October 28, 2003 – Board Agenda

Closed Session:  Conference with Counsel on (1) Anticipated Litigation – Significant exposure to litigation pursuant to subdivision (c) of Government Code §54956.9: number of Cases – 1 and (2) Teamsters Local 856 vs. Board of Retirement (Coordinated Proceedings JCCP4049)

Public Session:

1.

Call to Order

2.

Board Business

2.1

Roll Call

2.2

Adoption of Resolution commending William R. Cottle for his service

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

Authorization to Issue an Actuarial Services Request for Proposal

5.4

Acceptance of Status Report from the Ad Hoc Medicare Part-B Premium Reimbursement Program Review Committee

6.

Investment Services

6.1

Acceptance of Monthly Portfolio Performance Report

6.2

SamCERA’s Investment Manager Structure – U.S. Equity Part Two

*

6.3

Annual Investment Manager Review – Barclays Global Investors

6.4

Approval of Topics for Investment Manager Review – Bank of Ireland Asset Management

6.5

Adoption of Due Diligence Policy & Procedures

6.6

Review, Revision & Reaffirmation of Investment Committee Charter

6.7

Approval of Amendments to SamCERA’s Investment Plan – Asset Allocation / Capital Market Assumptions

*The Committee will briefly discuss this topic.  The Agenda Item in its entirety will be heard by the Board.

7.

Board & Management Support Services

7.1

Acceptance of Monthly Financial Reports

7.2

Acceptance of First Quarter 2003-2004 Administrative & Professional Budget Reports

7.3

Acceptance of Auditor’s Report and Acceptance of SamCERA's Financial Statements

7.4

Acceptance of SamCERA’s Comprehensive Annual Financial Report

7.5

Acceptance of KPMG's Audited Financial Statements for SamCERA's Real Estate Portfolio

7.6

Public Hearing on Amendments to the Regulations of the Board of Retirement

7.7

Acceptance of Annual PensionGold Status Report

7.8

Approval for Document Management System Analysis

7.9

Further consideration of the format for Board Minutes

7.10

Approval of Amendment to State Association of County Retirement Systems’ Constitution

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

October 28, 2003 – Board Minutes, as corrected

0310.1

Call to Order:  Ms. Colson, Chair, called the Public Session of the Board of Retirement to order at 1:00 p.m., October 28, 2003 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0310.2

Board Business

0310.2.1

Roll Call:   Mr. Bryan, Ms. Colson, Mr. Hooley, Mr. Lewis, Mr. McMahon (2:00), Ms. Salas & Ms. Stuart.  Ms. Arnott for Mr. Buffington.  Excused:  Ms. Tonsfeldt.  Staff:  Mr. McCausland, Mr. Clifton & Ms. Lamica.  Counsel:  Ms. Carlson.  Consultants:  Dr. Fracchia, Mr. Heiskell, Ms. Jadallah, Ms. Sireno & Mr. Thomas.  Custodian:  Mr. Azfar, Actives: 5, County: 3, Public: 1.

0310.2.2

Adoption of Resolution commending William R. Cottle for his service:  Motion by Bryan, second by Salas, carried unanimously, to adopt a resolution commending William R. Cottle for his service.

0310.3

Approval of the Minutes:  Ms. Arnott submitted recommended corrections to the minutes, of which the following were incorporated:  0308.5.2 ¶1, L6: “…consequently, he had did not find…”;  0308.5.6 ¶4, L4: “…may call on others for advice as it deems necessary.  Ms. Colson asked for volunteers to serve on the Ad Hoc Committee.”;  0308.6.3 ¶1, L9: “…Committee will bring bringing a series…”;  0308.6.6 ¶1, L3: “…Committee will be forward a list…”;  0308.7.2 ¶3, L1: “…amendments due to the Ventura II proceedings…”;  …”;  0309.5.6 ¶1, L5: “…a survey of retirees…”.  Motion by Bryan, second by Salas, carried unanimously, to approve the Minutes of August 26, 2003 as corrected.  Motion by Salas, second by Arnott, carried unanimously, to approve the Minutes of September 23, 2003 as corrected. 

0310.4

Oral Communications

0310.4.1

Oral Communications From the Board:  Ms. Stuart reported that she had attended the California Retired County Employees’ Association conference where she was impressed by presentations on a proposal for universal health care coverage for Californians and on new laws affecting County retirement systems.

03104.2

Oral Communications From the Public:  None.

