HomeMy WebLinkAbout06.Receive the 2023 Annual Deferred Compensation Report encompassing Central San’s 457(b) Deferred Compensation, 401(a) Money Purchase, and Health Reimbursement Arrangement PlansItem 6.
BOARD OF DI RECTORS
POSIT ION PA PER
M E E T ING D AT E:MA R C H 21, 2024
S UB J E C T: R E C E I V E T HE 2023 A NNUA L D E F E R R E D C O MP E NS AT I O N R E P O RT
E NC O MPA S S I NG C E NT R A L S A N'S 457(B ) D E F E R R E D C O MP E NS AT I O N,
401(A) MO NE Y P UR C HA S E, A ND HE A LT H R E I MB UR S E ME NT
A R R A NG E ME NT P L A NS
S UB M I T T E D B Y:
K E V I N MI Z UNO, F I NA NC E MA NA G E R
I NI T I AT I NG D E PART M E NT:
A D MI NI S T R AT I O N-F I NA NC E
RE V IE WE D B Y:P HI L I P L E I B E R , D E P UT Y G E NE R A L MA NA G E R- A D MI NI S T R AT I O N
R oger S . B ailey
General Manager
IS S UE
T he Def erred Compensation Plan Advisory Committee respectfully submits its 2023 A nnual R eport.
B AC K G RO UND
As the acceptance of this year's annual Deferred Compensation Advisory Committee (DCAC) report is
considered ordinary and routine, it is presented to the Board for approval on consent. T he attached
presentation (Attachment 1) was presented to the Finance Committee on February 27, 2024, and is provided to
the Board for reference purposes. While a presentation is not planned for the full Board, staff are available to
answer any questions the Board may have.
Deferred Compensation Advisory Committee Background
C entral San's B oard approved the establishment of the D C A C in J anuary 1982. T he scope of activities of
the D C A C includes:
Establishing internal administrative procedures
Educating participants regarding the P lan
F iduciary Oversight of the Plan
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R eview and approve emergency withdrawal requests (unless delegated to the record keeper)
R eviewing investment perf ormance of the P lan
Submission of an A nnual R eport to the Board of Directors and Plan participants
T he D C A C is comprised of seven members. T he D C A C is designed to be representative of plan
participants and generally be comprised of employees across the various non-management employee
negotiating groups and organizational departments. T he two non-management employee negotiating
groups that are represented are the Management S upport/C onfidential Group (MS C G) and the
Employees' A ssociation P ublic E mployees Union, L ocal One (L ocal 1). T he F inance Manager serves as
the D C A C Chair and P lan A dministrator facilitating meetings of the D C A C and serving as Central S an's
primary contact with the record keeper, currently MissionSquare Retirement (previously known as I C MA -
R C), and the P lan's 3(21) F iduciary A dviser, NF P. Except f or the C ommittee Chair, which serves a
permanent term, D C A C members are appointed by the D irectors (currently Deputy General Managers) of
their respective departments when a position vacancy arises due to term expiration or resignation.
Deferred Compensation Advisory Committee 2023 Activities
I n accordance with its Administrative Procedures, the D C A C met four times in 2023, meeting in the
months of F ebruary, May, A ugust, and November to review results and discuss other plan matters. Once
approved by the D C A C, minutes f rom past D C A C meetings are posted on Central S an's website under
"F inancial I nformation." S ome of the most signif icant accomplishments and developments of the D C A C
over the course of 2023 include the f ollowing, organized by responsibility area:
Plan Administration & Governance
R eviewed plan performance and f und scorecard reports from the D C A C's 3(21) f iduciary
advisor regularly throughout the year (quarterly) demonstrating prudent f iduciary responsibility in
monitoring the Plan's f iscal health.
Approval of a fiscally responsible D C A C budget for calendar year 2023 suf f icient to cover plan
administrative expenditures (i.e., f iduciary advisory f ees, National A ssociation of Def erred
C ompensation Administrators (NA G D C A ) annual dues, D C A C member education, etc.) while
maintaining minimum emergency reserves. Consistent with past practice, the 2023 budget
also incorporated the return of approximately $169 thousand back to plan participants on a
proportional balance basis as this amount exceeded minimum reserves (i.e., one year's
operating budget).
