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HomeMy WebLinkAboutItem 6i - Consolidation of Deferred Comp and Defined Contribution Retirement Plans Item 6i Department: Human Resources Cost Center: 3001 For Agenda of: 10/20/2026 Placement: Consent Estimated Time: N/A FROM: Nickole Domini, Human Resources Director Prepared By: Kate Auslen, Risk and Benefits Manager SUBJECT: CONSOLIDATION OF DEFERRED COMPENSATION AND DEFINED CONTRIBUTION RETIREMENT PLANS TO MISSIONSQUARE RECOMMENDATION 1. Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, Authorizing the Consolidation of the City’s 457(b) Plans Record-Kept by Nationwide and Empower, and the 401(a) Plan Record-Kept by PARS/John Hancock, to ICMA Retirement Corporation Governmental Profit Sharing Plan & Trust (d/b/a MissionSquare), and Authorizing the City Manager to Execute All Necessary Documents for the Plans” (Attachment A) 2. Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, Authorizing the Transition of the City's Defined Contribution Plan for Eligible Employees from Public Agency Retirement Services (PARS) to ICMA Retirement Corporation Governmental Profit Sharing Plan & Trust (d/b/a MissionSquare).” (Attachment B) 3. Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, Designating the City Manager as Plan Administrator for Deferred Compensation and Defined Contribution Retirement Plans.” (Attachment C) POLICY CONTEXT The City of San Luis Obispo (“City”) has offered its employees voluntary participation in deferred compensation retirement plans (“Plans”) since 1979 (Resolution No. 3875). Additional plan options have been added over the years, and the City has provided oversight of the Plans through annual plan reviews. In alignment with the Council adopted Compensation Philosophy (Resolution No. 10248 – 2011 Series), the City is committed to attracting and retaining well qualified employees by offering competitive compensation. As part of the Human Resources Department’s work plan, enhancements to the City’s benefits program offerings are being pursued. Per Council’s direction at the October 21, 2025, City Council meeting, a Request for Proposals (RFP) for a Deferred Compensation Recordkeeper was completed, and ICMA Retirement Corporation Governmental Profit Sharing Plan & Trust (d/b/a “MissionSquare”) was selected as the recommended recordkeeper. Page 177 of 210 Item 6i DISCUSSION Background In the first quarter of the 2026 calendar year, the City issued an RFP for Plan Consultative and Fiduciary Services and Shuster Advisory Group, a HUB International Company, (“Shuster”) was selected. Working with Shuster, the City issued an RFP requesting proposals for recordkeeping and administrative services for its 457(b), 401(a), Retiree Health Savings (“RHS”) and Omnibus Budget Reconciliation Act (“OBRA”) 457(b) plans with a goal of consolidating the plans to a single recordkeeper. RFP responses were received from five (5) leading public sector retirement plan recordkeepers. A detailed analysis was completed by Shuster and presented to the Deferred Compensation Employee Advisory Committee which was made up of representatives from each of the City’s six bargaining units. The Committee heard presentations from three finalists and provided input to the City’s Fiduciary Committee, which voted unanimously to select MissionSquare as the City’s future deferred compensation recordkeeper. During this process, staff determined that it is in the best interests of all participants to keep the OBRA plan for temporary employees with Nationwide, due to the higher proposed fee structure if MissionSquare were to administer this plan. Therefore, staff is recommending termination of the agreement with Nationwide for the regular and limited-term contract employee 457(b), but keeping the agreement with Nationwide for the temporary employee OBRA 457(b) plan. Fiduciary Duty As the plan sponsor, the City has certain fiduciary duties and responsibilities under State law (California State Constitution, Article XVI Section 17 and California Government Code §53215–53224). These duties and responsibilities focus on ensuring that the operation and investment of the public retirement plan is for the exclusive purpose of providin g benefits to participants and beneficiaries. Fiduciary responsibilities include:  Investing the assets of the plan;  Administering the plan; and,  Engaging in a prudent process