of fees.

So our fund 7.22%, T Row just under 10%, and then John Hancock at 8.63, harbor a little over 10%, and then returns versus index.

So similar uh what we saw in the large value, and then the five-year peer group ranking.

So T Row in the top quartile, harbor in the top quartile, John Hancock, 43rd percentile to Jason's point, maybe a little concerned if we move to this fund.

Are we getting a fund that's gonna end up on watch in the near future?

Um, but overall, still though, been a consistent fund.

You can see the 10 year number almost in that top quartile, and look at that 15-year number too, okay?

And then here's the year-by-year calendar.

So we want to see are there any you know years where the fund just severely underperformed?

Um, and so it just unfortunately, I mean, look, gosh, look at there's our 2022 for American Century mid value.

Yeah, and there's the six percentile, but gosh, just went in the other direction in 2023, 95th percentile, and so that'll almost just neutralize this right here.

And so you can just see the overall consistency uh of these other funds relative you know to what we've had with MFS, um MFS, American Century, a little bit of a choppy ride here.

Um, and again, this is going to be if we're in the 79th percentile, 65th percentile, largely due to the sectors um that are under the hoods for each of these funds, okay, those sectors being out of favor that particular year.

If we had T Row price in our lineup for the last year or two, in 2025 as a year as a whole, it um it was under the index and it was greater than the 50 percent tile.

So lower than the fifth.

How many quarters would would we have been would they have been red on the compliance chart?

I don't I don't know the answer to that.

Because that could all been one quarter.

I don't know.

Yeah.

Um but it would also be the five-year number, too.

So you know, so it one bad year, and that's I think why it's important we use the five year number, doesn't necessarily make us, you know, red.

Um and so even though we had a bad 2025 if we're T Row.

Yeah, that was my error, thank you.

Okay, as in investment strategy, I get why people invest in large cap, I get why people invest in small cap.

What is what's kind of the investment approach for selecting mid cap?

Just out of curiosity.

Uh, it's becoming less relevant, that's for sure.

Um it really is, it's the bridge between what you just said, it's the bridge between small and and large, but like take Palantir.

How long was that a mid-cap stock?

Like a month?

It just went right from small to large.

I mean, SpaceX has never been either a smaller or mid, even though it's only been around for a week.

Um, what we are seeing, Ash, and I'm I love your questions.

We are seeing some clients say, you know what?

What if we just compressed the small and mid together and made a SMID category?

So, a SMID.

That's right.

So I don't know if we're there yet in Sacramento.

Um, based on the fact that we've got we we have over one percent of assets.

I know that's it doesn't sound like a lot, but it relatively we have over one percent of assets in each of the mid-value, mid-growth, small value, small growth categories.

If we just had like a smattering of assets in any of those, we might want to start talking about that.

The uh market cap for small cap, it usually the you know the break point.

There's two billion market cap and below is where you find small cap companies, mid-cap is two billion to ten billion, and then usually large caps kind of ten billion and above.

So you miss a lot of companies if you stay true to small cap definition and true to large cap.

I mean, there is a question of whether you need them, but you do miss a pretty good subset of the market that managers would have to have some flexibility to be able to invest in.

I am a proponent of smashing the two together, although, as Rosh mentioned, most clients, and I said this up front, are structured the way you are, where participants have to decide do they want a mid-cap allocation, do they want a small cap allocation, they want a large cap.

We don't we don't smid, right?

We don't we're just gonna give you one category that covers both.

I think you can accomplish maybe what you're alluding to by doing that and not confuse the issue of why you need mid-cap, but um maybe a discussion for another time, and and that discussion kind of centers around simplifying the menu, right?

Exactly.

Yeah, and I agree it's a discussion for another time, but yeah, it just seems like we have three choices in mid cap, three choices in small cap, and it's like do we really need that many choices?

Well, if we make the changes that are recommended in the investment policy statement today, does that prevent us from later combining those categories?

Do we have to go back and amend the policy statement again to create a new category?

No.

Because we'd end up with a blend.

We may we may need to take out, yeah.

You would.

If you were going to have SMID as a category, you would have a SMID policy description, a SMID benchmark, right?

There is there is one, and a SMID peer group ranking.

Um one of the problems with doing that is it's a pretty small peer universe, right?

So it is very subjective to single managers.

You know, you could you could be in a bottom quartile or a top quartile by small differences from the rest of it, but you know, it is something you'd have to address in policy, but there's no timeline to it.

You may decide uh as a committee that you know maybe simplifying the menu, and whether it's smid or other things, uh, is worth a discussion and it'd be a project, and um, you know, kind of akin to what you did when you did the big revamp of funds and changing things.

Or are we you know moving down a path of putting that on the agenda for one one of these time periods this year, next, whatever the carry it is.

I I I think it's a worthwhile endeavor to think about and Rosh is good at it, so thanks, Jason.

All right, um, so let's let's get through this one pretty quickly here.

Uh and then happy to answer any questions, but I want to be mindful of the time.

So we take a look at Harbor, right?

10.34%, 16th percentile, T Row.

There's a this is a two-horse race.

Uh 9.76 on the five-year net of fees, 25 25th percentile.

So right there, it's like, well, Harbor's better, right?

Back to the uh observation question you had earlier, Ash, as it relates to what kind of risk am I taking to get the return on the sharp ratio tells us that.

This outlier way dipping way down below is Harbor, not getting me the return for the risk they are taking.

And so let's look at the up capture, down capture.

Sure enough, in an upmarket T row.

