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BUDGET AND FINANCE AGENDA 09-18-12
central Sanitary District SPECIAL MEETING OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT BUDGET AND FINANCE COMMITTEE Chair McGill Member Nejedly Tuesday, September 18, 2012 10:00 a.m. Executive Conference Room 5019 Imhoff Place Martinez, California INFORMATION FOR THE PUBLIC ADDRESSING THE COMMITTEE ON AN ITEM ON THE AGENDA BOARD OF DIRECTORS: JAMES A. NEJEDLY President DAVID R. WILLIAMS President Pro Tem BARBARA D. HOCKETT MICHAEL R. MCGILL MARIO M. MENESINI PHONE: (925) 228 -9500 FAX. (925) 676 -7211 www.centralsan.org Anyone wishing to address the Committee on an item listed on the agenda will be heard when the Committee Chair calls for comments from the audience. The Chair may specify the number of minutes each person will be permitted to speak based on the number of persons wishing to speak and the time available. After the public has commented, the item is closed to further public comment and brought to the Committee for discussion. There is no further comment permitted from the audience unless invited by the Committee. ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA In accordance with state law, the Committee is prohibited from discussing items not calendared on the agenda. You may address the Committee on any items not listed on the agenda, and which are within their jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may be referred to staff for action or calendared on a future agenda. AGENDA REPORTS Supporting materials on Committee agenda items are available for public review at the Reception Desk, 5019 Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours of the meeting to a majority of the Committee are also available for public inspection at the Reception Desk. During the meeting, information and supporting materials are available in the Conference Room. AMERICANS WITH DISABILITIES ACT In accordance with the Americans With Disabilities Act and state law, it is the policy of the Central Contra Costa Sanitary District to offer its public meetings in a manner that is readily accessible to everyone, including those with disabilities. If you are disabled and require special accommodations to participate, please contact the Secretary of the District at least 48 hours in advance of the meeting at (925) 229 -7303. Budget and Finance Committee September 18, 2012 Page 2 1. Call Meeting to Order 2. Public Comments 3. Old Business *a. Review staff's response to the Committee's request for additional information regarding Expenditures reviewed at previous meeting • Check #191473 to Morgan - Bonanno Development in the amount of $17,211.82 Staff Recommendation: Review staff's response and provide direction if needed. *4. Review memo and Benchmarking Report on the District's Deferred Compensation and 401(a) Plans prepared by Schultz Collins, Lawson, Chambers, Inc. (Jon Chambers of Schultz, Collins to present the findings at the scheduled Budget and Finance Committee meeting of October 1, 2012) Staff Recommendation: Review and provide input to staff if needed. 5. Risk Management *a. Review Loss Control Report and discuss outstanding claims Staff Recommendation: Review the report, discuss outstanding claims and provide direction if needed. 6. Review July 2012 Financial Statements and Investment Reports (Item 5.c. in Board Binder) Staff Recommendation: Review and recommend Board approval. 7. Expenditures a. Review Expenditures (Item 5.b. in Board Binder) Staff Recommendation: Review and recommend Board approval. *b. Review Legal Expenditure Summary Staff Recommendation: Review Legal Expenditure Summary. Budget and Finance Committee September 18, 2012 Page 3 8. Reports and Announcements 9. Suggestions for future agenda items 10. Adjournment * Attachment 3.a. Central Contra Costa Sanitary District September 17, 2012 TO: BUDGET AND FINANCE COMMITTEE FROM: THEA VASSALLO, FINANCE MANAGER VIA: ANN FARRELL, GENERAL MANAGER SUBJECT: MORGAN - BONANNO DEVELOPMENT EXPENDITURE FOLLOW -UP At the September 4, 2012 Budget and Finance Committee meeting, staff was asked to provide additional information on the following: Check# Date Amount Vendor 191473 8/23/12 $17,211.82 Morgan - Bonanno Development Per Curt Swanson, Director of Collection System Operations, this asphaltic concrete paving work done by Morgan - Bonanno was to repair damaged pavement due to several sunken sewer trench areas along Mildred Lane in Lafayette. Prior to paving, a District field crew saw cut and excavated the existing damaged pavement and backfill. The District crews installed and compacted new aggregate backfill. Due to the proximity of the sunken areas, a larger section needed paving. The invoice covers the cost of paving 16' by 40' and 11' by 26' sections. The pavement thickness was 6 inches as required by the City of Lafayette. These repairs equated to a total pavement volume of 17 cubic yards or 31 tons of asphaltic concrete. The bid price for installed asphaltic concrete is $555.22 per ton. A copy of the Morgan - Bonanno Development invoice is attached for your convenience and review. Morgan - Bonanno Development, Inc. Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, CA 94553 Att: Dolly INVOICE DATE 8/9/2012 INVOICE # 3562 PROJECT /JOB Various Patches DESCRIPTION OF WORK AMOUNT Various patches 31 ton @ $555.22 per ton; 07/27/12 17,211.82 Release #117, Lafayette 3375 Mildred Lane, Trench #1;11' x 26'; 61/2" AC 3375 Mildred Lane, Trench #2;16' x 40'; 6" AC ✓ CENTRAL CONTRA COSTA SANITARY DISTRICT ACCOUNT NUMBER I AMOUNT TOTAL D BY r -ly- - /'�I-M- Tota 1 $17,211.82 Central Contra Costa Sanitary District September 13, 2012 TO: BOARD BUDGET AND FINANCE COMMITTEE VIA: ANN E. FARRELL, GENERAL MANAGER FROM: THEA VASSALLO, FINANCE MANAGER Y. Do Not Duplicate Memo or Attachment SUBJECT: SUMMARY OF DEFERRED COMPENSATION BENCHMARKING STUDY A benchmarking study was recently completed to evaluate the appropriateness of the expense ratios being charged to manage the funds offered by various vendors. The study was done in two parts. The first part compared the existing vendors, Nationwide, Hartford and ICMA -RC, using the current fee structure. This portion is labeled Attachment 1. The second part compared the existing vendor, ICMA -RC, inclusive of a $90,000 credit which ICMA -RC is offering if we consolidate to one provider, with two potential new vendors, Vanguard and Graystone /CPI (a Morgan Stanley program). This portion is labeled Attachment 2. For a tabular summary of the findings of the first report (Attachment 1), refer to the table on the top of page 14. Row 5 contains the Total Weighted Average Expense Ratio for all three existing providers. Nationwide is the lowest at .72 %, closely followed by ICMA- RC at .73 %. Hartford, who is soon to exit the deferred compensation business, is significantly higher at .85 %. The tabular summary for the second part of the study is contained on the first page of Attachment 2. This summary includes the proposed $90,000 rebate under the ICMA- RC columns, bringing the expense ratio shown in row 12 to .59% for ICMA -RC. This compares to .39% for Vanguard and an average of about .61 % for Graystone /CPI. Clearly, Vanguard has significantly lower fees than the other two providers. It's worth noting that Vanguard