July 22, 2003 – Board Agenda

Closed Session Conference with Counsel on Litigation – Teamsters Local 856 vs. Board of Retirement

Public Session

1.

Call to Order

2.

Board Business

2.1

Roll Call

2.2

Acceptance of Certifications

2.3

Swearing-in of Trustees

2.4

Election of Officers

2.5

Appointment of Committees

3.

Approval of the Minutes

4.

Oral Communications

4.1

Oral Communications From the Board

4.2

Oral Communications From the Public

5.

Benefit & Actuarial Services

5.1

Adoption of Consent Calendar

5.2

Consideration of items removed from Consent Calendar

5.3

Adoption of 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 Assumptions for June 30, 2003 Actuarial Valuation

6.

Investment Services 

6.1

Acceptance of Monthly Portfolio Performance Report

6.2

Review, Revision & Reaffirmation of Investment Committee Charter

6.3

Annual Investment Consultant Review – Strategic Investment Solutions

6.4

Integrate Liability and Asset Projections and Review Results for the Asset / Liability Modeling Study

6.5

Adoption of Due Diligence Policy & Procedures

6.6

Approval of Topics for Investment Manager Review – Deutsche Asset Management

6.7

Acceptance of Report on the 2003/2004 Property Value Optimization Plans

6.8

Acceptance of INVESCO’s Presentation on its Commingled - Open End - Core Real Estate Fund

7.

Board & Management Support Services

7.1

 Acceptance of Monthly Financial Reports

7.2

 Acceptance of Fourth Quarter 2002-2003 Administrative & Professional Budget Reports

7.3

 Acceptance of Report on Entrance Interview for the June 30, 2003 Financial Audit

7.4

 Approval of extension of Contract with MaryAnn Gutoff

7.5

 Acceptance of Proposal by Employee and Public Service to Recruit for the SamCERA Chief Executive Officer Position

7.6

 Approval to Conduct Staffing and Salary Survey

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

8.5

 Report on Actions Taken in Closed Session

9.

Adjournment

July 22, 2003 – Board Minutes, as corrected

0307.1

Call to Order:  Mr. Bryan, Chair, called the Public Session of the Board of Retirement to order at 1:12 p.m., July 22, 2003 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0307.2.1

Roll Call:  Mr. Bryan, Mr. Buffington, Ms. Colson, Mr. Cottle, Mr. McMahon, Ms. Salas & Ms. Stuart.  Excused:  Mr. Lewis & Ms. Tonsfeldt.  Alternate Board Member:  Ms. Arnott.  Staff:  Mr. McCausland, Mr. Hood, Mr. Clifton & Ms. Lamica.  Auditor:  Mr. Paulden.  Counsel:  Ms. Carlson.  Consultants:  Mr. Gesell, Ms. Jadallah, Mr. Thomas & Mr. Yeung.  Actives: 1, Retirees: 1, County: 3.

0307.2.2

Acceptance of Certifications:  Mr. Hood reported that, pursuant to Regulation 3.1.07, David Tom, County Elections Officer, certified on May 7^th that Michael McMahon was the only qualified General Member certified candidate for the Second Trustee election and Alma Salas was the only qualified Safety Member certified candidate for the Seventh Trustee election.  Therefore, Mr. Tom recommended that the elections be canceled and the qualified candidates be declared elected.  Without objection, Mr. Bryan accepted the County Elections Officer’s certification and recommendation.  Mr. Bryan congratulated Mr. McMahon and Ms. Salas on their re-election. 

0307.2.3

Swearing-in of Trustees:  Mr. McMahon and Ms. Salas swore to serve as faithful fiduciaries for all members, retirees and beneficiaries; to serve as prudent administrators of the County's Retirement System; and to support, defend and bear true faith and allegiance to the Constitutions of the United States of America and the State of California in accordance with Regulation 2.3.1.

0307.2.4

Election of Officers:  Ms. Salas presented the report of the Ad Hoc Nominating Committee.  She reported that Ms. Colson, Mr. Lewis, Ms. Salas and Ms. Stuart had met on May 27^th and nominated the proposed slate of officers for the new fiscal year.  Mr. Bryan asked for any additional nominations.  Hearing none, he closed the nominations.  Motion by Salas, second by Buffington, carried unanimously, to elect Ms. Colson, Chair; Ms. Salas, Vice Chair and Ms. Stuart, Secretary, per Regulation 2.5.   Mr. Bryan presented the gavel to Ms. Colson.

