HomeMy WebLinkAbout12 FIDUCIARY EXPERTS LLC CONTRACT AMENDMENT OF FIDUCIARY STATUS TO DISCRETIONARY FIDUCIARY 3-38Agenda Item 12
Reviewed:
P� T
AGENDA REPORT City Manager
Finance Director
MEETING DATE: MAY 15, 2018
TO: JEFFREY C. PARKER, CITY MANAGER
FROM: JOHN A. BUCHANAN, FINANCE DIRECTOR
JENNY LEISZ, DEPUTY DIRECTOR - FINANCIAL SERVICES
SUBJECT: FIDUCIARY EXPERTS LLC CONTRACT AMENDMENT OF FIDUCIARY STATUS TO
DISCRETIONARY FIDUCIARY 3-38
SUMMARY:
The City has contracted since 2011 with Fiduciary Experts LLC for independent fiduciary services
for the City of Tustin 457 deferred compensation plans offered to employees. The City currently
uses a co -fiduciary relationship for oversight and investment management of the 457 plans. This
proposed amendment would change the relationship with Fiduciary Experts LLC from a Co -
Fiduciary (3-21) to a Discretionary Fiduciary (3-38), mitigating personal liability for both City
Council and the 457 plan investment committee through the discretionary prudent expert model.
RECOMMENDATION:
Authorize the Finance Director to approve the amendment to the existing contract with Fiduciary
Experts, to a 3-38 relationship providing an additional layer of protection for City Council and 457
plan investment committee members.
FISCAL IMPACT:
The annual cost of additional services provided by Fiduciary Experts LLC will increase $5,000 from
$15,000 to $20,000. All payments to Fiduciary Experts LLC are paid from savings negotiated by
Fiduciary Experts LLC to lower plan investment fees, and to reduce administrative fees charged to
the 457 plan participants. These cost savings are held in a separate money market account on
behalf of the plan participants.
DISCUSSION:
The City currently has two active 457 deferred compensation plans: Nationwide and International
City/County Management Association (ICMA). Employees may choose to contribute amounts to
these plans, allowing them to save and invest money for retirement with tax benefits.
FIDUCIARY EXPERTS LLC CONTRACT AMENDMENT OF FIDUCIARY STATUS TO DISCRETIONARY
FIDUCIARY 3-38
Page 2 of 2
Under the current Co -Fiduciary (3-21) relationship with Fiduciary Experts LLC, the City created a 457
plan investment committee to formalize its due diligence and oversight process. The current
committee is comprised of the Human Resources Director, Finance Director, and City Manager. This
process allows for Fiduciary Experts LLC to provide advice, analysis, and reports to the committee
as its prudent expert, but does not remove the personal liability from City Council or its staff members
from investment management decisions within the plans.
We are aware of two local cities that are considering this service as a risk management measure.
The City of Dana Point is in the process of reviewing their fiduciary responsibilities for approval of
the 3-38 relationship. The City of Chula Vista uses the 3-38 discretionary fiduciary service on specific
assets in their portfolio.
We are recommending the City change to a "3-38 oversight model" which, in essence, would allow
Fiduciary Experts LLC to take on full liability of the investment management oversight process,
reporting directly to the current 457 plan investment committee. This change removes the personal
liability from City Council (which may be unaware that they have personal liability over the 457 plans
and the investments), and creates a process that transfers this specific liability to its consultant while
allowing the City's 457 plan investment committee to provide oversight on the consultant. This
arrangement protects both the City and the 457 plan participants by providing proper management
and oversight, and limiting liability exposure for some of the most complicated aspects of these plans.
R
/ 1
J ny Le' Joh �� A. Buchanan
Deputy Director - Financial Services �Fr�iance Director
Attachment: Amendment of Fiduciary Status Update: DISCRETIONARY FIDUCIARY 3-38
IDUCIARY EXPERTS
Amendment of Fiduciary Status Update: DISCRETIONARY FIDUCIARY 3-38
Whereas the City of Tustin ("City" or "Client") and Fiduciary Experts LLC ("Consultant") entered into that
certain Agreement with respect to the City's 457 Deferred Compensation on January 25th, 2018
("Agreement"), which is incorporated herein by reference. In accodance with the Agreement City and
Consultant desire to amend the Agreement to provide for the 457 plans continued use of the services of
their current Fiduciary Consultant and Advisor, Fiduciary Experts LLC, as a 3-38 fiduciary over the plan
assets as specified herein. Except as expressly modified by this Amendment, the terms of the Agreement
shall remain in full force and effect.