operates under a somewhat different service model than the other providers. The reports conclude that the District should attempt to negotiate more favorable terms with ICMA -RC. Based on the evaluation conducted, it would be in the best interests of plan participants to conduct further discussions with ICMA -RC to encourage them to offer funds with lower expense ratios in addition to or instead of providing the $90,000 credit. This could bring their overall expense ratio more in line with that calculated for Vanguard. The reports also conclude that ICMA -RC should be willing to make some N:WDMINSUPWDMIN \FINANCE MANAGER\DEFCOMP \Benchmark Study 2012 \CCCSD Deferred Comp Memo Final.doc adjustments regardless of whether or not the District chooses to eliminate Nationwide and go to a single provider. Jon Chambers of Schultz Collins Lawson Chambers, Investment Counsel, will be available to discuss the details of the report with the Committee at the October 1, 2012 meeting. A meeting will also be held with the District's Deferred Compensation Committee to get their input on the study. Cc: Deferred Compensation Committee N:\ADMINSUP\ADMIN \FINANCE MANAGER \DEFCOMP \Benchmark Study 2012 \CCCSD Deferred Comp Memo Final.doc BENCHMARKING REPORT ON THE CENTRAL CONTRA COSTA SANITARY DISTRICT DEFERRED COMPENSATION AND 401(a) PLANS S DI Attachment 1 JULY 18, 2012 455 MARKET STREET SUITE 1450 SAN FRANCISCO, CA 94105 TEL 415.291.3000 FAx 415.291.3015 SCHULTZ, COLLINS SCHULTZCOLLINS.COM LAWSON CHAMBERS I N V E S T M E N T C O U N S E L Introduction About Central Contra Costa Sanitary District About the Central San Deferred Compensation and 401(a) Plans Definition of Key Service Elements Benchmarking Study Evaluation of Fees And Pricing Fee Elements Evaluated Observations on Vendor Fees And Pricing Asset Based Fee summary /Fee Benchmarking Vendor Revenue Streams and per participant costs Notes on Nationwide fee Arrangement Notes on Hartford fee Arrangement Notes on ICMA -RC fee Arrangement Funds with Potentially Excessive fees Closing Observations and Recommendations Nationwide Program Hartford Program ICMA -RC Program S C H U L T Z C O L L I N S L A W S 0 N C H A M B E R S I N C. 1 1 4 4 5 14 14 15 16 17 18 18 18 18 ABOUT CENTRAL CONTRA COSTA SANITARY DISTRICT We understand that Central Contra Costa Sanitary District (CCCSD or Central San) is a special district responsible for the collection and treatment of wastewater in a 146 square mile area of central Contra Costa County. CCCSD provides wastewater collection and treatment services to approximately 462,000 people and 3,000 businesses in 13 cities, towns, and unincorporated areas of the county. ABOUT THE CENTRAL SAN DEFERRED COMPENSATION AND 401(a) PLANS We understand that CCCSD operates two defined contribution retirement plans: a Deferred Compensation Plan and a 401(a) Money Purchase Plan (collectively, the "Plans "). The 401(a) Money Purchase Plan was established as an alternative to the Social Security System. CCCSD contributes to the 401(a) Plan in an amount equivalent to the employer portion of the Social Security contribution, which is currently 6.2% of salary. We further understand that CCCSD maintains a Deferred Compensation Plan Advisory Committee (the "Committee "), comprised of five senior CCCSD representatives. Among other things, the Committee is responsible for establishing internal administrative procedures for the Plans, and for reviewing investment performance. CCCSD has contracted with three retirement plan providers, Hartford Life Insurance Company (Hartford), Nationwide Retirement Solutions (Nationwide) and ICMA Retirement Corporation (ICMA), to offer and maintain the Deferred Compensation Plan's designated investment alternatives, and provide certain recordkeeping and other administrative services to the Deferred Compensation Plan. In addition, ICMA provides similar services to the 401(a) Money Purchase Plan. The following table summarizes the investment design of the various programs: Hartford Deferred Nationwide ICMA ICMA Compensation Deferred Comp Deferred Comp Plan 401(a) MP Plan Plan as of 6 -19 -12 Plan as of 6 -19 -12 as of 6 -19 -12 as of 6 -19 -12 Specialty Funds 1 (5)1 0 1 (1) 1 (1) International Funds 3 (7) 3 (4) 4 (4) 4 (4) US Large Cap Funds 8 (16) 15 (22) 11 (11) 12 (13) US Mid Cap Funds 1 (3) 2 (3) 8 (8) 8 (8) US Small Cap Funds 2 (3) 3 (4) 4 (4) 4 (4) Asset Allocation Fund S 2 2 (5) 12 (19) 14 (14) 14(14). Bond Funds 2 (5) 3 (4) 4 (4) 4 (4) Principal Preservation 1 (2) 5 (6) 5 (10) 4 (8) Total # of Funds 20 (46) 43 (62) 51 (56) 51 (56) Total Program Assets3 $4,984,127 $6,704,749 $38,644,052 $25,201,341 Number of Participants 38 644 294 382 Active Participants 5 34 200+ 200+ 1 Funds actually used are listed first; funds available are reported in, (brackets). Z Includes balanced funds, target risk funds, target date funds and a group variable annuity (ICMA). 3 Assets reported as of June 19, 2012, per CCCSD report. 4 To keep comparisons between vendors as comparable as possible, we have excluded participants in the Nationwide PST arrangement. These participants tend to have very small balances, and are not typically long service employees. S C H U L T Z C 0 L L I N s L A W S 0 N C H A M B E R S, I N C. 1 INTRODUCTION DEFINITION OF KEY SERVICE ELEMENTS Supporting the operation of any retirement plan requires the involvement of several different entities — including a trustee or custodian that will hold Plan assets, a recordkeeper /administrator that will maintain plan records and perform numerous compliance functions, and an asset manager that will offer various investment options with varying risk /reward characteristics that can meet employees' retirement investment needs. In theory, the organization sponsoring the plan could perform each of these functions internally; however, most employers contract with one or more vendors for these services. The basic function of each entity is briefly described below. TRUSTEE /CUSTODIAN The trustee /custodian bears primary responsibility for the safe custody /safekeeping and investment of plan assets. The trustee's responsibilities include: • Receiving all contributions from the plan sponsor as directed by the plan committee; • Performing benefit distribution administrative functions, including tax withholding, deposit and reporting, direct rollover processing, and other necessary requirements pertaining to plan distributions; • Investing the assets among the investment funds, as directed by plan participants and the plan committee; • Providing the plan committee with monthly or quarterly statements detailing plan assets held and transactions executed; • Issuing an annual consolidated statement of trust assets, income and expenses, including supplemental schedules for the plan's auditors (if required); and • Fulfilling the fiduciary duties required of a trustee /custodian by applicable laws and regulations. RECORDKEEPER /ADMINISTRATOR While the trustee /custodian bears responsibility for the plan's aggregate assets, the recordkeeper/ administrator's primary responsibility is to ensure that plan records of individual participant balances are tracked and reported accurately. The record keeper /administrator is also generally responsible for ensuring that the plan complies with the myriad of tax rules and