0310.5

Benefit & Actuarial Services

0310.5.1

Adoption of Consent Calendar:  Without objection, Ms. Colson removed the applications of Loretta Keenan (Ms. Keenan), Stephen Medina (Mr. Lewis) and Lois Carter (Mr. Lewis) from the Consent Calendar for consideration under Agenda Item 5.2.  Motion by Stuart, second by Lewis, to adopt the Consent Calendar as amended, as follows:

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:

Bost, Bobby

October 1, 2003

Probation Department

Dolci, Patricia

October 1, 2003

Department of Social Services

Frias, Charlene

October 1, 2003

Probation Department

La Motte, Guy

October 11, 2003

Assessors’ Office

Silva, Charlene

October 12, 2003

Aging and Adult Services

Dirks, Garland

October 15, 2003

Sheriff’s Department

Yamada, Ayako

October 15, 2003

Environmental Services Department

Fritz, Michael

October 26, 2003

Parks and Recreation Department

Perry, Luther

October 16, 2003

Information Services Department

Callendar, John

October 31, 2003

Probation Department

Continuance of Benefits:

Schnitgen, Richard

Beneficiary of Hugh Swaney

Deferred Retirements:

Gruber, Eleanor

G4 non vested

Reciprocity

Bernstein, Ivan

G2 vested

Boersig, Laura

G2 vested

Lavelle, Madeline

G2 vested

Loza, Eliazar

G2 vested

Morris, Lisa

G2 vested

Shehee, Terry

G4 non vested

Snead, Jill

G2 vested

Torrelio, Eliza

G2 vested

Yoshimoto, Diana

G2 vested

Refunds for August 2003:

Carrillo, Salvador

G4 non vested

$3,270.79

Cheng, Mely

G2 vested

$68,404.18

Corder, Terry

G2 vested

$19,763.08

D’Antonio, John

G4 non vested

$9,331.54

Duckett, Jody

G2 vested

$14,735.68

Fellner, Yvonne

G4 non vested

$11,595.04

Jimenez, Sylvia

G4 non vested

$1,322.67

Mayer, Deborah

G2 vested

$14,130.40

Reddy, Suman

G4 non vested

$1,824.87

Strauss, Laura

G4 non vested

$10,644.03

Spiller, Denise

G2 vested

$69,374.45

Total Refunds for October 2003:

$224,396.74

Rollovers for October 2003:

Fuller, Gary

G4 non vested

$668.10

Monasch, Alan

G4 non vested

$8,608.72

Ruston, Delaney

G4 non vested

$3,011.81

Subramanian, Swarna

G4 non vested

$859.20

Total Rollovers for October 2003:

$13,147.83

0310.5.2

Consideration of items removed from Consent Calendar:  In response to a question from Mr. Lewis, Dr. Fracchia reported that Mr. Medina was no longer able to perform his normal duties as a carpenter.  In response to a question from Ms. Colson, Dr. Fracchia reported that his review of the proximity of events led him to conclude that Mr. Medina’s herniated disc was work-related.  In response to a question from Ms. Stuart, Dr. Fracchia reported that the County is unable to offer Mr. Medina a light-duty assignment.  Motion by Bryan, second by Salas, carried unanimously (a) to find that Stephen Medina is unable to perform his duties as a Carpenter/Mill Cabinet Worker, (b) to find that his disability is Service Connected and (c) to grant him a Service Connected Disability Retirement.

In response to a question from Mr. Lewis, Dr. Fracchia noted that Ms. Carter’s injury occurred in 1986.  In reviewing the reports from 1986, Dr. Fracchia noted that she was reassigned from fieldwork to a light-duty assignment following an injury incurred on the job.  Mr. Bryan noted that Ms. Carter had performed in a modified work position since her injury in 1986.  Motion by Salas, second by Bryan, carried unanimously, (a) to find that Lois Carter is unable to perform her duties as a Fiscal Office Specialist, (b) to find that her disability is Service Connected and (c) to grant her a Service Connected Disability Retirement.

Mr. McCausland reported that the Board had considered Loretta Keenan’s application for a Service Connected Disability Retirement on February 25, 2003 and had denied the application by unanimous vote of the trustees present.  Ms. Keenan appealed the Board’s decision.  A hearing was held and the hearing officer’s supplemental findings and recommended decision report was distributed to the Board by fax on October 27, 2003. 

Mr. McCausland noted that the law grants the appellant ten days to file written objections to the supplemental report.  Ms. Carlson noted that if Ms. Keenan wants the Board to consider the matter today, then she will be waiving her right to file objections to the supplemental report of the hearing officer; otherwise the matter should be continued until the November meeting.  Ms. Keenan reported that her objections had been filed with the Board.  In response to a question from Ms. Carlson, Ms. Keenan affirmed that her objections were set forth in her letter of October 27, 2003.