0307.2.5

Appointment of Committees:  Ms. Colson asked the current members of the Ad Hoc Audit Committee to continue to serve for the completion of the current audit.  Ms. Colson reappointed Mr. Lewis, Chair; Mr. Bryan, Mr. Colson & Ms. Salas to the Ad Hoc Audit Committee per Regulation 2.5.1.   Ms. Colson expressed her desire to re-appoint the current members of the Investment Committee, but asked if any other trustees wanted to be considered for membership, or if any other trustees wished to serve as Chair at this time.  Hearing none, Ms. Colson reappointed Mr. Cottle, Chair; Mr. Bryan, Mr. Buffington & Ms. Colson to the Investment Committee per Regulation 2.5.1.

0307.3

Approval of the Minutes:  Ms. Arnott submitted the following correction to 0305.6.3 ¶3, L3 “…based on qualitative factors rather than quantitative factors…”.  Motion by Cottle, second by Bryan, carried unanimously, to approve the Minutes of the meeting of May 27, 2003, as corrected.

0307.4.1

Oral Communications From the Board:  Ms. Stuart expressed the gratitude of all retirees for the trustees’ support of the retirees’ successful effort to convince the Board of Supervisors to continue the Medicare Part-B Premium Reimbursement Program for another year.  She expressed special appreciation to Mr. Bryan for being available to respond to the Supervisors’ questions.  Ms. Colson noted that the combination of weak investment markets and the County’s new benefit formulas pose serious actuarial funding challenges for SamCERA and that the asset allocation study indicates that SamCERA’s funding may hover near the 80% level for years.  She instructed staff to place the Medicare Part-B funding mechanism on a future Board agenda for review and possible revision. 

•Mr. McMahon reported that he had attended the Institutional Investors’ Public Funds Symposium.  The sessions focused on portfolio restructuring, with emphasis on private equity, enhanced indexing, distressed securities and hedge funds.  He noted that the majority of the funds participating were moving into private equity and increasing their allocations to real estate.  He recommends that other trustees participate in future Public Funds Symposiums.  •Ms. Colson noted that she participated in the Institute for Fiduciary Education’s Market Makers Conference with many of the largest pension funds in the country.  She reported that SamCERA’s investment and funding dilemma is commonplace among the funds participating in the conference.  She noted that asset allocation, performance measurement and manager monitoring continue to be central ingredients for successful management, while the larger funds at the conference are currently also placing increased emphasis on private markets.  One insight gained was that, while most funds drastically reduced contribution rates during the long bull market, it would have been more productive to maintain contribution levels and reap the investment returns that the market was providing.

0307.4.2

Oral Communications From the Public:  Mr. Murphy, representing SCORPA, noted that a delegation met with each Supervisor regarding Medicare Part-B and that SCORPA deeply appreciated the trustees’ support for the program.  He also thanked Mr. Bryan for being available to respond to Supervisor’s questions. 

0307.5

Benefit & Actuarial Services

0307.5.1

Adoption of Consent Calendar:  Without objection, Ms. Colson removed the applications of Ms. de Gery (Salas) & Mr. Marsh (Buffington) from the Consent Calendar for consideration under Agenda Item 5.2.  Motion by Bryan, second by Cottle, carried unanimously, to adopt the Consent Calendar as amended, as follows:

Disability Retirements:  The Board finds that Phyllis Fischer is unable to perform the duties of a Licensed Vocational Nurse/Medical Office Assistant and, GRANTS her application for Nonservice-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:

Floyd, Evelyn

April 19, 2003 (from deferred)

CSRC

Vargas, Thomas

May 9, 2003 (from deferred)

Department of Public Works

Fraser, Beverly

May 31, 2003

Department of Human Services

Tolani, Kam

May 31, 2003

Department of Public Works

Wei, Alice

May 31, 2003

County Medical Center

Nigos, Leticia

June 1, 2003

Treasurers’ Office

De Felice, Kathy Malia

July 1, 2003

Agricultural Commission

Hefner, Larry

July 6, 2003

Sheriffs’ Department

Miles, Donald

July 6, 2003

Sheriffs’ Department

Greene, Donald Jr.

July 7, 2003

Sheriffs’ Department

Powell, Quincy

July 7, 2003

Sheriffs’ Department

Ferree, David

July 8, 2003

Sheriffs’ Department

Gerbi, Robert

July 8, 2003

Sheriffs’ Department

McHenry, Timothy

July 13, 2003

Sheriffs’ Department

Hekker, Henry

July 17,2003

Sheriffs’ Department

Scott, John

July 19, 2003

Probation Department

Chang, Joyce

July 21, 2003 (from deferred)

Sheriffs’ Department

Fultz, Donald

July 21, 2003

Food Services Department

Jackson, Michael

July 22, 2003

Department of Public Works

La Motte, Guy

July 22, 2003

Assessors’ Office

Martinelli, Joseph

July 22, 2003

Probation Department

Rosa, Maria

July 22, 2003

Food Services Department

Cambron, Robert

July 22, 2003

Department of Public Works

Williams, Mary

July 26, 2003

Department of Family Support

Callahan, Walter

July 27, 2003

Department of Public Works

Continuance of Benefits:

