February 24, 2004 – Board Agenda

The Investment Committee will review all semi-finalists in detail and make a recommendation to the Board. The selection of finalists will be by the Board.

Board & Management Support Services

7.1

Acceptance of Monthly Financial Reports

7.2

Adoption of Proposed Amendments to the Regulations of the Board of Retirement

Approval or Acceptance of Reports

8.1

Chief Executive Officer's Report

8.2

Assistant Executive Officer’s Report

8.3

Investment & Finance Manager’s Report

8.4

County Counsel's Report

Adjournment

February 24, 2004 – Board Minutes, as corrected

0402.1

Call to Order: Alma Salas, Vice Chair, called the Public Session of the Board of Retirement to order at 9:00 am, February 24, 2004 in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0402.2

Roll Call: Mr. Bryan, Mr. Hooley (dep 2:00 pm), Mr. Lewis, Mr. McMahon (arr 1:00 pm), Ms. Salas, Ms. Stuart & Ms. Tashman. Ms. Arnott for Mr. Buffington. Excused: Ms. Colson. Staff: Mr. McCausland, Mr. Hood & Mr. Clifton. Counsel: Ms. Carlson. Consultants: Dr. Fracchia, Ms. Jadallah. & Mr. Thomas. Custodian: Ms. Azfar. Retirees: 3, County: 1.

Ms. Salas then took up agenda item 5.1

0402.5.1

Interview of Actuary Applicants: The Board conducted interviews of the five firms that responded to the Board’s Request for Proposal. Each firm provided a 15-minute overview of their proposal and then responded to 15 minutes of questions. Following each interview, the Board reviewed the presentation for 10 minutes before moving on to the next firm.

Mike Moehle and Eva Yum represented Mellon Consultants; Marcia Chapman and Michelle Rathbun represented Mercer Human Resources Consulting; Karen Steffen, Nick Collier and John Botsford represented Milliman USA; Ira Summer, Deanna Van Valer and Marty Panos represented Public Pension Professionals and Paul Angelo, Drew James and Andy Yeung represented The Segal Company.

Upon the conclusion of the interviews, Ms Salas recessed the meeting at 12:30 and reconvened the meeting at 1:00 p.m.

0402.3

Approval of the Minutes: Ms. Arnott submitted the following correction to the Minutes: 0401.6.2 L3: “that the Board employ an ~~and~~ international value-style equity manager”. Motion by Stuart, second by Bryan, carried unanimously, to approve the Minutes of January 27, 2004 as corrected.

0402.4.1

Oral Communications From the Board: Ms. Salas informed the members of the audience that they will be allowed to ask questions and voice their opinions at the beginning and end of each agenda item, but not during the discussion.

0402.4.2

Oral Communications From the Public: None.

0402.5

Benefit & Actuarial Services

0402.5.2

Adoption of Consent Calendar: Without objection, Ms. Salas removed the applications of Debbie Estrada (Ms. Arnott) from the Consent Calendar for consideration under Agenda Item 5.3. Motion by Bryan, second by Lewis, carried unanimously to adopt the Consent Calendar as amended, as follows:

Disability Retirements:

The Board finds that David Barrett is unable to perform his duties as a Deputy Sheriff, finds that his disability is Service connected and, GRANTS his application for a Service connected disability.

The Board finds that Lillian Giles is unable to perform her duties as a Legal Word Processor, finds that her disability is Nonservice-connected and, GRANTS her application for a 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

Moser, Peggy

December 31, 2003

(from deferred)

District Attorney’s Office

Caughey, Daniel

January 18, 2004

Sheriff’s Department

Dreyfuss, Robert

January 31, 2004

Department of Public Works

Lopez, Victor

January 31, 2004

(from deferred)

Parks & Recreation Department

Greene, Steven

January 31, 2004

Parks & Recreation Department

Cacciatore, Judith

February 1, 2004

San Mateo County Medical Center

Radojevich, Milan

February 14, 2004

Sheriff’s Department

Pace, Linda

February 1, 2004

(from deferred)

