May 27, 2003 – Board Agenda

Public Session

Call to Order

Roll Call

Approval of the Minutes

Oral Communications

4.1

Oral Communications From the Board

4.2

Oral Communications From the Public

Benefit & Actuarial Services

5.1

Adoption of Consent Calendar

5.2

Consideration of items removed from Consent Calendar – None

5.3

Public Hearing on Amendments to the Regulations of the Board of Retirement implementing the new rights of non-vested terminated members granted per Chapter 883 Statutes of 2002

5.4

Adoption of Cost-Sharing Member Contribution Rates for Members of Deputy Sheriffs’ Association

Investment Services

6.1

Acceptance of Monthly Portfolio Performance Report

6.2

Acceptance of Quarterly Investment Performance Analysis for periods ending March 31, 2003

6.3

Review & Selection of Optimal Portfolios for the Asset / Liability Modeling Study

6.4

Approval of Topics for Investment Consultant Review – Strategic Investment Solutions

6.5

Acceptance of Deutsche Asset Management’s Compliance Certification Statement

Board & Management Support Services

7.01

Acceptance of Monthly Financial Reports

7.02

Approval of SamCERA’s Fiscal Year 2003/2004 Budgets

7.03

Approval of Fiduciary Liability Insurance premium payment

7.04

Approval of Contract for Audit Services with Brown Armstrong Paulden McCown Starbuck & Keeter Accountancy Corporation

7.05

Appointment of Ad Hoc Financial Audit Committee

7.06

Approval of Board Resolution Authorizing Issuance of SamCERA’s Business Credit Cards

7.07

Acceptance of Report of the Ad Hoc Chief Executive Officer’s Performance Review Committee

7.08

Appointment of Ad Hoc Chief Executive Officer’s Selection Process Committee

7.09

Cancellation of June 24^th Meeting of the Board of Retirement

7.10

Appointment of Ad Hoc Nominating Committee

7.11

Approval of out-of-state Educational Activities

7.12

Approval of Conflict of Interest Waiver for IRC§415 Replacement Benefits Plan Counsel

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

Adjournment

May 27, 2003 – Board Minutes, as corrected

0305.1

Call to Order: Mr. Bryan, Chair, called the Public Session of the Board of Retirement to order at 1:00 p.m., May 27, 2003 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0305.2

Roll Call: Mr. Bryan, Mr. Buffington, Ms. Colson, Mr. Cottle, Mr. Lewis, Mr. McMahon, Ms. Salas, Ms. Stuart & Ms. Tonsfeldt. Alternate Board Member: Ms. Arnott. Staff: Mr. McCausland, Mr. Hood, Mr. Clifton & Ms. Lamica. Counsel: Ms. Carlson. Consultants: Dr. Fracchia, Mr. Gesell, Ms. Jadallah & Mr. Thomas. Custodian: 1, Retirees: 2, County: 1.

0305.3

Approval of the Minutes: Mr. Cottle submitted the following amendment to 0304.6.5 ¶1 L9: “…there is nothing wrong with the organization and investment approach…” Ms. Arnott submitted the following corrections: 0304.7.6 ¶1 L2: “…Ms. ~~Mr.~~ Salas…” and 0304.7.7 ¶1 L6: “…Mr. Lewis noted that the committee…”. Motion by Cottle, second by Lewis, carried unanimously to approve the Minutes of the meeting April 22, 2003 as amended.

0305.4.1

Oral Communications From the Board: Ms. Stuart and Ms. Colson reported on the SACRS Spring Conference key speakers and pending legislation. Ms. Stuart noted that a bill is pending that would provide for an alternate Sheriff/Probation trustee. Ms. Colson noted that San Mateo County’s self-imposed debt limit has kept the County out of the pension obligation bond market. She noted that there was a good discussion on pension obligation bonds and an excellent panel on attracting and retaining key personnel.

In reviewing a survey distributed at SACRS, Mr. Bryan noted that seven ’37 Act Boards reduced their actuarial interest rate this year and that SamCERA is now one of only four ’37 Act systems with an assumption rate greater than 8%. Mr. Bryan reported on the GFOA Annual Conference. He noted that the wide variety of sessions provided excellent choices.

0305.4.2

Oral Communications From the Public: John Murphy reported that SCORPA was represented in the front row at the May 13^th Board of Supervisors meeting at which Mr. McCausland presented the Board’s recommendation for the continuation of the Medicare Part-B Premium Reimbursement Program for fiscal year 2003-2004. He noted that Mr. McCausland and he had spoken in favor of the recommendation, but that the Supervisors voted to take the matter up during their budget hearings in June.