Mr. McCausland reported that the law defines the Board’s procedures for considering the findings and recommended decision of the hearing officer as outlined in his letter to Ms. Keenan dated October 23, 2003, as follows:  Government Code §31534 controls the Board’s consideration of the hearing officer’s report, as follows:  The proposed findings of fact and recommendations of the referee shall be served on the parties who shall have 10 days to submit written objections thereto which shall be incorporated in the record to be considered by the board.  Upon receiving the proposed findings of fact and the recommendations of the referee, the board may:   (a) approve and adopt the proposed findings and the recommendations of the referee, or (b) require a transcript or summary of all the testimony, plus all other evidence received by the referee.  Upon the receipt thereof the board shall take such action as in its opinion is indicated by such evidence, or (c) refer the matter back with or without instructions to the referee for further proceedings, or (d) set the matter for hearing before itself.  At such hearing the board shall hear and decide the matter as if it had not been referred to the referee.  The Board reviewed its options.

Ms. Colson invited Ms. Keenan to address the Board.  Ms. Keenan reviewed her accident, medical history and current symptoms with the Board.  In response to questions from Ms. Carlson, Ms. Keenan affirmed that she is represented by counsel, that her counsel was not present at the Board meeting and that she wanted the Board to proceed with its decision.     

Ms. Carlson recommended that the Board hear from Raymond Swope, the Deputy County Counsel who represented the Board at the hearing.  She noted that the Board’s decision should be based on the findings and recommended decision of the hearing officer; therefore, it would be useful to know which records the hearing officer reviewed and how the process was conducted.  In response to a question from Mr. Lewis, Mr. Swope reported that Kevin Kelly served as the hearing officer.  He reported that Mr. Kelly has more than 30 years of experience as a lawyer, with many of those years as a hearing officer in administrative hearings, arbitrations, mediations and the like.  Mr. Swope reported that Mr. Kelly understands the medical testimony, orthopedic and personal injury issues, due in part to many years of service as an insurance defense counsel. 

Mr. Swope reported that Ms. Keenan’s counsel succeeded in excluding certain records from the hearing.  During the hearing on August 19^th, Ms. Keenan’s attorney sought to exclude the sub-rosa videotape.  Mr. Swope noted that Ms. Keenan’s personal physician testified under oath in a workers’ compensation hearing that there was no evidence on the tape indicating the disability that she claimed.  Mr. Kelly reviewed the videotape, the entire testimony of the doctor and the videographer, as well as the relevant medical evaluations and records. 

Mr. Lewis asked if Ms. Keenan would like to add to her testimony.  Ms. Keenan replied that she was assigned a County doctor and the Board is rejecting the County doctor’s prescription.  She stated that she knew she was being videotaped, but that she was complying with her doctor’s orders to walk as much as she could to strengthen the muscles while she was awaiting surgery.  She noted that she spent most of her time in bed while the videographer was assigned to her case.  She concluded that the County doctor states that she needs surgery and treatment.

Motion by Bryan, second by Arnott, carried unanimously, to approve and adopt the proposed findings and recommendations of the hearing officer (a) finding that Loretta Keenan failed to sustain her burden of proof that her knee injury, or any other ongoing medical problems, have permanently disabled her from performing the usual and customary duties of a Psychiatric Social Worker / Marriage and Family Therapist and (b) to deny her application for a Service Connected Disability Retirement.

0310.5.3

Authorization to Issue an Actuarial Services Request for Proposal:  Following a general discussion, without objection, Ms. Colson instructed staff to bring the actuarial request for proposals to the Board for approval in November.   

0310.5.4

Acceptance of Status Report from the Ad Hoc Medicare Part-B Premium Reimbursement Program Review Committee:  Mr. McCausland reported that the Ad Hoc Committee had instructed Counsel to undertake a study of SamCERA’s Interest Crediting Policy.

0310.6

Investment Services

0310.6.1

Acceptance of Monthly Portfolio Performance Report:  Mr. Clifton reported on periods ending September 30^th.  He noted that SamCERA’s international equity manager continues to trail its index. 

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

$678,869,941

-1.18%

27.22%

2.41%

International Equity

189,223,612

1.60%

19.27%

2.17%

Total Equity

$868,093,553

-0.59%

25.35%

1.76%

Fixed Income

377,767,918

2.65%

5.27%

6.52%

Real Estate Aggregate

58,197,962

-0.03%

13.65%

9.60%

Cash Equivalents

8,814,547

0.24%

2.18%

Total Fund

$1,312,873,980

0.35%

18.06%

4.22%

Benchmark

0.72%

20.05%

3.70%

Without objection, Ms. Colson accepted the report.