W ith the support of its 3(21) fiduciary advisory consultant, the D C A C negotiated a new record
keeping agreement with Mission S quare to be recommended f or B oard approval. T he new 5-
year record keeping agreement, approved by the B oard A pril 6, 2023, incorporated
performance standards (a recommended best practice f or retirement plan record keeping
agreements, which was not in place previously) as well as a noteworthy reduction in fees (to
0.03 percent versus 0.0525 percent).
Appointment of a replacement D C A C member to ensure the composition of the D C A C is
ref lective of C entral San's bargaining units and organizational structure (three departments)
pursuant to its A dministrative P rocedures. Quarterly D C A C meetings continue to be well
attended by its members, acting as a channel to keep C entral San's various bargaining units
and departments inf ormed on significant deferred compensation plan matters.
Plan S tructure & Design
W ith the guidance of the D C A C 's 3(21) fiduciary advisor, the D C A C designed a revamped
core investment lineup structure in an "efficient f und menu" design in-line with NA G D C A best
practices to help reduce fiduciary risk and improve participant outcomes through the elimination
of redundant, higher risk, and higher cost investment fund options. T his new lineup was
approved by the D C A C in its F ebruary 2023 quarterly meeting and went into effect in J une
2023 and reflected a noteworthy decrease in total fund expenses from 0.543 percent to 0.29
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percent, projected to generate up to $1.675 million in savings to participants over 5 years.
Participant Engagement
Worked with Mission S quare to rollout a participant education plan for calendar year 2023
including retirement plan specialist workshops and f inancial planning webinars.
Publication of a Lateral Connection article in J anuary 2023 communicating upcoming plan
lineup changes, the objectives of these changes, and where to learn more. T his was
distributed to both active employees as well as retirees.
F orming a sub-committee of D C A C members to test a financial planning service of f ered by
NF P (WellCents) to assess its suitability f or plan participants. F ollowing product testing and
discussions, the D C A C authorized the Plan Administrator to proceed with this service in 2024
for a 1-year trial period. A s Mission Square's in-depth certified f inancial planner reports are
only available to participants with balances greater than $100 thousand, the D C A C is hopef ul
the WellCents tool will provide a planning product for newer plan participants with smaller
balances to help educate and prepare Central S an employees f or retirement.
Plan S ponsor Ongoing E ducation
Ensured D C A C members received training on their f iduciary responsibilities, specifically
covering NA G D C A best practice training on "P lan A dministration" in A ugust 2023 and "Plan
Governance" in November 2023.
Sending a newly appointed D C A C member to the NA G D C A annual conference to learn more
about deferred compensation plan design and administration best practices and other relevant
topics. Several key conf erence takeaways were shared with D C A C members which will help
steer D C A C objectives in 2024.
T he D C A C met most recently on F ebruary 7, 2024, in a regularly scheduled quarterly meeting to discuss
the annual performance of the Plan as well as conduct regular business of the D C A C (i.e., review quarterly
Plan results, review participant educational/outreach ef f orts, review D C A C membership, etc.). A t this
meeting the D C A C reviewed a draf t of the 2023 annual report, provided f eedback and direction, and
authorized it for presentation to C entral San's B oard.
Annual Report on Plan Performance for Calendar Year 2023
Attachment 1 shows the current value of assets, segmented between the 457(b), 401(a) and HR A plans.
T he report also shows the distribution of assets by investment type f or each sub-plan, a trend analysis line
chart showing the changes in total market value over the previous five years, and the diversif ication of
assets between seven investment type categories in that same f ive-year period.
C entral San's new plan menu provides participants with a variety of investment alternatives across various
asset classes, with the selection of the asset mix being the choice of individual participants. I n the
aggregate across all plans, participants continue to have a relatively large share of assets in the S table
Value/C ash Management plan at 21.5 percent, which is a slight decrease from 27.2 percent one year ago.
W hile much of 2023 was characterized by market turmoil attributable to high inflation and market losses,
the year closed with relatively strong perf ormance. T his strong finish is correlated with an increased desire
and willingness by plan participants to take on equity risk, shif ting retirement assets out of more
conservative options. C entral San P lan participants continue to invest most heavily in U.S . S tocks overall,
making up 32.9 percent of the total portf olio, relatively unchanged compared to 33.7 percent one year
ago. Central S an's Plan reported a sizable increase in market value of 16.7 percent to a total market value
of $174.8 million as of D ecember 31, 2023. Despite this growth, it is still short of the aggregate market
value of $175.3 million reported two years ago on December 31, 2021, reflective of worldwide market
declines reported in 2022. Central S an participants continued to make steady contributions to retirement
accounts, with contributions to the P lan totaling approximately $7.1 million in 2023, an increase f rom $6.2
million in 2022.
