Cotati City Council
Agenda Staff Report
Item type: CONSENT CALENDAR (ACTION)
To: City Council
Subject: CONSIDERATION OF REVISED MISSION SQUARE (457)
RETIREMENT PLAN AGREEMENT
Date: May 13, 2025
Written by: Damien O'Bid, City Manager
Recommendation
It is recommended that the City Council authorize the City Manager to execute a revision to the agreement with Mission Square for the 457 retirement plan.
Background
The City currently offers employees a 457 retirement plan through Mission Square. The City is the fiduciary and administrator of the plan and Mission Square is the record keeper for the plan.
The proposed plan renewal agreement is attached.
Analysis/Discussion
With more assets in the Mission Square 457 retirement plan, staff have been able to renegotiate and significantly lower the cost of the plan for the employees. Additionally, staff are proposing to change the mix of mutual funds from largely managed proprietary funds to index funds, as well as expanding the types of funds into different asset classes. The net result for the employees will be much lower fees and a broader mix of fund options, which will result in better returns on their investments over time and greater investment options. There will be no reduction in services with these changes. In addition to the services offered by Mission Square, there will be additional services offered through a 3-21 Investment Advisor that the City has been working with during negotiations with Mission Square. The goal of continuing to work with the investment advisor is to better assist employees with investment advisory services and education.
If approved by the City Council, the plan changes would be put in place and the mutual funds transitioned in July. Staff is proposing to stay with Mission Square, but employees will still be receiving notices of the fund changes, likely in June. Mission Square will automatically move the existing funds for each employee into new funds that have the same or a very similar asset/risk profiles. The new fund line up is attached.
The goal, post transition, is to ensure that everyone has the information they need to make informed choices about their investments, including setting up recurring opportunities for employee education and advisory services. Moving forward, the plan will also be actively monitored through an internal investment committee.
Financial Considerations
The City does not fund the administration of the 457 plan, these costs are funded by plan fees charged to all plan participants. Currently, the plan fees are 0.8% (80 basis points) for record keeping and an average of 0.41% (41 basis points) for management fees (aka Fund Expense Ratio) based on the current mutual fund mix (total of 1.21%). The current mutual funds are primarily managed proprietary funds, which are high cost and historically do not outperform similar passive index funds.
With the change to passive index funds, and a renegotiated agreement, the costs will drop substantially. The new record-keeping fee will be 0.15% (15 basis points) with an average management fee of 0.12% (12 basis points), based on the new fund mix (total of 27 basis points).
Additionally, to fund the third party 3-21 fiduciary, the agreement collects a flat fee of $10,000 per year.
Environmental Issues
Where it can be determined 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 review.
This general rule can be applied to activities which could be subject to the CEQA process, but which logic dictates should not be subject to CEQA review. Therefore, based on the information provided above, the proposed resolution is exempt from CEQA pursuant to Section 14.03.021 of the CEQA Guidelines in that there is no possibility that the activity may have a significant impact on the environment.