In a down market, yeah, everybody's gonna protect me.

Uh, but you can see really Harbor not standing out.

When we look at the five-year number, Harbor, yep, a little bit better, but here's where I mentioned earlier the 10-year number, taking more risk, not getting as much return.

And so, as we go through, here's the fees for each.

So, our current fund is the lowest cost, but as you all saw, getting me the lowest return.

So, I'm not getting my money's worth for sure.

Um, in this case, or I'm not getting my fee savings worth, is what I should say.

How I should say that, and then the others, a little bit more expensive, and uh this is you know the overall cost, so you can see about what it'd be about fourteen thousand dollars more uh based on the 14 million dollars in assets there.

If we were to move to T Row price, you know that our participants would pay, but they'd be getting you know about 250 basis points more if we go by past performance, and so we also do the same uh we repeat the information that I had gone through on the large value, and again, in the interest of time, I'll just kind of scroll through that and then show the fact sheets at the back here.

So American Century, here we are 116 holdings again, all mid cap, it's gonna be primarily highlighted in this uh midsection, you know, of the of the nine categories, and then you can see T Row 123, so similar.

Um, and so recommendation for the mid cap value is to map the American century mid value to the T Row price mid cap value.

And we had some discussions at our firm about Harbor or T Row, but our analysts pushed pretty strongly that T Row based on the consistency, the 10 year number, the sharp ratio, the you know, risk adjusted return, all those factors is a better fit for the lineup than harbor.

All right, and then uh last but not least, we've got the international um blend.

I'm sorry, the uh yeah, MFS International Diversification.

And so we've got four a few options there.

DFA World, Fidelity Total International Equity, and then MFS again.

So MFS blended research.

So a different MFS fund, different MFS strategy here, different team running the fund, been running the fund for seven years.

Here's the trailing performance for our international category.

MFS, our current fund international diversification.

I need to clarify that 6.46 net of fees, and then you can see all the others.

Now there's a little story as it relates to this particular fund.

The MFS international diversification, the current team that's been running that fund as far as leading the fund, they've been on the strategy for over 10 years.

They've been leading the fund for the past three years, and it's just not gone well.

Now that fund is a fund of funds.

So if I look at the MFS international diversification, there are that particular allocation has seven MFS funds in it.

So it's almost looks like a target date fund, but it's just international, where it's got international research, emerging equities, etc.

And so it's a fund of funds.

There's 525 holdings, though, in the fund across the fund.

And just the current team just is really not improved performance.

And so, based on what we talked about earlier, too, and we look at the light kind of at the end of the tunnel, that's just sort of seem to be dimming and dimming and dimming.

Might make sense to make that change.

So we have the options here.

So, as it relates to up capture, down capture, MFS blended research, is the one that's going to stand out the most here.

And then you can see it really is an outlier on the five year, still holding steady on the 10-year.

What's the difference between blended research and international diversification?

They're both MFS funds.

Look at the fee.

73 basis points is what we're paying now.

44 basis points is blended research.

So what blended research is if we almost took, imagine if we took like a passive fund and an active fund and then got married and had a baby, you would have blended research.

Blended research takes a lot of the algorithms and the computer models that you get from passive investing, but then it's come over top with active management.

And so in a nutshell, what they're able to do is replicate a lot of those algorithms that you would get as far as quantitative research.

You have a lot more, potentially a lot more stocks in the portfolio, but then they do take a hands-on approach.

So you end up with kind of a hybrid cost in that it's not going to be as expensive as if I'm really hands-on, like I am with an international diversification, but it's not going to be super low cost like an index fund.

It's going to be somewhere in the middle.

So the MFS blended research strategy.

They actually use that across various uh categories, but here, of course, we're talking about the MFS blended research international.

The team running this fund has been running the fund for seven years.

And it's and they've outperformed uh the majority of that time.

So our recommendation, and again, we go through the same information here.

Our recommendation, everyone, on the international is to map the MFS International Diversification R6 to the MFS blended research international.

So I mean, MFS probably the diversification folks might not be so happy, but MFS is a firm, probably not too dissatisfied with our recommendation there because we're just kind of saying, okay, we're gonna move from you know this strategy, the international diversification, where we just quite frankly have lost faith in the managers, and we're gonna move over to the blended research team, which has really been running an exceptional fund for seven plus years now.

We were in the this is another fund that was a holdout.

So we've had this, our participants have had this fund for a long time.

Uh we were in this fund when it was in the top quartile, the international diversification, but it's just kind of been the slow erosion over the past five or so years, and now it just doesn't seem to be getting any better.

So, well, thank you for the uh summary and the recommendations.

Um do we have any public comment on this?

Thank you, Chair.

I have no public comments on this item.

Uh, would anybody like to weigh in on uh Rosh's summary recommendations or uh anything else that you just went over?

I have some questions about the earlier part of his um presentation, which is for me another reason to separate the two, uh, but I don't want to lose the momentum if we want to talk about uh maybe doing a motion first on replacing the funds or whatever the chair prefers, but yeah.

I mean, I'm yeah, I think that was a pretty good discussion, and and we were able to ask them a lot of questions.

If you want, we can break up item number five into the two parts we talked about and get a motion first on um parts one and two.

So retaining a nationwide fixed fund and the new Vene Real Estate Security Select on watch for quantitative reasons, and then placing the Vanguard International Growth Fund on watch for for the same quantitative reasons.

So if we can get a motion in a second, we can vote on that.

I'll make that motion.

All right, I'll second it.

