The URL can be used to link to this page

Home My WebLink About09. Receive overview of Deferred Compensation Plan Fiduciary Responsibilities Page 1 of 14 Item 9. CENTRALSAN Jdf A- hom CENTRAL CONTRA COSTA SANITARY DISTRICT August 4, 2022 TO: HONORABLE BOARD OF DIRECTORS FROM: KEVIN MIZUNO, FINANCE MANAGER REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER SUBJECT: RECEIVE OVERVIEW OF DEFERRED COMPENSATION PLAN FIDUCIARY RESPONSIBILITIES I n April 2022, the Board received the Annual Deferred Compensation Report for calendar year 2021, as submitted by the Deferred Compensation Advisory Committee. I n conjunction with their receipt of this item, the Board requested staff return at a future meeting to provide an overview of the Board's fiduciary responsibilities regarding the Deferred Compensation Plan. I n accordance with this request, staff and Central San's Deferred Compensation Plan 3(21)fiduciary advisor, NFP, have prepared the attached presentation. Following the presentation, staff and representatives from NFP will be available to respond to any questions Board Members may have. Strategic Plan Tie-In GOAL ONE: Customer and Community Strategy 2—Maintain a positive reputation GOAL THREE: Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial management ATTACHMENTS: 1. Presentation August 4, 2022 Regular Board Meeting Agenda Packet- Page 43 of 94 Page 2 of 14 OVERVIEW OF DEFERRED COMPENSATION PLAN FIDUCIARY DUTIES Presented by r Philip Leiber, Director of Finance &Administration Mindy Harris, NFP Retirement Presented to Board of Directors August 4, 2022 1 INTRODUCTION I. Summary/Background II. Definition of a Fiduciary III. Who is a Fiduciary? IV. Fiduciary Roles V. Principles of Fiduciary Duties VI. Practical Steps to Meeting Fiduciary Responsibilities VI I.Simplifying Your Fiduciary Role VIII.Conclusion 2 August 4, 2022 Regular Board Meeting Agenda Packet- Page 44 of 94 Page 3 of 14 I. SUMMARY • Board members asked about Fiduciary responsibilities related to Investment Plans—are they being met? • Yes--- Central San has track record of taking fiduciary responsibility seriously: • Establishing Advisory Committee • BPs and APs governing plan administration • Regular meetings of the Advisory Committee • Investment Performance and Benchmarking • Selection of 3(21)fiduciary Advisor(NFP Retirement) • Training of key staff(full day sessions) • Steps actively being taken to enhance, including: • Performing Fiduciary Gap Analysis with NFP • Development and implementation of Investment Policy Statement • Design and rollout of Efficient Fund Lineup 3 L BACKGROUND • Deferred Compensation Plan established 1976 • Advisory Committee established by Board 1982 • Execution of updated Administrative Procedures March 2021 • Adoption of Deferred Compensation Plan Board Policy (BP 047) in May 2021 • 3(21) Fiduciary Advisor selected following solicitation of proposals in November 2021 • Fiduciary update/training requested by Board following presentation of 2021 Annual Report in April 2022 y. 4 August 4, 2022 Regular Board Meeting Agenda Packet- Page 45 of 94 Page 4 of 14 I. BACKGROUND (CONTINUED) 457b Deferred • All full-time permanent employees Compensation Plan • Voluntary employee contributions only Money • All full-time permanent employees • Employer contribution of 6.2%up to statutory social lan security income caps ReimbursementHealth • All Tier III full-time permanent employees Arrangement • . • Employer contribution of 1.5%of base salary • Management&Unrepresented at-will HRA Plan 11 Varying mandatory employee contributions,contingent on group,hire date,and income bracket 5 II. DEFINITION OF A FIDUCIARY • The Employees Retirement Income Security Act of 1974 (ERISA) defines a fiduciary as any person who has any power of control, management, or disposition over the funds or other property of any employee benefit plan. • ERISA made fiduciaries personally liable for their actions and Taxpayer Relief Act of 1997 made forfeiture of personal account assets the result of fiduciary breach. 6 August 4, 2022 Regular Board Meeting Agenda Packet- Page 46 of 94 Page 5 of 14 II. DEFINITION OF A FIDUCIARY (CONTINUED) A question about fiduciary responsibilities When to keep it versus when to appropriately delegate it Question: Can you delegate fiduciary duties? Answer: The task can be delegated, but not the responsibility 7 III. WHO IS A FIDUCIARY? Fiduciary by Title Trustee Oversight Committee Governance: Board, Council, Commission or City Manager Fiduciary by Conduct Plan Administrator Finance or Benefits Manager/Staff Plan Investment Advisor s August 4, 2022 Regular Board Meeting Agenda Packet- Page 47 of 94 Page 6 of 14 III. WHO IS A FIDUCIARY? (CONTINUED) Fiduciary legally defined as anyone who Exercises discretionary authority or control over plan assets or investments Exercises discretionary authority or responsibility in the administration or management of the plan Gives or renders investment advice for a fee or other compensation `i 9 III. WHO IS A FIDUCIARY? (CONTINUED) Practically speaking, also includes anyone who • Makes decisions regarding plan features and investments • Serves on or is appointed to a Committee or Board responsible for the plan or its investments Has responsibility to choose, evaluate and dismiss service providers Has the authority to bind the employer/plan sponsor through plan-related contracts Establishes policies and procedures