0310.6.2

SamCERA’s Investment Manager Structure – U.S. Equity Part Two:  Mr. Bryan reported that the Investment Committee had reviewed a variety of alternatives with Strategic Investment Solutions and recommended that the Board adopt the Committee’s proposed domestic equity allocation.  SIS predicts that the allocation will generate very low benchmark risk and low alpha relative to allocations with more active management.  Motion by Colson, second by Salas, carried unanimously, to amend SamCERA’s Asset Allocation as follows:  (1) 50% of the allocation to domestic large capitalization equities is to remain in the passive index fund(s), (2) the other 50% is to be invested in an enhanced index fund(s); (3) 50% of the allocation to domestic small capitalization equities is to be invested in an enhanced index fund(s) with the understanding that capacity constraints may delay the transition of the allocation from the current passive index fund to the enhanced index fund(s), (4) 25% of the allocation to domestic small capitalization equities is to be invested in active value style management and (5) 25% to active growth style management. 

0310.6.3

Annual Investment Manager Review – Barclays Global Investors:  Trey Heiskell and Starla Sireno presented the report on Barclay Global Investors’ services for SamCERA.  Mr. Heiskell reviewed Ms. Sireno’s qualifications.  He also reviewed BGI’s senior management team and recent additions.  Mr. Heiskell reviewed BGI’s long-term success with its alpha-tilt strategies.  Ms. Sireno noted that the small cap strategies underperformed year-to-date, noting that BGI’s optimization model had ranked micro-cap stocks with market capitalizations between approximately $1 million and $6 million as too costly to buy, yet those stocks rallied strongly in May 2003.  She reported that BGI is currently modifying its BARRA optimizer to dampen the impact of the “too expensive” signal on this sector, while analyzing the potential value of adding the sector.  Mr. Heiskell noted that some of the best performers were micro cap stocks that BGI had anticipated would be deleted from the index.

Ms. Sireno reviewed SamCERA’s three strategies managed by BGI.  SamCERA has $533.0 million invested in BGI’s fully replicated Russell 1000 Equity Index Fund, which has returned an annualized 10.52% since the inception of SamCERA’s account on February 28, 1995, versus 10.50% for the index.  SamCERA has $145.8 million invested in BGI’s optimized Russell 2000 Equity Index Fund, which has returned an annualized 2.07% since the inception of SamCERA’s account on May 31, 2000, versus 2.11% for the index.  However, Ms. Sireno noted that the small cap fund had underperformed its benchmark by 37 basis points between January 1 and September 30^th.  Mr. Heiskell reported that about half of the underperformance related to the micro cap rally, about one-third to the reconstitution of the Russell 2000 Index and the remainder was due to speculative trading around the reconstitution date.  SamCERA has $209.5 million invested in BGI’s stratified sampling US Debt Index Fund, which has returned an annualized 7.82% since the inception of SamCERA’s account on April 30, 1996, versus 7.73% for the index. 

Ms. Colson noted the absence of women from the list of senior managers.  She suggested that BGI take affirmative steps to rectify the situation.  In response to a question from Mr. Bryan, Mr. Heiskell reported that the growth of assets under management in the enhanced funds has been very significant.  Consequently, BGI’s portfolio managers are carefully metering the flow of money into the funds.  Upon request of Ms. Colson, Mr. Heiskell agreed to discuss the timing for the transition of SamCERA’s portfolios.  In response to a question from Mr. Lewis, Mr. Heiskell reported on the senior managers listed on BGI’s Review Questionnaire.  In response to a question from Mr. Lewis, Mr. Heiskell reported that the transfer of back room operations to Investors Bank & Trust has had no change on BGI operations since the personnel working on BGI transactions are working in Sacramento in a former BGI property and are former BGI employees.  In response to a final question from Mr. Lewis, Mr. Heiskell reported that BGI uses no soft dollar research and that its quantitative analytical research is technology based, so that research buys data with hard dollars rather than fundamental research.  Ms. Colson thanked Mr. Heiskell and Ms. Sireno for BGI’s efforts as manager for the largest portion of SamCERA’s assets.

0310.6.4

Approval of Topics for Investment Manager Review – Bank of Ireland Asset Management:  Without objection, Ms. Colson accepted the Investment Committee’s recommended topics.