Department of Human Services

Hall, Stephen

February 6, 2004

District Attorney’s Office

Carpenter, Andrea

February 11, 2004

(from deferred)

Probation Department

Callan, Dorothy

February 21, 2004

Department of Health Services

Virgo, Robert

February 24, 2004

(from deferred)

Information Services Department

Breen, Robert

February 28, 2004

Parks Department

Marquez, Robert

February 28, 2004

Dept of Environmental Services

Continuance of Benefits:

Posner, Lois

Beneficiary of Sylvan

Jones, Betty

Beneficiary of Leroy

Macias, Norma

Beneficiary of Joseph

Deferred Retirements:

None

Refunds For February 2004:

Day, Yvette

G4 non vested

$2,130.19

Feilding, Roger

G4 non vested

$16,249.88

Mendoza, Grace

G4 non vested

$221.35

Moon, Stephen

G4 non vested

$4,453.86

Nelson, Jennifer

G4 non vested

$1,365.20

Paredes, Judith

G4 non vested

$205.45

Vargas, Grethel

G4 non vested

$5,048.78

Yun, Sarah

G4 non vested

$3,815.97

Total Refunds February 2004

$33,490.68

Rollovers For February 2004:

Narayan, Praveen

G4 non vested

$1,446.29

Nunnery, Mary

G4 non vested

$14,684.53

Pereira, Saira Kahn

G4 non vested

$508.74

Reyes, Veronica

G4 non vested

$2,856.68

Rodriguez, Anthony

G4 non vested

$4,135.89

Ryan, Linda

G4 non vested

$355.34

Total Rollovers February 2004

$23,987.47

0402.5.3

Consideration of items removed from Consent Calendar: Ms. Salas took up the application of Debbie Estrada. Ms. Arnott stated that she did not believe that medical reports sustained Ms. Estrada’s claim that her condition is permanent. She stated the doctor’s reports indicated Ms. Estrada could do her job with some modifications and suggested she continue undergoing physical therapy and take the necessary medications. Dr. Fracchia stated that the Board cannot force anyone to accept modified work, but must find whether or not a person could perform the duties of their regular job. He reported that Ms. Estrada’s treating physician as well as the medical examiner felt that she is unable to perform the usual and customary duties of her regular employment. In response to Mr. Bryan’s question regarding the applicant’s permanent vs. temporary status, Dr. Fracchia stated that her treating physician had labeled her permanent and restricted her from performing her duties such as limiting her keyboarding time to 30 minutes at any given time with an aggregate of 4 hours a day, which would not satisfy the job responsibilities of her current position. Ms. Arnott speculated that Ms. Estrada may have been permanent at the time of the evaluation in July 2003, but her condition could have improved since then.

Motion by Bryan, second by Salas, carried unanimously to refer Ms. Estrada for an independent medical evaluation.

0402.5.4

Selection of Actuary: Following extensive discussion, without objection, the Board eliminated Mercer and Mellon from consideration based in part on pricing. After further discussion, motion by Bryan, second by Arnott, carried unanimously to instruct Staff (1) to enter into fee negotiations with Public Pension Professionals, Milliman, and Segal and (2) to conduct background and reference checks on current and former clients at the staff and trustee level for each of the 3 actuarial candidates.

0402.5.5

Annual review and determination of whether or not to continue Medicare Part-B Premium Reimbursement for fiscal year 2004-2005: John Murphy expressed his belief that the Medicare Part-B Reimbursement Program is of the utmost importance to many retirees.

Mr. McCausland noted that last September the ad hoc committee had begun its review of the program with the knowledge that SamCERA’s funding ratio had decreased to 75%. He reminded the Board that at the most recent Board meeting, the actuary had reported that, under various economic scenarios, the funding ratio will remain under 80% for the remainder of the decade. Since the Board of Supervisors required that the funding ratio remain above 80% for the Program to continue, Mr. McCausland reported that the Staff recommends the termination of the Medicare Part-B Reimbursement Program in order to give retirees sufficient notice.

