Public Session – The Committee met in Public Session at 9:03 A.M.

1.0

Call to Order

2.0

Roll Call

3.0

Approval of the Minutes

4.0

Oral Communications From the Committee

5.0

Oral Communications From the Public

6.0

Investment and Finance Manager’s Report

7.0

Board and Management Support Services & Audit Committee Report

7.01

Acceptance of the Third Quarter Budget Report

7.02

Introduction of the Fiscal Year 2001/2002 Budget Amendments

7.03

Adoption of the Fiscal Year 2002/2003 Administrative Services Budget

7.04

Review of the June 30, 2001 Audit Findings

7.05

Annual Review and Revision of Code of Fiduciary Conduct

7.06

Annual Review and Revision of Internal Controls Policy

7.07

Acceptance of the Report of the Ad Hoc Committee appointed to recommend a process for the Annual Review of the Performance of the Chief Executive Officer

7.08

Approval of participation in the City of Fresno Retirement Systems’ Educational Conference

7.09

Vote in the Election of Officers for the State Association of County Retirement Systems

7.10

Consideration of proposal to Reschedule or Cancel June 25^th Meeting of the Board of Retirement

8.0

Other Business

9.0

Adjournment

Minutes of SamCERA’s Audit Committee of the Board

1.0

Call to Order: Mr. Lewis called the Public Session of the Audit Committee of the Board of Retirement to order at 9:03 A.M, April 23, 2002, in SamCERA’s Board Room, Suite 280, 702 Marshall Street, Redwood City, California.

2.0

Roll Call: Mr. Lewis, Mr. McMahon, and Ms. Stuart (9:08) Ms. Salas excused. Board Members in Attendance: Mr. Bryan (9:32) Staff: Mr. Clifton, Mr. McCausland. Consultant: None, Public: None, Retirees: One

3.0

Approval of the Minutes: The Audit Committee reviewed and accepted the Minutes of the February 25, 2002 Audit Committee.

Action: Motion by Ms. Stuart, seconded by Mr. McMahon, carried unanimously to accept the Minutes of the February 25, 2002 Audit Committee.

4.0

Oral Communications from the Committee: None

5.0

Oral Communications from the Public: None

6.0

Investment and Finance Manager’s Report None

7.0

Board and Management Support Services & Audit Committee Report

7.01

Acceptance of Quarterly Administrative & Professional Services Budget Report.  The Audit Committee reviewed the following Professional and Administrative Budget reports.

Below is the status of the Professional Budget as of 03/31/2002

Professional Services Budget: Government Code §31596.1 states that The expenses of investing

     its money shall be borne solely by the system.  The following types of expenses shall not be considered a cost of administration of the retirement system, but shall be considered a reduction in earnings from those investments or a charge against the assets of the retirement system as determined by the board:

(a)  The costs, as approved by the board, of actuarial valuations and services rendered pursuant to §31453.

(b) The compensation of any bank or trust company performing custodial services.

(c) When an investment is made in deeds of trust and mortgages, the fees stipulated in any agreement entered into with a bank or mortgage service company to service such deeds of trust and mortgages.

(d) Any fees stipulated in an agreement entered into with investment counsel for consulting or management services in connection with the administration of the board's investment program, including the system's participation in any form of investment pools managed by a third party or parties.

(e) The compensation to an attorney for services rendered pursuant to§31607 or legal representation rendered pursuant to §31529.1.

The Board has entered into the following contracts pursuant to §31596.1:

Contractor

Service

Fee

2001-2002 Estimate

2001-2002 YTD Expense

William M. Mercer

Actuarial Consulting

0.41

$50,000

$39,850

Strategic Investment Solutions

Investment Consulting

1.18

145,000

$102,088

Gray & Company

Investment Consulting

0.77

6,069

$6,069

Stein & Lubin LLP

Legal Services

Hourly

5,000

$0

Barclays Global Investors (BGI)

Indexed Portfolio Management

3.50

300,000

$218,800

Russell 1000 Index Fund

2.15

100,000

$76,279

Russell 2000 Index Fund

7.41

100,000

$75,073

US Debt Index Fund

4.00

100,000

$67,488

Deutsche Asset Management

Domestic

Fixed Income Management

25.65

500,000

$346,396

Bank of Ireland Asset Management

Active International Equity Management

42.19

750,000

$515,745

INVESCO Realty  Advisors

Real Estate Management

7% of   NOI

600,000

$467,447

INVESCO

Acquisition Fee

100 bp

0

0

State Street Bank & Trust

Global Custody

0.98

120,000

$87,818

Total Estimated Contract Fees

$2,476,069

$1,784,188

Estimated Market Value    06-30-2002

$1,442 Million

$1,442 Million

Average Basis Points (i)

17.9

17.2

(i) The calculation uses an average market value of $1.380.0 billion.  The YTD expense is annualized.