0310.6.5

Adoption of Due Diligence Policy & Procedures:   Mr. Bryan reviewed the Investment Committee’s recommendations.  Motion by Stuart, second by Lewis, carried unanimously, to adopt the following Due Diligence Policy and Procedures:

Due Diligence Policy

AUTHORITY

The San Mateo County Employees’ Retirement Association (SamCERA) Board of Retirement (Board) is responsible for the management of the Association’s assets under authority granted by Article XVI, Section 17 of the California Constitution.

Article XVI, Section 17(c) of the California Constitution provides that “the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aim.”

POLICY

SamCERA’s due diligence process requires (i) staff to perform regular due diligence monitoring and report on same, (ii) investment consultants and managers to make regularly scheduled due diligence presentations to the Board and staff in SamCERA’s offices, and (iii) the Board, staff, and Investment Consultant to make on-site visitations to service provider’s offices when determined appropriate by the Board.

PURPOSE

To discharge the fiduciary responsibilities of the Board of Retirement and staff, regular due diligence with the San Mateo County Employees’ Retirement Association investment managers and real estate properties are essential to the Board of Retirement’s ability to effectively monitor the performance of its investment professionals and to the prudent discharge of the Board’s fiduciary duty to the beneficiaries of this multi-million dollar retirement system.

F.01 – Due Diligence Monitoring

Individual investment managers will be monitored by staff and the investment consultant continuously and report to the Board on a monthly, quarterly, semi-annual, and annual basis. 

The Investment Consultant will regularly review SamCERA’s Investment Managers and when appropriate provide insights and analysis to the Board regarding.  It is understood that the Investment Consultant routinely visits managers on-site and in the Consultant’s office.  That research will be made available to SamCERA.

Monthly Reporting:  The Investment & Finance Manager (IFM) will prepare a monthly investment activity and compliance report.  The report will note individual investment manager statistical compliance to their investment guidelines, objectives and portfolio restrictions.  The IFM will review the investment managers’ purchases and sales for each month, and note in the report any deviations from the investment guidelines and restrictions, as outlined by the investment manager agreement.  The report will also note any significant changes in the following:

• portfolio composition                                         
• portfolio turnover                                              
• changes in market value
• sector weights
• changes in cash position
• general trading activity

The IFM shall also report monthly on qualitative changes in the Investment Manager’s business, including but not limited to change in ownership, personnel, clients, major changes in assets under management or other material events.

Quarterly Reporting: The Investment & Finance Manager, with assistance from the investment consultant, will present an investment performance report to the Board on a quarterly basis, as specified in Section 16.0 Quarterly Investment Performance Reporting. Performance will be measured for the total portfolio as well as individual components such as equities, fixed income and real estate portfolios.  In addition, the performance of each component will be broken down into individual portfolios.

Comparisons will be made against market indices defined in this document.  A variance from the stated performance objective will be calculated each quarter.  Additionally, the portfolios' actual investment approach will be monitored against the required investment style to determine whether the manager is adhering to its acknowledged investment style.

The quarterly investment performance report will compare the total fund, each asset class and individual portfolio return to appropriate market indices and a representative peer group of similar funds or similar style investment managers. The report will note significant changes in the attribution of investment manager performance.

Semi-Annual Reporting:  Every six months, the Investment and Finance Manager, with the assistance of the investment consultant, will provide the Board with a review of one of the three major asset categories of the total investment portfolio in detail.  Therefore, during an eighteen-month period the IFM and the investment consultant will conduct a detailed review of each of the three asset categories in which SamCERA invests.

Annual Reporting:  Annually, the Investment and Finance Manager will request and review the Investment Manager’s ADV Part II form and inform the Board of significant changes in the firm or apparent conflicts of interest. In addition the IFM will request an annual Insurance Certification from each professional service provider.  Where appropriate a Statement of Auditing Standards #70 will be obtained and reviewed.  (The SAS-70 audit report describes the control structure as it relates to its fiduciary and custodial activities and is prepared in accordance with the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards Number 70, entitled "Reports on the Processing of Transactions by Service Organizations" as amended by AICPA Statement on Auditing Standards Number 78, entitled "Consideration of Internal Control in a Financial Statement Audit.")

F.02 – Due Diligence Presentations

SamCERA’s Investment consultants and investment managers that are under contract with the Board will make a presentation to the Board at a public Board meeting at least once a year. The presentation shall include, but not be limited to, an update on the manager’s organization and business plan, changes to the investment process and investment performance.  The Board may request presentations more frequently as circumstances demand.  The investment managers will provide on a semi-annual basis a completed Compliance Certification Statement (Appendix D) and in depth response to a list of questions submitted by the Board.