provisions of labor law that apply to retirement plans. Other responsibilities include: • Accepting data feeds from the plan sponsor's payroll provider and processing contributions in accordance with participant investment elections; • Maintaining the plan's daily account activity, including supporting participant access through a voice response system (VRS) or via the Web; • Reporting plan activity to participants through quarterly individual participant statements, and to the committee through consolidated reports; • Calculating benefit payments due to terminated participants; and • Conducting other administrative functions, as directed by the plan committee. Although some plan sponsors elect to retain responsibility for some of these administrative functions, due to the highly technical nature of plan compliance requirements, most employers engage an outside vendor to act as the plan's recordkeeper and third party administrator. A significant differentiating factor between prospective service vendors is the extent to which the plan sponsor can outsource administrative responsibilities to the record keeper /administrator, and the vendor's flexibility for amending their administrative procedures to suit the plan sponsor's needs. S C H u L T z C 0 L L I N s L A W S 0 N C H A M B E R S, I N C. INTRODUCTION INVESTMENTS Plan sponsors rarely manage their plan's investment funds internally. Instead, plan sponsors typically use funds offered by (proprietary funds) or made available through (outside funds) their service provider. In the current retirement plan administrative environment, most vendors offer bundled services, consisting of trustee /custodian, record keeping /administration, a designated menu of investment alternatives including both proprietary and outside funds, and participant education and communication services. From SCLC's perspective, rating the relative merits of the various investment products offered through each program can be the most difficult part of a vendor benchmarking process. However, investment selection may be the single most important component of the benchmarking study. Selecting substandard investment options can cost the plan several percentage points of lost annual returns, an amount that dwarves any potential administrative fee savings. Our benchmarking project for CCCSD did not focus on merits of the investment products, beyond an evaluation of relative cost. In general, the investment products offered to CCCSD participants appear reasonable overall, although certain options offered by each of the three vendors have underperformed relative to peer groups and indexes over extended time periods. Depending on other decisions made with respect to the Plans, the Committee may want to consider evaluating investment merits of funds offered through the Plans, either in conjunction with the vendors, or with an external investment consultant. For purposes of our benchmarking project, we make the following assumptions with respect to investments: ■ Vendors offering more investment choices —in terms of number of fund families available and funds within the family —are generally preferable to providers offering fewer investment choices; • A lower proportion of proprietary vendor funds actually used by participants is generally preferable to a higher proportion, particularly when non - proprietary funds are less expensive than proprietary; and • Vendor programs with lower total investment expenses are generally preferable to programs with higher total expenses. EDUCATION AND ENROLLMENT Bundled programs also often include participant investment education and enrollment services. High quality investment education and enrollment services are an important factor driving a Plan's long -term success. However, delivering these programs can be costly for vendors. Further, it's important to note that while vendors can legally provide a broad range of investment education services, they are generally precluded from providing participants with specific advice about how to invest their accounts, due to potential conflicts of interest. Committees should be aware of the distinction between education and advice, and should consider how education programs influence participant decisions to use proprietary vendor funds or funds paying revenue share to the vendor. S C H u L T z C 0 L L I N s L A W S 0 N C H A M B E R S, I N C. EVALUATION OF FEES AND PRICING On the surface, a benchmarking study of plan fees might seem straight- forward, considering the services required by a plan are relatively consistent across the market. For example, defined contribution plans generally require compliance (to make sure the plan is administered properly), audit, and trustee services. In addition, recordkeeping, which maintains participants' accounts and processes participants' transactions, often also includes educational services, materials and communications. However, different vendors adopt a broad range of strategies for charging fees for defined contribution plan services, making direct comparisons more difficult. Recordkeeping and administrative services can be charged directly to the plan or participant or can be assessed as an asset -based fee. Also, a portion of the expense ratio of an investment option can be used to cover some of the recordkeeping and administrative costs. According to survey data, asset -based investment - related fees represent about three - quarters (74 %) of defined contribution plan fees and expenses. Asset -based investment expenses generally include three basic components: (1) Investment management fees, which are paid to the investment's portfolio managers (often referred to as investment advisers); (2) Distribution and /or service fees (in the case of mutual funds, these include 12b -1 fees); and (3) Other investment fees, including fees to cover custodial, legal, transfer agent (in the case of mutual funds), recordkeeping, and other operating expenses. Portions of the distribution and /or service fees and other fees may be used to compensate the financial professional (e.g. individual broker or investment management firm) for the services provided to the plan and its participants. Portions of all three fee types may be used to offset recordkeeping and administration costs. Collectively, these types of payments from asset based investment expenses to financial professionals and recordkeepers are generally referred to as revenue sharing. Revenue sharing can include numerous types of payments, including 12b -1 fees, sub - transfer agency fees, shareholder servicing fees, and payments from a fund's management fee. Generally, higher cost funds tend to pay more revenue sharing, and lower cost funds pay lower revenue sharing. Revenue sharing often represents roughly 50% of total investment management cost. Revenue sharing payments from the CCCSD Plan funds appear to be reasonably typical. Due to the variety of fee and service structures, we recommend benchmarking fee arrangements by calculating and aggregating all administrative and investment - related fees that apply to a program, to calculate an 'all -in' fee was calculated for each program. The 'all -in' fee incorporates all administration, recordkeeping and investment fees whether assessed at a plan level, participant level or as an asset -based