In response to Ms. Stuart’s question regarding the drop in SamCERA’s funding ratio, Mr. McCausland stated that the primary reasons for the decline in the funding ratio were (1) the new enhanced retirement benefits to active employees, (2) three years of negative investment market returns, and (3) a change in the actuarial assumption rate from 8.25% to 8%, along with other actuarial assumption changes, including retiree life expectancy.

Ms. Stuart opined that retirees should not have to suffer due to the enhanced benefits bestowed upon active employees. Motion by Stuart, failed for lack of second, to send a letter to the Board of Supervisors endorsing the lowering of the funding ratio limit for the continuance of the Medicare Part-B Program.

Mr. Bryan expressed his disappointment at the Board of Supervisors and County Managers office for not selling pension obligation bonds in the past and blamed them for this unfortunate turn of events.

Motion by Arnott, second by Hooley, carried seven ayes (Arnott, Bryan, Hooley, Lewis, McMahon, Salas & Tashman) to one no (Stuart) to adopt Resolution 03-04-09, terminating the Medicare Part-B Premium Reimbursement Program effective June 30, 3004.

Whereas, Resolution 97-98-11 as amended governs SamCERA's Medicare Part-B Reimbursement Program; and

Whereas, Resolution 97-98-11 as amended provides in part as follows:

No existing or future employee, retiree, spouse or dependent shall have any vested rights, contractual rights or other rights in or to any retiree medical benefits or payment or subsidy for any such benefits. The Board of Retirement may modify or terminate, at any time and without any limitation, any retiree medical benefits provided by the Board of Retirement. Modification or termination may occur even if the retiree medical benefits have been provided without modification or termination on or after the date of hire of any employee, the date of retirement of any retiree, and/or the date of marriage or beginning of dependency of any spouse or dependent. In addition, neither SamCERA, the Board of Retirement, or any other party shall have any liability to pay any medical benefits (or contribution or subsidy for any such benefits) to the extent that such benefits (or contribution or subsidy) would exceed the assets allocated to the 401(h) Reserve

Whereas, Resolution 97-98-11 as amended provides in part as follows:

Prior to the beginning of each fiscal year, the Board of Retirement shall review the results of the prior year’s actuarial valuation and…if the actuarial funding ratio therein was less than 80%, the Board shall suspend funding for the 401(h) Reserve program at the end of the current fiscal year”; and

Whereas, the Board has received, reviewed and approved the reports and recommendations from its actuary, Mercer, and the Chief Executive Officer setting forth the changes necessary to assure the actuarial soundness of the Retirement Fund, including the finding that as of June 30, 2003 SamCERA’s GASB 25 Funding Ratio was 76.0%. Therefore, be it

Resolved that the Board affirms that SamCERA’s GASB 25 Funding Ratio was 76.0% as of June 30, 2003. Be it further

Resolved that the Board affirms that Resolution 97-98-11 as amended requires the Board to suspend funding for the 401(h) Reserve program at the end of the current fiscal year. Be it further

Resolved that the Board hereby terminates funding for SamCERA's Medicare Part-B Reimbursement Program as of June 30, 2004 pursuant to the terms and conditions of Resolution 97-98-11 as amended. Be it further

Resolved that the Chief Executive Officer is hereby authorized to take all steps necessary to provide for the orderly termination of the program.

Without objection, Ms. Salas instructed staff to include an item on the April 27^th Board agenda to authorize the payment of Medicare Part-B on a taxable basis, pursuant to a request by Ms. Stuart.

0402.5.6

Adoption of Cost of Living Allowance Resolution: John Murphy, on behalf of SCORPA, noted that retiree health costs were increasing in double digit percentages, while the Board was granting a 2% cost of living allowance.

Motion by Bryan, second by Salas, carried unanimously to adopt the Resolution 03-04-10, accepting the Actuary’s recommended 2.0% cost of living increase to be effective April 1, 2004.