Good.

All right, so all those in favor?

Aye, opposed, abstain.

Okay, and then we can move on to part three.

Uh take the recommendations of replacing the MFS value uh R6 with the Putnam value fund, replacing the American century mid-cap value with the T Row Price mid-cap, and then replace the MFS International Diversified with the MFS blended research.

So moved?

Okay.

You can get a second.

Alright.

We'll give that one to the Ketisha.

All right.

All those in favor?

Aye.

Opposed.

Any abstentions?

Okay.

Very good.

Can I can I still ask some questions though about Rosh's piece on the report?

Yeah, absolutely.

It won't affect obviously what we just voted on, but I just have some things.

Let's see.

So on uh I don't know.

I don't know if your reports are consecutively numbered, but I'm on page 19 where it shows um cash flow in and out of all our plans.

This is the quarterly report on the quarterly report on the uh FCG piece of it.

Yep, right here.

Yes, so it's another quarter of net outflows.

Um how concerned should we be about that?

You should be concerned.

Uh typically first quarter though, we do see more outflows than the other quarters.

Uh I would in this particular case, Murray, I would see how 2026 plays out.

Uh we certainly don't want to get back to where we were in 2024.

If we analyze this out, you know, we're down six million dollars for the year, but we do tend to see more outflows in that first quarter than we do the rest of the year.

The other thing is we did add a great number there in 2025, but that is a little misleading because that's the PEP assets transferring in from Mission Square RHS.

So, and then a question for for John jumping ahead on John, we used to see a list of uh the biggest recipients of money being moved out, and I didn't I didn't find that in the report this time.

Is that gonna come back?

Our report is system generated, that was removed, and we have requests to add that back in.

So I would Sir.

If you could please come up to the lectern.

Yes, that was removed.

It's a system generated report.

We have requests to add that back into a future version of the report because we all liked it and we're disappointed when it was taken out.

I think all of the field representatives want it back in, so there's a business case to add it back in.

I can do a manual report, but it wouldn't be included in our standard report, but it will be most likely in the next say three or four quarters, so we'll have that added back in at some point, uh okay.

Back to Rosh.

Um page 64 of your report, so back in on the top, no, the uh plan fee analysis page, it's got number page 64 on it, yeah.

So at the top right on that page, quarter four of twenty-three, it's got a twenty-five dollar average admin cost.

Am I reading that right?

Yes, so that's that's the lowest in that period of time that went down because we changed the record keeper for the for the health reimbursement arrangement plan, right around.

No, we didn't change it back then.

So what's happening there?

That's a combination of the nationwide fee and then the is it $18 fee uh per participant.

So if you turn those percentages into a dollar figure, it's 27 bucks per participant, and then the average participant balance.

Um so in in the from the fourth quarter of 24 to the first quarter of 25, the average participant balance went, let's see, first quarter.

This is likely due to the PEP coming in and the balances being lower on the PEP.

Okay.

So we're counting them as accounting.

This is all the plans all together.

Yes.

You use the same exact chart and you go you know plan by plan.

I I don't see the the difference just doesn't seem to be there.

So it's uh it went from uh I just I don't know what was it that that caused that number to change the 107,000 average participant balance in the fourth quarter of 24.

The this is when the PEP money came in, and so when you add all the PEP accounts, which are lower uh in terms of average balances, then's the it's gonna bring down the average account balance overall.

I'm going in the wrong direction.

Oh no, I'm not.

I'll just show you.

So we'll take any PEP plan here.

Let's see.

This is the uh WCO do you call WICO.

Uh so the average balance here is $1,800 on that plan.

So when we go into the 457, it's gonna be north of a hundred thousand.

So when we start adding these in, um, you know, there we are, eighty two hundred on this one.

This is uh SCXEA after you know August 8th.

So that's what did it in terms of the overall average balance for the fees.

So, the unique participant balance, and this is another discussion prior, another time because we're running out of time, but the unique participant balance is likely a hundred and somewhat thousand dollars.

We're doing it by account here.

So, just trying to we're trying to figure out the best way to do it.

I don't know if there's any perfect way to be able to do this, but we want to be able to show the fees and how they would hit a balance, and you really do have to factor in that you have to account for that eighteen hundred dollar account balance just as much as you have to account for that hundred thousand dollar account balance, even if it is the same person, right?

So we're trying to do that with this chart here, um and you had a couple of pages showing how the um the vanguard target date series uh compared to their CIT version, but we're not being asked to do anything about that at this time.

So are you gonna continue to just show us the differences so that we can become familiar?

Is that why you're putting it in the report?

Yeah, we our recommendation at the appropriate time that the city determines if it is appropriate.

Uh, but our recommendation is to move from the vanguard target retirement mutual fund series to the vanguard target retirement collective trust.

That's our recommendation.

Now, the city of Sacramento says too much too much paperwork, whatever the case may be, then that's that may be the case.

But we want you to at least know what our recommendation is, and this information uh we have provided in the past as well.

There are a couple of things to think about.

There's the savings, which is minimal, eight grand a year, but when you think about the hypothetical returns, if I had gone back and been in the CITs based on the assets, the 187 million dollars in assets, the city of Sacramento versus having been in the mutual funds, my participants would have had 330,000 more in gains, and that's because Vanguard pays the international taxes on the collective trusts.

Uh two meetings ago, um, and so we want you all to have this because what gives us heartburn is we don't want you to go somewhere like Nagda, and somebody says, Hey, CITs, and you're like, we don't ever hear about those from our consultant.