fee. Our benchmarking study takes this 'all -in' approach. However, simply comparing 'all -in' fees expressed as percentage rate may not provide a complete view of the program's value, or whether the program is priced competitively. First, a simple fee comparison provides no information about the range or quality of services provided for the fee. Second, the simple fee comparison typically fails to consider economies of scale relating to plan size. The primary drivers of fees are average account balance and number of participants, which combined, represent plan size. Fees, measured as a percentage of assets, tend to decline as account balances and number of participants increase. Defined contribution plans have fixed administrative costs necessary to run a plan that tend to cause smaller plans to have higher relative fees as a percentage of assets or per participant. As a plan grows in size, economies are gained which spread the fixed costs over more participants and a larger asset base. Thus, a vendor supporting a larger participant and asset base should normally offer lower fees than a vendor supporting a smaller population. S C H u L T Z C 0 L L i N S L A W S 0 N C H A M B E R S. I N C. EVALUATION OF FEES AND PRICING STRUCTURE FEE ELEMENTS EVALUATED Our Benchmarking Study for CCCSD evaluated the following Fee Elements: EXPENSE RATIO This number reflects each investment option's total annual operating expenses, including investment management and administration, expressed as a percentage of assets. For mutual funds, this is calculated pursuant to SEC rules for fund prospectuses; other investment options may provide plans a similar number expressing the investment option's fees. To facilitate comparison with other similar investments, we color shaded each investment option's expense ratio —green identified lowest quartile expenses, yellow identified second quartile expenses, orange identified third quartile, and red identified fourth quartile. Since retirement programs are generally large scale purchasers of investment funds, we typically expect that most fund options should offer lowest quartile expenses, and suggest that third or fourth quartile expense ratio funds are potentially overly costly. We further note that quartile comparisons may not be helpful for index funds, since virtually all index funds fall into an investment category's lowest cost quartile —but some index funds are less costly than others. EXPENSE RATIO PERCENT RANK IN CATEGORY This number reflects how each investment option's expense ratio compares to other options in the same category. The lower the number, the lower the fund's relative cost. For example, a fund with Expense Ratio Percent Rank in Category equal to "1" would be in the lowest cost percentile of all funds in the category. Numbers higher than 50 reflect funds with above median expenses. REVENUE SHARE /RECORDKEEPING OFFSET As previously discussed, this number reflects payments out of a fund's expense ratio used to compensate a financial professional for services provided to the plan and its participants, or to offset recordkeeping and administration costs. This is not an incremental cost in addition to Expense Ratio; it comes out of the fund's published Expense Ratio. ADDITIONAL ASSET FEE This number is an extra charge assessed by the vendor in addition to the Expense Ratio. It generally applies when the Revenue Share / Recordkeeping Offset is insufficient to cover the vendor's compensation paid to financial professionals and /or recordkeeping and administration costs. VENDOR REVENUES This number accounts for all revenues received by the vendor, including revenue share, additional asset fees, and investment management fees for proprietary funds retained by the vendor. The number is useful because it allows CCCSD to assess the total revenue paid to the vendor from the program, which is an important factor in potential vendor negotiations. WEIGHTED CALCULATIONS Several values are calculated on an "asset weighted" basis, which means that funds with larger balances get a greater weight in the calculation, and funds with smaller balances get a lower weight. Weighted. calculations permit comparisons between programs. Some funds need to be excluded from the weighted calculations, due to idiosyncratic characteristics, such as the Hartford Guaranteed Fund, which reports no expenses. S C H U L T Z C O L L I N S L A W SON C H A M B E R S, I N C. Analysis and Benchmarking of Nationwide • Additional Recordkeeping Fund Option Assets Ratio' Fees RK Offset Asset Fee Revenues Revenues % Rank Cat Rank "$ % $ % % $ $ % LARGE GROWTH FUNDS 1.31 American Century Growth Inv $14,318 0.98 $140 0.35 0.29 $92 $92 27 American Century Select Inv $13,066 1.00 $131 0.35 0.29 $84 $84 29 0.09 American Funds Growth Fund of AmerA $754,232 0.68 $5,129 0.25 0.29 $4,073 $4,073 6 0.09 Fidelity Contrafund $198,834 0.81 $1,611 0.25 0.29 $1,074 $1,074 13 1.08 0.62 Fidelity Independence $16,116 0.70 $113 0.00 0.29 $47 $47 7 Fidelity Magellan $25,204 0.55 $139 0.25 0.29 $136 $136 4 0.03 anus Forty S $38,679 1.18 $456 0.50 0.29 $306 $306 44 0.02 0.41 Janus T $50,548 0.90 $455 0.25 0.29 $273 $273 20 0.24 Neuberger Berman Socially Resp Inv $116,543 0.90 $1,049 0.30 0.29 $688 $688 20 Vanguard PRIMECAP Inv $49,697 0.45 $224 0.40 0.29 $343 $343 0.56 LARGE BLEND FUNDS 1.20 2 0.02 American Funds Invmt Co of America $509,997 $3,111 0.25 0.29 $2,754 $2,754 13 Fidelity Growth & Income $5,160 0.72 $37 0.25 0.29 $28 $28 1.58 Nationwide Inv Dest Agrsv Svc $112,112 0.87 $975 0.40 0.29 $774 $1,099 18 27 0.02 Vanguard 500 Index Investor $15,503 0.17 $26 0.00 0.29 $45 $45 3 0.72 Vanguard Institutional Index Instl $104,397 0.04 $42 0.00 0.29 $303 $303 0.01 LARGE VALUE FUNDS 1.23 1 0.02 American Funds Washington Mutual A $911 0.63 $6 0.25 0.29 $5 $5 DWS Equity Dividend A $63,509 1.22 $775 0.50 0.29 $502 $502 7 57 0.00 Fidelity Equity- Income $22,824 0.68 $155 0.25 0.29 $123 $123 9 0.86 Vanguard Windsor 11 Investor $8,314 0.35 $29 0.00 0.29 $24 $24 0.05 MID -CAP GROWTH FUNDS 1.39 2 0.00 Federated Kaufmann R $72,708 $1,425 0.75 0.29 $756 $756 84 1.46 S C H u L T z C O L L i N S L A W S 0 N C H A M B E R S, I N C. EVALUATION OF FEES AND PRICING STRUCTURE 45 1.16 18 0.32 6 0.08 42 0.11 14 0.28 37 0.01 26 1.48 22 0.85 2 0.04 34 0.24 24 0.14 14 0.24 %1ID -CAP VALUE FUNDS 0.17 1.33 0.04 IPMorgan Mid Cap Value A $108,437 1.25 $1,355 SMALL GROWTH FUNDS 1.50 Brown Capital Mgmt Small Co Instl $75,585 1.09 $824 SMALL BLEND FUNDS 1.38 DFA US Micro Cap 1 $58,387 0.52 $304 SMALL VALUE FUNDS 1.40 Nationwide US Small Cap Value Intl Svc $11,049 1.33 $147 FOREIGN LARGE BLEND FUNDS 1.40 American Funds EuroPacific Gr A $84,584 $711 FOREIGN LARGE VALUE FUNDS 1.41 Nationwide International Value Instl Svc $1,011 1.24 $13 WORLD STOCK FUNDS 1.48 Oppenheimer Global A $239,270 1.16 $2,776 INTERMEDIATE -TERM BOND FUNDS 0.93 American Funds Bond Fund of AmerA $161,859 , ,�`, 7 " $971 Vanguard Total Bond Market Index $77,625 f O4k $78 HIGH YIELD BOND FUNDS 1.16 DINS High Income A $29,685 0.93 $276 RETIREMENT INCOME FUNDS 0.99 Nationwide Retirement Income Inst7 Svc $23,889 0.68 $162 TARGET DATE 2011 -2015 FUNDS 1.05 Nationwide Destination 2015 Inst'l Svc $72,418 0.67 $485 TARGET DATE 2016 -2020 FUNDS 1.11 Nationwide Destination 20201nst'l Svc $72,159 0.66 $476 TARGET DATE 