0305.5

Benefit & Actuarial Services:

0305.5.1

Adoption of Consent Calendar: Motion by Salas, second by Stuart, carried unanimously, to adopt the Consent Calendar as submitted, as follows:

Disability Retirements:

The Board finds that Kathleen Chavez is unable to perform the duties of an Office Specialist and GRANTS her application for Non-service Connected Disability.

The Board finds that Karen Coder is unable to perform the duties of an Administrative Secretary III and GRANTS her application for Non-service Connected Disability.

Routine Actions:

The Board ratifies the following actions taken by staff pursuant to the Board's Delegation of Authority and the Regulations of the Board of Retirement:

Service Retirements:

Coleman, Ronald

March 1, 2003

San Mateo County Superior Court

Cannon, Helen F.

April 4, 2003 (from Deferred)

San Mateo County Medical Center

Continuance of Benefits:

Mason, Janelle

Beneficiary of Jan

Deferred Retirements:

Rothberg, Jill

Plan 3 non vested

Reciprocity

Williams, Denise

G4 non vested

Reciprocity

Wright, Timothy

S2 vested

Reciprocity

Hamilton, Michael

G4 vested w/Reciprocity

Torres, Laura

G2 vested

Trotter, Kaylynn

G1 vested

Refunds for May 2003:

Acosta, Beatrice

G4 non vested

$798.75

Eisenberg, Mirella

G4 non vested

$795.11

Gabe, Hermina

G4 non vested

$9,371.34

Garcia, Mariana

G4 non vested

$1,784.63

Garratt, Stephanie

G4 non vested

$18,892.08

Harrison, Toni

G4 non vested

$1,094.93

Steiner, Mary

G4 non vested

$349.22

Total Refunds:

$33,086.06

Rollovers for May 2003

Akande, Omolola

G4 non vested

$6,779.40

Belz, Mary

G4 non vested

$11,216.88

Bui, Linda

G4 non vested

$352.56

Cordero, Kisha

G4 non vested

$909.04

Farese, Margaret

G2 vested

$12,213.43

Jew, Jasmine

G4 non vested

$1,072.99

Kesten, Kathleen

G4 non vested

$4,164.37

Mockett, Emily

G4 non vested

$4,213.63

Sanderson, Danielle

G4 non vested

$2,956.56

Total Rollovers:

$43,878.86

0305.5.2

Consideration of items removed from Consent Calendar: None.

0305.5.3

Public Hearing on Amendments to the Regulations of the Board of Retirement implementing the new rights of non-vested terminated members granted per Chapter 883 Statutes of 2002: Mr. Bryan opened the Public Hearing. Mr. McCausland reported that the draft regulations had been amended to suspend the crediting of interest to the accounts of non-vested, non-reciprocal terminated members. There being no public testimony, Mr. Bryan closed the public hearing and instructed staff to set the amendments for adoption on July 22^nd.

0305.5.4

Adoption of Cost-Sharing Member Contribution Rates for Members of Deputy Sheriffs’ Association: Mr. McCausland noted that the contribution rate resolution adopted by the Board last month did not include the Cost Sharing Member Contributions for Deputy Sheriff’s, as their union was the last to reach agreement with the County for the new benefit formulas. Motion by Stuart, second by Salas, carried unanimously, to adopt Resolution 02-03-12, as follows:

Whereas, Government Code §31453 mandates the periodic actuarial valuation of the Retirement Fund and requires that the Board...shall, at least 45 days prior to the beginning of the succeeding fiscal year, recommend to the Board of Supervisors such changes in the rates of interest, in the rates of contributions of members, and in the county and district appropriations as are necessary...; and

Whereas, Resolution 02-03-11 of April 22, 2003 adopted the actuary's recommended Employer and Member Contribution Rates for Fiscal Year 2003-2004 for the County and Mosquito Abatement District; and

Whereas, Resolution 02-03-11 of April 22, 2003 adopted Cost Sharing Member Contribution Rates for Fiscal Year 2003-2004 per the Memorandums of Understanding between the County and the unions representing its employees; and

Whereas, Resolution 02-03-11 of April 22, 2003 did not include Cost Sharing Member Contribution Rates for the members of the Deputy Sheriffs’ Association as that union had not ratified a new Memorandum of Understanding with the County; and

Whereas, the Deputy Sheriffs’ Association ratified a new Memorandum of Understanding on May 12, 2003, which incorporates Cost Sharing Member Contribution Rates. Therefore, be it

Resolved that the Board hereby adopts the following schedule of Cost Sharing Member Contributions as a percentage of covered salaries for Safety Members represented by the Deputy Sheriffs’ Association as set forth in the ratified Memorandum of Understanding with the County payable without regard to any other provision of law, effective upon implementation of GC§31644.2 (3% @ 55):

Effective July 6, 2003

• Employees with more than 15 years of County service as of July 6, 2003 or who are age 45 or older as of July 6, 2003 will contribute 2%.