So at least you have the information there, and you can make that decision.

Um, I can comment on the CIT.

I am in my current role working to uplift uh with the attorney's office one particular document that has to be signed, which is a signing power of attorney over.

Um and of course you can imagine that is a concern for the city attorney and understanding what does that really mean, like if a participant were to sue.

So my goal is to be able to work through that and bring it back at the September meeting.

I think it's important that they continue to show this information in the reports.

It's not that this the discussion has stopped, it's getting the legal analysis on what does it really mean for us as an organization to sign that power of attorney over, and that's one of the documents that's required.

So that's concerning.

I know that other public agencies do this, um, and that's part of my um, I don't know the right word for that, but part of my discussions on this is happening, other agencies do figure this out.

Um I believe it can be worked through, but we have a very conscientious city attorney's office that always wants to be careful.

I had forgotten that that we had started or we talked about having the review started, so I hadn't heard what that was.

Yeah, so I do um, you know, I think it's important that this information continues to be in these reports so that um it is not appearing as if it's been forgotten about um and the work continues.

I have a goal of September.

I'm gonna try to get that worked out.

Excellent, thank you.

Uh and then of course the committee still has to feel comfortable about doing doing that, but we'll do that knowing that if we go forward, the legal part won't be the obstacle.

Okay, okay.

So any anything else?

Any other questions before we move on to uh item number six?

All right, let's go we'll move on to item number six and uh the investment policy statement.

I will uh start this off.

This has been an item that's come before the committee, you know, several times before.

Uh I feel strongly that we are at a point that we need to update this policy and make movement on this and get this done.

Um it's really hard for me not to call them highest group, but Rosh and uh fiduciary consulting group um did go through the document again, and I have provided in the report a red line version uh that includes some additional changes since the last time this came, and then of course there's a clean copy as well.

Um it's really my goal today to hopefully the committee can work through this in a way that this is you know, a decision point can be made today in a motion to move this forward.

Uh Rosh can probably talk more about the importance for his company and their requirements and um to make sure that the clients they work with have a current investment policy statement.

In a conversation I have with Rosh, you know, I the prior, and you'll see it on when it starts to talk about target date funds.

I did identify is there a way that we don't have to call out specific years in this document so that as time goes by, um we're constantly having to just update a year on this, so it's a little more um user-friendly in terms of the timing of constant updates, and we can get to a more regular schedule of evaluating this.

But it is my hope today that the committee uh can come to a consist consensus.

I understand we might have some additional edits, but um it is a goal of mine and of um Rosh and his team that this is updated and this is moved forward.

And I'll turn it over to Rosh.

Thank you, Samantha.

Um, and we what we typically see in terms of cadence is we update this every year, right?

Or as needed.

So, you know, if we have a recommendation to push this through, have a 2026 investment policy statement.

We'll be here a year from now with any kind of updates or modifications, and have a 2027 investment policy statement.

Um typically what those modifications are is like if we have a SMID category or you know, in terms of structural changes, or if there's any kind of industry changes to like I don't know, you know, an index used to be called Bloomberg, now it's called Barclays, or vice versa, then we would make that change as well.

Uh within the IPS, but uh we are technically compliant in how we are following the IPS, that compliance page, right?

The stoplight chart that we were all looking at, that is following our IPS from 2021, but it really should be updated.

Just to add to what Samantha had said, so we've kind of future fit it in terms of as vintages drop off, we don't necessarily need to modify the IPS.

We also changed anywhere that it's referenced the word fund to option.

So then that way, because technically a collective trust is a trust, it's not a fund.

It's so umbrella term for all of those is option, so an investment option, and so um that's been also changed, and that just even if we don't do collective trust, it's I think just best to sort of future fit the document that way.

And um, if I may add on, the overall philosophy is not changing.

That is correct.

The philosophy of the investment options.

If you um in tier one, tier two, and tier three, and we are not changing that, and um, there's no, you know, the overall philosophy is staying the same.

That is correct, and then that the process that we follow that we've ironed out and identified in the two quarters and all that it's all in here, so that's not changing either.

So really just I mean, this is I there are some changes here, but it's just because it's five years worth of changes.

You know, next year when we do it, they'll probably be very minimal.

I I do have some suggested changes.

Maybe before we get into that, um, I'd like to make a motion that we extend the time of the meeting so we don't feel like we need to rush through this, and I think we have a couple items after that that haven't been uh yeah, I think our only option is to ask for an additional hour.

We I think Brad tried the 30 minute one time and was told no, it has to be an hour.

Okay.

Well, we don't have to stay the whole hour if we don't want to.

No, all right.

So can we get a motion to uh to extend the meeting for an extra hour so we can get all these items in?

Heard a motion by uh member uh Levison.

So then a second.

I'll second the motion.

Okay.

Uh all those in favor.

Against.

Okay.

All right, sorry.

Yeah, proceed.

Um trying to think of the best way to do this.

Uh when we had this on our agenda several years ago.

I asked to make some changes to let's see.

There's a definition of what the committee is, and in that section.

So, sorry, just disconnected my mouse.

Okay, on page page two of the document, there under summary of responsibilities, there's a paragraph that has a heading of committee.

In that paragraph, there is a paraphrasing of uh the law in the California Constitution and in the California governance code.

I did offer some amendments several years ago to um instead of paraphrasing to actually put them in quotation marks and quote from the law so that we don't accidentally look at some language and say, well, care skill, prudence, and diligence, that's just a lot of big words.

