February 25, 2003 – Board Agenda

Public Session – The Board will meet in Public Session at 1:00 p.m.

1.

Call to Order

2.

Roll Call

3.

Approval of the Minutes

4.

Oral Communications

4.1

Oral Communications From the Board – None

4.2

Oral Communications From the Public – None

5.

Benefit & Actuarial Services

5.1

Adoption of Consent Calendar

5.2

Consideration of items removed from Consent Calendar

5.3

Adoption of Cost of Living Allowance Resolution

5.4

Acceptance of Mercer Actuarial Valuation as of June 30, 2002

5.5

Adoption of Contribution Rates & 401(h) Reserve Contribution for Fiscal Year 2003/2004

6.

Investment Services – The Investment Committee will meet on Wednesday, February 19 at 3:00 p.m.

6.1

Acceptance of Monthly Portfolio Performance Report

6.2

Acceptance of Quarterly Investment Performance Analysis for periods ending December 31, 2002

6.3

Approval of Assumptions and Parameters for Asset / Liability Modeling Study

6.4

Introduction of the Investment Committee's Strategic Plan for Fiscal Year 2003/2004

7.

Board & Management Support Services

7.1

Acceptance of Monthly Financial Reports

7.2

Acceptance of SamCERA's Audited Financial Statements & Accompanying Notes

7.3

Acceptance of SamCERA’s Comprehensive Annual Financial Report

7.4

Annual Review of SamCERA's Mission, Goals & Objectives

7.5

Annual Review of SamCERA's Strategic Services Resolution

7.6

Introduction of Strategic Budget Initiatives for Fiscal Year 2003/2004

7.7

Introduction of Internal Control Related Strategic Plan for Fiscal Year 2003/2004

7.8

Approval of Amendments to Mercer Contract and Fee Schedule

7.9

Approval of Participation in 2003 Russell Global Consulting Conference

8.

Approval or Acceptance of Reports

8.1

Chief Executive Officer's Report

8.2

County Counsel's Report

8.3

Investment & Finance Manager’s Report

8.4

Assistant Executive Officers’ Report

9.

Adjournment

February 25, 2003 – Board Minutes as corrected

0302.1

Call to Order:  Mr. Bryan, Chair, called the Public Session of the Board of Retirement to order at 1:03 p.m., February 25, 2003 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0302.2

Roll Call:  Mr. Bryan, Mr. Buffington, Mr. McMahon (1:07), Ms. Salas, Ms. Stuart & Ms. Tonsfeldt.  Excused:  Ms. Colson, Mr. Cottle & Mr. Lewis.  Alternate Board Member:  Ms. Arnott was also present.  Staff:  Mr. McCausland, Mr. Hood, Mr. Clifton & Ms. Lamica.  Counsel:  Ms. Carlson.  Consultants:  Ms. Chapman, Dr. Fracchia, Ms. Jadallah, Mr. Thomas & Mr. Yeung.  Retirees: 3, Actives: 2, County: 2.

0302.3

Approval of the Minutes:  Ms. Arnott submitted the following corrections to the Minutes of January 28^th:  0301.7.4 ¶2, line 3:  in the absence of the eighth eight member.; 0301.a ¶1, line 2: with oil prices price up; 0301.a California Economy •10: Los Angeles will experience growth in all sectors except expect aircraft and defense; 0301.c ¶3, line 5: Risk is defined in the in the asset phase; 0301.c ¶7, line 6:  Ms. Jadallah noted that while SIS recommends private markets.  Mr. McCausland submitted the following correction: 0301.7.3 ¶6, line 5:  and to extend the funding period 20-years to June 30, 2022 2023.

Mr. Murphy noted, in response to Ms. Colson’s comment as reported in 0301.7.4 that all trustees consider themselves fiduciaries for the retirees, that he and SCORPA fully appreciate the fact that all trustees serve as fiduciaries for all members and that support for an alternate retiree trustee should not be construed as criticism of any of SamCERA’s trustees.

Motion by Salas, second by Stuart, carried unanimously, to approve the Minutes as corrected.

0302.4.1

Oral Communications From the Board:  None.

0302.4.2

Oral Communications From the Public:  None.