• Employees with 5 to 15 years of County service as of July 6, 2003 will contribute 1.5%

• Employees with 0 to 5 years of County service as of July 6, 2003 will contribute 1%

Effective January 4, 2004

• Employees with more than 15 years of County service as of July 6, 2003 or who are age 45 or older as of July 6, 2003 will contribute an additional 1% for a total of 3%.

• Employees with 5 to 15 years of County service as of July 6, 2003 will contribute an additional 1% for a total of 2.5%

• Employees with 0 to 5 years of County service as of July 6, 2003 will contribute an additional 1% for a total of 2%. Be it further

Resolved that the Board of Supervisors resolution implementing GC§31644.2 shall constitute ratification of the Cost Sharing Member Contribution rates set forth herein.

0305.6

Investment Services

0305.6.1

Acceptance of Monthly Portfolio Performance Report: Mr. Clifton reported strong positive returns for the month ending April 30^th. He also noted that the trailing five-year return has moved back into positive territory, after turning negative for the first time last month.

Mr. Clifton noted that the portfolio gained nearly $68 million in value over the past two months, bringing the net decline in assets for the fiscal year down to ~$39 million.

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

Domestic Equity

$ 581,613,609

8.35%

-15.19%

-3.07%

International Equity

167,706,694

11.42%

-18.61%

-3.42%

Total Equity

$ 749,320,303

9.02%

-16.04%

-4.01%

Fixed Income

360,895,254

0.86%

10.53%

7.61%

Real Estate Aggregate

64,839,080

0.39%

14.04%

8.03%

Cash Equivalents

2,190,422

0.13%

2.53%

Total Fund

$1,177,245,058

5.85%

-5.68%

0.74%

Benchmark

5.86%

-6.40%

0.62%

Without objection, Mr. Bryan accepted the report.

0305.6.2

Acceptance of Quarterly Investment Performance Analysis for periods ending March 31, 2003:

Mr. Thomas reviewed the uncertainty in the markets during the first quarter related to the pending war and its potential impact on energy prices. The quarter rewarded managers and portfolios that were defensively postured, with under-weights in equity and over-weights in bonds. In general large public plans have not been rebalancing back into equity, so they did relatively well during the first quarter. SamCERA, on the other hand, as a consequence of having no domestic equity active management and only a slight under-weight to equities, performed relatively poorly.

The spread between top performers and bottom performers was very narrow during the first quarter, so while SamCERA performed poorly, it did not lose much ground relative to its peers.

After the end of the quarter, things turned around as growth outperformed value and risky bonds came back into favor. SamCERA has been doing well since March 31^st.

Ms. Jadallah reviewed each manager’s performance relative to strategy and benchmark.

During this period index funds have under-performed defensive active managers who have avoided some of the land mines in the markets. She noted that Bank of Ireland Asset Management has several stocks that caused serious problems for them during the first quarter. She noted that this is a good time for SamCERA to stand fast with BIAM, since liquidation at this point would result in significant realized capital losses and transaction costs. She indicated that BIAM performance should improve from this point. Deutsche Asset Management is under-weight Treasuries and over-weight asset-backed securities, which under-performed for the quarter. INVESCO’s return for the quarter included outside appraisals, which added to the overall value of the portfolio. She noted that next quarter, SIS will stop using one-quarter lagged NCREIF performance, since the data is now available on a timely basis.

Asset Class

1-Quarter

1-year TTWRR

5-year TTWRR

Large Cap Equity

-2.94%

-24.49%

-3.58%

Small Cap Equity

-4.42%

-26.81%

International Equity

-10.90%

-25.94%

-5.37%

Total Equity

-5.02%

-25.35%

-5.54%

Passive Fixed Income

1.47%

11.85%

7.62%

Active Fixed Income

1.38%

11.29%

7.78%

Total Fixed Income

1.43%

11.58%

7.61%

Real Estate w/ REITS

4.96%

14.40%

7.95%

Cash Equivalents

0.41%

2.61%

Total Fund

-2.43%

-12.08%

-0.27%

Benchmark

-2.23%

-12.94%

-0.35%

Without objection, Mr. Bryan accepted the report.