That why don't we just use the word care?

Just take the other ones out, it just seems redundant.

And those words are in there purposely because they do come from the law.

I'm not gonna go through that today because I think we're gonna be on an annual process to take a look at this, and so I'll I'll wait for another time.

Um but there is one word in that section that has caused some controversy in the past.

And if the committee will indulge me, just a few minutes.

Um I'm gonna address something, and I need to use the podium because I need to use um I need to show a document.

I know.

Yeah, I believe the camera no longer functions.

Uh camera works uh uh members of the committee may use it if they need um per council rules of procedure, members of the public may not use the document camera to display uh items.

Just uh, well, we've had some discussion before about the uh authority of the committee, and there's a word in that particular section.

The word is advisory, it says the committee serves as an advisory role for oversight for the committee, and that has generated some concern on behalf of uh the city treasurer, John Colville, our former attorney, um uh Jeff that maybe we're doing more than we should be, even though uh the the uh bylaws and this investment policy statement say very specifically that we have some uh authority to make changes to the investment lineup as we did today.

So I just want to give you some history on that.

Uh we had a discussion March of 2023 in this committee about the bylaws themselves, and there were some comments made at that time.

I'm just gonna play you the audio portion.

I can't show you the video portion, but I want to just want you to hear what was said, and then I'll give a little bit of description after that.

This is John Colville, the city treasurer.

The bylaws say that this body has the ability to direct investments, make direct investment decisions, whereas the staff report says we're advisories to the city to the plant administrator to make those decisions.

So, okay, that's the first one.

Quick minute.

So I'm looking at chapter the council rules of procedure, chapter five, D three.

Chapter five deals with conduct of the public.

Is this what you're referring to?

Is that is that the citation that you're is that the rule that you're discussing?

No.

What rule what actual citation you're discussing?

Are you trying to say um advisory within the council rules or procedure?

No.

No, Mr.

Attorney, uh, that is uh tape and tape there for the public so they know they're not allowed to use that.

Just statements that you're okay.

Got it.

Council, can you get it?

Okay.

All right.

Um real quick though, I just so you're you're using these, you know, essentially comments from past meetings to make a point to make a point to set up.

So I mean, can you give us a summary of what the point is to start with so we can use that as background and you know, so what changes you want to make?

No, I'm I'm not asking it's kind of easier for us to connect what's what's going on here.

Thank you.

Thank you for that, Patrick.

Um in the past there has been some statements made about the authority of the committee, and I think they were made unintentionally but act inaccurately.

And so I'm I'm I'm replaying what is a common thought about the committee that we're only supposed to be an advisory committee, and I'm going to show you that I think that comment from the city uh attorney and from the city treasurer were made inadvertently, hopefully, incorrectly, so that we can correct the record.

I'm not asking that at this time that we change the wording in the investment policy statement, although I would like to see it change, but since we're talking about this section, and it says that it says that we have this advisory role, that word has caused um some uh difficulty in the past about our overall overall role.

If I may, what the item on the agenda today is the investment policy updating the investment policy statement, a red line version has been provided.

Yes, it's not about the philosophy of the committee as a whole, and we don't have the bylaws in front of us to go through the bylaws, which are.

If I can clarify, you're not actually asking for one of the words in this section to be redlined.

Under normal circumstances, I I would, but out of respect for the the need for timeliness, I'm I'm putting that aside for a later discussion.

But since it's on the agenda today, and there is this thought that there is some uh uh there's a thought out there that we're we're we're only an advisory committee, we don't have any decision-making authority.

I'm using this opportunity to correct the record on that piece, and I can apply on that uh uh the position of the city attorney has been, I believe, going back to two city two city attorneys who staffed this body, that this is an advisory body, and my opinion also does not change.

I just want to make that.

But I'm not asking you to change your opinion, I'm trying to give you some context why that opinion may actually be wrong.

Yeah, so just want to put that on the record that the opinion of the city attorney has been consistent and remains consistent that this is an advisory body.

Okay, am I allowed to continue?

Uh I would say as long as the matter is within the agenda, um, because to the extent that we're discussing the what the authority of this committee is and and all that, I do not think it was properly noticed, is not an item within the agenda, so I I would advise the committee to stay within the confines of what was noticed on the agenda.

So what's being considered is passing a motion, approving the investment policy statement.

So I think any discussion as to the powers of this committee or the role that this committee exceeds uh the scope of this notice agenda, and and my point is that this particular word which is in the investment policy statement has been the source of the controversy that has arisen about the authority of the committee.

And so uh all I'm doing is replaying what has been said using that particular word to create the appearance that we don't have decision-making authority and that we're only an advisory body, and then I'm going to show you something that refutes that, and then I'll be done and we'll talk about the rest of the document that's also on the agenda, which is the investment policy statement.

I defer to the chair, the city attorney has stated what needs to be stated.

Yeah, I mean, I think you know that that wasn't agendized.

I mean, we had all the red line stuff that we went over when we got it all.

I mean, if if along with the city attorney's office, we think that it's worthwhile going over that.

I mean, we can get that specifically on a future agenda, and then go over it.

Um, you know, it just it is something we've been talking about quite a bit over the last few years, but you know, as far as today, everything that we have on there and everything we've been going over, um, you know, kind of um, you know, going with what our attorney said, it's just it's not part of what we're what we're in here for today.

But we can we can if it, you know, if it if it's applicable, get it on a future agenda and and talk about it then.

The other way that I could make it more applicable is to say that I'd like to remove that word from the investment policy statement and explain why.