0302.5

Benefit & Actuarial Services

0302.5.1

Adoption of Consent Calendar:  Without objection, Mr. Bryan removed Loretta Keenan from the Consent Calendar at the applicant’s request.  Motion by Salas, second by Tonsfeldt, carried unanimously to adopt the Consent Calendar as amended and as follows:

Disability Retirements: The Board:

(1)    (a) Finds that Miriam Engeli is not capable of performing the duties of her job as an Office Assistant I, (b) finds that her disability is Non-service-connected and, (c) GRANTS her application for Non-service Connected Disability.

(2)    (a) Finds that Shelley Tanner is not capable of performing the duties of her job as a Communications Dispatcher, (b) finds that her disability is Service-connected and, (c) GRANTS her application for Service-connected Disability.

Routine Actions taken by staff pursuant to the Board's Delegation of Authority and the Regulations of the Board of Retirement:

Service Retirements:

Fisk, Gayle

January 18, 2003

Sheriffs’ Office

Martin, Robert

January 23, 2003 (from deferred)

Probation Department

Groves, Shana

February 10, 2003

General Services

Continuance of Benefits:

Shaw, Dale

Beneficiary of Marlene

Gutierrez, John

Beneficiary of Mary

Lewis, Linda

Beneficiary of Argus

Miller, Laurence

Beneficiary of Ruth

Kucich, Mario

Beneficiary of Wanda

Deferred Retirements:

Haines, George F.

G2 vested

Rodriguez, Mayela C.

G2 vested

Thomas, Elefteria

G2 vested

Refunds for February 2003

Benavides, Corina

G4 non-vested

$632.39

Corvin, Camilla

G4 non-vested

$1,450.62

Fanning, Jeffrey

G4 non-vested

$6,444.34

Hofer, Josefina

G4 non-vested

$2,391.56

Hu, Ivy E.

G4 non-vested

$5,492.11

Kozul, Michelle

G4 non-vested

$3,859.64

Kuri, Janiece

G4 non-vested

$2,883.73

Mariano, Josefina

G4 non-vested

$125.16

Placer, Dinorah

G2 vested

$34,301.78

Sanchez, Ana

G4 non-vested

$1,669.68

Smith, Robin

G4 non-vested

$100.47

Steinmeier, Nicholas

G4 non-vested

$13,981.72

Wheeler, Norell

G4 non-vested

$809.45

Williams, Johnny

G4 non-vested

$519.72

Yamsuan, Eduardo

G4 non-vested

$334.69

Total Refunds

$74,997.06

Rollovers for February 2003

Akin, Julie

G4 non-vested

$10,646.52

Garcia, Flora

G4 non-vested

$13,444.07

Gonzalez, Carmelita

G4 non-vested

$6,414.25

Ramirez, Angelina

G4 non-vested

$3,478.03

Salvosa, Mia

G4 non-vested

$504.60

Total Rollovers

$34,487.47

0302.5.2

Consideration of items removed from Consent Calendar:  Dr. Fracchia reviewed the medical reports regarding the application of Loretta Keenan, with specific reference to Dr. Nguyen’s response to a question during deposition that Ms. Keenan is capable of returning to work as a psychiatric social worker.  Ms. Keenan described her multiple symptoms, including symptoms not included in her application, their history and her problems with the County’s treatment of her Workers’ Compensation case.  Motion by Salas, second by Buffington, carried unanimously to (a) find that Loretta Keenan is capable of performing the duties of her job as a Psychiatric Social Worker, (b) find that her disability is not Service-connected, and (c) deny her application for a Service Connected Disability.