0305.6.3

Review & Selection of Optimal Portfolios for the Asset / Liability Modeling Study: Ms. Jadallah reminded the Board that at this point the project is focused on the Asset component of the Study. Last month the Investment Committee asked for additional efficient frontier optimal portfolio scenarios. This morning the Investment Committee reviewed ten alternative portfolio mixes that lie along the efficient frontier and reflect a range of optimal returns relative to risk. [eg: Mix 1 has a projected return of 7.39% and a projected risk of 8.95%, while Mix 10 has a projected return of 8.55% and a projected risk of 12.85%.]

Mr. Gesell reviewed SIS’ alternative studies based on the inclusion of core-plus fixed income strategies and based on alternative standard deviation values.

Mr. Thomas advised the Investment Committee that the current asset mix is still very efficient [projected return of 8.23% vs. projected risk of 11.74%]; that whether or not to add core-plus will be a decision based on qualitative factors rather than quantitative factors; that portfolio efficiency can be improved by substituting more non-US for US equity and by increasing the real estate allocation slightly. Mr. Thomas noted that SIS believes its Capital Market assumptions are the most appropriate to use for the Study.

Mr. Thomas reported that, following a lengthy discussion, the Investment Committee recommended that the Board instruct SIS to use a set of efficient frontier asset allocation parameters that SIS projects will generate returns between 7.75% and 8.40% and to optimize those mixes against SamCERA’s projected actuarial liabilities. Mr. Cottle confirmed that that was the Committee’s recommendation. Without objection, Mr. Bryan accepted the Investment Committee’s recommendation and instructed SIS to proceed.

0305.6.4

Approval of Topics for Investment Consultant Review – Strategic Investment Solutions:

Mr. Clifton asked the trustees to complete the evaluation form. He noted that Mr. Cottle will be adding questions regarding SIS’ merger with Frank Russell. Motion by Salas, second by Stuart, carried unanimously, to approve the topics for the Investment Consultant Review.

0305.6.5

Acceptance of Deutsche Asset Management’s Compliance Certification Statement: Mr. Clifton noted that Ms. Colson has requested additional detail regarding an SEC deficiency letter and its resolution in 2000. Ms. Colson has also requested that additional information regarding the firm’s absolute return strategies be provided during their annual review in August. Mr. Lewis asked for a description of the components in DAMI’s asset-backed securities portfolio.

Mr. Buffington and Mr. McMahon noted that the Board has not approved a Due Diligence Policy & Practices resolution and had not voted on the DAMI due diligence site visit. They expressed their opposition to due diligence site visits in the strongest terms. Mr. McMahon expressed his strong preference for the compliance certification statement vs. the site visit report.

Mr. Bryan and Mr. Clifton noted that the Investment Committee discussed including the DAMI due diligence site visit in the itinerary for the GFOA conference and, that while Mr. Buffington had expressed objections, the other members of the Committee supported the site visit and the inclusion of the consultant. Mr. McCausland noted that the marginal cost of the DAMI site visit was minimal since it was integrated into a Saturday-stay flight plan in conjunction with the GFOA conference. Mr. Clifton noted that due diligence site visits are one of the requirements in the SIS contract. Ms. Colson admonished the trustees to refrain from chastising the consultants for doing their job.

Mr. Bryan, Mr. Cottle, Ms. Jadallah and Mr. Thomas expressed their strong support for due diligence site visits. Mr. Lewis expressed support for due diligence site visits and recommended that each trip receive prior Board approval.

Mr. Bryan noted that the Board will be voting on a Due Diligence Policy & Practices resolution within the next several months and will determine at that time whether or not trustees and staff will undertake any future due diligence site visits.

Without objection, Mr. Bryan accepted the compliance certification statement.

0305.7

Board & Management Support Services

0305.7.01

Acceptance of Monthly Financial Reports: Mr. Clifton submitted the Monthly Financial Reports.

The Fair Market Value of the Retirement Fund declined $39.0 million between June 30, 2002 and April 30, 2003. This decline reflects the net of a decline of (1) $40.0 million in the Market Value of the Investment Portfolio, (2) $58.3 million in Benefit Payments and (3) $4.3 in Professional and Administrative Expenses versus income of (4) $32.9 million in Employer Contributions, (5) $16.8 million in Member Contributions and (6) $13.8 million in Interest and Dividends.

The market value of the Retirement Fund increased $67.8 million during March and April.

Without objection, Mr. Bryan accepted the report.

0305.7.02

Approval of SamCERA’s Fiscal Year 2003/2004 Budgets: Mr. Clifton reviewed the principal budget initiatives for next fiscal year. Mr. McCausland called the Board’s attention to Resolved clauses 3 & 4, noting that his Delegation of Authority does not permit him to execute contracts with third party providers who are not under contract with the County. In response to a question from Ms. Colson, Mr. McCausland noted that the increase in the Benefits budget was driven by increased retirement contributions and health benefits costs. [The Sources, Uses and Budget Report can be viewed on the website.]