Below is the status of the Administrative Budget as of 03/31/2002

San Mateo County Employees’ Retirement Association

Fiscal Year 2001-2002 Third Quarter Analysis

Line Item Administrative Budget

Budget Allotment

Year to Date Expenditure

Percentage Expended

Remaining Balance

Remaining Percentage

Salaries

$638,610

$434,231

68.0%

$204,379

32.0%

Benefits

$161,390

$144,868

89.8%

$16,522

10.2%

Salaries & Benefits

$800,000

$579,099

72.4%

$220,901

27.6%

Board Expenses

$8,000

$3,600

45.0%

$4,400

55.0%

Insurance

$6,000

$4,500

75.0%

$1,500

25.0%

Medical Evaluation

$20,000

$4,230

21.2%

$15,770

78.9%

Member Education

$15,000

$7,719

51.5%

$7,281

48.5%

Education & Conference

$28,000

$35,613

127.2%

-$7,613

-27.2%

Transportation & Lodging

$42,000

$14,904

35.5%

$27,096

64.5%

Software License & Maintenance

$60,000

$52,134

86.9%

$7,866

13.1%

Property & Equipment

$28,000

$8,037

28.7%

$19,963

71.3%

General Office Supplies

$15,000

$6,302

42.0%

$8,698

58.0%

Postage, Printing & Copying

$50,000

$34,475

68.9%

$15,525

31.1%

Leased Facilities

$75,000

$62,656

83.5%

$12,344

16.5%

County Service

$228,000

$211,300

92.7%

$16,700

7.3%

Other Administration

$0

$0

0.0%

$0

0.0%

Services & Supplies

$575,000

$445,469

77.5%

$129,531

22.5%

Fixed Assets

$20,000

$0

0.0%

$20,000

100.0%

Grand Total

$1,395,000

$1,024,568

73.4%

$370,432

26.6%

Mr. Clifton presented a supplemental report, which details educational expenditures by Trustee, educational event and fiscal quarter.  Mr. McCausland reminded that Committee that the Board instructed staff to begin tracking educational expenditures. 

Staff and Committee reviewed the additional expenditures that were approved by the Board over the first three-quarters.  When those approvals were considered the Administrative Budget is in line with expectations.  The Committee accepted the report.

Action: Motion by Ms. Stuart, seconded by Mr. McMahon, carried unanimously to recommend to the Board of Retirement that it accept the March 31, 2002 budget report.

7.02

Introduction of the Fiscal Year 2001/2002 Budget Amendments.  Mr. Clifton reminded the Audit Committee that Board directed staff to chronicle authorized appropriation amendments and submit for the Board’s approval a single budget amendment late in the fiscal year.  The proposed amendment is:

Fiscal Year 2001-2002

Budget Item

Salaries & Benefits

$   800,000

$   850,000

Services & Supplies

$   575,000

$   690,000

Fixed Assets

$     20,000

$              0

Total

$1,395,000

$1,540,000

The proposed budget amendment would increase Salaries and Benefits by $50,0000. Salaries are increased by ~$4,000 to allow for extra help during the final two months of the fiscal year.  Benefits are increased by ~$46,000 to allow for an ~$24,000 increase in annuity contributions due to a miscalculation in the original appropriation, an ~$11,000 increase in the cost of County Health, Dental & Vision Plans and an ~$7,000 reclassification of mileage allowance as a benefit.

Services and Supplies increase by $115,000. Under the prior agenda item the Committee discussed the educational appropriation increases totaling ~$15,000.  They increase included approved attendance at the Asilomar Advanced Trustee Training, IFBEP Annual Conference and CAPP, City of Fresno Retirement Systems Educational Conference, CALAPRS Basic Principals at Stanford, Wharton and California Retired County Employees’ Association Conference. An additional appropriation amendment of ~$60,000 will be required for fiduciary insurance since the current administrative budget was adopted under an assumption that a three-year fiduciary policy would be acquired and paid for at the end of the 2000/2001 fiscal year.  However, the Board acquired a one-year policy and is currently pricing an extension for an additional year.  This year’s appropriation for witting staff procedures is ~$40,000.

Fixed Assets decrease by $20,000.  No expenditures are required this year. 

Mr. Lewis suggested that the budget report, item 7.1 and the budget amendment, item 7.2 could be combined. The consensus of the Committee was that the items should remain separate.  

