PREPARED BY: ARTURO CASTILLO DATE OF MEETING: 06/02/2025
SUBJECT:
TITLE
CONSIDER ADOPTING RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN PABLO (1) APPOINTING THE CITY MANAGER AS PLAN ADMINISTRATOR FOR THE CITY’S 457(B) AND RETIREE HEALTH SAVINGS (“RHS”) PLANS (“THE PLANS”); (2) AUTHORIZING THE CITY MANAGER TO EXECUTE NECESSARY SERVICE PROVIDER AGREEMENTS RELATED TO THE ADMINISTRATION OF THE PLANS; AND (3) GRANTING THE CITY MANAGER THE AUTHORITY TO DELEGATE/ASSIGN DUTIES FOR THE PLAN TO APPROPRIATE DEPARTMENTS AND STAFF TO FULFILL THE CITY’S FIDUCIARY RESPONSIBILITIES AND DUTIES AS OUTLINED IN ARTICLE XVI, SECTION 17 OF THE CALIFORNIA CONSTITUTION
CEQA: This proposed action is not a project as defined by CEQA.
Label
CITY MANAGER RECOMMENDATION
Recommendation
Adopt Resolution
Body
Compliance statements
Continue Best Management Practices, Fiscal Excellence, and Fiscal Transparency is an adopted City Council Priority contained in the adopted Fiscal Year 2025-2027 City Council Priority Workplan, effective April 7, 2025.
RECOMMENDATION:
City staff recommend that the City Council adopt a resolution (1) appointing the City Manager as Plan Administrator for the City’s 457(b) and RHS Plans, (2) authorizing the City Manager to execute necessary service provider agreements related to the administration of the plans, and (3) granting the City Manager the authority to delegate/assign duties for the plan to the appropriate departments and staff to fulfill the City’s fiduciary responsibilities and duties as outlined in Article XVI, Section 17 of the California Constitution.
BACKGROUND
The City provides an employer-sponsored deferred compensation plan under Section 457(b) of the Internal Revenue Code (“IRC”) and a RHS plans under Section 105(h) the IRC. The 457(b) Plan provides tax benefits to employees who make deposits into the Plan for their retirement. The RHS Plan provides tax-free reimbursement for qualified health expenses funded by City paid defined contributions to the plan. As the sponsor of the plans, the City has certain fiduciary duties and responsibilities under State and Federal law. These duties and responsibilities focus on ensuring the operation and investment of the Plans is for the exclusive purpose of providing benefits to participants and beneficiaries. Specifically, fiduciary responsibilities include:
• Investing the assets of the plan;
• Administering the plan; and
• Engaging in a prudent process for making all decisions related to the operation of the plan, including decisions related to the plan's investments and related services.
Because of the increasing complexity of the investment process and associated responsibilities, staff sought to learn more about trends affecting the employer sponsored retirement plan marketplace and laws governing fiduciary requirements for the operation of the City’s sponsored plans. In addition, to fulfill the City’s fiduciary responsibility to provide plans in the best interests of participating employees, the City sought to conduct a review of existing plans. The City contracted with Shuster Advisory Group, LLC (“Shuster”) to conduct an audit of the plans, fees and service providers. Shuster is a SEC-Registered Investment Advisor with over $9 billion in assets under management focusing on serving the unique needs of governmental agencies and special districts serving over 100 cities, agencies and public entities. Shuster serves as a fiduciary to plan investments and provides investment selection, monitoring, and management.
Shuster identified areas the plans and pricing can be improved and negotiated a 92% reduction in the 457(b) record-keeping fees without a reduction in services. Shuster will lead a reorganization of the plans implementing fee transparency, an open architecture institutional investment menu and fiduciary oversight practices.
ANALYSIS
Based on analysis and final negotiations, it was determined that the Plan participants would benefit by remaining with the current record-keeper, MissionSquare, while implementing the significant reduction in costs and enhanced platform, investments and services. The estimated positive financial impact to participant accounts from just the fee reduction alone is $9m over a 30-year period [assumes no additional contributions or distributions and an average 5% annual rate of return]. This impact does not consider the potential for enhanced investment performance from the new higher quality, comprehensive, institutional and low-cost investment menu. Below is a summary of independent investment rating and scoring agencies comparing the plans current menu to the proposed new menu.
|
Scoring/Rating Agency |
RPAG Score (0-10, 10 is best) |
Fi360 Score (100-0, 0 is best) |
Morningstar Rating (1-5, 5 is best) |
|
Current Menu |
7.9 |
37.5 |
3.3 |
|
New Menu |
9.3 |
12.4 |
4.2 |
Budget, Fiscal & Legislative Standing Committee (BFLSC) Review
On May 28, 2025, the BFLSC (Pabon-Alvarado; Ponce) reviewed the Shuster Advisory, LLC. agreement to authorize fiduciary responsibility to be formally considered and approved by the City Council on June 2, 2025.
FISCAL IMPACT
There is no fiscal impact to the City, although the City’s employees participating in such retirement plan will experience a reduction fees and potential savings.
ATTACHMENTS:
Att: 1 Resolution