for the plan, or has the ability to make exceptions �o 10 August 4, 2022 Regular Board Meeting Agenda Packet- Page 48 of 94 Page 7 of 14 IV. FIDUCIARY ROLES Typical fiduciary roles and responsibilities: - Establish policies & procedures • General plan administration & operation • Responsibility for updating Plan Document, forms, benefit summaries Develop & closely follow Investment Policy Statement Selecting & monitoring service providers, consultants, trustees Monitoring investment options & fees s� Participant communication and/or education 11 V. PRINCIPLES OF FIDUCIARY DUTIES Summary of Duties 1 . Duty of Loyalty 2. Duty of Prudence 3. Duty of Diversification 4. Duty to Prudently Select & Monitor Investments 5. Duty of Administration 12 r w.t 12 August 4, 2022 Regular Board Meeting Agenda Packet- Page 49 of 94 Page 8 of 14 V. PRINCIPLES OF FIDUCIARY DUTIES: 1 . DUTY OF LOYALTY • Basic tenet of Fiduciary Responsibility: To ALWAYS act in the best interests of the participants and their beneficiaries • This includes periodic review & evaluation of investment options to ensure participants are being charged reasonable fees & expenses and have high quality investment options to choose from 13 V. PRINCIPLES OF FIDUCIARY DUTIES: 2. DUTY OF PRUDENCE • To act with the care, skill, prudence, and diligence a prudent person would use in similar circumstances 14 August 4, 2022 Regular Board Meeting Agenda Packet- Page 50 of 94 Page 9 of 14 V. PRINCIPLES OF FIDUCIARY DUTIES: 3. DUTY OF DIVERSIFICATION Provide diversified investment choices that have materially different risk and return characteristics so participants can diversify their individual accounts to minimize risk `i 15 V. PRINCIPLES OF FIDUCIARY DUTIES: 4. DUTY TO PRUDENTLY SELECT & MONITOR INVESTMENTS Select, Monitor, Review and Deselect Investment Options by Comparing: Peer groups & benchmarks Asset classes Investment fees & expenses Levels of risk Fund performance 6 16 August 4, 2022 Regular Board Meeting Agenda Packet- Page 51 of 94 Page 10 of 14 V. PRINCIPLES OF FIDUCIARY DUTIES: 5. DUTY OF ADMINISTRATION Follow Plan Documents, including: Plan Document Investment Policy Statement CNEM Contracts Legal & Regulatory Requirements & J,Guidance 17 VI. PRACTICAL STEPS TO MEETING FIDUCIARY DUTIES Comply with Federal/State Laws Current Laws New Legislation Maintain Current Plan Document Develop Investment Policy Procedure—Select/Remove Vendors/Vendor Representatives Investments 18 August 4, 2022 Regular Board Meeting Agenda Packet- Page 52 of 94 Page 11 of 14 VI. PRACTICAL STEPS TO MEETING FIDUCIARY DUTIES Establish Performance Monitoring Procedures Benchmark indices for fund performance & fees Performance of participant services & education Educate/Communicate • Plan benefits pp • Plan restrictions I� • Investment options Make Consistent Decisions 19 VI. PRACTICAL STEPS TO MEETING FIDUCIARY DUTIES Due Process to Resolve Disputes Require Periodic Audit To be Independent Financial Audit considered Compliance Audit of Contractors 20 August 4, 2022 Regular Board Meeting Agenda Packet- Page 53 of 94 Page 12 of 14 VI. PRACTICAL STEPS TO MEETING FIDUCIARY DUTIES Meet Minimum ERISA 404(c)— "safe harbor" Requirements Offer Three + Diverse Investment Options Vary Risk and Return Characteristics Provide Investment Decisions Discretion Allow Periodic Investment Change Communicate Information Monitor Investment Performance 21 VII. SIMPLIFYING YOUR FIDUCIARY ROLE Consolidate to a Single Recordkeeper Streamlines administrative responsibilities Easier for employees to make participation decisions, therefore often higher savings rates Nearly ALWAYS a significant reduction in participant fees — which can equal higher account balances Already executed by Central San in 2013 22 August 4, 2022 Regular Board Meeting Agenda Packet- Page 54 of 94 Page 13 of 14 VII. SIMPLIFYING YOUR F'DUCIARY ROLE Limit the number of investments offered ! " ' Reduces volume of work to monitor funds Simpler for participants to understand and make decisions Ideal fund lineup could include Professionally managed target date funds, for participants who aren't inclined to manage their own risk Streamlined core lineup with little to no overlap, to limit potential for unnecessary investment allocation risk 0. 23 VII. SIMPLIFYING YOUR FIDUCIARY ROLE Hire a consultant Designated co-fiduciary to your plan Serves as investment adviser Will manage RFP & conduct ongoing monitoring of investments & services on your behalf Allowable to pay administrative costs (consultant fees + entity admin) through reimbursement from fees Fee reductions will typically be significant enough to cover cost, therefore no net cost to the entity a. 24 August 4, 2022 Regular Board Meeting Agenda Packet- Page 55 of 94 Page 14 of 14 VIII. CONCLUSION • Central San has track record of taking fiduciary responsibility seriously: • Establishing Advisory Committee • BPs and APs governing plan administration • Regular meetings of the Advisory Committee • Investment Performance and Benchmarking • Selection of 3(21)fiduciary Advisor(NFP Retirement) • Training for key staff • Steps actively being taken to enhance, including: • Performing Fiduciary Gap Analysis with NFP • Development and implementation of Investment Policy Statement • Design and rollout of Efficient Fund Lineup 25 QUESTIONS & DISCUSSION 26 ' 26 August 4, 2022 Regular Board Meeting Agenda Packet- Page 56 of 94