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

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

Whereas, Mercer, by its letter dated February 2, 2004 has reported that the appropriate annual cost of living adjustment to be effective April 1, 2004 is 2.0%; and

Whereas, Mercer has transmitted an exhibit dated February 2, 2004 which sets forth a schedule of cost of living adjustments based upon applicable plan, date of retirement and the accumulated carry-over and changes thereto for those eligible. Therefore, be it

Resolved, that the Board hereby adopts a 2.0% cost of living adjustment effective April 1, 2004, be it further

Resolved, that the Board adopts the schedule of cost of living adjustments set forth in the Mercer exhibit transmitted February 2, 2004 and entitled San Mateo County Cost of Living Adjustments as of April 1, 2004; be it further

Resolved, that the Chief Executive Officer is hereby empowered to take all actions necessary to provide for the payment of cost of living adjustments in accordance with the adopted schedule effective April 1, 2004.

0402.5.7

Approval of contract for Interest Crediting Policy Actuarial Workshop: Ira Summer submitted and briefly reviewed a preliminary outline for the Interest Crediting Policy Workshop to be held April 27th. Motion by Bryan, second by Lewis, carried unanimously to approve the Contract with Ira Summer of Public Pension Professionals,, Inc to conduct an Interest Crediting Policy Actuarial Workshop on April 27^th discussing ’37 Act ad hoc benefits, SamCERA’s Interest Crediting Policy, alternate types of policies and their impact on the various parties, under various scenarios, as well as comparisons with other ’37 Act systems for an amount not to exceed $15,000.

0402.6

Investment Services

0402.6.1

Acceptance of Monthly Portfolio Performance Report: Mr. Clifton reported on the period ending on January 31, 2004. He noted that the markets remained strong during the month and that SamCERA is performing in line with its peers.

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

Domestic Equity

$773,122,106

2.44%

39.84%

1.38%

International Equity

225,370,528

2.23%

41.22%

1.77%

Total Equity

998,492,634

2.39%

40.14%

1.44%

Fixed Income

382,975,616

0.91%

5.45%

6.52%

Real Estate Aggregate

57,975,855

0.20%

11.34%

9.84%

Cash Equivalents

3,155,708

0.22%

2.23%

Total Fund

$1,442,599,812

1.89%

27.51%

4.31%

Benchmark

1.67%

28.30%

3.28%

Without objection, Ms. Salas accepted the report.

0402.6.2

Acceptance of Quarterly Investment Performance Analysis for periods ending December 31, 2003: Mr. Thomas noted that US dollar weakness, accommodating Fed, aggressive federal spending and tax policy all helped the markets along during the quarter. He noted that deflationary forces still lurk on the sidelines. He noted that SamCERA had its highest relative return during the quarter. Ms. Jadallah reviewed the performance of SamCERA’s managers. It was noted that Bank of Ireland’s management style was in favor during the quarter. Mr. Thomas praised the Board for adhering to its Asset Allocation Policy throughout the markets’ decline.

Asset Class

1-Quarter

1-year TTWRR

5-year TTWRR

Rank

Large Cap Equity

12.66

29.90

-0.09

Small Cap Equity

14.49

46.79

International Equity

16.51

30.50

1.55

Total Equity

13.57

32.48

1.16

Passive Fixed Income

0.33

4.22

6.72

Active Fixed Income

0.62

5.03

7.21

Total Fixed Income

0.46

0.31

6.34

Real Estate

2.04

11.67

10.43

Cash Equivalents

0.47

2.14

Total Fund

9.17%

22.68%

4.05%

Benchmark

9.08%

23.99%

3.14%

Without objection, Ms. Salas accepted the report.

0402.6.3

Acceptance of SamCERA’s Investment Manager Search Schedule: Mr. Clifton presented the proposed schedule for investment manager searches. Noting that that the draft schedule had been set back one month, that International Equity had been moved forward and that the INVESCO co-mingled fund will be brought to the Board in April. Without objection, Ms. Salas accepted the report.

0402.6.4

Acceptance of Criteria to be Employed in SamCERA’s International Equity Manager Searches: Mr. Clifton noted that this agenda item was put over to the March Investment Committee meeting.

0402.6.5

Selection of finalists for SamCERA’s Domestic Equity Small Cap Value & Growth Manager Structure: SIS presented on the selection criteria of domestic small cap equity semi-finalists noting that they are in search of a manager with stability and whose key members will remain with the firm for a long period of time as well as a firm with a good track-record and has maintained a good rapport with the SEC.