0302.5.3

Adoption of Cost of Living Allowance Resolution:  Mr. McCausland reported that Mercer had determined that the ratio of the 2001 (189.9) vs. the 2002 (193.0) Annual Average Consumer Price Index for the San Francisco-Oakland-San Jose Area reflects a 1.63% increase.  The ’37 Act authorizes the Board to increase or decrease benefits by the change rounded to the nearest one-half of one percent, resulting in a recommended cost-of-living allowance increase of 1.5% payable April 30^th and thereafter.  He noted that all Plan 2 & Plan 4 members would receive 1.5%, but the vast majority of Plan 1 members will receive 2.0% because of the 0.5% banked after last year’s 5.5% increase.  Motion by Stuart, second by Salas, carried unanimously, to adopt Resolution 02-03-08, as follows:

Whereas, Government Code §31870.1, §31870.2 and §31874.4 empower the Board to grant cost of living adjustments on an annual basis to recipients of SamCERA benefits; and

Whereas, the Board has retained Mercer to provide actuarial services to the Board; and

Whereas, Mercer, by its letter dated January 31, 2003 has reported that the appropriate annual cost of living adjustment to be effective April 1, 2003 is 1.5%; and

Whereas, Mercer has transmitted an exhibit dated February 3, 2003 which sets forth a schedule of cost of living adjustments based upon applicable plan, date of retirement and the accumulated carry-over and changes thereto for those eligible.  Therefore, be it

Resolved, that the Board hereby adopts a 1.5% cost of living adjustment effective April 1, 2003, be it further

Resolved, that the Board adopts the schedule of cost of living adjustments set forth in the Mercer exhibit transmitted January 31, 2003 and entitled San Mateo County Cost of Living Adjustments as of April 1, 2003; be it further

Resolved, that the Chief Executive Officer is hereby empowered to take all actions necessary to provide for the payment of cost of living adjustments in accordance with the adopted schedule effective April 1, 2003.

0302.5.4

Acceptance of Mercer Actuarial Valuation as of June 30, 2002:  Mr. McCausland noted that Mercer had completed the final valuation based upon the Board’s instructions issued during the January Meeting of the Board.  He provided the following summary [the full valuation may be viewed on SamCERA’s website]:

Two Valuations:  The actuary’s report integrates a Base Case Valuation using the current General 2% @ 61.25 formula with a second Valuation using the New General 2% @ 55 Formula.    The valuations do not anticipate benefit enhancements for Safety or Probation Members.

Incorporation of New Assumptions & Parameters:  In November 2002, the Board adopted Resolution 02-03-05, which reaffirmed the current economic assumptions and adopted the actuary’s proposed changes to SamCERA’s non-economic assumptions, summarized as follows:

•  General Member Service Connected Disability assumptions increased.
•  Service Retirement Rate assumptions increased.
•  Post Retirement Mortality assumptions decreased.
•  Ordinary Death while still Active assumptions increased.
•  Withdrawal assumptions increased marginally resulting in minor savings.
•  Vested termination assumptions were revised, showing an increase in the General Members and a decrease in the Safety and Probation Members.

In November 2002, the Board also adopted Resolution 02-03-06, which incorporated the 1%-of-SamCERA’s- assets in the GC§31592 Contingency Reserve into Valuation Assets.

In January 2003, the Board voted to establish a maximum limit to the deviation between the Market Value of Assets and the Actuarial Value of Assets of ±20% and to extend the period for amortizing SamCERA’s Unfunded Liability to 20-years.

In addition, in January 2003, the Board instructed the actuary to calculate rates for the County’s proposed new 2% @ 55 benefit formula even though there is no guarantee that it will be implemented as currently scheduled.

Impact of the New Assumptions & Parameters on the Estimated Aggregate Employer’s Contribution Rate is as follows:

Current Year’s Approximate Rate

11.66%

Change due to:

New 2% @ 55 Formula

2.60%

New Non-Economic Assumptions

1.94%

Investment Shortfalls

1.44%

±20% Corridor

0.70%

Net of other Cost Increases

0.21%

Net of other Cost Reductions

(0.14%)

New 20-Year Amortization Period

(1.60%)

Next Year’s Approximate Rate

16.81%

The actual aggregate rate is dependent upon the distribution of payroll across SamCERA’s 10 retirement plans, each of which has its own contribution rates. 

Plan-by-Plan detail of the Contribution Rates begins on page 30 of the Valuation.   Page 30 is a sample of Member Rates (the full set of Member Rates are on pages 85 & 86).  Page 31 reflects the current Employer Rates.  Page 32 reflects the New Employer Rates / current benefit formula.  Page 33 reflects the New Employer Rates / new benefit formula.