Action: Motion by Ms. Stuart, seconded by Ms. McMahon, carried unanimously to recommend to the Board of Retirement that it accept the introduction of the budget amendment.

7.03

Adoption of the Fiscal Year 2002/2003 Administrative Services Budget: Mr. Lewis commended staff for creation of the Sources, Uses and Budget Report.  Had the document been available when he came onto the Board it would have been very useful. Mr. Lewis directed the Committees attention to the Budget Resolution, Administrative Budget and the overview of Budget Initiative. Mr. Clifton recapped the budget initiatives, which are highlighted in Budget Document under the Chief Executive Officer’s Report. Mr. Lewis led a discussion of the line item expenditures as presented below.  He noted that the year to year increase would be significantly less when compared to this year’s amended budget rather than the approved budget.

Below is SamCERA’s Proposed Administrative Budget for Fiscal Year 2002-2003.

Expended Object

FY 2000-2001

Actual

FY 2001-2002

(Approved)

FY 2002-2003

Proposed

Salaries

$610,454

$638,610

$683,000

Benefits

$209,504

$161,390

$171,000

Salaries & Benefits

$819,957

$800,000

$854,000

Board Expense

$5,000

$8,000

$8,000

Insurance (General & Fiduciary)

$49,500

$6,000

$51,000

Medical Evaluation

$3,681

$20,000

$20,000

Member Education

$8,337

$15,000

$15,000

Education & Conference

$38,845

$28,000

$23,800

Transportation & Lodging

$18,222

$42,000

$46,200

Software License & Maintenance

$72,236

$60,000

$60,000

Property & Equipment

$40,146

$28,000

$28,000

General Office Supplies

$9,981

$15,000

$15,000

Postage & Printing

$36,755

$50,000

$50,000

Leased Facilities

$72,199

$75,000

$97,200

County Services

$229,640

$228,000

$251,800

Other Administration

$0

$0

$40,000

Services & Supplies

$584,542

$575,000

$706,000

Fixed Assets

$0

$20,000

$40,000

Grand Total

$1,404,500

$1,395,000

$1,600,000

The above budget supports SamCERA’s Administrative Budget Initiatives for Fiscal Year 2002-2003 listed below

Member Benefit Services Plan

a)      Review Member Benefit Services for risk exposure and Report to Board

b)      Continued evaluation & enhancement of the retirement enrollment process, forms and information

c)      Review pamphlets on employee orientation, dissolution of marriage and preparation for retirement

d)      Re-evaluate and enhance member information available through SamCERA’s website

e)      Expand integration of PensionGold into SamCERA operations and               recommend enhancements

f)        Expand member educational programs including three financial planning seminars, monthly brown bag presentations and additional links from SamCERA’s website

g)      Evaluate the County’s proposal regarding standardization of imaging software

h)      Evaluate procedures for document creation, storage, retrieve and disposal

Actuarial Services Plan

a)      Complete 6/30/02 Actuarial Valuation

b)      Complete 6/30/02 Triennial Experience Study

c)      Evaluate the adequacy of the Ventura-Reserve

d)      Provide Technical Support for Retirement Issues                                       

e)      Revise Economic & Actuarial Assumptions, if appropriate

Investment Management Services Plan

a)      Codify risk monitoring procedures

b)      Provide Monthly and Quarterly Investment Performance Reports.

c)      Enhance portfolio & performance monitoring programs

d)      Enhance investment manager monitoring program

e)      Review and amend, if necessary, the Investment Plan

f)        Perform annual review of all Investment Managers, Investment Consultants and the Global Custodian.

g)      Perform manager search(s) as necessary

h)      Perform an Asset liability Modeling Study

Board Support Services

a)      Enhance Internal Control Documentation

b)      Complete the Annual Independent Audit of SamCERA's Financial Statements

c)      Issue Sixth Annual Comprehensive Annual Financial Report to SamCERA's Members

d)      Issue six newsletters

e)      Update Code of Fiduciary Conduct & Conflict of Interest Code

f)        Evaluate the Total Plan Risk

g)      Enhance the Association’s budget document

Management Services Plan                                             

a)      Conduct the first full test of Emergency Recovery Plan

b)      Enhance emergency recovery documentation

c)      Quarterly Test of EDP Redundancy  

d)      Enhance Quarterly Financial Reports

e)      Ongoing evaluation of communications technologies & applications

f)        Evaluate the life cycle replacement of existing laptops and other electronic products and software.

g)      Evaluate SamCERA’s office environment and lease agreement.

h)      Continue evaluation of migration to a new benefits administration platform

Human Resources Plan

a)      Conduct Annual Performance Reviews with Each Employee

b)      Conduct Compensation Study

c)      Continue Professional Development & Training

d)      Establish new position(s) and classification(s) as necessary.