The 457 Oversight investment Committee will continue to receive, and review reports and consultant
analysis. Consultant will provide documentation of such asset oversight and benchmarks in order for City
to be in compliance and meet its fiduciary duty to properly oversee Consultant. This Amendment shall be
effective upon execution by the City.
CURRENT OVERSIGHT WILL CONTINUE - FIDUCIARY SERVICES and ADMINISTRATION
■ Consultant will formalize and document the Investment Committee and its due diligence process for
the City with respect to ERISA and State of California guidelines for deferred compensation plan
compliance and management.
■ Annually Review Investment Policy Statement to ensure it is meeting the needs of the Client and
the 457 Deferred Compensation participants.
■ Monitor the Plan investments to ensure these are meeting the IPS parameters as well as the
retirement needs of the participants.
■ Take minutes of meetings with Investment Committee and document process for proper follow up
and compliance.
■ Compose and develop Company/City Charter delegating and formalizing the duties involved as
a plan fiduciary.
■ Provide a market overview addressing the major markets, indices, and sectors, and the
economic statistics that are affecting them.
■ Comprehensive quarterly investment analysis review of all Plans and investment options as well as
additional options and asset classes to consider.
■ Provide a detailed quantitative and qualitative examination of each mutual fund investment
option within the Plan, including performance numbers versus the category, index, and manager.
■ Make recommendations of possible alternatives to funds, and receive feedback from the
Investment Committee, before consultant determines a change in fund line-up.
IDUCIARY EXPERTS
■ Fiduciary Experts will be available as requested, but not less than two times per year to meet with
the Investment Committee to present the quarterly reports, and to assist Committee with any
questions or issues that may arise.
■ Fiduciary Experts will provide an annual Cost Analysis report regarding the 457 Deferred
Compensation plan in order to provide a fair and competitive analysis and assist in renegotiation of
over charges or excess fees.
■ Fiduciary Experts will act as Discretionary -fiduciary (3-38) on all investment options by
providing investment advice on a regular basis to the Plan regarding the plan assets in accordance
with the provisions of this agreement.
■ Fiduciary Experts will act as a 3-38 fiduciary and money manager for model portfolios.
■ Fiduciary Experts will assist the Client with ensuring that the Plans are in compliance with the
requirements of section 404(c) by ensuring that the fund line-up constitutes a broad range of
investment alternatives, as defined in regulations section 2550.404(c)-1.
■ Act as plan fiduciary and formalize process necessary to administer and manage plan assets and
distributions on behalf of plan participants.
■ Every three years perform blind RFI for due diligence and benchmarking of delegated
vendors/professionals needed to perform needed administration of plan. Renegotiate further cost
savings for plans.
■ A Plan Expense Summary separating service costs and management costs to estimate service
provider revenues with a detailed analysis of revenue distribution to service provider(s) and all
related parties.
■ Review of Plan's current investment options to identify missing core asset classes.
■ Review of Plan's diversification among investment options through a correlation matrix and
overlap analysis Plan level performance compared to passive and active custom benchmarks.
■ Fiduciary Experts will provide the client a private portal where all documents, minutes, and reports
may be accessed and organized as a means to maintain a central location to safely view and file
such data.
0 Custom app for participants to reach out to ask questions and make service requests to adviser.
IDUCIARY EXPERTS
EXECUTION
If the terms of this Agreement are acceptable to the Client, and the above services are in accordance
with your understanding, please sign this letter in the space provided and return it to Fiduciary Experts via
email, hard copy to company address found on page 1 of this agreement, or by fax at 888-668-4015.