2031 -2035 FUNDS 1.08 Nationwide Destination 20351nst'I Svc $15,460 0.66 $102 TARGET DATE 2046 -2050 FUNDS 1.17 Nationwide Destination 20501nst'l Svc $3,756 0.67 $25 45 1.16 18 0.32 6 0.08 42 0.11 14 0.28 37 0.01 26 1.48 22 0.85 2 0.04 34 0.24 24 0.14 14 0.24 10 0.17 11 0.04 9 0.01 S C N u L T z C 0 L L -I N s L A W S 0 N C H A M B E R S, I N C. ] EVALUATION OF FEES AND PRICING STRUCTURE S C H U L T z C 0 L L i N s L A W S 0 N C H A M B E R S, I N C. Exp. Ratio % Rank Cat Weighted GGRESSI VE ALLOCATION FUNDS Additional 1.47 Nationwide Nationwide Inv Dest Mod Agrsv Svc $3,523 �r,� ,T. $30 MODERATE ALLOCATION FUNDS •- 1.31 •- American Funds Inc Fund of America A $615,935 $24 $3,572 Fidelity Puritan $29,870 $3,326 $179 Nationwide Inv Dest Mod Svc $208,869 $161 $1,796 Vanguard Wellington Inv $74,943 $1,441 $202 CONSERVATI VE ALLOCATION FUNDS 0.29 1.33 $217 Nationwide Inv Dest Consry Svc $24,049 $166 $212 Nationwide Inv Dest Mod Cnsry Svc $4,263 $29 $37 NATIONWIDE SPECIFIC FUNDS 0.00 $1,029 $1,029 Nationwide Bank 20075YrCD $187,027 0.00 $0 Nationwide Bank 2009 3 Yr CD $42,470 0.00 $0 Nationwide Bank Liquid Savings $1,126,427 0.00 $0 Nationwide Large Cap Growth $25,205 0.95 $239 Galliard Stable Value Fund B $1,307,593 0.49 $6,407 Provider Totals $6,878,022 0.54% $29,689 1 Color coding of expense ratio quartiles ECOND QUARTILE EXPENSES MIR© QUARTILE EXPENSES S C H U L T z C 0 L L i N s L A W S 0 N C H A M B E R S, I N C. Exp. Ratio % Rank Cat Weighted Rev. Share/ Additional . Nationwide Offset RK • • •4 •- •- 0.40 0.29 $24 $35 0.25 0.29 $3,326 $3,326 0.25 0.29 $161 $161 0.40 0.29 $1,441 $2,047 0.00 0.29 $217 $217 0.40 0.29 $166 $236 0.40 0.29 $29 $42 0.55 0.00 $1,029 $1,029 0.55 0.00 $234 $234 0.65 0.00 $7,322 $7,322 0.40 0.29 $174 $247 0.35 0.00 $4,577 $4,577 0.28% 0.18% $31,483 $33,158 Exp. Ratio % Rank Cat Weighted Rank 0- • • •4 •- •- • • 0- EVALUATION OF FEES AND PRICING STRUCTURE S C H u L T z C 0 L L N s L A W S 0 N C H A M B E R S, I N C. $ Y. $ % % $ % LARGE GROWTH FUNDS 1.31 American Century Ultra Inv $23,307 0.99 $231 0.35 0.25 $140 $140 28 0.29 Fidelity Adv Growth Opportunities T $5,658 1.25 $71 0.60 0.25 $48 $48 51 0.13 Janus Twenty T $197,840 0.94 $1,860 0.30 0.25 $1,088 $1,088 23 2.04 LARGE BLEND FUNDS 1.20 DWS Core Equity S $6,914 0.64 $44 0.30 0.25 $38 $38 15 0.05 Fidelity Advisor Growth & Income T $5,954 1.29 $77 0.60 0.25 $51 $51 61 0.16 Hartford Capital Appreciation HLS $117,258 0.67 $786 0.50 0.25 $879 $1,173 16 0.84 Hartford Index HLS IA $14,827 0.33 $49 0.25 0.25 $74 $111 6 0.04 Hartford Stock HLS IA $1,379,435 0.50 $6,897 0.25 0.25 $6,897 $10,346 10 6.20 LARGE VALUE FUNDS 1.23 American Cent Income & Growth Inv $24,627 0.69 $170 0.25 0.25 $123 $123 10 0.11 American Century Value Inv $6,833 1.01 $69 0.35 0.25 $41 $41 36 0.11 Hartford Dividend & Growth HLS IA $5,925 0.67 $40 0.25 0.25 $30 $44 8 0.02 MID -CAP GROWTH FUNDS 1.39 Hartford Midcap HLS IA $68,339 0.71 $485 0.25 0.25 $342 $513 4 0.12 SMALL GROWTH FUNDS 1.50 Hartford Small Company HLS IA $27,061 0.71 $192 0.25 0.25 $135 $203 2 0.02 SMALL VALUE FUNDS 1.40 Managers AMG Skyline Sep $15,871 1.33 $211 0.40 0.25 $103 $103 42 0.30 UTILITY FUNDS 1.35 MFS Utilities A $7,488 1.04 $78 0.65 0.25 $67 $67 30 0.10 FOREIGN LARGE GROWTH FUNDS 1.44 Janus Overseas S $54,728 1.19 $651 0.50 0.25 $410 $410 33 0.81 FOREIGN LARGE BLEND FUNDS 1.40 S C H u L T z C 0 L L N s L A W S 0 N C H A M B E R S, I N C. EVALUATION OF FEES AND PRICING STRUCTURE Putnam International Growth A $3,777 1.59 $60 I L 0.50 0.25 $28 $28 67 0.11 S C H U L T Z C O L L i N s L A W S O N C H A M B E R S, I N C. C, WORLD STOCK FUNDS 1.48 Janus Worldwide T $4,112 0.97 $40 0.30 0.25 $23 $23 13 0.02 INTERMEDIATE -TERM BOND FUNDS 0.93 Hartford Total Return Bond HLS IA $199,470 0.49 $977 0.25 0.25 $997 $1,496 13 1.16 HIGH YIELD BOND FUNDS 1.16 Putnam High Yield Advantage A $2,274 1.04 $24 0.50 0.25 $17 $17 48 0.05 MODERATE ALLOCATION FUNDS 1.31 Hartford Advisors HLS IA $20,314 0.64 $130 0.25 0.25 $102 $152 7 0.06 Janus Balanced T $34,536 0.84 $290 0.30 0.25 $190 $190 17 0.26 HARTFORD SPECIFIC FUNDS Hartford General Account $3,179,986 0.00 $0 Provider Totals $5,406,533 0.601 $13,431 0.28% 0.25% $11,824 $16,406 N/A 13.03 S C H U L T Z C O L L i N s L A W S O N C H A M B E R S, I N C. C, EVALUATION OF FEES AND PRICING STRUCTURE S C H U L T z C 0 L L i N s L A W S 0 N C H A M B E R 5, I N C. - 1.1. LARGE GROWTH FUNDS 1.31 Calvert Equity A $267,668 1.22 $3,266 0.40 0.00 $1,071 $1,071 48 0.32 Fidelity Contrafund $3,583,25 $29,024 0.25 0.00 $8,958 $8,958 13 1.17 T. Rowe Price Growth Stock Adv $206,045 $1,916 0.40 0.00 $824 $824 22 0.11 Vantagepoint Growth $2,330,660 $18,412 0.35 0.00 $8,157 $18,412 12 0.70 LARGE BLEND FUNDS 1.20 Oppenheimer Main Street Y $49,832 $284 0.25 0.00 $125 $125 12 0.02 Vantagepoint 500 Stock Index /1 $1,022,190 $2,249 0.10 0.00 $1,022 $2,249 4 0.10 Vantagepoint Broad Market $3,586,405 $7,531 0.10 0.00 $3,586 $7,531 4 0.36 Vantagepoint Growth & Income $1,082,488 $8,443 0.35 0.00 $3,789 $8,443 22 0.60 Vantagepoint Model Portfolio All- $1,803,419 0.99 $17,854 0.45 0.00 $8,115 $17,854 36 1.64 LARGE VALUE FUNDS 1.23 Allianz NFJ Dividend Value Admin $535,148 0.96 $5,137 0.25 0.00 $1,338 $1,338 30 0.40 Eaton Vance Large -Cap Value A $60,113 0.98 $589 0.50 0.00 $301 $301 32 0.05 Vantagepoint Equity Income $3,937,361 0.82 $32,286 0.35 0.00 $13,781 $32,286 17 1.69 MID -CAP GROWTH FUNDS 1.39 Harbor Mid Cap Growth Adm $51,037 1.11 $567 0.25 0.00 $128 $128 31 0.04 Rainier Small /Mid Cap Equity $1,413,264 1.24 $17,524 0.40 0.00 $5,653 $5,653 42 1.50 Royce Premier Service $416,685 1.34 $5,584 0.40 0.00 $1,667 $1,667 53 0.56 Vantagepoint Aggressive $3,054,364 :0.91 ? $27,795 0.35 0.00 $10,690 $27,795 12 0.92 MID -CAP BLEND FUNDS 1.32 Vantagepoint Mid /Small Co Index 11 $636,024 0,23 $1,463 0.10 0.00 $636 $1,463 5 0.08 S C H U L T z C 0 L L i N s L A W S 0 N C H A M B E R 5, I N C. - 1.1. EVALUATION OF FEES AND PRICING STRUCTURE S C H u L T z C 0 L L i N 5 L A W S 0 N C H A M B E R S, I N C. Rev. Share/ $ viii 0.08 MID -CAP VALUE FUNDS 0.03 1.33 0.17 Columbia Mid Cap Value Z $8,231 ! „ 4, ,90 $74 Goldman Sachs Mid Cap Value A $85,890 116 $996 Vantagepoint Select Value $65,102 V, $645 0.35 0.00 $228 $645 SMALL GROWTH FUNDS 0.00 1.50 $496 Royce Value Plus Svc $123,953 1.45 $1,797 SMALL BLEND FUNDS 0.00 1.38 $474 T. Rowe Price Sm -Cap Value Adv $511,995 1.23 $6,298 Vantagepoint Discovery $49,878 $3,407 $474 REAL ESTATE FUNDS 0.00 1.40 $331 Nuveen Real Estate Secs 1 $672,252 + '` ° :tom $6,991 FOREIGN LARGE BLEND FUNDS 0.00 1.40 $2,051 Fidelity Diversified International $1,362,928 $2,021 $12,266 Harbor International Adm $132,271 $377 $1,362 Vantagepoint International $716,210 <f;; $6,947 VP Overseas Equity Index 11 $603,272 $2,051 INTERMEDIATE -TERM BOND 0.00 0.93 $1,719 Pimco Total Return Admin $808,309 0.71 $5,739 Vantagepoint Core Bond Index Ii $376,966 `1 T° 4'r;; ,j $792 INFLATION- PROTECTED BOND 0.83 Vantagepoint Inflation Protected $501,779 0.64 $3,211 HIGH YIELD BOND FUNDS 1.16 Pimco High Yield Admin $92,278 $p $738 RETIREMENT INCOME FUNDS 0,99 VP Milestone Retirement Income $202,209 0.85 $1,719 TARGET DATE 2000 -2010 1.00 Vantagepoint Milestone 2010 $171,641 0.91 $1,562 TARGET DATE 2011 -2015 1.05 Vantagepoint Milestone 2015 $333,838 0.88 $2,938 S C H u L T z C 0 L L i N 5 L A W S 0 N C H A M