for making all decisions related to the operation of the plan, including decisions related to the plan's investments and related services. The City has the right to contract with third-party service providers to fulfill the City’s responsibilities for the plans. The City currently utilizes MissionSquare, Nationwide, Empower, and PARS (with John Hancock as its third-party administrator) to provide recordkeeping and administration services for its 457(b), 401(a), RHS, and OBRA 457(b) plans. These recordkeepers are not fiduciaries to the plans. A Fiduciary Committee was formally established in August 2026 to ensure that the City is meeting its Fiduciary Responsibilities. Current members of the committee include the Director of Human Page 178 of 210 Item 6i Resources, the Director of Finance, the Deputy Director of Finance / City Controller, the Risk and Benefits Manager, and the Human Resources Analyst – Benefits. The City is not obligated to stay in the current arrangement with any provider or recordkeeper. To the extent that cost savings for administering the plans can be achieved, as well as the improvements in the investments available, plan participants are likely to experience an increase in their retirement savings accounts. Benefits of Consolidation The proposal from MissionSquare, as well as the preliminary terms of the agreement negotiated by Shuster, are expected to result in a 92% reduction in recordkeeping costs for the 457(b) and 401(a) plans, as well as a savings of 70% in total plan administrative fees. The consolidation will include implementing a comprehensive, low-cost, and higher quality investment menu for the plans. Additionally, the consolidation will simplify services and decision making for plan participants as well as administration of the plans for staff. By aggregating plan assets and implementing the new investm ent menu, the City will: 1) Reduce plan and investment fees; 2) Enhance the investment options; and 3) Provide participants with a competitive fixed interest rate. Staff recommends the City Council approve the consolidation of the 457(b), 401(a) and RHS plans to a single recordkeeping platform with MissionSquare. Two draft Resolutions are included in this report as PARS requires its own separate Resolution with specific language included to terminate the agreement (Attachments A and B). Because the consolidation dates are subject to change, the resolutions include authorization to make administrative amendments to revise the effective dates as needed. Next Steps Following Council approval, staff, Shuster, and MissionSquare will enter into a revised service agreement and begin the conversion process with a targeted completion in March 2027. Per Resolution 11603, the City Council has delegated authority to the City Manager as the Plan Administrator, who will execute the revised agreement. An updated Resolution has been provided for clarification that the City Manager is also authorized to execute Plan amendments (Attachment C). Shuster is prepared to provide comprehensive conversion support services, including a detailed review of plan design and plan provisions, along with ongoing consultation throughout the transition. In partnership with MissionSquare, Shuster will also deliver participant communication and education, offered both on-site and through virtual meetings for current and former employees. After the conversion process is complete, Shuster will continue to assist the City with consolidating the plans and performing its fiduciary responsibilities with respect to applicable IRS requirements and California law. Shuster and MissionSquare will also support the City in providing ongoing employee Page 179 of 210 Item 6i education, with the goal of increasing plan participation and strengthening employees’ financial and retirement planning knowledge. Previous Council or Advisory Body Action October 21, 2025 City Council Meeting – Authorization to Advertise RFP’s for Deferred Compensation Consultant and Deferred Compensation Recordkeeper. ENVIRONMENTAL REVIEW The California Environmental Quality Act (CEQA) does not apply to the recommended action in this report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: No Budget Year: 2026-27 Funding Identified: Yes Fiscal Analysis: Shuster’s consulting services as well as MissionSquare’s recordkeeping services are at no cost to the City, because the fees are paid out of participant plan assets. However, outside counsel specializing in employee benefits has been obtained to provide le gal oversight during the conversion process. This is estimated to cost approximately $15,000 and existing funding has been identified for this one-time cost. Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund $15,000 $15,000 $0 $0 State Federal Fees Other: Total $15,000 $15,000 $0 $0 ALTERNATIVES 1. Council could decide not to approve the termination of agreements with PARS, Nationwide, and Empower for its 457(b) and 401(a) plans. Should Council pursue this option, plan assets will not be consolidated to MissionSquare, and plan participants will not receive the anticipated benefits as described above. Page 180 of 210 Item 6i ATTACHMENTS A - Draft Resolution authorizing consolidation of the City’s 457(b) and 401(a) plans from Nationwide, Empower, and PARS to MissionSquare and authorizing the City Manager or designee to execute the same B - Draft Resolution authorizing the transition of the City’s 401(a) plan from PARS to MissionSquare C - Draft Resolution designating the City Manager as Plan Administrator Page 181 of 210 Page 182 of 210 R ______ RESOLUTION NO. _____ (2026 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AUTHORIZING THE CONSOLIDATION OF THE CITY’S 457(B) PLANS RECORD-KEPT BY NATIONWIDE AND EMPOWER, AND THE 401(A) PLAN RECORD-KEPT BY PARS/JOHN HANCOCK, TO ICMA RETIREMENT CORPORATION GOVERNMENTAL PROFIT-SHARING PLAN & TRUST (D/B/A MISSIONSQUARE), AND AUTHORIZING THE CITY MANAGER TO EXECUTE ALL NECESSARY DOCUMENTS FOR THE PLANS WHEREAS, the City of San Luis Obispo (“CITY”) offers its employees participation in deferred compensation retirement plans, also known as defined contribution plans (“Plans(s)”), under Section 457(b) and 401(a) of the Internal Revenue Code and the California Government Code; and WHEREAS, ICMA Retirement Corporation Governmental Profit Sharing Plan & Trust, (d/b/a “MissionSquare”), Nationwide, and Empower currently provide recordkeeping and administrative services for the 457(b) and OBRA 457(b) Plans, and MissionSquare and PARS/John Hancock provide recordkeeping and administrative services for the 401(a) Plan; and WHEREAS, to protect the interests of plan participants, maintain fiduciary standards, and to ensure efficient administration, the City Council has formally designated the City Manager to serve as the Plan Administrator for the CITY’s deferred compensation and defined contribution plans; and WHEREAS, the City Council has authorized the Plan Administrator to execute all Plan related documents on behalf of the CITY, assign or delegate administrative duties as appropriate, and take whatever additional actions are neces sary for the CITY to participate in the Plans and comply with relevant regulations. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. The City Council hereby approves the termination of service agreements with Nationwide and Empower for the 457(b) Plan and PARS/John Hancock for the 401(a) plan and implementation of a new consolidated service agreement with MissionSquare with an estimated effective date of April 15, 2027. SECTION 2. The OBRA 457(b) plan agreement with Nationwide will remain in effect but may be revised or restated by the City Manager as Plan Administrator, or their designee. SECTION 3. The City Manager is hereby authorized to execute, on behalf of the CITY and Plan participants, a recordkeeping and administrative services agreement with Page 183 of 210 Resolution No. _____ (2026 Series) Page 2 R ______ MissionSquare, and any other such agreements and contracts to administer the program, including Plan amendments. SECTION 4. The Council hereby authorizes administrative amendments to this resolution regarding the effective implementation date. Upon motion of Council Member ___________, seconded by Council Member ___________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _______________ 20 26. ___________________________ Mayor Erica A. Stewart ATTEST: ______________________ Teresa Purrington City Clerk APPROVED AS TO FORM: ______________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________ Teresa Purrington City Clerk Page 184 of 210 R ______ RESOLUTION NO. _____ (2026 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AUTHORIZING THE TRANSITION OF THE CITY'S DEFINED CONTRIBUTION PLAN FOR PLAN