Butler, Diane

Beneficiary of Darrell

Peterson, Helen

Beneficiary of Elmer

Yriberri, Florence

Beneficiary of Miguel

Deferred Retirements:

Bygdnes, Jodi

G2 vested

Fonda, Rose

G4 vested

Hansen, Darlene

G2 vested

Markham, Alice

G2 vested

Sanchez, Nancy

G2 vested

Volanti, John

G2 vested

Branscum, Kimberly

G4 non vested

Reciprocity

Refunds for June 2003:

Bahrampour, Ali

G4 non vested

$1,327.20

Cox, Kristin

G4 non vested

$2,570.76

Estipona, Noel

G4 non vested

$2,482.78

Gamez, Michelle

G4 non vested

$6,492.17

Herrera, Diana

G2 vested

$21,750.47

Jones, Matthew

G4 non vested

$2,782.72

Parra, Vicki

G4 non vested

$1,282.21

Perez-Rivera, Sonia

G4 non vested

$1,304.91

Total Refunds for June:

$39,993.22

Rollovers for June:

Prado, Uzziel

G4 non vested

$292.10

Prasad, Richard

G4 non vested

$7,005.05

Yee, Danly

G4 non vested

$948.96

Total Rollovers for June:

$8,246.11

Refunds for July 2003:

Amaral, Margaret

G4 non vested

$3,695.42

Beebe, Anna

G4 non vested

$7,622.14

Bolos, Josefa

G4 non vested

$1,362.05

Boyles, Diane

G4 non vested

$8,669.48

Geegan, Cedric

G4 non vested

$8,835.09

Goldsby, Sandra

G2 vested

$1,271.09

Gomez, Sara

G4 non vested

$3,930.63

Janes, Amanda

G4 non vested

$3,344.23

Janjua, Fozia

G4 non vested

$2,226.77

Johnson, Antoinette

G4 non vested

$1,546.40

Meyers, Suzanne

G4 non vested

$1,029.20

Rocha, Diana

G4 non vested

$7,517.19

Spears, Tony

G4 non vested

$7,964.58

Zate, Francy

G4 non vested

$10,379.62

Total Refunds for July 2003:

$68,122.80

Rollovers for July 2003:

Chan, Anne

G4 non vested

$4,998.17

Goldsby, Sandra

G2 vested

$46,730.93

Harshberger, Pamela

G2 vested

$44,057.91

Hopke, Theanna

G4 non vested

$3,227.71

Mughannam, Rita

G4 non vested

$7,679.94

Paras, Edwin

G4 non vested

$20,783.28

Wong, Catherine

G4 non vested

$2,006.59

Total Rollovers for July 2003

$129,484.53

0307.5.2

Consideration of items removed from Consent Calendar:  Ms. Colson took up the application of Robert Marsh, Jr.   Ms. Lamica reviewed Dr. Fracchia’s report.  Mr. Buffington stated that he did not believe the record supported granting a service-connected disability.  Ms. Stuart suggested that Mr. Marsh accept training for another County position.  Motion by Bryan, second by Salas, failed four ayes (Bryan, Colson, Cottle & Salas) to three noes (Buffington, McMahon & Stuart) to grant Robert Marsh, Jr.’s application for a Service Connected Disability.  Motion by Buffington, second by McMahon, failed four ayes (Buffington, Cottle, McMahon & Stuart) to three noes (Bryan, Colson & Salas) to grant Robert Marsh, Jr. a Nonservice Connected Disability.  Ms. Carlson reviewed the standards for granting a service connected disability retirement.  In response to questions from Mr. Bryan, Mr. Marsh stated that he was able to perform his job prior to his latest injury, but that he was unable to perform his job after the injury.  Mr. Buffington stated that Mr. Marsh might be better able to make his case before a hearing officer.  Motion by Bryan, second by Salas, carried five ayes (Bryan, Colson, Cottle, Salas & Stuart) to two noes (Buffington & McMahon) to find that Mr. Marsh is permanently incapacitated for the performance of his usual and customary duties.  Motion by Stuart, second by Buffington, carried unanimously (1) to put Mr. Marsh’s application over to the August 26^th meeting and (2) to ask Dr. Fracchia to respond to Mr. Buffington’s (a) concerns regarding the absence of definitive MRI’s for both knees and (b) the impact of the progressive degeneration associated with Mr. Marsh’s medical condition on Dr. Fracchia’s conclusion that a service connected disability is warranted.   