In response to a question from Mr. Buffington, Mr. McCausland noted that most SamCERA employees might be vulnerable to bumping by other County employees with more seniority. However, most actual layoffs will take place among Deputy Sheriffs, Correctional Officers and Probation Officers, since the combination of vacancies and retirements is expected to meet the targets in most of the other departments.

Motion by Lewis, second by Cottle, carried unanimously, to adopt Resolution 02-03-13, as follows:

Whereas, Government Code §31580.2 vests authority in the Board of Retirement to ...annually adopt a budget covering the entire expense of administration of the retirement system which expense shall be charged against the earnings of the retirement fund; and

Whereas, Government Code §31580.2 requires that ...the expense incurred in any year shall not exceed eighteen-hundredths of 1 percent of the total assets of the retirement system; and

Whereas, the Retirement Fund had total assets with a market value of approximately $1,106.7 million on February 28, 2003; and

Whereas, the Investment & Finance Manager has recommended a budget for the next fiscal year, which the Board has reviewed and revised as necessary. Therefore, be it

Resolved, that the Board hereby adopts the following Budget to cover the entire expense of the administration of the retirement system for the period specified, which expenses shall be charged against the earnings of the retirement fund:

Budget Item

Fiscal 2003-2004

Basis Points

(000)

(Information Only)

Salaries & Benefits

$1,127.0

Services & Supplies

837.5

Fixed Assets

30.0

TOTAL

$1,994.5

~16.6 Estimate

Resolved, that the Chief Executive Officer is hereby authorized to implement the expenditure of funds authorized by this approved Budget in accordance with his Delegation of Authority; be it further

Resolved, that, his Delegation of Authority notwithstanding, the Chief Executive Officer is hereby specifically authorized to approve the expenditure of funds from this budget for the annual maintenance and enhancement of PensionGold Version 1; be it further

Resolved, that, his Delegation of Authority notwithstanding, the Chief Executive Officer is hereby specifically authorized to approve the expenditure of funds from this budget to purchase fiduciary liability insurance coverage with the assistance of the County’s Risk Manager; be it further

Resolved, that the Controller or the Custodian is hereby authorized to disburse funds on behalf of the Board for expenditures which are in accordance with this adopted Budget.

0305.7.03

Approval of Fiduciary Liability Insurance premium payment: Mr. McCausland reported that the County’s insurance broker had surveyed the market and found an attractive premium for SamCERA. Mr. McCausland reported that he had purchased a $10 million fiduciary liability policy with Executive Risk Indemnity Company of the Chubb Group for a premium of $63,752, with a non-recourse rider available for each trustee. Motion by Cottle, second by Stuart, carried unanimously, to authorize the Chief Executive Officer to pay the Executive Risk Indemnity Company premium.

0305.7.04

Approval of Contract for Audit Services with Brown Armstrong Paulden McCown Starbuck & Keeter Accountancy Corporation: Mr. Clifton noted that Ms. Carlson will integrate the response to the request for proposals into the contract. Mr. Cottle submitted several questions for Mr. Clifton and Mr. Carlson to consider.

Mr. Lewis noted that Brown Armstrong had responded to the conditions imposed by the Board on April 22^nd. Without objection, Mr. Bryan made the Brown Armstrong response a part of the record.

In response to questions from Mr. McMahon, Mr. Clifton and Mr. Lewis acknowledged that the fee will exceed the amount charged by the County by approximately $10,000 per year. Mr. McMahon asked how many trustees had not read the request for proposals. Ms. Colson reminded Mr. McMahon that the Board had delegated the screening of the proposals to the ad hoc committee. Mr. McMahon expressed his strong support for the County Auditor and referred to past responses to the Management Letter by the Chief Executive Officer as support for his position. Mr. Lewis noted that the Board’s letter of concerns should also be considered part of the record. Ms. Colson noted that there is value in changing auditors from time to time in order to gain a new perspective.

Motion by Lewis, second by Colson, carried eight ayes (Bryan, Buffington, Colson, Cottle, Lewis, Salas, Stuart & Tonsfeldt) to one no (McMahon), to approve the contract for audit services with Brown Armstrong Paulden McCown Starbuck & Keeter Accountancy Corporation and to authorize the Chair to execute the contract when it is in a form approved by Counsel.