PARTICIPANTS FROM PUBLIC AGENCY RETIREMENT SERVICES (PARS) TO THE ICMA RETIREMENT CORPORATION GOVERNMENTAL PROFIT SHARING PLAN & TRUST (D/B/A MISSIONSQUARE) WHEREAS, the City of San Luis Obispo (“CITY”) offers its employees participation in deferred compensation retirement plans, also known as defined contribution plans (“Plan(s)”), qualifying under relevant sections of the Internal Revenue Code and the California Government Code; and WHEREAS, the CITY currently participates in the City of San Luis Obispo Public Agency Retirement System (PARS) Defined Contribution Plan , where PARS/John Hancock provides recordkeeping and administrative services for the CITY’s 401(a) Plan; and WHEREAS, the CITY has selected ICMA Retirement Corporation Governmental Profit Sharing Plan & Trust (d/b/a “MissionSquare”) as the new provider and wishes to terminate all services, administration, and investment contracts of Public Agency Retirement Services (PARS) as Trust Administrator, U.S. Bank, N.A. as Trust ee, and John Hancock Retirement Services as Custodian/Record Keeper; and WHEREAS, the CITY desires that its defined contribution retirement plan be administered by MissionSquare and that the funds held in such plan be invested in VantageTrust, a trust established by public employers for the collective investment of funds held under their retirement and deferred compensation plans . NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. The City hereby restates and establishes a 401(a) defined contribution retirement plan (the “Plan”) in the form of the ICMA Retirement Corporation Governmental Profit-Sharing Plan & Trust, pursuant to the specific provisions of the Adoption Agreement. SECTION 2. The Plan shall be maintained for the exclusive benefit of Plan participants and their beneficiaries. SECTION 3. The City hereby authorizes the use of the Declaration of Trust of VantageTrust, previously adopted by Resolution 8666 (and formerly titled Declaration of Trust of ICMA Retirement Trust) intending this authorization to be operative with respect to any retirement or deferred compensation plan subsequently established by the City, if the assets of the plan are to be invested in VantageTrus t. Page 185 of 210 Resolution No. _____ (2026 Series) Page 2 R ______ SECTION 4. The City hereby agrees to serve as trustee under the Plan and to invest funds held under the Plan in VantageTrust. SECTION 5. The City Manager shall be the coordinator for the Plan; shall receive reports, notices, etc., from ICMA Retirement Corporation or VantageTrust; shall cast, on behalf of the CITY, any required votes under VantageTrust; may delegate any administrative duties relating to the Plan to appropriate depa rtments. SECTION 6. The CITY hereby authorizes the City Manager to execute all necessary agreements with ICMA Retirement Corporation (d/b/a MissionSquare) incidental to the administration of the Plan. SECTION 7. The City of San Luis Obispo PARS Defined Contribution Plan is hereby replaced with the City of San Luis Obispo 401(a) Defined Contribution Plan administered by MissionSquare. SECTION 8. The Council hereby authorizes the liquidation of Plan assets on or around April 13, 2027, and the transfer of Plan assets to MissionSquare/VantageTrust, on or around April 15, 2027. SECTION 9. Upon the complete and successful transfer of all assets to MissionSquare/VantageTrust, PARS is hereby removed as Trust Administrator, U.S. Bank, N.A. is hereby removed as Trustee, and John Hancock Retirement Services is hereby removed as Custodian/Record Keeper of the City of San Luis Obispo PARS 401(a) Defined Contribution Plan and any accounts and agreements associated with the Trust Administrator, Trustee, and Custodian/Recordkeeper shall be terminated. SECTION 10. The Council hereby authorizes administrative amendments to this resolution regarding the date of liquidation of Plan assets and date of transfer of Plan assets. Upon motion of Council Member ___________, seconded by Council Member ___________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _______________ 20 26. ___________________________ Mayor Erica A. Stewart ATTEST: ______________________ Page 186 of 210 Resolution No. _____ (2026 Series) Page 3 R ______ Teresa Purrington City Clerk APPROVED AS TO FORM: ______________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________ Teresa Purrington City Clerk Page 187 of 210