General Member Contribution Rates will increase approximately 0.08% as a result of the new Non-Economic Assumptions under the Current Formula and 1.08% under the New Benefit Formula (because the unions that have ratified contracts have agreed to pay 1%-of-pay towards the Employer’s Costs during the first year of implementation).

Ratio of Actives to Retired & Deferred:  Reflective of SamCERA’s aging process is the fact that as of June 30, 2002 there were only 1.14 Active Members for every 1 Retired Member (includes Service, Disability & Beneficiary Benefits plus Vested Deferred Members).  This is one of the lowest ratios that I am aware of for an open system.

Benefit payments, which totaled $50.5 million 4-years ago, totaled $67.0 million in the twelve-months ending June 30, 2002.

SamCERA’s Actuarial Funding Ratio:

As of June 30, 2001 SamCERA’s Actuarial Funding Ratio was 98.6% with an Unfunded Actuarial Accrued Liability of $19.5 million and a negative Market Stabilization Account Balance of $127.6 million

As of June 30, 2002 SamCERA’s Actuarial Funding Ratio was 91.9% under the Base Case with an Unfunded Actuarial Accrued Liability of $124.2 million and a negative Market Stabilization Account Balance of $241.5 million

As of June 30, 2002 SamCERA’s Actuarial Funding Ratio was 87.8% with the New General Member Formula with an Unfunded Actuarial Accrued Liability of $197.7 million and a negative Market Stabilization Account Balance of $241.5 million

The incorporation of the negative Market Stabilization Account balances note resulted from a recommendation by Mr. Buffington who expressed concern that the Funding Ratio fails to reflect the stress that the gap between recent investment losses and the actuarial interest assumption are imposing on the actuarial soundness of the system.   Mr. Yeung noted that the Governmental Accounting Standards Board governs the reporting of the Funding Ratio as currently calculated, but that he has no objection to disclosing the MSA balance on the Valuation Summary as well.

The markets’ continued weakness will result in continued investment shortfalls for SamCERA’s portfolio.  With the Market Stabilization Account at the limit of the newly adopted ±20% Corridor, all shortfalls below the 8.25% actuarial interest assumption will flow directly to the Unfunded Liability for amortization over the next 20-years. 

SamCERA’s Actuarial Balance Sheets as of June 30, 2002:

Current Formula

New Formula

(Billions of Dollars)

Assets @ Actuarial Value

$1,449.0

$1,449.0

Present Value of Future Member Contributions

153.2

147.7

Present Value of Future Employer Contributions

     Normal Cost

271.7

294.8

     UAAL

124.2

197.7

Total Actuarial Assets

$1,998.1

$2,089.1

Present Value of Benefits for Current Retirees

$  821.1

$  821.1

Present Value of Benefits for Future Retirees

1,109.2

1,202.0

Present Value of all Other Benefits

18.3

16.9

Present Value of Refunds

17.3

16.9

Contingent Ventura Reserve

32.1

32.1

Total Actuarial Liabilities

$1,998.1

$2,089.1

Mr. McCausland requested that the Board (1) accept the Valuation and (2) authorize Mercer to conduct a Supplemental Valuation for Safety & Probation.  He noted that Probation and Sheriffs’ Sergeants have reached agreement with the County on new retirement benefit formulas, but that the negotiations between the County and Deputy Sheriffs continue.  He reported that the County is sponsoring legislation, which if enacted would permit the implementation of new formulas one union at a time.  If the legislation is enacted, Contribution Rates would go into effect during the coming fiscal year. 

Motion by Salas, second by Tonsfeldt, carried unanimously, (1) to accept the Actuarial Valuation as of June 30, 2002 as submitted by Mercer Human Resources Consulting, (2) to authorize the actuary to perform a Supplemental Valuation as of June 30, 2002 for the proposed new Safety & Probation Retirement Benefit Formulas and (3) to instruct the actuary to incorporate the balance in the Market Stabilization Account into the Funding Ratio section of the Summary of Valuation Results in each year’s Valuation.