0305.7.05

Appointment of Ad Hoc Financial Audit Committee: Mr. Clifton recommended that the Board appoint an ad hoc committee to participate in the entrance interview with the audit team in order to provide guidance to the auditors and also to meet to review the audit findings. Mr. Bryan asked for volunteers. Without objection, Mr. Bryan appointed Mr. Lewis (Chair), Ms. Colson, Ms. Salas and Mr. Bryan to serve on the Ad Hoc Financial Audit Committee.

0305.7.06

Approval of Board Resolution Authorizing Issuance of SamCERA’s Business Credit Cards:

Mr. Clifton reviewed the proposed uses of the credit card as discussed during the April 22^nd Board meeting. Motion by Tonsfeldt, second by Salas, carried unanimously, to adopt Resolution 02-03-14, as follows:

Whereas, Article XVI §17(a) of the Constitution of the State of California states in part that the retirement board...shall have plenary authority and fiduciary responsibility for investment of monies and administration of the system...; &

Whereas, Government Code §31580.2 vests authority in the Board of Retirement to …annually adopt a budget covering the entire expense of administration of the retirement system which expense shall be charged against the earnings of the retirement fund; &

Whereas, the Board, by motion unanimously adopted March 25, 2003, authorized the Chief Executive Officer, Assistant Executive Officer and Investment & Finance Manager to hold public sector corporate credit cards with a combined credit limit of $25,000; &

Whereas, on the recommendation of the Treasurer, staff has applied for a Municipal Corporate Credit Card issued by Union Bank of California’s affiliate, First National Bank of Omaha. Now, therefore, be it

Resolved, that the Chief Executive Officer is hereby authorized to enter into a credit card agreement with First National Bank of Omaha for a credit line not to exceed $25,000 and to provide said bank with specimen signatures for those who will receive credit cards. Be it further

Resolved, that the Chief Executive Officer, the Assistant Executive Officer and the Investment & Finance Manger are hereby authorized to borrow on behalf of SamCERA such sums for such times and upon such terms as each deems advisable and to execute in the name of SamCERA notes, drafts or agreements for repayment of any sums so borrowed pursuant to the terms of said credit card agreement. Be it further

Resolved, that the Chief Executive Officer, the Assistant Executive Officer and the Investment & Finance Manger are hereby ordered to limit their use of said credit card agreement to the following board and staff business expenditures: education, conference, travel and disaster recovery. Be it further

Resolved, that SamCERA will be and shall remain liable for all amounts owing to First National Bank of Omaha pursuant to the terms of said credit card agreement. Be it further

Resolved, that the terms of this resolution shall continue in force until express written notice of its rescission or modification has been received by said Bank. Be it further

Resolved, that the Board hereby names the Chief Executive Officer as its designee to perform those functions so identified in the credit card agreement with said Bank and hereby authorizes the Chief Executive Officer to take all actions necessary to initiate, implement, approve payments and monitor the agreement with said Bank.

0305.7.07

Acceptance of Report of the Ad Hoc Chief Executive Officer’s Performance Review Committee: Mr. Cottle reported that the Committee had prepared a set of questions, to which Mr. McCausland had responded and that the Committee had reviewed the responses with Mr. McCausland and commended him on the work of SamCERA’s staff.

Mr. Cottle reviewed the responses in detail. Mr. Cottle noted that the Committee’s focus was on the future, since Mr. McCausland has made it clear that he will be searching for employment in a CalPERS-covered position.

Without objection, Mr. Bryan accepted the report.

0305.7.08

Appointment of Ad Hoc Chief Executive Officer’s Selection Process Committee: The Board discussed Mr. McCausland’s desire to return to CalPERS-covered employment in order to refresh his CalPERS’ retirement benefits. Mr. McCausland noted that nearly all state and local job openings are currently frozen or reserved for internal transfers. Nevertheless, he hopes to be hired by a state agency or local government no later than April 1, 2004. If he is unsuccessful in finding a CalPERS-covered job, he will retire from SamCERA in April 2005.

In response to a question from Ms. Colson, Mr. McCausland reported that staff is capable of performing all mission critical functions without his supervision.

In response to a question from Mr. Cottle, the Board reviewed the services provided by Employee & Public Services at the time Mr. McCausland was hired in 1994. Staff was instructed to ask EPS for an outline of the CEO selection services EPS could provide to the Board.

Ms. Colson and Mr. Buffington suggested that the Board commence the search when Mr. McCausland gives preliminary notice.

Without objection, Mr. Bryan instructed staff to include this item on each month’s agenda until further notice.