F.03 – Evaluation and Education

On-site meetings provide board and staff with opportunities to:

1.  Evaluate an investment manager’s staff and observe how they jointly carry out their fiduciary responsibility to SamCERA.

2.  Interview individuals who directly manage SamCERA’s account.

3.  Evaluate the significance of personnel shifts or other organizational changes that may affect SamCERA’s portfolio.

4.  Observe the systems and controls utilized to handle SamCERA’s investments.

5.  Hold in-depth reviews regarding an investment manager’s philosophy, style and approach to investing SamCERA’s assets.

6.  Develop a better understanding of the significance of short-term periods of good or bad performance.

F.04 - Official Due Diligence Trip

An official due diligence trip shall be condoned under three scenarios listed below.  In all cases the visit requires prior approval of the Board.  The scenarios under which site visits should occur are:

1.  Manager Searches - The top two finalists will be visited prior to offering an Agreement to the successful firm.  When occasions demand that only one, or more than two, finalists are to be visited, the Board will approve, via motion, the variance from policy.

2. Extraordinary Events – From time to time an Investment Management firm may experience an extraordinary event, including but not limited to, a change in ownership, personnel, investment strategy, style shift, prolonged underperformance and etc.  The Board will be appraised of the circumstances and determine if a site visit to the firm’s headquarter or branch location is appropriate.

3.  Investment Consultant Scheduled Visit – SamCERA’s Investment Consultant will inform the Board when it plans to visit one of SamCERA’s Investment Managers.  The Board will determine if it is appropriate to send a representative(s).

F.05 - Unofficial Due Diligence Trip

An unofficial due diligence trip shall occur when a SamCERA representative finds himself or herself in the proximity of an Investment Manager’s Office at no additional cost to the Association.  The representative’s visit will be unofficial unless otherwise determined by the Board. 

F.06 – Coordination of Due Diligence

The Investment & Finance Manager or the Chief Executive Officer coordinate all official and unofficial visits to SamCERA’s service providers.

F.07 – Policy Review

The Due Diligence Policy Manual shall be reviewed every three years and updated as necessary. 

0310.6.6

Review, Revision & Reaffirmation of Investment Committee Charter:  Mr. Clifton reviewed the provisions of the Investment Committee Charter as amended to reflect the Board’s new Due Diligence Policy & Procedures.  Motion by Bryan, second by Arnott, carried unanimously, to amend section 9 of the first Resolved clause of the Board’s Investment Committee Charter, as follows:

9.0  Evaluate Manager performance

9.1  Monitor results of managers

9.2  Assess consistency of portfolio decision making

9.3  Evaluate organizational, ownership, personnel & other firm developments

9.4  Assess compliance with SamCERA’s Investment Plan including, but not limited to, the General Investment Performance Guidelines, Due Diligence Policy, Compliance Certification Statement, and the Investment Manager Requirements.

0310.6.7

Approval of Amendments to SamCERA’s Investment Plan – Asset Allocation / Capital Market Assumptions:  Mr. Bryan reported that the amendments to SamCERA’s Investment Plan will be presented upon completion of the Investment Committee review of the manager structure.

0310.7

Board & Management Support Services

0310.7.1

Acceptance of Monthly Financial Reports:  Mr. Clifton reported that the financial statement reflects the fact that the real estate allocation was decreased by the sale of Hunter’s Creek.  He noted that the proceeds of the sale were being held in cash equivalents to fund retirement benefit disbursements.  Without objection, Ms. Colson accepted the report.

0310.7.2

Acceptance of First Quarter 2003-2004 Administrative & Professional Budget Reports:  Mr. Clifton reported that, with 25% of the fiscal year completed, Administrative expenditures to date represented 15.8% of the total $1,834,000 appropriated for the fiscal year.

Category

Expended

% Expended

Salaries & Benefits

$203,925

18.1%

Services & Supplies

169,856

20.3%

Fixed Assets

0

Total Budget

$373,781

18.7%

Professional Expenses accrued year-to-date total $569,400, or 24.6% of the estimated total for the year.  The budget reports also included a review of education expenses year-to-date and status reports on SamCERA’s Budget Initiatives and Risk Management Matrix.  Without objection, Ms. Colson accepted the report.

0310.7.3

Acceptance of Auditor’s Report and Acceptance of SamCERA's Financial Statements:  Mr. Clifton reviewed the four reports from the Auditor, as presented on September 25^th.  Motion by Bryan, second by Lewis, carried unanimously, (1) to accept Brown Armstrong Paulden McCown Starbuck & Keeter’s (a) Independent Auditor’s Report on Financial Statements, (b) Auditor’s Report on Compliance and on Internal Control over Financial Reporting, (c) Required Communications to the Board of Retirement and (d) Agreed Upon Conditions and (2) to accept SamCERA’s audited Financial Statements. 