0402.6.6

Acceptance of Deutsche Asset Management’s Compliance Certification Statement: Mr. Clifton reported that the Investment Committee had reviewed the DAMI’s Compliance Certification Statement, and recommends that the Board accept it. Without objection, Ms. Salas accepted the report.

0402.6.7

Initiate Review of State Street Bank & Trust's Contract, Expiration Date 04/30/2004: Mr. Clifton reported that the contract with SamCERA’s Custodian expires in April and expressed Staff’s desire to extend the contract with State Street. Staff has been pleased with the level of service from State Street. Mr. Clifton noted the value of retaining its current custodian during SamCERA‘s transition of assets to new managers. He recommended that the Board authorize staff to enter into negotiations to renew the contract with State Street. Mr. Clifton noted that SIS has reviewed State Street’s pricing structure and found it favorable.

0402.7

Board & Management Support Services

0402.7.1

Acceptance of Monthly Financial Reports: Mr. Clifton reported that SamCERA’s current Net Assets Held in Trust for Pension Benefits at $1,434,127,011 approaches the Association’s previous high water mark of $1,463,639,531 reached on August 31, 2000. Without objection, Ms. Salas accepted the report.

0402.7.2

Adoption of Proposed Amendments to the Regulations of the Board of Retirement: John Murphy expressed his disappointment with the Board of Retirement’s recent decisions, specifically the decision not to support a retiree alternate member nor to send a letter to the Board of Supervisors endorsing the lowering of the funding ratio limit for the continuance of the Medicare Part-B Reimbursement Program. Mr. Murphy noted that he was now under the impression that the Retirement Board is anti-retiree. Ms. Arnott subsequently challenged Mr. Murphy’s assertion. [Mr. Hooley departed prior to the vote.]

Motion by Bryan, second by Salas, carried unanimously to adopt Resolution 03-04-11, adopting amendments to the Regulations of the Board of Retirement, as follows:

Whereas, Government Code §31525 provides that this Board may make regulations not inconsistent with the California Employees' Retirement Law of 1937; and

Whereas, Government Code §31526 stipulates which provisions must be included in these regulations; and

Whereas, Government Code §31527 stipulates which provisions are permissible in these regulations. Therefore be it

Resolved that pursuant to Government Code §31525, § 31526 and §31527 the Board hereby rescinds the current Regulations of the Board of Retirement.

Resolved that pursuant to Government Code §31525, § 31526 and §31527 the Board hereby adopts the following amendments to the Regulations of the Board of Retirement:

(1) Alternate Safety Member

Regulation 3.15.5 is added to the Regulations of the Board of Retirement, as follows:

3.15.5 Alternate Safety Member: If there are two ore more safety member candidates for the seventh member position, the candidate receiving the highest number of votes shall be elected to the seventh member position. The safety member candidate who is a different safety membership group and, who received the next highest number of votes, shall be elected to the Alternate Safety Member per Government Code §31520.1. If there is no eligible candidate who is of a different safety membership group there will not be an Alternative Safety Member.

(2) Accounts of Terminated Non-vested Members without Reciprocity

Regulation 4.12 is amended to add ‘unless the member has established reciprocity.’ and read as follows:

4.12. Rates of Interest in Non-vested Terminated Members: Accounts of non-vested members who terminate employment but keep their funds on deposit will not be credited with any interest after their termination date unless the member has established reciprocity.

(3) Preparation of Agenda

Regulation 2.7 is amended to add ‘which shall be approved by the chair prior to publication.' and read as follows:

2.7. Preparation of Agenda: The Chief Executive Officer shall be responsible for the preparation of the Board's agenda, which shall be approved by the chair prior to publication.

(4) Less than Two Qualified Candidates.