B E R S, I N C. Rev. Share/ Additional 36 0.08 Offset RK 0.03 54 0.17 iii y 22 0.40 0.25 0.00 $21 $21 0.40 0.00 $344 $344 0.35 0.00 $228 $645 0.40 0.00 $496 $496 0.40 0.00 $2,048 $2,048 0.35 0.00 $175 $474 0.25 0.00 $1,681 $1,681 0.25 0.00 $3,407 $3,407 0.25 0.00 $331 $331 0.35 0.00 $2,507 $6,947 0.10 0.00 $603 $2,051 0.25 0.00 $2,021 $2,021 0.10 0.00 $377 $792 0.35 0.00 $1,756 $3,211 0.25 0.00 $231 $231 0.44 0.00 $890 $1,719 0.44 0.00 $755 $1,562 0.43 0.00 $1,436 $2,938 13 0.00 36 0.08 21 0.03 54 0.17 38 0.49 18 0.02 25 0.42 18 0.62 25 0.08 22 0.40 4 0.06 34 0.69 3 0.03 33 0.42 21 0.05 39 0.20 44 0.19 34 0.29 EVALUATION OF FEES AND PRICING STRUCTURE S C H u L T z C 0 L L I N S L A W S 0 N C H A M B E R S, I N C. Rev. Share/ $ % $ TARGET DATE 2016 -2020 0.10 1.11 0.18 Vantagepoint Milestone 2020 $227,318 0 $+ j $1,932 TARGET DATE 2021 -2025 0.00 1.06 $1,932 Vantagepoint Milestone 2025 $383,796 0.88 $3,377 TARGET DATE 2026 -2030 0.00 1.14 $1,356 Vantagepoint Milestone 2030 $152,359 0.89 $1,356 TARGET DATE 2031 -2035 0.00 1.08 $1,905 Vantagepoint Milestone 2035 $221,439 0.91 $2,015 TARGET DATE 2036 -2040 0.00 1.17 $31,143 Vantagepoint Milestone 2040 $211,720 $1,592 $1,905 TARGET DATE 2041 -2045 0.00 1.10 $17,851 Vantagepoint Milestone 2045 $9,390 1.08 $101 AGGRESSIVE ALLOCATION FUNDS 0.00 1.47 $868 VP Model Port Long -Term Growth $3,385,108 $88,215 $31,143 MODERATE ALLOCATION FUNDS 0.00 1.31 $1,442 Fidelity Puritan $636,725 M $3,820 VP Model Portfolio Trad. Growth $2,028,504 $40 $17,851 CONSERVATIVE ALLOCATION 0.00 1.33 $33,344 VP Model Port Cons. Growth $1,472,765 $224,458 $12,666 VP Model Port Savings Oriented $103,345 $868 ICMA SPECIFIC FUNDS - VantagetrustPlusFund $25,204,255 0.56 $141,144 Vantagetrust Cash Management $236,339 0.61 $1,442 VANTAGETRUST 3 YEAR BoA CD $14,919 0.00 $0 Vantagetrust 5 Year CD $6,590 0.00 $0 Vantagetrust Retirement Income $2,097,128 1.59 $33,344 Provider Totals $67,246,660 1 0.73% 1 $489,491 S C H u L T z C 0 L L I N S L A W S 0 N C H A M B E R S, I N C. Rev. Share/ Additional 31 0.30 Offset RK 0.10 33 0.18 25 0.13 50 0.01 0.43 0.00 $977 $1,932 0.43 0.00 $1,650 $3,377 0.43 0.00 $655 $1,356 0.43 0.00 $952 $2,015 0.43 0.00 $910 $1,905 0.43 0.00 $40 $101 0.44 0.00 $14,894 $31,143 0.25 0.00 $1,592 $1,592 0.44 0.00 $8,925 $17,851 0.44 0.00 $6,480 $12,666 0.44 0.00 $455 $868 0.35 0.00 $88,215 $141,144 0.00 0.00 $0 $1,442 0.60 0.00 $90 $90 0.60 0.00 $40 $40 0.45 0.00 $9,437 $33,344 0.33% 0.00% $224,458 $417,880 23 0.13 31 0.30 26 0.10 33 0.18 25 0.13 50 0.01 11 0.94 5 0.08 19 0.97 18 0.67 15 0.04 N/A 18.05 ASSET BASED FEE SUMMARY /FEE BENCHMARKING 1. Weighted Average Fund Expense Ratio 0.54% 0.60% 0.73% 2. Weighted Average Fund Expense Ratio Percentile Rank 12.42 13.03 18.05 3. Weighted Average Revenue Share Rate 0.28% 0.28% 0.33% 4. Additional Asset Based Fees 0.18 %, 0.25% 0.00% 5. Total Weighted Average Expense Ratio (1 +/ N 0.72% 0.85% 0.73% 6. Comparable Cost Benchmark #1: 2012 401(k) Averages Book, 500 Participants and $25,000,000 in Assets8 1.12% 1.12% 1.12% 7. Comparable Cost Benchmark #2: 2012 401(k) Averages Book, 2000 Participants and $100,000,000 in Assets' 0.94% 0.94% 0.94% 8. Comparable Cost Benchmark #3: 2009 Deloitte /ICI Defined Contribution 401(k) Fee Study, $10 million - $100 million in 0.75% 0.75% 0.75% assets, median fee, by average account balance Benchmarking information from the 401(k) Averages Book (Comparable Cost Benchmarks #1 and #2) indicates that CCCSD Plan fees are well below average for all three vendors. However, the CCCSD Plan characteristics do not fit well relative to data published in the Averages Book, since Central San participants have significantly higher average account balances than is assumed by the Averages Book ($50,000). Benchmarking information from the 2009 Deloitte /ICI Defined Contribution 401(k) Fee Study indicates that relative to "all in" fees for similarly sized 401(k) programs, CCCSD's Plan fees for the Nationwide and ICMA -RC programs are near median. However, this information indicates that CCCSD's Plan fees are slightly higher than median for the Hartford program. 5 We excluded assets in the Nationwide CD (Certificate of Deposit) and Liquid Savings accounts from expense ratio calculations, because these accounts are "spread" products and do not assess or publish expenses in a traditional manner. However, we included them in revenue share calculations since Nationwide reports revenue share on these accounts. 6 We excluded assets in the Hartford Guaranteed Account from expense ratio and revenue share calculations, because this account is a "spread" product and does not assess or publish expenses in a traditional manner. This exclusion likely slightly inflates reported expenses for Hartford. 7 SCLC's calculated "Additional Asset Based Fee" for Nationwide (0.18 %) varies from the reported 0.29% additional asset fee, because Nationwide does not assess this fee on bank products, including CDs, Liquid Savings, and the Stable Value fund. 8 Source: 401(k) Averages Book, 12`h Edition. All rights reserved. The information contained herein: 1) is proprietary to 401(k) Averages Book; 2) may not be copied or distributed. 401(k) Averages Book is not responsible for any damages or losses arising from the use of this information. 9 Source: 401(k) Averages Book, 12`h Edition. All rights reserved. The information contained herein: 1) is proprietary to 401(k) Averages Book; 2) may not be copied or distributed. 401(k) Averages Book is not responsible for any damages or losses arising from the use of this information. S C H u L T z C 0 L L i N 5 L A W 5 0 N C H A M B E R 5, I N C. EVALUATION OF FEES AND PRICING STRUCTURE VENDOR REVENUE STREAMS AND PER PARTICIPANT COSTS 1. Total Fund Fees (includes rev share) $29,689 $13,431 $489,481 2. Additional Asset Based Fees $12,149 $5,566 $0 3. Administration fees —rev share plus addt'I asset based $31,483 $11,824 $224,458 4. Total Program Fees $41,838 $18,998 $489,481 5. Fees paid to Vendor (includes rev share, additional asset $33,158 $16,406 $417,480 based fees, investment management) 6. Fraction Captured by Vendor 79.25% 86.36% 85.37% 7. Number of participants supported 64 38 382 8. Administration cost per participant $492 $756 $588 9. Total cost per participant12 $654 $1,214 $1,281 10. Average participant balance $107,469 $142,277 $176,038 NOTES ON NATIONWIDE FEE ARRANGEMENT We believe that the CCCSD Deferred Compensation Plan Advisory Committee should consider the following unique characteristics of the Nationwide fee arrangement: • Overall, the Nationwide program seems to offer good value for CCCSD participants. The program has the lowest weighted average fund expense ratio and percentile rank of the three programs. Although Nationwide assesses a relatively high Additional Asset Based fee (0.29 %), this fee does not apply to bank products or stable value, which reduces the effective asset weighted fee to 0.18 %. • After factoring in the weighted Additional Asset Based fee, Nationwide still had the lowest Total Weighted Average Expense Ratio of the three programs. This is surprising, since Nationwide's average participant balance ($77,281) is roughly half that of the other two programs. • The Nationwide stable value option currently offers lower returns than the guaranteed products offered by the other two programs. • One of the funds offered through the Nationwide program— Federated Kaufmann —is the only fund offered through any of the three programs that ranks in the highest cost quartile of its investment category. Perhaps not coincidentally, Federated Kaufmann also provides the highest revenue share payout of any fund offered through the three programs. Federated Kaufmann ranks in the lowest performing quartile of the mid growth stock category over the trailing one, three and five year periods. to Administration and Total cost per participant for Hartford was straightline adjusted for the proportion of vendor balances in the Hartford Guaranteed Account. Since non Guaranteed options represent just 41.1% of Hartford total, we multiplied result by 2.43 (1/41.1 %) to perform this adjustment. This approach implicitly assumes similar revenue streams from the Guaranteed Account as from other vendor options. 