Ms. Colson then took up the application of Carole de Gery.  Ms. Carlson noted that Ms. de Gery and her attorney contacted Ms. Lamica and Ms. Carlson earlier in the day.  She noted that the attorney wished to provide copies of the Worker’s Compensation findings in the matter for the Board’s consideration.  Ms. Carlson reported that she advised the attorney that the Board is not bound by Worker’s Compensation law.  However, since Dr. Fracchia is not present, Ms. Carlson suggested that the Board put Ms. de Gery’s application over and ask Dr. Fracchia to comment specifically on the Worker’s Compensation findings.  Without objection, Ms. Colson put Ms. de Gery’s application over to the August 26^th meeting.

0307.5.3

Adoption of 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. McCausland noted that the proposed amendments were introduced on April 22^nd and the subject of a public hearing on May 27^th.  He reported that no comments had been received since the introductions of the proposed amendments.

Mr. McCausland reported that Chapter 883 Statutes of 2002 amended the ’37 Act to permit non-vested terminated members to leave their contributions on deposit and retain full rights.  The new law also permits terminated Safety Members to redeposit withdrawn contributions at any time, even if the member was not a Safety Member at the time of SamCERA membership.  Staff and Counsel have concluded that the Board is not required to credit interest to the account of terminated non-vested members who are not eligible for reciprocity per GC§31591.  The following amendments to SamCERA’s Regulations of the Board of Retirement implement the provisions of Chapter 883. 

Ms. Colson asked for any discussion or public comment, there being none, Motion by Cottle, second by Salas, carried unanimously, to adopt the following amendments to the Regulations of the Board of Retirement per Regulation 1.4:

6.4.2 Upon Terminating County Employment:  A member terminating employment shall complete and file either a Retirement Application or Termination Form with the Administrator.  A member filing a Termination Form shall elect one of the following options:  a deferred retirement (if eligible), reciprocity (if eligible), intent to file for a disability retirement (if eligible), direct rollover to another tax deferred account (Plan 1, 2 or 4 only), or refund (Plan 1, 2 or 4 only), or an election to leave funds on deposit per 6.6.8.  The termination form shall provide the member with information regarding the effects of the optional elections.  If a member fails to file the Termination Form within 180 days, the member's account shall be subject to the provisions of GC§31591, §31628, §31629, §31629.5, & §31700 & §31831.3.  A member who fails to file in a timely manner either a retirement application or a termination form waives all rights to SamCERA benefits, except as provided for in GC§31628, §31629, §31629.5, & §31700 & §31831.3.

6.6.5  Refunds & Direct Rollovers:  Members in Plan 1, Plan 2 or Plan 4 who have terminated employment with the County are eligible for a refund or direct rollover of their individual contributions and the interest credited thereon, so long as they file a timely application as set forth in 6.4.2 and do not establish reciprocity per 6.6.7.

6.6.6  Redeposit of Previously Withdrawn Funds  An active member in Plan 1, Plan 2 or Plan 4 may redeposit previously withdrawn funds prior to the effective date of retirement, per GC§31652.  A former member who left the County prior to December 31, 1971, withdrew accumulated contributions and interest, and subsequently became a member of a reciprocal system prior to December 31, 1977, may be eligible for redeposit, per GC§31831.1.  A former member who left the County, withdrew accumulated contributions and interest, subsequently became a member of a reciprocal system, remains employed by a reciprocal agency and was at the time of SamCERA membership or is now a Safety Member, may be eligible for redeposit, per GC§31831.3.  A member who withdrew accumulated contributions and interest upon transferring into Plan 3 is not eligible to redeposit such funds, unless such redeposit is made in conjunction with the conversion of service from General to Safety. A member who redeposits previously withdrawn funds will be reinstated into the Plan from which the funds were withdrawn.

6.6.7  Reciprocity:  Members may establish reciprocity with other public retirement systems in California per Article 15 of the '37 Act. [no change]

6.6.8  Accounts of Terminated Non-vested Members without Reciprocity:
(a)This regulation shall apply to a member who (1) terminates County employment with less than five years of SamCERA service credit, (2) fails to file a timely application for a refund or rollover pursuant to 6.4.2 and 6.6.5 and (3) fails to establish reciprocity per 6.6.7.  This regulation is promulgated in accordance with the provisions of GC§§31591, 31628, 31629, 31629.5 & 31831.3.

(b) The Administrator shall send to such member, not more than 90-days after termination of service, at his or her last known address, a registered or certified letter, return receipt requested.  Such letter shall state that (1) the funds in the member’s account may must be refunded, or rolled over or left on deposit and , (2) interest will no longer be credited to the account if the member is not eligible for reciprocity per GC§31591 and (3) the member’s funds will be escheated in accordance with the provisions of GC§31629.

(c) The Administrator shall not credit additional interest to the account of such member after 180 days have elapsed following the date of termination, per GC§31591(b)(1).