And so I'm I'm telling you up front that I'm not asking to make that change today, but I am asking for the opportunity to explain why.

I in normal circumstances I would like to see that word removed.

And it's part of the uh the the uh okay.

I mean, so so that's a specific action.

Let's let's get it on a future agenda, and you can present and state your case, and then we can all decide at that point whether we want to do that or not.

Thank you, Mr.

Chair.

So where were we?

Um as far as going over the red line and the changes there and continue.

Okay.

I do have some suggestions.

Uh quick question.

Do we have the latitude to make these?

If there's any suggested changes, make them right now, and also uh complete this document today.

Is that something we could do?

Oh, I'm on.

Yeah, the goal of today is to hear from the committee.

Um, you know, I think our expect expectation um as we work on this was um there should not be substantive take changes or might be just minor edits or um you know corrections with typos or that sort of thing.

Um so we're looking to hear that or and get the committee if they can to appoint um to appoint today to um pass a motion or not, you know.

Yeah, get it over the finished line.

The city is interested in um getting this updated and um moving it forward.

Rosh, did you say that this was five this hasn't been done in five years?

So I would like that recommendation for it to be every year that this is review for updates.

So that we agree, yes.

Correct me if I'm wrong, but essentially, like you said, we're cleaning some things up and then combining with what you said, making it a little more flexible for us to do certain things without having to keep going in and changing the language.

Yes.

Right.

This will be a lot easier as we do it every year, a lot easier, right?

Oh, just like um Rosh mentioned using the word options, removing those um like 2025, 2030, 20 as time, you know, those specific dates, removing that.

Right, um, which can easily become out of date quickly.

Since we're doing it on the year, wouldn't it be prudent to do it at the first quarterly meeting of the year?

Yeah, throwing that out there.

Yep.

I guess the only thing I'll add, I totally support um revisiting this each year.

I think bigger conversations about like the menu and things like that, we may need to have those discussions a few meetings ahead of time and go through kind of that thought process before we kind of get to a draft of what that looks like, so that the investment policy statement reflects the kind of shared understanding and intent of the committee before we get there.

But with that said, I'm happy to approve the current version as proposed.

Yeah, so just really quick for a little background.

Like with our investment policy for the city and with Scurs, we essentially update it every fiscal year.

And typically there aren't a lot of changes unless there are things that, as you said, had been discussed, major things that would need to be incorporated, and then you know, of course, we go through that process and do it.

But typically it's just kind of like like this, a couple things get redlined here or there, we clean up something and then uh you know, submit it for review and and just go through it really quickly.

You know, so typically we're not gonna see huge changes, I wouldn't anticipate.

The idea from our perspective is that it should be effectively recorded in the minutes that you've reviewed it once a year.

And and most often, this is an exception, the changes are minor, and sometimes it's just the date.

It's a it's supposed to be a long standing policy, it's not supposed to just with the whims, you know, for the most part.

So yeah, the idea is that it should be a recurring agenda item to show that you guys are being prudent at your evaluation and management of the fund.

So, and then like you were talking about with the going through the menu of choices and everything.

If we were going to change, those are all gonna fit within within the policy anyway.

But if we were to do something like the SMID, we may need to effectively put that in there and insert it so that you know, tier two, yeah.

Yeah, so it was so it was recorded that we discussed it and approved it.

Well, can I I have some questions and uh a couple suggestions for some minor changes?

Can I go forward with that?

Yeah, absolutely.

All right, on page five of the document, in the middle of the page, there's a list of the categories, under investment options, under uh yes, under investment options in in section B, tier two.

Uh we've got some different wording that's not consistent.

So it says large size, mid-size, and small size.

On the following pages, it says large, mid-size, and small, and the glossary uses large cap, mid cap, and small cap.

Is there a need for those differences?

Should they be the same words?

They can be the same.

I don't know why they're different, candidly.

Size and cap is I I it doesn't matter to me what they should what's what we end up with, but if um if you want to decide on what uh after the meeting what's what's appropriate for consistency, as long as we're consistent, that that's all I'm trying to get to.

The one update to reflect um consistent terminology for the specific to size and cap, right?

Okay, okay.

Um, uh just um punctuation.

Uh I I think the word industry, the phrase industry standards should be hyphenated.

Uh if you agree, go ahead and do that.

There's some number of places where that phrase appears.

On page um nine, on the bottom under US small company equity word missing at the almost the end of the second line by an industry standard data provider.

I think that word provider is missing.

It shows up in the boxes for mid-size and large size.

In the box titled U.S.

small company equity.

Yes.

That first sentence is what you're referencing.

Yes.

So right before the cross out of with the average and before and right after standard data, the word provider should be added.

So if you look at the same place in the deferred a Rosh on that sentence on if it should have the word.

Yeah, that's correct.

Provider, yeah.

Sorry.

Oh, yeah, I am sharing again.

So that's good catch.

Thank you.

Um, uh this is just a clarification, not a request for change, but on page 13, we talk about we define what the quantitative measures are that we use when we look at the performance of the funds.

We talk about where they are compared to the funds benchmark, whether they outperform the index, and I just want to be clear that what the language says is they have to outperform their stated asset class, which means a zero difference is not outperforming.

That's being the same as.

So it's got to be better than a zero difference.

And at one point, I think we saw a fund that was in the 50th percentile, and we told that was passing.

The language actually says it has to rank above the 50 50th percentile.

So that's means it's got to show a four anything between one and forty-nine.