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I n conjunction with the transition to the C alif ornia P ublic E mployees' Retirement System (C alP E R S)
Health B enef its P rogram ef f ective in F iscal Year (F Y) 2019-20, Central S an implemented a Health
R eimbursement Arrangement (HR A) f or Retiree Health Tier I I I employees of L ocal 1 and MS C G,
excluding the Management Group and unrepresented employees. Central S an contributes 1.5 percent of
base salary f or each eligible employee to be used for eligible I R S qualif ied medical expenses post
D istrict employment. Accordingly, Central S an entered into an agreement with its record keeper to open
and administer a Retirement Health S avings (R HS ) account f or its newly established HR A. To provide an
opportunity for Management and Unrepresented employees to take advantage of this useful retirement
tool, during 2022 Central S an opened an additional HR A account to be funded solely by mandatory
employee contributions. I n total, the HR A plans reported a total market value of $1.6 million as of
D ecember 31, 2023. During 2023 there were total employer contributions of $340 thousand (to the
MS C G-L ocal 1 account) and total investment gains (excluding f ees) of $213 thousand.
Education and Outreach to Plan Participants
At the onset of 2023, Central S an coordinated with its record keeper to rollout a financial wellness webinar
program to educate plan participants on important and trending retirement topics. Twelve seminars (one for
each month), facilitated by the record keeper, were held conveniently during the lunch hour and in a virtual
format f or employees to attend.
I n addition to the pre-planned educational and outreach program for 2023, C entral San's record keeper
continued to of f er monthly recurring "virtual" f ace-to-face meetings with a Retirement Planning Specialist
(R P S ). T hese one-on-one meetings allow employees the opportunity to learn about the record keeper's
online tools, discuss retirement planning strategies and investment options, and make investment strategy
and allocation changes. Central S an's record keeper also continued to of f er one-on-one virtual meetings
with a C ertif ied F inancial Planner (C F P), allowing participants to design and map out a financial plan and
retirement strategy that is unique to their own situation. T hese meetings continued to be popular with
participants in 2023, where there were 91 one-on-one R P S consultations, 11 webinars held by an R P S on
retirement planning topics, 34 one-on-one consultations with a C F P, and 46 webinars on financial planning
topics hosted by a C F P.
ALT E RNAT I V E S /C O NS I D E RAT IO NS
None.
F I NANC IAL I M PAC T S
T he B oard's acceptance of the A nnual R eport for 2023 does not have any direct f iscal impact to C entral
San.
C O M M I T T E E RE C O M M E ND AT IO N
T he F inance C ommittee reviewed this matter at its F ebruary 27, 2024, meeting and recommended it f or
Board approval.
RE C O M M E ND E D B O ARD AC T I O N
R eceive the Annual Report of the D eferred C ompensation P lan A dvisory C ommittee f or 2023.