0302.5.5

Adoption of Contribution Rates & 401(h) Reserve Contribution for Fiscal Year 2003/2004:  Mr. McCausland noted that the valuation includes Employer Contribution Rates for all plans based on the current benefit formulas, as well as rates for General Plans 1, 2 & 4 based on the 2% @ 55 formula.  He noted that Member Contribution Rates also increase because of the improved mortality assumptions.  In addition, General Member Rates for Plans 1, 2 & 4 will increase by 1% as a result of the negotiated Cost-Sharing agreement with the County.

Mr. McCausland noted that the actuary also provided a letter setting the target allocation for SamCERA's 401(h) Medicare Part-B Premium Reimbursement Program.  As of December 31st the Program was paying $54 a month to 1,610 SamCERA retirees and surviving beneficiaries.  The reimbursement increased to $58.70 in January 2003.  The cost of the program will be approximately $1,100,000 for the current fiscal year and is projected to increase to approximately $1,305,000 next fiscal year.  The actuary recommends a $1,435,000 appropriation for next fiscal year, which includes a 10% safety margin.  Mr. McCausland reminded the Board that last year the Board had funded the program out of Interest transferred from the Ventura Contingency Reserve.  He noted that the Board should devote time to evaluating the funding alternatives for the program.  The program can be funded by an additional diversion from the Ventura Contingency Reserve or a diversion of earnings per the Board’s Interest Crediting Policy.  In response to a question from Mr. McMahon, Mr. McCausland noted that in August 2002 the actuary estimated that the Ventura litigation would cost approximately $16.2 million as of June 30, 2002.  Ms. Carlson reviewed the history of the Ventura Contingency Reserve [see Minutes 020122.5.6, 0202.5.3, 0202.5.4 & 0202.5.6]. 

Mr. Scannell, Assistant County Manager, encouraged the Board to carefully evaluate how it can continue to provide the Medicare Part-B Premium Reimbursement to retirees when the investment portfolio is not generating excess earnings.  He noted that continued funding would require a major revision to the policies adopted by the Board last year.  Mr. Bryan stated that he found it extremely difficult to consider dropping Medicare Part-B, given everything that the County is agreeing to do for active members.  Mr. Buffington suggested transferring the amount needed for Medicare Part-B from the Ventura Contingency Reserve.  Mr. Scannell stated that any transfers from the Ventura Contingency Reserve should be returned to County Reserves.  Mr. Murphy, representing SCORPA, submitted a copy of a letter from the President of the Board of Supervisors which stated that Medicare Part-B funding can occur so long as the retirement system is funded at 80 percent or more of its total liabilities, but that this year the Program may need to be evaluated in the context of the overall County deficit.

Without objection Mr. Bryan continued the item to the March meeting.  Mr. Buffington encouraged all trustees to read Mr. McCausland’s Overview of Upcoming Changes to SamCERA’s Benefits & Costs prior to the meeting.

0302.6

Investment Services

0302.6.1

Acceptance of Monthly Portfolio Performance Report:  Mr. Clifton noted that the Retirement Fund outperformed its Policy Benchmark by 0.20% over the trailing twelve months.  For the trailing one year (2/1/02-1/31/03) the return was –10.45% vs. –10.65% for the policy benchmark.  SamCERA’s return for January was –1.96%, while the policy benchmark return was –1.75%.  Market value and performance for the month ending January 31^st were as follows:

Domestic Equity

$  540,883,603

-2.49%

-22.43%

-2.06%

International Equity

159,586,871

-5.53%

-17.37%

-2.30%

Total Equity

$  700,470,474

-3.21%

-21.47%

-3.02%

Fixed Income

352,846,018

0.02%

9.31%

7.36%

Real Estate Aggregate

62,989,203

0.50%

3.13%

7.60%

Cash Equivalents

14,928,855

0.14%

2.71%

Total Fund

$1,131,234,550

-1.96%

-10.45%

1.31%

Benchmark

-1.75%

-10.65%

1.06%

He noted that Bank of Ireland Asset Management’s performance continues to lag its benchmark and qualifies them for SamCERA’s Watch List.  However, he noted that the Investment Committee had decided to await the outcome of the Asset / Liability Modeling Study before initiating action.  Mr. Bryan noted that real estate performance can only be evaluated on a quarterly basis.  Without objection, Mr. Bryan accepted the report.