0310.7.4

Acceptance of SamCERA’s Comprehensive Annual Financial Report:  Mr. Clifton reviewed the Comprehensive Annual Financial Report.  He noted that this will be the first year that the Board submits its CAFR to the Board of Supervisors with the ’37 Act mandated October 31^st attestation letter from its CEO.  Motion by Stuart, second by Lewis, carried unanimously, to accept SamCERA’s Comprehensive Annual Financial Report.

0310.7.5

Acceptance of KPMG's Audited Financial Statements for SamCERA's Real Estate Portfolio:  Mr. Clifton reviewed KPMG’s audited financial statements for the properties in SamCERA’s real estate portfolio.  Motion by Bryan, second by Arnott, carried unanimously, to accept the Statement of Operations, Statement of Changes in Net Assets, Statement of Cash Flows and Notes to Financial Statements for each of SamCERA’s separate properties as audited by KPMG.

0310.7.6

Public Hearing on Amendments to the Regulations of the Board of Retirement:  Ms. Colson opened the public hearing on the amendments to the Regulations of the Board of Retirement.  Ms. Carlson reported that Mr. Hood, Mr. McCausland and she had prepared a new set of substitute regulations based upon the ’37 Act’s guidelines and regulations used by other ’37 Act systems.  She noted that the election regulation is the most comprehensive among the ’37 Act systems.  She noted that the Board has the option to incorporate or eliminate San Mateo County’s unique military service program, which specifies that the Board will determine the calculation of the cost and value of the benefit.  She noted that by removing compensation earnable from the regulations, the Board will need to adopt a standing resolution covering that subject.  There being no public comment, Ms. Colson closed the public hearing.

0310.7.7

Acceptance of Annual PensionGold Status Report:  Mr. McCausland reported that SamCERA has concluded its most stable year since the implementation of PensionGold, which he deemed remarkable given the implementation of the new benefit formulas.  He noted that aggregate expenditures on the system now total $399,460.  He noted that Mr. Hood recommends delaying the evaluation of alternative systems until the 2005-2006 fiscal year. 

In response to a question from Mr. Lewis, Mr. McCausland reported that Levi, Ray & Shoup has committed to supporting PensionGold Version 1 for another four or five years, unless an unforeseen technological shift makes the Fox Pro data base system inoperable.  In response to a question from Ms. Colson, Mr. McCausland reported that a clone of PensionGold is accessible through the website.  He noted that some individuals have difficulty working with the system, but he noted that the system is accurate.  Mr. Bryan noted that when people have problems they usually call SamCERA and staff guides them through the process.  Ms. Colson suggested that the phone number for help be readily available on the input screens.  Ms. Salas asked that staff research member concerns that the system will not accept fractional values.  Without objection, Ms. Colson accepted the report.

0310.7.8

Approval for Document Management System Analysis:  Mr. McCausland noted that the proposal was not yet ready for the Board’s consideration.  Mr. Lewis asked that staff make certain that SamCERA capitalizes on all of the imaging experience and expertise that the County has accumulated to date.  Without objection, Ms. Colson continued the agenda item until November 25^th.

0310.7.9

Further consideration of the format for Board Minutes:  Mr. McCausland circulated a variety of minute formats used by other California systems.  Ms. Colson encouraged the Board to comment on the minute’s format and alternative procedures that might be used.  Mr. McCausland noted that he will re-direct staff resources to help with the preparation of the minutes.  With assistance from staff, his role can become that of editor rather than secretary.  Mr. McMahon stated his belief that SamCERA’s minutes are an excellent educational tool.  Ms. Stuart noted that the minutes are an excellent historical resource.  Mr. Bryan noted that he finds the minutes very useful.  Without objection, Ms. Colson instructed staff to retain the current format of the Board Minutes and to develop a more cost effective method for the preparation of the Board Minutes.

0310.7.10

Approval of Amendment to State Association of County Retirement Systems’ Constitution:  Ms. Colson noted that the State Association of County Retirement Systems wants to amend its Bylaws to formally recognize its Education Committee.  Motion by Bryan, second by Salas, carried unanimously, to authorize SamCERA’s Voting Delegate to the SACRS Spring Conference to cast a vote in favor of adding the SACRS Education Committee to SACRS’ By-laws.