(d) As authorized pursuant to GC§31629, the Administrator shall issue an involuntary refund check for the amount of the contributions and interest in such member’s account, less mandatory federal and state withholding, only if (1) the letter provided for above was receipted by such member and the signed receipt is in the possession of the Administrator and (2) such member has failed to file an application for a refund or rollover pursuant to 6.4.2 and 6.6.5 or reciprocity pursuant to 6.6.7 within 180 days after the date of termination.  Such refund check shall be mailed to such member’s last known address by registered or certified mail, return receipt requested.

(e) If such involuntary refund check is not cashed, then the Administrator shall deposit such member’s account in the County Advance Reserve on the fifth anniversary of such member’s date of termination and thereafter the fund shall not be liable to such member for any portion of the accumulated contributions per GC§31629.

0307.5.4

Adoption of Assumptions for June 30, 2003 Actuarial Valuation:  Mr. Yeung reminded the Board of the lengthy discussions that preceded the adoption of assumptions for the 2002 Triennial Experience Study and Actuarial Valuation.  He then reviewed Mercer’s recommendations for changes in the actuarial assumptions that will be used for the 2003 Actuarial Valuation, as follows:

Inflation Assumption:  Mercer recommends that the inflation assumption be reduced from 4.25% to 3% per annum, based on Mercer’s analysis of historical inflation and the current economic environment.  If adopted, SamCERA will be Mercer’s first ’37 Act client to move down to a 3% assumption.  [Net effect is to reduce post-retirement accrued actuarial liability for Plan 1 retirees, thereby reducing employer contribution rate]

Salary Increase Assumption:  Mercer recommends maintaining the current 6.25% salary increase assumption with its current age-based merit increase scale, a new promotional progression or productivity component and the revised inflation assumption, based on Mercer’s analysis of recent increases.  The Board requested clarification of what Mercer means by the term “productivity increase”.  [No change to accrued actuarial liability]

Actuarial Interest Rate Assumption:  Mercer recommends that the actuarial interest rate assumption be reduced from 8.25% to 8% per annum, based on a variety of analyses that indicate an acceptable range of assumptions between 6.68% and 8.57%, with a median expected return of 7.62%.  He noted that an 8% assumption would place SamCERA at the 57^th percentile of range of expected returns.  Mr. Yeung speculated that three or four ’37 Act systems may adopt 7.50% - 7.75% interest assumptions before the end of the year.  Mr. Bryan noted that he is uncomfortable with a vote at this time given the broad range of the information provided.  Ms. Colson and Mr. Cottle noted that 8% represents an acceptable interim rate.  [Net effect is a significant increase in accrued actuarial liability and increases to both employer and member contribution rates] 

Mr. Yeung reminded the Board that, when it adopted the ±20% Corridor for the Market Stabilization Account, there was a balance of $241,496,716 in the Account.  Mr. McCausland noted that the existing methodology for amortizing each semi-annual addition to the account independently introduces a great deal of volatility into the employer contribution rates over the next four years.  Mr. Yeung recommended that the Board authorize staff and the actuary to amortize that June 30, 2002 balance in nine equal semi-annual installments of $26,832,968.  Adopting Mercer’s recommendation will smooth the impact of the June 30, 2002 Market Stabilization Account balance on employer contribution rates for the next four years. 

Mr. Buffington expressed his desire to have the Board review its Market Stabilization Account policy to assure that the June 30, 2002 negative balance is eliminated as soon as possible.  Mr. McCausland and Mr. Yeung noted that the Board’s MSA policy requires that all semi-annual earnings in excess of, or less than, the actuarial interest assumption be “deposited” into the MSA and then be “amortized” in ten equal semi-annual withdrawals (the first withdrawal being simultaneous with the deposit). 

Following a general discussion, motion by Buffington, second by Stuart, carried six ayes (Buffington, Colson, Cottle, McMahon, Salas & Stuart) to one no (Bryan) (1) to adopt Mercer Human Resource Consulting’s recommendation to authorize staff and the actuary to amortize the June 30, 2002 balance in the Market Stabilization Account in nine equal semi-annual installments of $26,832,968 and (2) to express the Board’s intent to apply all earnings in excess of the actuarial interest rate to the Market Stabilization Account as a direct write-off against the balance therein.  Without objection, Ms. Colson instructed staff to prepare a summary of the issues for the Board’s consideration.

0307.6

Investment Services

0307.6.1

Acceptance of Monthly Portfolio Performance Report:  Mr. Clifton presented the monthly performance report for periods ending June 30^th.  He noted that the monthly reports will continue to use the one-quarter lag in the NCREIF index due to the timing of the reports, but that the quarterly SIS reports will use the current quarter’s NCREIF returns.