0302.6.2

Acceptance of Quarterly Investment Performance Analysis for periods ending December 31, 2002:  Mr. Thomas reviewed recent economic highlights contributing to malaise in the investment markets.  He noted that, while it was a positive quarter for the stock market, the past year had been strongly negative.  Defensively postured portfolios with strong bond weightings performed very well for the third year in a row.  This marks the first time in several decades that fixed income outperformed stocks over such an extended period.

Returns and ICC large fund universe percentile rankings as of December 31^st were reported as follows:

Asset Class

1-Quarter

1-year
TTWRR

5-year
TTWRR

Large Cap Equity

8.15%

43

-21.63%

44

-0.54%

70

Small Cap Equity

6.03%

41

-20.37%

54

International Equity

6.48%

55

-17.17%

74

-0.68%

71

Total Equity

7.46%

-20.57%

-2.18%

Passive Fixed Income

1.62%

55

10.34%

39

7.64%

46

Active Fixed Income

0.65%

94

9.93%

52

7.79%

36

Total Fixed Income

1.17%

10.12%

7.59%

Real Estate

3.79%

9

3.18%

65

7.49%

63

Cash Equivalents

0.51%

20

2.75%

15

Total Fund

5.06%

20

-9.59%

70

1.93%

83

Benchmark

5.61%

8

-10.00%

80

1.71%

91

Mr. Thomas and Ms. Jadallah reviewed the performance attributes of each manager.  Bank of Ireland continues to trail its peers in International Equity due to their overweight in defensive sectors which trailed in the fourth quarter.  SIS recommends that BIAM be placed on SamCERA’s Watch List.  Deutsche Asset Management investments in housing-based securities and high quality corporate bonds hurt them seriously in the fourth quarter as other sectors of the fixed income market advanced.  SIS is watching them closely to make certain that as their business grows they will be able to continue to control the dispersion of client returns and provide strong performance.  Mr. Bryan commented that the only time real estate returns can be measured in a meaningful manner is in the quarter that reports the annual appraisals.  Without objection, Mr. Bryan accepted the report.

0302.6.3

Approval of Assumptions and Parameters for Asset / Liability Modeling Study:  Mr. Thomas noted that the Investment Committee had met on February 19^th and forwarded a set of recommended capital market assumptions and target ranges for the optimization study for the Board’s consideration.  Mr. Thomas & Ms. Jadallah reviewed the modeling process [see Minutes 03.01.c] and the Investment Committee’s recommendations. 

Ms. Jadallah noted that the Committee had devoted a significant amount of time to discussing the problems with the available real estate benchmarks.  Mr. Bryan noted that the NREIT Index is not an optimal proxy for real estate holdings.   

Ms. Jadallah went on to note that the Committee also devoted a significant amount of time to discussing the range to be used in modeling.  Ms. Salas noted that the range for modeling the real estate allocation proposed by SIS in January (3% to 9%) differed from the range proposed by the Investment Committee (6% to 10%).  Ms. Salas noted that she would prefer a reduction of the current 6% allocation to real estate.  Ms. Salas & Mr. Bryan noted that 10% is too high from their perspective.  Mr. Buffington noted that he favors real estate because of its ability to generate cash income.  Mr. Bryan noted that the transaction costs in real estate may exceed the marginal value of the cash flows.  Mr. Bryan expressed disappointment with the past performance of SamCERA’s real estate, noting his belief that SamCERA has not demonstrated its ability to successfully manage a real estate portfolio.  He suggested that he might be comfortable with a modeling range for real estate of 4% to 9%.  Mr. McMahon noted that many funds are doing much better in real estate than SamCERA is and that success may require that the Board invest more in the asset class.  Ms. Tonsfeldt recommended that SIS consider a number of additional options. 

Motion by McMahon, second by Buffington, failed four ayes (Buffington, McMahon, Stuart & Tonsfeldt) to two noes (Bryan & Salas), to accept the Investment Committee’s recommended capital market assumptions and target ranges for the optimization study.