The Committee approved the Sources, Uses, and Budget Report and accepted the above Budget Initiatives and Administrative Budget.

Action: Motion by Ms. Stuart, seconded by Mr. McMahon, carried unanimously to recommend to the Board of Retirement that it approve the Sources, Uses and Budget Report and adopt the Fiscal Year 2002-2003 Budget Resolution contained therein.

7.04

Review of the June 30, 2001 Audit Findings:  This item is in response to a request from Mr. Lewis that the Committee have an interim review of the audit finding. Mr. McCausland reviewed the audit finding, staff’s response to the Management Letter and the current status of the items.

1997 Recommendation 1 – Policies & Procedures Manual

Desk manuals have been completed for seven of SamCERA’s nine positions.  The consultant is currently working with the Investment & Finance Manager.  The consultant is also revisiting each staff member to refine each of the desk manuals.  Final editing should be completed by the end of the fiscal year, but the press of other business will delay the cross-referencing project, which is the CEO’s responsibility.  The CEO has retained control of the cross-referencing project because it provides an additional opportunity to evaluate SamCERA’s internal controls and to reengineer functions as appropriate

1998 Recommendation 1- Reconciliation of Member Reserves

Staff is continuing to work on a reconciliation procedure. PensionGold does not provide static balances on specific dates. Since the total PensionGold employee contribution balance may change on a given day, it presents definite challenges when trying to compare them to SamCERA’s “Member Deposit Reserve – Accumulated Contributions and Interest” on a specific date

1999 Recommendation No. 3 – Disaster Recovery Plan

Staff is continuing to work on a reconciliation procedure. PensionGold does not provide static balances on specific dates. Since the total PensionGold employee contribution balance may change on a given day, it presents definite challenges when trying to compare them to SamCERA’s “Member Deposit Reserve – Accumulated Contributions and Interest” on a specific date.

II.                Comments and Recommendations Arising From The 6/30/2001 Audit

1.      Reconciliation between State Street Investments and Investment Managers’ Records.

SamCERA has only one separate account, DAMI.  Both State Street and DAMI provide SamCERA with a monthly statement reconciling the account.  State Street can not reconcile assets for the commingled accounts since it is not the custodian for those accounts

2.      Noncompliance with Laws/Regulations & Office Policy.

No change.

Staff will introduce Regulations in May to formalize the Board’s policy and to end the crediting of interest on these accounts as a further inducement to withdraw

The CEO now sends individual letters to each department head with “delinquent” enrollees asking for assistance.  The problem persists as new members join the system, but the Office Assistant follows up tenaciously

No change.

“Timely” is a relative term.  The production schedule for SamCERA’s Financial Reports is to that of its peer systems.  Although the board has not requested monthly statements, staff is preparing to provide them to the Board.

Although the board has not requested monthly statements, staff is preparing to provide them to the Board.

3.      Interest crediting for member contributions.

Prior to the crediting of interest, staff will generate a PensionGold report of Active & Deferred Members who do not have the interest crediting flag set.  Anomalies will be resolved prior to the crediting of interest

Mr. Lewis asked staff to prepare an updated report on the status of the reconciliation of member reserves for the next Audit Committee Meeting. Mr. Bryan requested staff to make available copies of the completed desk manuals by fiscal year end.

Action: Motion by Ms. Stuart, seconded by Mr. McMahon, carried unanimously to recommend to the Board of Retirement that it accept the interim review of the audit findings.

7.05

Annual Review and Revision of Code of Fiduciary Conduct.

Action: By consensus this item was put over.

7.06

Annual Review and Revision of Internal Controls Policy.

Action: By consensus this item was put over.

7.07

Acceptance of the Report of the Ad Hoc Committee appointed to recommend a process for the Annual Review of the Performance of the Chief Executive Officer

Action: By consensus this item was put over.

7.08

Approval of participation in the City of Fresno Retirement Systems’ Educational Conference.

Action: By consensus this item will be heard at the Board of Retirement Meeting.

7.09

Vote in the Election of Officers for the State Association of County Retirement Systems.

Action: By consensus this item will be heard at the Board of Retirement Meeting.

7.10

Consideration of proposal to Reschedule or Cancel June 25^th Meeting of the Board of Retirement.

Action: By consensus this item will be heard at the Board of Retirement Meeting.

8.0

Other Business: There was no other business.

9.0

Adjournment: Mr. Lewis adjourned the Committee Meeting at 9:57