Is that how correct, Rosh?

If it's 50, it is in compliance.

Pardon me?

If it's 50, it is in compliance.

So then it it can't.

Well then we can't use the language rank above the 50th percentile.

Then we would need to say rank at or above the 50th percentile.

Talking about, sorry.

Are you talking about the language on page 12 or the language on page 50%?

I'm on page 3, sorry, 13.

Uh, under the top of the page under the section quantitative measures, it defines how we determine whether they meet those quantitative measures or not.

So at first it says it has to outperform their stated asset class, net of all management fees.

So that's where I'm I'm just clarifying that what that actually means in practice is that it can't be the same as the the um their benchmark, it's got to be above, and then it has to rank above the 50th percentile.

If you really wanted to say it has to be at the 50th percentile or better, then we need to change the language to be to be consistent with what you're saying.

I think the language could change, but there's a difference between that page and that language and the page in the language on the following page, which is dealing with when you actually take action to put something on watch.

The language here you're referring to is what we expect active managers to do.

Okay, they're they're paid to outperform.

And we don't state outside of that we want them to beat the median manager, and we want the out they want them to outperform that as the expectation on the subsequent page, we're identifying at what point do we consider the manager to be in violation, and in that case, as it relates to the peer group ranking, below the median is referenced.

In this case, 50 would be at median, so in in our reporting 50 would not get a red.

It's at median.

So for watch status, we're saying this is what it takes for us to say that the fund is in violation, even though our expectations are the way you pointed it out.

So slight difference between the two language styles.

I suppose you can make them the same, but I think I'm differentiating between what our expectations are from the managers we picked and what criteria we use before the this committee takes action to put something on watch.

It's slight, but um that's the reason for the difference in language.

Okay.

If you're fine with it, the committee is fine with it.

I I'm not suggesting I'm not saying we have to change the language.

I just wanted to make sure we understood what the language said and how we actually use it in practice.

I think the language is fine in terms of the way it's describing things.

Um I just want to clarify that we're not intending for there to be specific guidelines for how many quarters a fund has to either fail or subsequently meet the qualitative measures before we put them on watch or take them off watch.

That that's on purpose.

We didn't say specifically it's got to be two quarters, because that that's not in that's not in here.

Our preference, and again, you can change you can decide that you'd like it a little more uh rigid, is that the committee has discretion to put something on watch for any reason they deem it it's appropriate.

So for that reason, we are um specific in if this these two things happen for these two quarters, this is the action you have to take, because then if you don't, it raises the question.

So I I understand the idea of being more specific, so um, and I mean I think you can make the case for it.

I'm just explaining.

I'm pointing out that it doesn't say that, and if and if that's okay, I just I want it to be clear for all of us that when we're reviewing these things that we do have that discretion that we my comments were for everybody, not directed at your point there.

So um I I think you could do it either way.

I'm just stating why we prefer it the way we prefer it.

Maybe you don't.

You collectively, I mean, yeah.

Okay.

Um then at the top of page 16, the very end of that very first line, it says the committee may perform a manager search.

Um I would rather that it say the committee may replace it as opposed to the MIDI, the committee may perform a manager search to replace it.

How we do that I think is uh for us to decide.

We may not want to do a manager search, we may just say you know, replace it with this other uh fund.

But uh um that's that's my preference.

What we did today though was a manager search, correct?

We did, yeah.

We I think we just I think it's just a technical jargon.

Okay.

Yeah.

You're right, both, and I don't think it's a problem to re to just state replace.

You don't have to spell out the process for replacing a fund uh in here if you don't want to, but the process typically is the manager search and how you decide to do the replacement is your your business.

Rosh, can you are you able to put your mouse exactly where we're what I'm looking for it?

I know right there.

Uh that it was the top of page 16.

Oh, the committee may perform a manager manager search to replace it.

Yeah, and I was suggesting maybe the language should say the committee rate may replace it, as opposed to telling us how what process we need to do to replace it.

How many processes are there?

I think that's another thing to understand.

The only one I know of.

Manager search.

Okay.

I mean, I guess you could just go pick a fund.

You didn't do search.

That's not prudent, right?

Um, I can see a I mean, I I could see a scenario where you got rid of the fund and didn't replace it with another fund.

You just took the assets and moved it to something else that's in the lineup.

Conceivably that would be we replaced the fund in the lineup.

We removed it and mapped the assets to something else.

No search was performed.

Um, also says may.

So I isn't that kind of a you're giving yourself the flexibility, right?

Not shall or will.

Correct.

The language is written to provide some flexibility.

And then on page 13.

And we go back, I don't I don't understand what um.

Can we be more clear on if a motion were passed?

Um the specific sentence is something actually going to change, or the committee is saying that the sentence provides some flexibility and we um want to have that flexibility.

I'm I'm not clear on what's being done with this sentence or holistically for the purpose of the policy.

Is nothing being done or uh I'm okay with the discussion that says that we don't do anything, but I wanted to make sure I brought these issues up.

I I read this as you can tell very carefully because this was our first time in several years to have a chance to review it.

I think it's okay to do nothing.

That's the um I'm almost done.

Um page uh also on page 13 at the bottom.

Um see, I don't know if I'm response.

How do I lost one place?

All right.

Uh so I'm sorry, on page 16, the paragraph at the bottom investment oversight responsibility and proxy voting.

Um we talked about using the word options instead of funds.

