21-0504_SHUSTER ADVISORY GROUP, LLC_E8_Agenda ReportCity of San Juan Capistrano
Agenda Report
TO: Honorable Mayor and Members of the City Council
FROM: Benjamin Siegel, City Manager
SUBMITTED BY: Sam Penrod, Human Resources and Risk Manager
DATE: May 4, 2021
SUBJECT: Professional Services Agreement with Shuster Advisory Group, LLC,
for Defined Contribution Plan Consulting and Investment Fiduciary
Services
RECOMMENDATION:
1.Approve and authorize the City Manager to execute a Professional Services
Agreement with Shuster Advisory Group, LLC for defined contribution plan
consulting and investment fiduciary services (Attachment 1);
2.Approve the consolidation of the 457(b), 401(a), Retirement Health Savings (RHS),
and Part-Time, Temporary and Seasonal (PTS) record-keeping services to a
single provider, ICMA-RC;
3.Authorize the City Manager to execute the necessary service provider agreements
related to the administration of the defined contribution plans; and,
4.Appoint the Human Resources and Risk Manager as the contract administrator for
the City's 457(b), 401(a), Retirement Health Savings (RHS) and Part-Time,
Temporary and Seasonal (PTS) defined contribution plans.
EXECUTIVE SUMMARY:
The City provides its employees with deferred compensation plans to encourage and
assist with retirement planning. Three providers - Empower, Lincoln, and ICMA-RC -
currently provide 457(b) plan services, and ICMA-RC also administers the City’s 401(a),
Part-Time, Temporary and Seasonal (PTS), and Retirement Health Savings (RHS) plans.
At no cost to the City, Shuster Advisory Group, LLC issued a Request For Information
(RFI) to the plan sponsors and conducted a financial analysis of the three providers.
5/4/2021
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Because of Shuster’s financial understanding of the defined contribution marketplace,
they were able to negotiate a significant reduction (94%) in costs to plan participants
(employees). Staff is recommending that the City Council approve a professional
services agreement with Shuster for defined contribution plan consulting and investment
fiduciary services and consolidating all defined contribution plans into ICMA-RC.
DISCUSSION/ANALYSIS:
Under Section 457(b) of the Internal Revenue Code (IRC), government entities may
sponsor a deferred compensation plan, while meeting fiduciary responsibilities under
California law, to allow employees to defer income tax on retirement savings into future
years. Currently, the City is providing employer-sponsored deferred compensation plans
under Section 457(b) with three providers: Empower (formerly MassMutual), Lincoln
Financial Group, and ICMA-RC. Alongside the 457(b) Plan, the City also offers a
separate defined contribution plan under 401(a) of the IRC, which is with ICMA-RC.
Under Section 457(b) and Section 3121(b) of the Internal Revenue Code, government
entities may sponsor a retirement alternative, or in-lieu plan, to Social Security for all part-
time, seasonal and temporary employees (also known as an OBRA plan), while meeting
fiduciary responsibilities under California law. An employee is required to contribute a
stated percentage of his or her compensation on a pre-tax basis to a retirement account
providing tax-deferred growth. The City currently provides a Part-Time, Temporary and
Seasonal Plan (“PTS Plan”), or OBRA plan, with ICMA-RC, with the part-time employees
paying 3.75% toward the plan, and the City also contributing 3.75% toward the plan.
Additionally, the City provides a Retirement Heath Savings Program (“RHS Plan”) that is
also with ICMA-RC. This plan provides participants the benefit of tax-free
reimbursements for qualified medical expenses upon separation from employment.
As the plan sponsor, the City has certain fiduciary duties and responsibilities under State
law (California State Constitution, Article XVI Section 17). These duties and
responsibilities focus on ensuring that the operation and investment of the public
retirement plan is for the exclusive purpose of providing 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.
As the plan sponsor, the City has the right to contract with third-party service providers
in fulfilling the City’s responsibilities for the plans. The City currently utilizes ICMA-RC,
Empower and Lincoln to provide record keeping and administration services for the
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plans. These record keepers are not fiduciaries to the plans. Due to increased
regulatory responsibilities and the complexity of the investment process and associated
responsibilities, staff sought to learn more about trends affecting the employer-
sponsored retirement plan marketplace and laws governing fiduciary requirements for
the operation of the City’s sponsored plans. In addition, in an effort to fulfill the City’s
fiduciary responsibility to provide plans in the best interests of participating employees,
the City sought to conduct a review of the City’s 457(b), 401(a), PTS and RHS Plans
and an RFP for record-keeping services.