Mr. Clifton noted that the Board had waited a long time to begin the modeling study and he would be very disappointed to see the study stall at this point.  He recommended that the Board consider a real estate range of 4% to 9%.  Mr. Thomas suggested that 5% to 9% might be a suitable compromise.  Mr. Buffington suggested 6% to 9%, but subsequently stated that he was not prepared to negotiate the range.  He noted that the Board’s concerns focus on the manager, the vehicle and the size of the investment.  He noted his support for expanding the allocation.  Mr. Clifton and Ms. Tonsfeldt noted that all that is being discussed is the range of alternatives to be fed into the model.  Mr. McCausland and Mr. Thomas noted that it is not clear that the model will drive real estate to the upper allocation boundary because of the modest real estate return & risk assumptions proposed by SIS. 

Motion by McMahon, second by Tonsfeldt, failed four ayes (Buffington, McMahon, Stuart & Tonsfeldt) to two noes (Bryan & Salas), to adopt a real estate range of 5% to 10% for the model.

Mr. Bryan instructed staff to bring this item back to the Board in March.  Mr. McMahon asked if Private Equity could be included without distorting the study.  Ms. Jadallah and Mr. Thomas noted that the impact of including Private Equity would be much greater than the impact of real estate on the model given the unique nature of the class and the relative high return & risk assumptions.

0302.6.4

Introduction of the Investment Committee's Strategic Plan for Fiscal Year 2003/2004:  Mr. Clifton noted that the Investment Committee had reviewed its schedule for the coming year. 

0302.7

Board & Management Support Services

0302.7.1

Acceptance of Monthly Financial Reports:  Mr. Clifton presented the SamCERA’s Monthly Financial Report.  The Fair Market Value of the Retirement Fund declined $84.6 million between June 30, 2002 and January 31, 2003.  This decline reflects the net of (1) a decline of $95.9 million in the Market Value of the Investment Portfolio, (2) $39.9 million in Benefit Payments and (3) $2.5 in Professional and Administrative Expenses versus income of (4) $32.0 million in Employer Contributions, (5) $11.8 million in Member Contributions and (6) $10.0 million in Interest and Dividends.  Without objection, Mr. Bryan accepted the report.

0302.7.2

Acceptance of SamCERA's Audited Financial Statements & Accompanying Notes:  Mr. Clifton noted that he had distributed the Audited Financial Statements & Management Letter prior to the January 28^th meeting.  Without objection, Mr. Bryan accepted SamCERA's Audited Financial Statements & Accompanying Notes.

0302.7.3

Acceptance of SamCERA’s Comprehensive Annual Financial Report:  Mr. Clifton noted that he had distributed a draft of the CAFR to the Board in November, but had delayed publication of the final report until the completion of the actuarial valuation.  Without objection, Mr. Bryan accepted SamCERA’s Comprehensive Annual Financial Report.

0302.7.4

Annual Review of SamCERA's Mission, Goals & Objectives:  Mr. McCausland noted that the Board’s annual review of SamCERA’s Mission, Goals & Objectives is the first formal step in the budget process.  Without objection, Mr. Bryan reaffirmed SamCERA’s Mission, Goals & Objectives.

0302.7.5

Annual Review of SamCERA's Strategic Services Resolution:  Mr. McCausland noted that the Board’s annual review of SamCERA’s Strategic Services Resolution sets the framework for the program elements in the budget process.  Without objection, Mr. Bryan reaffirmed SamCERA’s Strategic Services Resolution.

0302.7.6

Introduction of Strategic Budget Initiatives for Fiscal Year 2003/2004:  Mr. Clifton presented Staff’s proposed Strategic Budget Initiatives for next fiscal year and invited the Board to review, revise and augment them.  He noted that the Strategic Budget Initiatives will become an integral part of the budget and staff will provide quarterly progress reports on their status throughout the fiscal year. 

0302.7.7

Introduction of Internal Control Related Strategic Plan for Fiscal Year 2003/2004:  Mr. Clifton reviewed Staff’s proposed schedule of key Internal Control Objectives for next fiscal year and noted that the Board might wish to appoint an ad hoc committee to oversee certain of the items.

0302.7.8

Approval of Amendments to Mercer Contract and Fee Schedule:  Mr. McCausland reported that Mercer has found that the fees in their contract with the Board do not reflect the complexity of SamCERA’s ten-plan structure and the increased level of peer review instituted in recent years.  Therefore, Mercer has proposed a schedule of fee increases to be phased in over the next three years. 