0310.8

Approval or Acceptance of Reports

0310.8.1

Chief Executive Officer's Report:  Mr. McCausland reported that the Supreme Court rejected SamCERA’s request for review of the Appellate Court affirmation of the Superior Court decision.  The Superior Court decision (1) orders SamCERA to recalculate all eligible retirees’ benefits to incorporate pay codes added as a result of the Ventura decision; (2) orders SamCERA to calculate and pay lump sum retroactive benefits accrued since March 1995 to eligible retirees, survivors and beneficiaries; (3) orders SamCERA to pay the recalculated monthly benefits to eligible retirees, survivors and beneficiaries going forward; (4) authorizes the Board to determine whether or not to calculate member contributions due on Ventura earnings codes and whether or not to collect all, some or none of such contributions from all, some or none of SamCERA’s active, deferred and retired members.   Case law indicates that the Board has the authority to collect back contributions from the date of employment, whether or not the member will benefit from such contributions at the time of retirement.  Mr. McCausland noted that the Board must report to the Court within six months on the Board’s plan for implementing the Court’s order. 

Mr. McCausland reported that the Governor signed AB 55, a new law that authorizes the Board of Supervisors to decide whether or not it wants to permit employees to purchase up to five years of SamCERA supplemental service credit.  He reported that the Board of Supervisors authorized an actuarial study of the potential cost to the County if it implements AB 55.  Mr. Bryan challenged the need for an actuarial study, but Mr. McCausland noted that the Government Code requires such a study and that in his opinion the plan will not be cost neutral due to self-selection by those who opt to make the purchase.  He noted that AB 55 fixes the cost to the member on the date the member enters into the purchase agreement.  Thereafter, any unexpected changes in the actuarial interest assumption, life expectancy, date of retirement, marital status and salary accrue to the County, not the member.  In response to a question from Ms. Stuart, Mr. McCausland noted that AB 55 does not require that the time purchased be time worked, but that only active members would be eligible to make the purchase.  Mr. Bryan noted that the benefit would be like a very expensive annuity that would cost at least as much as SamCERA’s military service purchase program.   Mr. McCausland indicated that many members will be asking for an estimate at the same time staff is implementing Ventura and ramping up for the 2005 retirement formula upgrades.  He indicated that staff will attempt to program PensionGold to generate online AB 55 estimates for members. 

0310.8.2

County Counsel's Report:  None.

0310.8.3

Investment & Finance Manager’s Report:  Mr. Clifton distributed Deutsche Asset Management’s & Bank of Ireland Asset Management’s market commentary.  He noted that DAMI had reported that one of the bonds in the portfolio had been downgraded to B3, but that the manager recommends that SamCERA authorize continued trading in the bond.  Without objection, Ms. Colson so ordered.  He reported that he had attended Frank Russell client seminar and that he gained insight into their fund of funds product and staff.  He updated the Board on the departure of David Baldt from DAMI.

0310.8.4

Assistant Executive Officers’ Report:  None.  Ms. Colson recessed the Public Session at 3:00 p.m. and reconvened it at 3:27 p.m.

0310.8.5

Report on Actions taken in Closed Session:  Mr. McCausland reported that Ms. Colson convened the Board in Closed Session at 3:05 p.m. with all trustees present for roll call in attendance.  The Board conferred with Counsel on (1) Anticipated Litigation – Significant exposure to litigation pursuant to subdivision (c) of Government Code §54956.9: number of Cases – 1 and (2) Teamsters Local 856 vs. Board of Retirement (Coordinated Proceedings JCCP4049).  County Counsel was given authorization to negotiate the settlement of attorneys’ fees demanded by counsel for Plan Members.  There being no further business, Ms. Colson adjourned the Closed Session at 3:27 p.m.

0310.9

Adjournment in Memory of the following Deceased Members:  There being no further business, Ms. Colson adjourned the meeting at 3:28 p.m. in memory of the following deceased members:

MARUBAYASKI, EDITH

SEPTEMBER 2, 2003

CHOPE HOSPITAL

BURTCHAELL, ROBERTA

SEPTEMBER 17, 2003

BENEFICIARY OF HERBERT

SWANEY, HUGH

SEPTEMBER 23, 2003

CORONER’S OFFICE

FIFE, DALE

OCTOBER 1, 2003

BENEFICIARY OF FRANKLIN

BLUMENTHAL, DORIS

OCTOBER 4, 2003

CHOPE HOSPITAL

CHURMA, JACLYN

OCTOBER 7, 2003

PROBATION DEPARTMENT

HAZLEHURST, ILENE

OCTOBER 16, 2003

CRYSTAL SPRINGS REHAB. CENTER