Regulation 3.8. is amended to replace 'Less' with 'Fewer' and read as follows:

3.8 Fewer than two Qualified Candidates: If the Elections Officer determines that there is one qualified candidate, the Elections Officer shall cancel the election and certify the single candidate elected. If there are no qualified candidates, the Elections Officer shall notify the Board who shall reschedule the election. The Chief Executive Officer shall re-notice the Election. Any election that has been re-noticed shall be held in accordance with the provision for Special Elections.

Be it further,

Resolved, that the Chief Executive Officer is hereby authorized under Government Code §31525 to transmit these amended regulations to the Board of Supervisors and to take all actions necessary to provide for their implementation upon approval by the Board of Supervisors.

0402.8

Approval or Acceptance of Reports

0402.8.1

Chief Executive Officer's Report: Mr. McCausland reported that the Staff is in the process of developing a worksheet for the Ventura retroactive payments calculations for the actuary’s review. The Staff will also begin assembling data on a random sample selected by the actuary. He reported that the Board would meet in Closed Session in March to begin discussion of its Ventura implementation plan, which must be submitted to the Court for approval.

He noted that Lilibeth Dames had done an excellent job of preparing a draft of the minutes for him to edit and augment.

0402.8.2

Assistant Executive Officers’ Report: Mr. Hood distributed a diskette with the 1937 Retirement Act to the Board for their use. Mr. Hood reported that the Election Notice for Mr. Bryan and Ms. Stuart’s seats on the Board will probably be issued by the County Elections Officer later in the day. The Notice of Election will also be included in the next SamCERA newsletter which will be published within the upcoming week.

Mr. Hood noted that he has contacted Linea Solutions and is expecting a report from them regarding their research of the EDMS market in order for the Staff to make a recommendation to the Board.

Mr. Hood informed the Board that the Staff is beginning work on Ventura and that at the next Board meeting, Staff will present a proposed budget for the implementation of Ventura.

On a separate note, Mr. Hood informed the Board that his reserve unit is earmarked for activation in either August 2004 or May 2005 for a full year in-country rotation.

0402.8.3

Investment & Finance Manager’s Report: Mr. Clifton distributed two handouts in commentary on Bank of Ireland and Deutche Asset Management. He also reported that he joined Mr. Hooley and Ms. Tashman on a visit to Strategic Investment Solutions and found the meeting very valuable. He plans on visiting BGI due to its proximity and encourages trustees to visit firms that are nearby as they are very useful experiences. Mr. Clifton reported that Max Swango from Invesco visited him the previous week. Mr. Clifton noted that he felt that the terms for Invesco’s proposed co-mingled fund has improved significantly over the last 6 months.

0402.8.4

County Counsel's Report: Ms. Carlson gave an update on the role of Board members who attend Investment Committee meetings. Board members who are not members of the standing committee must sit only as an “observer”. She noted that an observer has less rights than a member of the public, because he or she will not be able to make any statements or ask any questions. If more than 4 members of the Board speak at a standing committee, it becomes a quorum of the Board and, thereby, a “meeting” of the Board. She encouraged trustees to contact her if they had any further questions regarding Investment Committee Meetings and the Brown Act.

0402.9

Adjournment in Memory of the following Deceased Members: There being no further business, Ms. Salas adjourned the meeting at 2:53 pm, in memory of the following deceased members:

Dana, Ammos

December 22, 2003

Probation Department

Macias, Joseph

December 24, 2003

Sheriff’s Department

Severson, Lyle

January 1, 2004

Chope Hospital

Godfrey, Donzel

January 6, 2004

Matlock, Mntoinette

January 8, 2004

Assessor’s Office

Powell, Quincy

January 9, 2004

Sheriff’s Department

Seifert, Adeline

January 12, 2004

Health And Welfare Department

Platner, Thomas

January 16, 2004

Health Services Department

Posner, Sylvan

January 18, 2004

Probation Department

Jones, Leroy

January 19, 2004

Sheriff’s Department

Pierazzi, Kathleen

January 19, 2004

Mental Health Department

Gaines, Ralph

January 26, 2003

Engineer And Roads Department

Jenkins, Carol

January 26, 2004

Library

Banks, Erna

February 1, 2004

Department Of Social Services

Alma R. Salas, Vice Chair

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Minutes Index

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