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

Domestic Equity

$  628,610,339

1.37%

0.10%

-1.55%

International Equity

    181,209,278

1.95%

-8.90%

-2.29%

Total Equity

$  809,819,617

1.50%

-2-07%

-2.59%

Fixed Income

363,085,151

-0.14%

10.51%

7.69%

Real Estate Aggregate

65,637,716

2.45%

15.35%

8.05%

Cash Equivalents

         2,058,607

0.21%

   2.38%

Total Fund

$1,240,601,092

1.06%

3.86%

1.72%

Benchmark

1.18%

3.59%

1.76%

0307.6.2

0307.6.3

Annual Investment Consultant Review – Strategic Investment Solutions:  Mr. Cottle reported that the Investment Committee met with SIS to review their performance.  Most trustees participated in the rating process and the conclusion was that SIS was doing a good job for the Board.  The Committee devoted considerable time to discussing SIS’ pending relationship with the Frank Russell Company and the implications of that relationship.  Ms. Salas asked about the Missouri Teachers’ account.  Ms. Jadallah reported that Missouri Teacher’s placed SIS on their watch list so that they could closely monitor the impact of the new Frank Russell relationship.  Without objection, Ms. Colson accepted the report.

0307.6.4

Integrate Liability and Asset Projections and Review Results for the Asset / Liability Modeling Study:  Mr. Cottle reported that the Investment Committee devoted most of its meeting to reviewing the results of the asset / liability modeling study.  After careful review of each of the alternatives evaluated, the Committee concluded that the risk and return profile of the current asset allocation is the most appropriate one for SamCERA.  In response to questions from Mr. McMahon regarding the asset allocation and SamCERA’s funding status, Mr. Thomas reported that the current mix is appropriate and does not vary statistically significantly from the alternatives the Committee gave serious consideration.  Mr. Cottle reported that the Committee has initiated its review of the manager structure.  Mr. Buffington noted that the Committee concluded that numerous things can be done to enhance the management of the current asset allocation.  Motion by Cottle on behalf of the Investment Committee, second by Bryan, carried unanimously, to reaffirm the Board’s current asset allocation as set forth in SamCERA’ Investment Plan as amended November 26, 2002.

0307.6.5

Adoption of Due Diligence Policy & Procedures:  Mr. Cottle reported that the Investment Committee put the Due Diligence Policy & Procedures over for additional discussion on August 26^th.

0307.6.6

Approval of Topics for Investment Manager Review – Deutsche Asset Management:  Mr. Cottle reported that the Investment Committee had reviewed and revised the list of topics.  Without objection, Ms. Colson accepted the report. 

0307.6.7

Acceptance of Report on the 2003/2004 Property Value Optimization Plans:  Mr. Clifton reported that the Investment Committee recommends that the Board (1) accept the Executive Summary of INVESCO’s separate property Value Optimization Plans and that the Board (2) authorize the Investment & Finance Manager to prepare an annual Executive Summary of future Value Optimization Plans for the Board’s consideration as a Board & Management Support Services agenda item.  Without objection, Ms. Colson accepted the Investment Committee’s recommendations.

0307.6.8

Acceptance of INVESCO’s Presentation on its Commingled - Open End - Core Real Estate Fund:  Mr. Cottle reported that INVESCO proposes to create an open-end core real estate fund seeded initially with SamCERA’s and VenturaCERA’s separate properties.  Favorable fees will be offered to investors contributing the initial properties to the fund. Mr. Cottle reported that the Investment Committee is inclined to look favorably on INVESCO’s initial proposal.  Without objection, Ms. Colson accepted the report.

0307.7

Board & Management Support Services

0307.7.1

Acceptance of Monthly Financial Reports:  Mr. Clifton submitted the preliminary Monthly Financial Reports for May and June. 

The Fair Market Value of the Retirement Fund increased $25.2 million between July 1, 2002 and June 30, 2003.  This increase reflects the net of Uses of  (1) $70.0 million in Benefit Payments, (2) $2.3 million in Professional Expenses & $1.8 million in Administrative Expenses versus Sources of (3) $36.0 million in Employer Contributions, (4) $25.7 million increase in the Market Value of the Investment Portfolio (5) $22.6 million in Member Contributions and (6) $16.4 million in Interest and Dividend income.  The market value of the Retirement Fund increased $133.6 million between March 1^st and June 30^th.   Without objection Ms. Colson accepted the report.

0307.7.2

Acceptance of Fourth Quarter 2002-2003 Administrative & Professional Budget Reports:  Mr. Clifton submitted the preliminary Fourth Quarter Budget Reports.  Mr. Clifton reported that with 100% of the fiscal year completed, Administrative expenditures to date represented 90.1% of the total $2,055,000 appropriated for the fiscal year, as augmented April 22^nd.    