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Strategic Plan Tie-I n
G O A L TH R EE: Workforce Diversity and D evelopment
Strategy 3 - Retain skilled workers by investing in resources and opportunities for all employees to grow and thrive
AT TAC HM E NT S :
D escription
1. P resentation
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1
Deferred
Compensation
Advisory Committee
Annual Report
Calendar Year 2023
T. Kevin Mizuno
Finance Manager
March 21, 2024
Table of Contents
1.Background
2.DCAC Activities in 2023
3.Performance Highlights
4.Education and Outreach
Efforts
5.Overview of New Core
Investment Lineup
1
2
Attachment 1
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2
Background
•Deferred Compensation Advisory
Committee (DCAC) established by Board
in 1982
•Comprised of seven members appointed
by department heads
•DCAC membership designed to be
representative of workforce, including
both Local 1 and MSCG
•Finance Manager serves permanent
term as Chair and Plan Administrator
Plan Composition
• All full-time permanent employees
• Voluntary employee contributions only
457b Deferred
Compensation Plan
457b Deferred
Compensation Plan
• All full-time permanent employees
• Employer contribution of 6.2% up to statutory social
security income caps and terminal pay
401a Money Purchase
Plan
401a Money Purchase
Plan
• All Tier III full-time permanent employees
• Employer contribution of 1.5% of base salary
Health Reimbursement
Arrangement (HRA)
Health Reimbursement
Arrangement (HRA)
• Management & Unrepresented at-will
• Varying mandatory employee contributions, contingent
on group, hire date, and income bracket
HRA Plan IIHRA Plan II
3
4
Attachment 1
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3
Fiduciary
Oversight
Administrative
Procedures
Participant
Education
Emergency
Withdrawals
Plan
Performance
Monitoring
Annual Report•Co-fiduciary to Central San Board over Plan
•Annual communication to Board
•Scope of DCAC defined in the Deferred Compensation Plan Board Policy (BP 047)
•Investment Policy Statement (IPS) and Education Policy Statement contained within Administrative Procedures
•Approval of Unforeseen Emergency Withdrawals can be delegated to recordkeeper
DCAC Scope
DCAC Membership
Term Term
Expiration
Bargaining
Group
DepartmentTitleName#
**12/31/24**MSCGOperationsAdministrative Services
Assistant
Arellano, Grace**1
1st12/31/26Local 1AdministrationAccountantCruz, Tricia2
**12/31/25MSCGEngineeringSenior EngineerLawson, Dana3
2nd12/31/26Local 1OperationsInstrument TechnicianMercer, Justin4
****Finance ManagerMizuno, Kevin5
**12/31/25Local 1EngineeringSenior Household Hazardous
Waste Technician
Niswander, Geoff6
2nd12/31/24MSCGAdministrationAccounting SupervisorThomas, Christopher7
*Committee Chair position is title-specific and not employee specific. Finance Manager position serves as Plan
Administrator and Committee Chair. Term limits do not apply.
**Appointed to complete term of predecessor pursuant to AP 047.
5
6
Attachment 1
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4
DCAC Activities &
Accomplishments
Plan Plan
Administration
& Governance
• Quarterly plan
performance
reviews
conducted.
• Adoption of a
2024 DCAC
budget returning
excess admin to
participants
• Execution of a
new 5-year term
record keeping
agreement.
Plan Structure &
Design
• Designed and
approved efficient
fund menu
investment lineup
for Plan which
was rolled out
successfully in
June 2023
Participant
Engagement
• Design and
rollout of
participant
education plan
for 2023
• Formation of a
sub-committee
to test a new
financial planning
tool for
participants,
expected to
rollout in 2024
Ongoing Ongoing
Fiduciary
Education
• Conducted two
fiduciary training
sessions for
DCAC members
on plan
administration
and plan
governance
• Sending DCAC
member to
annual NAGDCA
conference
Reduces
participant
“Decision
paralysis”
Alleviates
fiduciary risk
and burden
Higher
benchmarked
funds for
participants
Savings to
participants
•New structure in-line with best practices issued by National Association of Governmental Deferred Compensation Administrators (NAGDCA)
•Reduces “decision paralysis” by cutting fund option choices in half
•26 remaining options still provides for diversity in choice
•Projected to generate up to $1.675 million in savings to participants through lower expense ratios over 5 years
New Core
Investment Menu
7
8
Attachment 1
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5
Overview of New Core
Investment Lineup
0. Specialty (2)
1. Active International (1)
2. Active Fixed Income (3)
3. Passive / Index (4)
4. Active Equity (4)
5. Target date funds (11)
•New fund lineup inspired by 3(21) fiduciary advisor recommended structure (5-4-3-2-1-0)
•Total of 26 options (including self-directed brokerage), compared to 50 offered previously
•22 basis point overall reduction in fund expense ratios
•Self-directed brokerage option retained for participants outside of core lineup
•Target Date Funds separated into 5-year retirement increment groups spanning 2010 through 2060
Small Cap
Value III I1
(PIMCO
RAE)
Large Cap
Value I1
(Putnam
LCV)
Small Cap
Growth II I1
(AB Small
Cap Growth)
Large Cap
Growth III I1
(AB Large
Cap Growth)•Four funds offered in active
equity fund category
•Elimination of “Mid” and
“Blend” classes
•Passive/index funds to
largely address “blend”
strategy
Active Equity
Funds
Value Blend Growth
Sm
a
l
l
Mi
d
L
a
r
g
e
Mi
d
9
10
Attachment 1
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6
BlackRock Russell
2000 Index Fund
CL
BlackRock Equity
Index Fund CL 1
•Four funds offered in passive/
index fund category
•Each fund offered scored highest
rating possible (10) by 3(21)
fiduciary advisor
Passive / Index
Funds
Value Blend Growth
Sm
a
l
l
L
a
r
g
e
BlackRock MSCI
ACWI ex-US
NonLend CL I
Int. Value Int. Blend Int. Growth
Sm
a
l
l
La
r
g
e
BlackRock U.S.