Staff learned of Shuster Advisory Group, LLC and the significant value Shuster’s
consulting and fiduciary services provided to other municipalities. Staff met with Shuster
to find out more about their process and the results Shuster obtained for other cities.
Shuster provides fiduciary and consulting services to over 50 other Southern California
cities and agencies. These agencies utilize Shuster to evaluate their contract terms, plan
fees and investments with their current providers. Shuster also conducted RFP
processes resulting in client cities greatly reducing their plan fees and enhancing their
investment options.
At no cost to the City, Shuster conducted a review of City’s existing plans including a
Request for Information (“RFI”) to the City’s incumbent providers. The RFI included a
review of all contract related data, including but not limited to: administrative fees
associated with the plans, investment options, asset values, fixed account interest rates,
and additional fees that may be charged by the plans. Utilizing the information obtained
through the RFI and with staff authorization, Shuster then conducted an RFP from leading
record-keepers, including the three incumbents, to determine whether the incumbent
plans were competitive and fees assessed were reasonable.
Based on Shuster's analysis, staff determined that economies of scale are not being
utilized by having the 457(b) and 401(a) plans with three recordkeepers, and plan
participants as a whole would benefit by consolidating the plans with a single record-
keeper, ICMA-RC. Shuster provided a proposed comprehensive institutional class
investment menu for the 457(b) and 401(a) plans that is lower in cost than the current
menus and provides a higher blended fixed interest rate to plan participants. By
aggregating plan assets and implementing the new investment menu, the City would: 1)
reduce plan and investment fees; 2) enhance the investment options; and, 3) provide
participants a competitive fixed interest rate. Shuster’s services will provide an annual
financial benefit to plan participants (net of consultant costs) of approximately $47,000.
Based on the results of the RFI and RFP processes, staff recommends that the City
Council approve the consolidation of the 457(b), 401(a), RHS, and PTS plans to a single
record-keeping platform with ICMA-RC and engage Shuster to provide investment
advisory and consulting services. By consolidating the plans with ICMA-RC, participants
will benefit from a 94% reduction in plan record keeping costs, and a 55% reduction in
total plan costs, inclusive of the Shuster consultant fee. Shuster would assist the City
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May 4, 2021
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with consolidating the deferred compensation plans and assist the City in performing its
fiduciary responsibilities with respect to applicable IRC and California law. Shuster would
also assist the City in educating our employees with the goal of increasing participation
and help employees become more retirement ready.
Pending City Council approval of the recommended action, staff and Shuster will begin
the product conversion process with a targeted completion of August 2021. Shuster would
provide conversion support services, including the review and consultation on plan design
and provisions. Shuster and ICMA-RC would also provide participant communications
and education on-site and via web meetings.
FISCAL IMPACT:
There is no direct fiscal impact to the City, as the fee for Shuster’s services is $2,083.33
per month, paid by plan assets.
ENVIRONMENTAL IMPACT:
In accordance with the California Environmental Quality Act (CEQA) the recommended
action is exempt from CEQA per Section 15061(b)(3), the general rule that the CEQA
applies only to projects which have the potential for causing a significant effect on the
environment. Where it can be seen with certainty that there is no possibility that the
activity in question may have a significant effect on the environment, the activity is not
subject to CEQA. A Professional Services Agreement with Shuster Advisory Group, LLC,
to provide defined contribution plan consulting and investment fiduciary services would
not be an activity with potential to cause significant effect on the environment and
therefore is exempt from CEQA.
PRIOR CITY COUNCIL REVIEW:
Not Applicable.
COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS:
Not applicable.
NOTIFICATION:
Mark Shuster, Managing Member, Shuster Advisory Group, LLC
Laura Stokes, CEA President
Sergio Klotz, MPEA President
ATTACHMENT:
Attachment 1 – Draft Professional Services Agreement
ATTACHMENT 1