0305.7.09

Cancellation of June 24^th Meeting of the Board of Retirement: Mr. McCausland noted that there may be a need for a special meeting in early July to consider the future of the Medicare Part-B program, but that the Board of Supervisors will not make its decision until after June 24^th. In response to a question from Mr. Buffington, it was noted that Mr. Bryan and Mr. Hood will be present for the Board of Supervisor’s budget hearing. Motion by Stuart, second by McMahon, carried unanimously, to cancel the June 24^th meeting of the Board of Retirement.

Mr. Lewis noted that he would have to miss the July meeting.

0305.7.10

Appointment of Ad Hoc Nominating Committee: Mr. Bryan asked for volunteers to serve on the committee. Without objection, Mr. Bryan appointed Ms. Salas (Chair), Ms. Stuart, Ms. Tonsfeldt and Mr. Lewis to the Ad Hoc Nominating Committee and instructed them to present a slate of officers for the Board’s consideration on July 22^nd.

0305.7.11

Approval of out-of-state Educational Activities: In response to questions from Mr. McMahon, Mr. McCausland reported that the Board’s Education Policy differentiates between conferences sponsored by organizations that were organized by pension funds to serve their educational needs and conferences sponsored by for-profit firms. The Chair is authorized to approve in-state travel for all conferences listed in the Education Policy. The Chair is also authorized to approve out-of-state travel for conferences sponsored by organizations that were organized by pension funds. The Education Policy reserves to the Board the authority to approve out-of-state travel for conferences sponsored by for-profit firms.

Mr. McCausland noted the Mr. McMahon’ education requests include the Institutional Investor’s Public Pension Funds Forum in Bachelor, Colorado. Motion by Buffington, second by Colson, carried six ayes (Buffington, Colson, Cottle, Lewis, McMahon & Tonsfeldt) to three noes (Bryan, Salas & Stuart), to approve Mr. McMahon’s attendance at the Institutional Investor’s Public Pension Funds Forum in Bachelor, Colorado, July 9-11.

Mr. McCausland noted that Mr. McMahon’s education requests also include the Pacific Pension Institute’s Summer Roundtable in Vancouver, July 26-26. Mr. Bryan noted that he has not approved Mr. McMahon’s request to attend the PPI conference in Vancouver, British Columbia, because the estimated cost of his proposed trips for the year exceeds the Board’s approved $5,000 limit by more than $3,000.

Mr. McMahon protested the Chair’s requirement that he trim his requests when there is no way to accurately determine what the actual costs will be at this time. He noted that he signed up for more conferences than he will actually attend and wants the flexibility to determine which to cancel as the year progresses.

Mr. Bryan noted that the Board has the authority to approve Mr. McMahon’s request if it wishes to do so. Mr. Bryan asked if the Board wished to entertain a motion. Ms. Colson noted that the Pacific Pension Institute programs are excellent and trustees should consider attending.

0305.7.12

Approval of Conflict of Interest Waiver for IRC§415 Replacement Benefits Plan Counsel: Mr. McCausland reported that when SamCERA implements the new benefit formulas the Fund will loose its “grandfather” exemption from IRC§415 limits on tax-deferred retirement benefits.

IRC
§415 imposes caps on the monthly benefit payable from tax-deferred trust funds. For example, currently IRC
§415 limits a 45-year old’s benefit to $4,201, a 50-year old’s benefit to $5,724, etc. New retirees 62 and older can collect $13,333 per month.

For younger retirees, the new formulas in the ’37 Act may guarantee a member a benefit greater than the IRC
§415 limit. In recognition of this “Catch-22”, the IRC provides a complex mechanism whereby the County can create a “Replacement Benefits Plan” that is not tax-deferred. The sole purpose of the Replacement Benefits Plan is to pay the difference between the IRC
§415 limit and the ’37 Act guaranteed benefit.

Ms. Carlson reported that the County has retained Robert Blum of Hanson Bridget Marcus Vlahos Rudy LLP to create a Replacement Benefits Plan for the County. She noted that the law prohibits SamCERA from spending trust funds for the purpose of creating such a plan. Mr. Blum will need to coordinate closely with the County and SamCERA in order to create an optimal plan.

As a matter of professional ethics, Mr. Blum has noted that certain conflicts of interest may arise in the course of his work for the County and SamCERA. Mr. Blum has asked the Board for approval for his joint representation of the County and SamCERA and a conflict of interest waiver.

Motion by Tonsfeldt, second by Stuart, carried unanimously, to approve Robert Blum’s joint representation of the County and SamCERA for the purpose of creating a Replacement Benefits Plan pursuant to the provisions of the Internal Revenue Code and to acknowledge and waive the potential conflict of interest inherent in such joint representation.