I'm thinking that that very first sentence in the paragraph, the committee shall have overall responsibility for the selection monitoring and recommendation of termination of all investment options or investment managers and investment options, because what we've seen uh from the fiduciary review, there were some articles that were highlighting that were highlighted that talk about it's not just mutual funds that that uh plans are putting into their uh into their lineups these days.

There are there are other investment options, which we we may never get to, and that's fine, but I want I'd like the language to be able to give us that flexibility.

So um I think options is good there instead of managers or instead of instead of okay.

So that's uh it would say recommendation termination of all investment options instead of investment managers.

Is that it, Marie?

Um checking Brad, thank you.

Oh, that's cool.

Well, I had one that's five.

Okay, I believe that's it.

Thank you.

Thanks for your indulgence.

Thanks, Murray.

Go ahead, Brad.

Uh mine is on page two, investment consultant paragraph.

It just says the city and committee, and I'm what I don't know is when you say the city, it seems a little vague to me.

Should it say plan administrator or designee?

Uh if you could please weigh in on that.

Um it just seems like you know, saying the city means it could be anybody, and I think it's maybe that should be a little more defined, and maybe say plan administrator or designee and the committee.

Tell me what you guys think.

That's my only one, though.

Oh, shouldn't I?

It's the other one right there.

Yeah, I see that, but I'm going back up to the oh, I see.

Um I totally understand your point, Brad.

Thank you for bringing that up.

I think um, you know, we identify the city of Sacramento as the plan sponsor.

Um, typically, I think the language is fairly consistent with how we do other documents when we reference the city.

Um, I see it a lot in MOUs and I I'm not wedded one way or the other, is like I under I understand if it's investment the the um yeah I does that mean though that anybody like let's say the attorney could talk to the fiduciary group is that what that is that what that means or should it just be only uh the plan administrator talking to our fiduciary advisor?

Well, I mean let's use uh an example of right now I have two jobs.

I'm doing both things when there's just a director of human resources who council has identified as the um plan administrator, typically that position because it can't do all the day-to-day stuff and communication like with the investment consultant, that person is then delegating some of those things to the benefit services manager to have the routine communication take back to Rosh and and his team and that sort of stuff.

So there are instances where no, the director of HR as the plan administrator is not gonna be the one having all the conversations.

That too is gonna get delegated.

Right.

I just was wondering, should we spell that out?

You know, or is just uh it just seemed like saying the city seemed a bit generic to me.

Yeah, and that's all.

I mean, you know, because really at the end of the day, the um all the participants, and don't get me wrong, most city employees are participants, are paying for the consultant.

And I just want to make sure that you know only the people who should be talking to the consultant are talking to the consultant.

Yeah, I like the idea of the um plan administrator.

And or designee.

And or designee.

Okay.

I just I just seemed a little vague to me, is all thank you.

Thanks, Brad.

Uh anybody else have anything they'd like to contribute or weigh in on.

I took notes of the edits.

Do you want me to run through them unless you did already as well?

I took notes, but you and I are gonna make sure our notes match by the time I uh I'll stop talking to you.

Do you want us to enumerate the changes in the motion or I'm comfortable with giving it uh some discretion to the uh, yeah, I mean I think that figures the whole process was to go through the red line version and discuss the changes, and obviously if we found others we could add those.

I make a motion that we uh pass the I'm sorry, bylaws or not by laws.

Investment policy uh sorry as uh with the edits we've discussed uh at this forum.

Before we do, do you do you want to make sure you're on the same page with Rosh so we get all these in as I've got the um making sure the language is consistent um from using so the word size to cap, right?

Um identifying the industry standard needs to be hyphenated.

Um we need to add the word provider at the end of the sentence um on the US small um on the top of that page, right?

It was in blue, yes.

Provider.

I have um we've confirmed that we're leaving as is the perform a manager search to replace at the top of 16.

Uh page 16, bottom first sentence of investment oversight, change investment managers to investment options.

Uh page two investment, the language surrounding investment consultant is to change the word city to plan administrator or designee.

Did I miss anything from what you've done?

That's exactly what I have.

Okay.

Alright, excellent.

So Brad, would you like to make your motion now?

Yeah, unless unless we have to hear from the public on this.

Oh, true.

Yeah, is there any is there any comment from the public?

Thanks, Brad.

It's my first day.

Thank you, Chair.

We have none.

Okay.

Yes, I would like to make the motion to pass the investment policy with the edits as so discussed in this forum.

Do we have a second?

Jeremy's with the second.

Okay, all those in favor?

Aye.

Any opposed?

Any abstentions?

Alright, excellent.

Thank you.

Well done, everybody.

All right.

So our next item is uh member comments, ideas, and questions.

Does anybody have any?

I have one.

Um I've been on the committee for quite some time.

And in that time, the plan administrator has never attended a meeting in person, and today is the first day.

And I want to say to the plan administrator, I appreciate it.

March and March, the plan administrator was here.

Oh, okay.

Interim plan administrator.

Oh.

Sorry, I missed that one.

But I want to say I appreciate that you're here as plan administrator.

Thank you, Brad.

Anyone else?

All right.

Do we have any specifically not do?

Did we specifically not do items two and three?

Because they were um, two and three were part of the consent.

Those items were placed on the consent calendar as in the interest of time to um try to make sure we got through the things that we needed motions passed on today.

Um, that's why they were placed on the consent calendar for today's meeting.

Okay, all right.

Do we have any public comments?

Thank you, Chair.

There are none.

All right.

Well, thanks everybody for coming, and we will uh see you all in September.

Have a great fourth of July.

Thank you all.