11 ICMA -RC's revenue stream must cover additional costs not factored into this analysis. They account for participant balances in two plans, while Hartford and Nationwide only account for one, and have a larger proportion of active participants, which typically correlates to higher transactional volume. 12 Nationwide's total cost per participant is understated because there are no expense factors on the CD and Liquid Savings accounts. S C H u L T z C 0 L L I N s L A W S 0 N C H A M B E R S. I N C. EVALUATION OF FEES AND PRICING STRUCTURE • The Nationwide program offers low cost index funds through Vanguard, which are priced particularly competitively relative to the index funds offered by the other two vendors. • Nationwide was the last vendor to respond to our request for information about revenue sharing arrangements and fund expenses. NOTES ON HARTFORD FEE ARRANGEMENT We believe that the CCCSD Deferred Compensation Plan Advisory Committee should consider the following unique characteristics of the Hartford fee arrangement: • The Hartford program covers the smallest number of participants, and holds the lowest amount of assets. Smaller programs tend to correlate to higher average fees, which appears to be the case with the Hartford program. • Although the number of participants covered is small, the average balance per participant is high ($142,277), which would normally correlate to lower fees — particularly since Hartford only supports one of the two CCCSD retirement plans. • The most popular investment alternative under the Hartford program is the Guaranteed fund, which is also the option that is most difficult to benchmark. While the Hartford Guaranteed fund credits the highest interest rate of any guaranteed product offered by the three vendors, it does not report expenses or revenue share in any useful manner. Further, since the fund is a spread product, it is not possible to determine whether the crediting rate is appropriate. • Hartford has publicly announced that it plans to sell its retirement products division. This makes it particularly difficult to plan for future arrangements with Hartford. • Hartford's index funds are proprietary, and are generally the highest cost index funds offered by the three vendors. ■ Hartford's cost per participant seems exceptionally high, particularly given the limited amount of service required for Hartford's participant pool (which includes a large number of terminated participants). NOTES ON ICMA -RC FEE ARRANGEMENT We believe that the CCCSD Deferred Compensation Plan Advisory Committee should consider the following unique characteristics of the ICMA -RC fee arrangement: • The ICMA -RC program covers the largest number of participants, and holds the largest amount of assets. Larger programs tend to correlate to lower average fees. ICMA -RC does not currently offer the lowest fees of the three vendors, although we understand that they have proposed a fee reduction (through a revenue share reimbursement program), which would make them the lowest cost vendor. • ICMA -RC might rationally be expected to have a higher fee schedule than the other two vendors, since they support two plans, while the other vendors support just one plan, and because they have a higher proportion of active participants (which typically correlates to greater transactional activity). However, they also benefit from higher average account balances (when consolidating assets from both plans at the participant level), Which generates particularly high revenues per participant. • The ICMA -RC program does not assess an Additional Asset Based fee. However, countering this somewhat, the ICMA -RC program receives the highest revenue share payments from funds, and has a substantively higher Weighted Average Fund Expense Ratio than either of the other two vendors. S C H U L T Z C 0 L L I N 5 L A W S 0 N C H A M B E R S, i N c. EVALUATION OF FEES AND PRICING STRUCTURE • The ICMA -RC program relies heavily on proprietary Vantagepoint funds. While many of the Vantagepoint funds are reasonably priced, there are competitively priced non - proprietary alternatives available for Vantagepoint indexed and target retirement funds. • Under the ICMA -RC program, a large portion of assets are directed to proprietary Vantagepoint funds. Since Vantagepoint funds are not particularly well known outside the public sector retirement plan market, it's likely that participant decisions to use these funds are influenced by ICMA -RC's investment education programs. FUNDS WITH POTENTIALLY EXCESSIVE FEES Our review determined that the following funds rank in the third or fourth expense quartiles of their respective categories. We suggest that the CCCSD Deferred Compensation Plan Advisory Committee should consider whether investment characteristics merit retention of these relatively expensive funds. Exp Rev Exp Rev Exp Rev Fund Ratio Share Fund Ratio Share Fund Ratio Share Third Quartile Funds DWS Equity Div A 1.22% 0.50% Putnam Int'I Grow A 1.59% 0.50% Royce Val Plus Svc. 1.45% 0.40% Mgrs AMG Skyline 1.33% 0.40% Royce Premier Svc 1.34% 0.40% Fid. Adv. Gr. & Inc. T 1.25% 0.60% Fid. Adv. Gr. Opp. T 1.29% 0.60% Fourth Quartile Funds Fed. Kaufmann 1.96% 0.75% S C H u L T z C 0 L L I N s L A W S 0 N C H A M B E R S. I N C. NATIONWIDE PROGRAM The Nationwide program seems reasonably priced overall. If CCCSD does not seek to consolidate retirement plan operations with a single vendor, we do not believe significant changes are necessary with respect to Nationwide. The Federated Kaufmann fund has a troublingly high expense ratio, and the Committee should consider eliminating this fund if Nationwide is retained. A key weakness of the Nationwide program is that its fixed return option offers a relatively low yield, which makes Nationwide a potentially problematic choice as a single vendor (since fixed return options are popular with participants at all three vendors). HARTFORD PROGRAM The Hartford program is the most costly overall, and Hartford has announced plans to sell its retirement unit, hence the Hartford program appears to offer the greatest opportunities for elimination through consolidation into another program. However, Hartford offers the highest yielding fixed return option of any vendor, and this fund is particularly popular with participants that use Hartford. Replacing the fixed return option is likely to be the most significant