Category

Expended

% Expended

Salaries & Benefits

$962,379

92.4%

Services & Supplies

889,329

87.8%

Fixed Assets

0

Total Budget

$1,851,708

90.1%

Professional Expenses accrued for the fiscal year totaled $2,495,172, or 101.2% of the estimated total for the year.  Mr. Clifton noted that expenditures for actuarial services tripled as a result of the numerous actuarial studies required with the analysis of alternative actuarial assumptions and the array of new benefit formulas.  Without objection Ms. Colson accepted the report.

0307.7.3

Acceptance of Report on Entrance Interview for the June 30, 2003 Financial Audit:  Mr. Clifton reported that the audit team had been on site the week of June 30^th and that staff had been impressed with both the scope of the questions and the procedures utilized by the team. 

Andy Paulden, Principal and CPA with Brown Armstrong reviewed the schedule and scope of the audit for the Board.  Brown Armstrong will implement new fraud standards with this audit, which require that management be asked about ten key questions regarding knowledge of potentials for fraud and SamCERA’s ability to minimize opportunities for fraud.  Third party confirmations are distributed to the full array of SamCERA’s clients and service providers.  He noted that Brown Armstrong’s risk-based analysis concluded that SamCERA’s structure does not require the distribution of related party confirmation letters.  Final field work will take place in mid-August, after which Brown Armstrong will determine the type of audit report and management letter they are prepared to issue.  Brown Armstrong must report to the Board on fifteen professional audit standards. 

Mr. Paulden asked if there were any areas of particular concern to the trustees.  In response to a question from Mr. Cottle, Mr. Paulden noted that the auditor will not issue an opinion on SamCERA’s internal controls, but the audit will evaluate the strengths and weaknesses of SamCERA’s internal controls as part of the process for determining the extent and depth of its sampling and other audit procedures.  In response to a question from Mr. McMahon, Mr. Paulden noted that the audit team sent 60 confirmations to actives and 60 confirmations to retirees as well as asking the actuary to both confirm the auditor’s sample as well as a blind sample the actuary selects and provides to the auditor.  Mr. McMahon asked about a confirmation letter that went to the wrong active member.  Mr. Clifton noted that he will research the problem and report to the Board and Mr. Paulden on August 26^th.  Mr. McCausland noted that PensionGold is not the database “of record” for active member personal information, because the County Personnel Information & Payroll System (PIPS) is downloaded to, and over-writes, the PensionGold personal information fields every two weeks.  Ms. Colson thanked Mr. Paulden for his report.  [It was subsequently determined that an incorrect merge of data and address for six recipients occurred when staff merged PensionGold data tables for the auditors.]  Without objection Ms. Colson accepted the report.

0307.7.4

Approval of extension of Contract with MaryAnn Gutoff:  Mr. Hood noted that Ms. Gutoff’s current contract expires August 31, 2003.  He noted that only $8,561 had been expended under the current $75,000 contract to assist Mr. McCausland with the preparation of new member booklets and updates to SamCERA’s Procedures Manuals.  Mr. Hood and Mr. McCausland recommended that the Board extend the contract until July 31, 2004, with no increase in the initial funding authority, to provide editorial support to staff in revisions to SamCERA procedure manuals and member materials.  Motion by Cottle, second by Bryan, carried unanimously, to authorize the Chief Executive Officer to execute an amendment to the contract between SamCERA and MaryAnn Gutoff extending the term of the contract to July 31, 2004 and reaffirming the original expenditure authority of $75,000.

0307.7.5

Acceptance of Proposal by Employee and Public Service to Recruit for the SamCERA Chief Executive Officer Position:  Mr. Hood noted that the Board had requested a proposal from Employee & Public Services during the May 27^th meeting.  He introduced Mary Welch, Director of EPS and Angela Alton Niles, the EPS Analyst assigned to work with SamCERA.  Ms. Welch reviewed executive recruitments that EPS has performed for other departments.  She noted that she and Ms. Alton Niles would work as a team on the SamCERA recruitment.  She reviewed an array of alternative procedures that the Board could elect to use.  In response to a question from Ms. Colson, Ms. Welch noted that EPS can respond very quickly when Mr. McCausland advises the Board of his departure date.  Without objection, Ms. Colson accepted Employee and Public Services offer to serve as the Board’s executive recruiter when the need arises. 

0307.7.6

Approval to Conduct Staffing and Salary Survey:  Ms. Welch noted that Mr. McCausland had asked her to report to the Board on EPS’ procedures for staffing and compensation studies.  She noted that the County Manager must authorize EPS to perform each study before EPS can undertake a specific study.  Mr. McCausland indicated that, in his opinion. without the Board’s strong endorsement Mr. Maltbie is not likely to approve a SamCERA request for a full staffing and compensation study.  He noted that the County’s new benefit formulas and complex member contribution rate structure have greatly increased the complexity of staff’s daily interaction with our members.  Mr. Buffington indicated his belief that there is no need for a study at this time.  Mr. Bryan asked if there was evidence that SamCERA has too few staff or that compensation is not aligned with other systems.  After noting both staffing and compensation disparities, Mr. Bryan opined that a staffing study was probably overdue.  Ms Welch reported that a study had been completed several years ago [November 1998] and that Mr. McCausland had been asked to submit supplemental justification information for a pending request for a new study [that he had filed in October 2002].  Mr. Bryan asked Ms. Carlson to review the Corcoran decision for the Board.  Ms. Colson noted that the Board has no intention of burning its bridges with the County.  Without objection, Ms. Colson asked Ms. Carlson to review the Corcoran decision for the Board on September 23^rd.   