0305.8

Approval or Acceptance of Reports

0305.8.1

Chief Executive Officer's Report: Mr. McCausland commended Mr. Hood and SamCERA’s Benefits & Information Technology staff for their exemplary performance in preparing for the implementation of the new benefit formulas in July.

0305.8.2

County Counsel's Report: Ms. Carlson reported that the Supreme Court rejected all petitions for rehearing and depublication of the Westley decision before she was able to prepare the request for depublication authorized by the Board on April 22^nd. Consequently, she did not file the request.

Ms. Carlson reported that she represented all participating retirement boards during oral arguments in Ventura II before the Appellate Court on May 22^nd. She noted that the Court appears to view the case as a statutory interpretation case. She received numerous tough questions on retroactivity. She received no tough questions on inclusion items, terminal pay, third party payments, flexible benefits or retroactive contributions. She expects an opinion within ninety days. Petitions for re-hearing will need to be filed within fifteen days. A decision will then need to be made as to whether or not the parties will appeal the decision to the Supreme Court.

0305.8.3

Investment & Finance Manager’s Report: Mr. Clifton distributed Market Commentaries from Deutsche Asset Management & Bank of Ireland Asset Management (BIAM) and a Client Update and Portfolio Review from BIAM.

He distributed a memo from BIAM following up on the Investment Committee’s April 22^nd discussion of BIAM’s harmonizing of their “bottom up” and “thematic” investment practices.

He also distributed the Minutes of the March 25^th Investment Committee meeting during which the DAMI due diligence trip was discussed. Mr. Buffington noted that the Minutes do not reflect his comments expressing opposition to due diligence trips.

Mr. Clifton noted that the approval of the new Safety & Probation formulas may increase the County’s prepayment of contributions slightly.

He noted that INVESCO requests permission to present its proposed Core Real Estate Fund to the Board in July. Without objection, Mr. Bryan referred the INVESCO presentation to the Investment Committee.

0305.8.4

Assistant Executive Officers’ Report: Mr. Hood reported that the County Elections Officer declared Mr. McMahon and Ms. Salas elected as they were the only candidates to file.

He reported that between the use of newsletters, e-mail, individual letters to seasoned employees, web-based documents and twelve scheduled retirement enrollment workshops, most County employees are now well aware of the schedule for implementing the new benefit formulas.

He reported that the second financial planning seminar for the year was completed this morning. Mr. Hood noted that he is looking for alternatives to the use of Net Equity Associates (NEA) in the seminars. Mr. McCausland noted that the material used in the seminars comes from a national education service and makes no reference to NEA or their products. He noted that more than 95% of the participants in SamCERA’s seminars have not invested with NEA because NEA’s recommendation has always been to maximize participation in SamCERA and the County’s deferred compensation program. However, NEA has told him that a few participants have asked for their help with other investment options. He noted that he has always been a little uncomfortable with the relationship, but that he had not been successful in identifying a good educator that does not earn a living as a securities salesman.

In response to a question, Mr. Hackleman reported that the County is launching a series of educational seminars for County employees who want to learn more about investments and how to make optimal use of the County’s deferred compensation program.

Ms. Carlson and Ms. Tonsfeldt suggested that it might be worth considering using a waiver form for participants.

Mr. Cottle and Mr. Lewis expressed interest in learning more about how SamCERA can assure that seminar participants are not subjected to inappropriate security sales practices. Without objection, Mr. Bryan referred the matter of financial planning seminar presentations to the Investment Committee for further review.

In response to a question from Ms. Arnott, Mr. Hood noted that PensionGold is experiencing hang ups on the intranet web server and the vendor is working on a solution.

0305.9

Adjournment in Memory of the following Deceased Members: There being no further business, Mr. Bryan adjourned the meeting at 3:45 p.m. in memory of the following deceased members:

brazil, evelyn

march 10, 2003

beneficiary of isadore

junge, nancy

april 1, 2003

san mateo county medical center

trujillo, henry

april 8, 2003

general services department

monahan, mary

april 10, 2003

probation department

mason, jan

april 17, 2003

probation department

burnside, martha

april 29, 2003

department of social services

peterson, elmer

may 1, 2003

general services department

herschler, winifred

may 3, 2003

mental health department

vandervoort, ethel

may 11, 2003

district attorney’s office

Tom E. Bryan, Chair

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The information in SamCERA's web site is general in nature and is not considered a legally binding interpretation, enlargement or amendment of the provisions contained in the County Employee's Retirement Law of 1937 or by-laws of the Board of Retirement. Although considered accurate, information within the site is limited and, should there be an inconsistency between the web site and the governing law, the law will govern.

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