Ms. Chapman reviewed the proposed fees and noted that Mercer is asking all clients for an increase in fees.  She noted that Mercer is not asking for a limitation of liability clause at this time.  The Board and Ms. Chapman discussed the actuarial profession’s exposure to actual and potential public pension fund litigation.  She reported that the best defense includes intensive peer review and adherence to tough internal professional standards.  She noted Contra Costa CERA had just completed a search and had elected to change actuarial firms, but she believed fees were not an issue.  Mr. Bryan and Mr. Yeung reviewed the history of SamCERA’s relationship with the San Francisco Mercer office and its predecessor firms, which extend back to the creation of SamCERA. 

Ms. Carlson noted that the Board does not need to approve all three years of proposed increases.   Mr. McCausland noted that the resolution drafted by staff would approve the first year increases and then issue a request for proposals when the contract expires in June 2004.  Mr. Buffington noted that when he was in the consulting business he was of the opinion that you had to live with the fees for which you contracted.  The Board reviewed the current year’s actuarial costs and the proposal in detail.  Mr. Bryan noted that he felt the proposed increases were astronomical given everything else that is happening to County finances and the economy. 

Mr. Bryan asked for volunteers to serve on an Ad Hoc Committee to prepare a recommendation for the Board’s consideration.  Mr. McMahon noted for the record that he opposed the use of a committee.  Without objection, Mr. Bryan appointed Ms. Salas, Chair; Ms. Tonsfeldt & Mr. Bryan to the Committee and instructed the Committee to consider the following options:  (1) recommend that the Board accept the Mercer request; (2) recommend that the Board reject the Mercer request; (3) recommend that the Board counter the Mercer request; or (4) recommend that the Board issue a request for proposals.  He instructed the Committee to report back to the Board during the March 25^th meeting.

0302.7.9

Approval of Participation in 2003 Russell Global Consulting Conference:  Without objection, Mr. Bryan instructed staff to include this item in the Board’s annual review of SamCERA’s Education Policy.

0302.8

Approval or Acceptance of Reports

0302.8.1

Chief Executive Officer's Report:  Mr. McCausland complimented Mr. Hood on the leadership he is providing to SamCERA’s efforts to integrate services-to-members with information technology and to strengthen all services-to-members.

0302.8.2

County Counsel's Report:  Ms. Carlson reported that Milton Mares had retired and that SamCERA’s Disability Appeals have been reassigned to Raymond Swope, Deputy County Counsel.  She submitted her eighth brief in the Ventura II appeal regarding opposing counsel fees.  She noted that the hearing on Ventura II is likely to be delayed until the end of May.

0302.8.3

Investment & Finance Manager’s Report:  Mr. Clifton reminded the Board that Form 700 Annual Disclosure of Economic Interest Statement will be distributed during the week and must be returned to SamCERA no later than April 1^st.   Mr. Clifton noted that he has distributed January Market Commentaries form Deutsche Asset Management and Bank of Ireland Asset Management.

0302.8.4

Assistant Executive Officers’ Report:  Mr. Hood reported that he expects to provide on-line web member services by mid-March.  He reported that participants in today’s financial planning seminar had been asked to provide suggestions for future improvements.

0302.9

Adjournment in Memory of the following Deceased Members:  There being no further business, Mr. Bryan adjourned the meeting at 3:27 p.m. in memory of the following deceased members:

gaertner, eleanor

december 30, 2003

department of social services

coslett, patricia

january 10, 2003

probation department

escoffier, christine

January 11, 2003

municipal court

williams, evangeline

january 11, 2003

general services

peoples, j. paul

january 17, 2003

supierior court

kucich, wanda

january 18, 2003

general services

brown, vanita

january 28, 2003

assessor’s office

sukeane, ruth

January 28, 2003

library

norvall, arlene

february 3, 2003

chope hospital

vanderpool, marlene

February 7, 2003

assessor’s office

liukkonen, reino

february 11, 2003

planning commission

ponciroli, helen

february 17, 2003

beneficiary of dionigi