Debt Index Fd CL 1
Core Fixed Income Fixed Income Cash Equivalent
•Three funds offered in active fixed
oncome fund category
•One fund offered in active
international equity fund category
•Additionally, two specialty funds
include:
•Real Estate Investment (Cohen &
Steers Realty Shares L)
•Retirement Fixed Income Fund
(MissionSquare Retirement
IncomeAdvantage Fund R5)
Lord Abbett Core
Fixed Income R6
MissionSquare
PLUS Fund Class
R1
Fidelity Inv MM Fds
Government III
Core Fixed Income Fixed Income Cash Equivalent
International Equity
I1 (Fidelity Intl Cap
Apprec)
Value Blend Growth
Sm
a
l
l
La
r
g
e
Other Funds
Active Fixed Income
Active International Equity
11
12
Attachment 1
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7
Self-Directed Brokerage
Option
•Will continue to be offered outside of core investment
lineup
•Designed for knowledgeable investors who wish to invest
outside of the core lineup
•Central San not fiduciarily responsible for investments held
in self-directed brokerage accounts
•Minimum balances and administration fees apply
•Assets in 457b plan make up 57%
of Plan assets, while 401a Plan is
approximately 42%
•Largest share of plan assets is in
U.S. Equities
•Assets in Balanced/Asset
Allocation and Stable Value / Cash
Management make up large
portion of plan assets
Annual Report
Highlights
Stable Value/Cash
Management
21.5%
Bonds
7.2%
Guaranteed
Lifetime Income
3.3%
Balanced/Asset
Allocation
21.9%
U.S. Stock
32.9%
International/Global
Stock
3.8%
Specialty
9.4%
SUMMARY DISTIBUTION BY
INVESTMENT TYPE
13
14
Attachment 1
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8
•Market value of Plan increased
approximately 16.73% from the
prior year
•2023 Events:
•New Core Investment Lineup that
took into effect June 16, 2023
•Federal Reserve interest rate hikes
•Total contributions into plan were
$7.1 million
Annual Report
Highlights
$126,296,802
$152,787,496
$175,257,995
$149,761,621
$174,820,254
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
2019 2020 2021 2022 2023
Total Market Value of Plan Assets as of
December 31st
•US Equities consistently the largest
asset class in Plan
•Decrease in relative proportion of
Stable Value/Cash Management
category offset by increase in
Balance/Asset Allocation category
•Little change in Guaranteed
Lifetime Income, Bonds,
Specialties, or International
Equities
Annual Report
Highlights
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
Ratio of Investments by Type:
Central San's ICMA 457 and 401(a) Plans
2019 2020 2021 2022 2023
15
16
Attachment 1
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9
2023 Education &
Outreach Efforts
•A designated Retirement Plan Specialist held 91 one-on-one meetings with participants
•A designated Retirement Plan Specialist conducted 11 webinars on various financial wellness topics for participants
•Certified Financial Planners held 34 one-on-one consultations with participants
•46 webinars were conducted by Certified Financial Planners on financial planning and wellness topics
What’s on the
horizon?
•Execute 2024 participant education and
outreach program
•Consider plan amendment for revokable
auto enrollments with default contribution
percentages (new employees only)
•Assess impacts of Secure 2.0 legislation
and recommend plan changes to board if
appropriate
•Roll out WellCents financial planning tool
targeted for new employees
17
18
Attachment 1
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10
Discussion &
Questions
19
Attachment 1
March 21, 2024 Regular Board Meeting Agenda Packet - Page 42 of 195
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