challenge if CCCSD decides to eliminate the Hartford program. ICMA -RC PROGRAM The ICMA -RC program seems fairly priced overall. However, given the scale of CCCSD participants and assets using ICMA -RC, it appears likely that there are significant opportunities for fee reductions. We understand that ICMA -RC has proposed a significant fee credit if the organization is selected as the sole vendor for the CCCSD retirement programs. Based on our evaluation of ICMA -RC fees, we believe that a fee reduction should be possible whether or not ICMA -RC is selected as the sole vendor. We generally advise against negotiating and allocating fee credits —if there is excess revenue sharing available, the more direct approach is simply to reduce the amount of revenue share. We suggest the following approaches for reducing revenue share: • Replace proprietary Vantagepoint index funds with lower cost index funds from fund companies such as Vanguard or Fidelity. • Replace proprietary Vantagepoint target retirement funds with lower cost target retirement funds from fund companies such as Vanguard, Fidelity or T. Rowe Price. • Replace relatively high revenue sharing funds on the menu with lower cost share classes of the same fund. We would be pleased to work with ICMA -RC to develop recommendations that would reduce excess revenue sharing to a mutually acceptable level. $ C H U L T Z C 0 L L I N S L A W S 0 N C H A M B E R S I N C. Attachment 2 RECORDKEEPING AND ADMINISTRATION FEES AND TOTAL PLAN COST 1CMA-RC Vanguard . . al 457 Plan - ,0 Assumed Asset Values $67,246,660 $67,246,660 $51,630,908 $23,024,583 $74,655,491 1. Basic Plan maintenance fee (annual) Participant fee (875 participants) a) PPTfee in $$ $0.00 $0.00 $1,000 $1,000 $2,000 $0.00 i $50.001 $45.003 N/A $0.00 $43,750 $19,400 $17,190 36,590 3. Asset based fee $0.00 $0.00 $41,305 $20,722 62,027 4. Estimated revenue share $224,458 $55,285 $20,652 $11,512 $32,164 5. Rebate of excess fees /revenue credit ($90,000) 0.00 ($20,652) ($11,512) ($32,164) 6. Total primary recordkeeping revenue (= 1 + 2a + 3 + 4 + 5) $134,458 $99,035 ja 704 $38,912 $100,616 7. Estimated Fund Costs $489,491 $218,263 $231,601 $103,820 $335,421 8 Investment consulting fee $0.00 $0.00 $30,979 $13,815 $44,794 9. Trustee fee $0.00 $0.00 $800 $800 $1,600 10. Revenue credit offset against total cost $0.00 $0.00 ($20,652) ($11,512) ($32,164) 11. Estimated total plan cost (= 6 + 7 + 8 + 9 + 30) $399,491 $262,012 $304,432 $145,835 $450,267 12. Estimated all -in expense ratio 0.59% 0.39% 0.59% 0.63% 0.60% NOTES ON SPECIFIC FEE PROPOSALS AND FEE ASSUMPTIONS The following assumptions were used to calculate estimated fees: • Since SCLC did not request proposals for the Central Contra Costa Sanitary District Retirement Plans under a formal Request for Proposal (RFP) structure, different vendors used different proposal assumptions and pricing strategies. This makes direct pricing comparisons more difficult • The ICMA -RC and Vanguard proposals were based on March 31, 2012 ICMA -RC balances in both plans, which were $67.25 million. The Graystone /CPI proposal was based on an approximately 10% higher asset balance of $74.65 million. • The ICMA -RC and Vanguard proposals used current Plan asset allocations to figure fund costs. The Graystone /CPI proposal assumed fixed and uniform asset allocations across all fund options. • The Graystone /CPI proposal includes an investment consulting service that is not offered under the other two proposals. This additional service, plus the 10% higher asset balance, explains much of the higher total cost of the Graystone /CPI proposal. 1 Vanguard assumes 875 total participants Z CPI assumes 485 457 Plan participants. 3 CPI assumes 485 457 Plan participants. $ C H U L T Z C 0 L L I N s L A W S 0 N C H A M B E R S I N C. OBSERVATIONS ON PROPOSALS • The Vanguard and Graystone /CPI proposals indicate required revenue to support recordkeeping and administrative services should be approximately $100,000 /year. Thus, the ICMA -RC proposal appears high, even after the $90,000 credit. • Recordkeeping revenues under the ICMA -RC proposal are understated, because approximately $20 million of balances at Nationwide and Hartford are excluded from the total. Recordkeeping revenues under the Vanguard and Graystone /CPI proposals are also understated, but less so, due to a lesser reliance on asset based revenue under these proposals. • Participants count assumptions between the three proposals are reasonably consistent. • Investment consulting services could be added to the ICMA -RC and Vanguard proposals if desired. We estimate that the annual cost for investment consulting for the two plans should run approximately $40,000 /year, through Graystone, Schultz Collins, or other similarly positioned firms serving in a fiduciary capacity. • The $90,000 fee credit proposed by ICMA -RC does not appear to be sufficient to cover the cost differential between ICMA -RC's administrative services, and the services proposed by the other two vendors. We suggest that ICMA -RC should be asked to increase the fee credit to at least $120,000, or— preferably —to redesign the investment lineup to reduce the Plan's cost to a number closer to the 0.39% reflected under the Vanguard proposal. We suggest that even if ICMA -RC's administrative services were priced competitively with the Vanguard proposal, the total cost at ICMA -RC would still be higher, due to ICMA -RC's higher investment management fees. • Optimizing cost and performance of the proposed investment lineup is a project that is well outside the scope of the current Schultz Collins fee benchmarking project. The Vanguard and Graystone /CPI proposals seemed to make a good effort to optimize their respective proposed investment lineups; however, the ICMA -RC lineup has not yet been optimized. S C H u L T Z C 0 L L i N s L A W S 0 N C H A M B E R S. I N C. CCCSD 2012 -13 Loss Control Report New Incident Prior Fiscal Year Incident Ongoing Incident Litigated Matter OVERFLOWS AND PLUMBING REIMBURSEMENTS Status # ID# Type DOL Other Party Address City Reserve Paid to Date Paid to Total - OF /PR S - $ LIABILITY INCIDENTS - OTHER Status # ID# Type DOL Other Party Address City Reserve Paid to Date Paid to Open A 2012024 GL 5/30/2012 Amilcar Granados CSO Warehouse Walnut Creek $ - $ - Total - Liab. S - S - PROPERTY INCIDENTS Status # ID# Type DOL Other Party Address City Reserve Paid to Date Paid to Open B 2012021 PD 3/29/2012 CoGen Incident SCB $ - $ - Total - Property $ AUTO INCIDENTS - $ - Status # ID# Loss DOL Other Party Location Veh# Reserve Paid to Date Paid to Type Open C 2011022 AL 5/9/2011 Louis Pimentel 41 Lost Valley #252 Rodder unknown $ 2,418.75 Total - Auto S Note: Prior fiscal year closed claims have been removed from report. - $ 2,418.75 P 9/13/2012 Legal Expenditure Summary SELF INSURANCE FUND ]c „ a Check, $1,764.46 IJarvis Fay Doporto & Gibson, LLP 003 - 0000 - 993.14 -21 $1,764.46 Chevron Property Tax Refund 1 103K DTI 191559 $1,816.85 Hanson Bridgett 001- 0120 - 400.08 -03 $1,612.50 JADM - H.R. - Labor - General 001- 0120 - 400.09 -02 $204.35 ADM - H.R. - Sexual Harassment Training 191675 $325.00 Trucker Huss 001- 0110 - 400.08 -03 $325.00 ADM - Finance General Per 7/16/12 B &F Committee - was decided to only include legal expenditures Printed: 9/10/2012