ACCEPTED AND AGREED:
By
Principal:
John A. Buchanan
Finance Director
Maribel Larios
Fiduciary Experts LLC
Date:
Date:
r**,%
0000� LI)
00 Vm
rn
I
0
Z)
0
Te
i
W
J
J
Q
Z
0
N
W
CL
J
W
0
CL
x
LU
z
W
Q
P1
WMA
I
W
U
V)
Q
o
E
L
E
ro
O
N O
u
a
N
ro
>
>
Ln
Oro
s C:
s
a�
a�
-
_
°�
s
Y
p
ro ao
E
E
a
p
ro
C
J
Ln
E
N
J
jO
cc:
a�
o
7
E
E
X
O
N
>
-
N
LU
O a7
>
E°
C°
d
E
p
- E
N
N
LLro
—
u
O
0ro
ro
i
— c"E
x
N
ro
p w>
> >
L,
a
O
°
E
ro
ro a7
5
ro
Z3
o
s
C,U
s s
E
Ecli
7
ao
o
s
ao
3 3
>O 0
3
-C •�
C,0
.>
o
U
-co"
ro
Q) E
Ts
ro 3
> ro
>
oo
3 UV
E
°
>
S
>
t
t .R
N
Uo
0
�,
3
O
o
N p
p
3
U
>
E
s
UO
J L
C
U
E o
E
s °>
E °�
o
3
L
Lx E
U ro>
-
>.
L
O
Eu
ro
v a
O�
E a7
v
E
T
'�
LL Ls
"
uop
C:>
C',O
a
u
L
N
p
2
N d
C
N
O
N
L
C: U
ao
=
O
O
M L
ro ro
T
U
-0.u?;,
M
— N
N
E
Vro
ctos
C
ro
L O
O
p
,� a7
O
L
ro
N
N
d U
O
C
p
ro ro
O
E
T
roC',
ro •ro
u
� E
ro
�
ro 0
coCIO_
y 0
U
O a7
>
O
O
E ro
—as
LIPL
a 0
U E
°L' °L'
E N
U
N fn
L
N L
a7
p
>
O
E
N
N
O
E
ro
C
E
N
a
0
a
0
C
ro
UW
Q�Z
WZ
>p
O�
W
CL
J cn
m _
Q 0
J z
J Q
Q �
Z pC
OW
� m
W LU
W5
U
z
Q
U
LA
3
�
ro
;
CL
�
U,
dl
ro0
m
'
C
m
as
.2
c
L,
Lri
t j
{CA
E
E
LA
3
ro
;
D
C
U,
dl
ro0
m
'
C
m
as
.2
c
L,
w
{CA
E
E
L
L
E
E
=�
o
a�
LL
N
i
N
0
lJ O
v
T t
L
.O
N
O
LL
W
V
O O
~
N a<
N L (a
VIi j
v
, t
v O
O V
V)
W
N U
v w
o
T
v o
ZO
W
Q
0�
W
T L
l
O�
N V
U
.�
O t
N
J
Ub.0
v�Q
d
o0
N
�
7 L
o0
W
D
°�
ac
N O
12 _U
U L A
> H
7=
'0
Ta
OL
Z
=
Q
L N
=� v
O
w v
v (�
N
j
o v
E
v 0
_
C
0
m L C LWD
a� o
-O W
v 0
+-� WD
3
LO }'
U
O
��
c
O
L
L 'N
11 T-
s N O
L O
° v
c
L
E
N N
UE
p
v
^U1
N v
o
O �j
O
`,
M
N
N E
L V
(tl -O_
v
N
O m
,0
N Qj0
L N
LL
.9
U O
U
v
O
Z
O
C
L N C
O V v O
a
L m
O
N N
a
O
V)
/r
T
`°b
0 s
c_
"
c
c
°
c
W
�
�,,0
�,o
,
�E
W
W
`
---o- �O
d to
e.0
o
O cd
1
D
v C
H E
v C IJ Q
H o U
v L
H V
v V
H°
>0N>
a
H v
Z
W
::)
vi
o
~
W
ZWZ
A
(^A,
W
�
4-J
^C^,,
W
E
ZQ�
Lu
�-
�
_
bp
-
pC
Ct
(A
QZU
Q
�
C
os
UQ�
v
�
o
°�
N
Ct
EU
L
�
L
0
Q
�
t-nj d
O
a�
C
QZ
�.
>�
ct�
0�
U
Z
c
_
�,
a .0
�
�;
4-3
Q
Q
M
bA
O
U >
c�
c
J
L.L
� �
�
o
��
�'
W
Vi
W
E
0 v
0
�
�Lcn
Ct
Ov
O
�
.Lt
>.
��
W
O a
O (3)
:3
=
cC
z L.
a O
Q
a
�
Z
0
o
•
M
—