0307.8

Approval or Acceptance of Reports

0307.8.1

Chief Executive Officer's Report:  Mr. McCausland reported that the implementation of the new benefit formulas for General, Safety & Probation Members went reasonably smoothly.  He noted, however, that the sheer volume of inquiries and applications did overwhelm staff and did lead to more errors and member complaints than he had previously experienced.  He also noted that staff is processing more applications for the purchase of service than the total of all such applications received in the preceding nine years.  He noted that most members are waiting for the 2005 benefit formulas to go into effect.  Even though 86 members came to retirement enrollment workshops, but only about 38 actually retired.

He noted that proposals for SACRS sponsored legislation must be forwarded by the Board on August 26^th.  If any trustees have a proposal to submit, it must be provided to Mr. McCausland for inclusion on the August agenda.

0307.8.2

County Counsel's Report:  [See report of actions taken in Closed Session.]

0307.8.3

Investment & Finance Manager’s Report:  Mr. Clifton reported on upcoming changes in Bank of Ireland Asset Management’s and Barclay Global Investors’ client services for SamCERA.  •INVESCO’s disposition of Hunter’s Creek in on schedule.  •BGI’s Russell 2000 experienced a tracking error related to the reconstitution of the Frank Russell Index.  •The County pre-funded ~$54 million in Employer Contribution for the year on July 11^th.  •Market Commentary Reports were provided for Deutsche Asset Management and BAIM. 

0307.8.4

Assistant Executive Officers’ Report:  Mr. Hood reported that the County is continuing efforts to program PIPS so that is will collect the correct contributions on each member’s compensation earnable.  The task has become incredibly complex this year since the County let each union negotiate (1) seniority based employer pick of varying percentages of the member’s contributions, (2) varying cost sharing member contribution schemes including one that is based on both age and years of service and (3) both refundable and nonrefundable pick ups.  •He noted that he expects to be attending annual Reserve training during the August meeting.

Ms. Colson recessed the Public Session at 3:47 p.m.

0307.8.5

Report on Actions Taken in Closed Session:  Ms. Colson convened the Board in Closed Session at 3:47 p.m. with all trustees present for Roll Call in attendance.

Ms. Carlson reported that the Appellate Court affirmed the Trial Court’s Ventura II decision on all counts.  Petitions for Review of the Appellate Court decision by the Supreme Court must be filed by August 20^th.  Based on Counsel’s recommendation, motion by Buffington, second by Cottle, carried unanimously, to authorize County Counsel to file a Petition for Review with the Supreme Court.

There being no further business, Ms. Colson adjourned the Closed Session at 3:56 p.m. and reconvened the Board in Public Session.

0307.9

Adjournment in Memory of the following Deceased Members:  There being no further business, Ms. Colson adjourned the meeting at 3:56 p.m. in memory of the following deceased members:

ruhl, catherine

april 24, 2003

beneficiary of edwin

peterson, elmer

may 1, 2003

general services administration

herschler, winifred

may 3, 2003

mental health department

butler, darrell

may 6, 2003

sheriffs’ department

cooperrider, mary

may 6, 2003

department of social services

magnuson, orpha

may 7, 2003

beneficiary of carl

ketcham, marcia

may 11, 2003

department of social services

vandervoort, ethel

may 11, 2003

district attorney office

leonhardt, vivian

may 13, 2003

department of social services

neuman, rolf

may 16, 2003

general services administration

hollod, helen

may 18, 2003

library

yriberri, miguel

may 19, 2003

controller department

higdon, laveta

may 21, 2003

crystal springs

olson, dorothy

may 23, 2003

beneficiary of zachary whitten

griffin, william

may 26, 2003

department of public works

johanning, leroy

May 26, 2003

beneficiary of claire

brazil, minnie

may 27, 2003

beneficiary of antone

donaldson, john

may 29, 2003

sheriff’s department

klein, twila

june 5, 2003

canyon hospital

bell, margaret

june 8, 2003

county medical center

whitson, helen

june 23, 203

department of social services

lorenzen, elizabeth

june 23, 2003

assessors’ office

barnwell, eileen

june 29, 2003

department of social services

patterson, frances

July 13, 2003

department of public works