July 26, 2005 – Board Agenda

Call to Order: Ms. Salas, Chair, called the Public Session of the Board of Retirement to order at 1:01 p.m., July 26, 2005, in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0507.2.1

Roll Call: Ms. Salas, Mr. Lewis, Ms. Colson, Mr. Hooley, Ms. Stuart & Mr. Hackleman. Ms. Arnott for Mr. Buffington. Excused: Mr. Bryan & Ms. Tashman. Staff: Mr. Bailey, Mr. Clifton, Ms. Lamica, Ms. Palu & Ms. Dames. Counsel: Ms. Carlson & Mr. Swope. Consultants: Dr. Fracchia, Ms. Jadallah & Mr. Meier. Retirees: 2, County: 0.

0507.2.2

Election of Officers: Mr. Hooley presented the report of the Ad Hoc Nominating Committee and the proposed slate of officers for the new fiscal year. Motion by Hackleman, second by Hooley, carried unanimously, to elect Mr. Lewis, Chair; Mr. Bryan, Vice Chair, and Ms. Tashman, Secretary, per Regulation 2.5. Ms. Salas presented the gavel to Mr. Lewis.

0507.2.3

Appointment of Committees: Mr. Lewis appointed Ms. Colson, Chair; Mr. Hackleman, Ms. Tashman and Mr. Bryan to the Investment Committee per Regulation 2.5.1. Mr. Lewis appointed Mr. Buffington, Chair; Mr. Lewis, and Ms. Salas to the Ad Hoc Audit Committee per Regulation 2.5.1.

0507.3

Approval of the Minutes: Ms. Arnott submitted the following correction to the June board meeting minutes: 0506.5.0 Paragraph 4 under Continuance of Benefits: ~~Karen Barbara~~ Barbara, Karen. Motion by Salas, second by Stuart, carried unanimously to approve the Board meeting minutes of June 30, 2005, as amended.

Mr. Bailey submitted the following correction to the May board meeting minutes: 0505.5.2 Paragraph 2: “under Government Code ~~§31524~~ §31534, the board unanimously…”. Motion by Colson, second by Salas, carried unanimously to approve the Board meeting minutes of May 24, 2005, as amended.

0507.4.1

Oral Communications From the Board: None.

0507.4.2

Oral Communications From the Public: Mr. Murphy, representing SCORPA, brought to the attention of the board an article in the San Francisco Chronicle regarding CalPERS’ 12.7% investment return for their fiscal year ending June 30, 2005.

0507.5

Benefit & Actuarial Services

0507.5.1

Adoption of Consent Calendar: Mr. Lewis removed the disability applications of Gabriel Gamper (Mr. Bailey), Mr. Bryant (Mr. Bailey) and Mr. Brusuelas (Ms. Colson) from the Consent Calendar for consideration under agenda item 5.2. Motion by Salas, second by Arnott, carried unanimously to adopt the Consent Calendar, as amended, as follows:

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

Late entries Service Retirements:

Wilson, Richard

July 31, 2004

Department of Environmental Services

Boothe, Dina

March 31, 2005

Department of Human Services

Service Retirements:

Eagan, Richard

July 2, 2005

Health Services Agency

Lanphear, Eva

July 2, 2005

Health Services Agency

Jacobs, Vicki

July 3, 2005

Department of Environmental Services

Wilder, Robert

July 9, 2005

Sheriff’s Department

Orazem, Anton

July 10, 2005

Probation Department

Bomberger, Carol Ann

July 16, 2005

Department of Mental Health

Hartog, Annette

July 16, 2005

Department of Mental Health

Heinaman, Barbara

July 16, 2005

Office of County Manager

Wich, Darlene

July 16, 2005

Superior Court

Lo Shavio, Joseph

July 20, 2005

Sheriff’s Department

Carter, Irene

July 29, 2005

Department of Child Support Services

Borland, Maureen

July 30, 2005

Department of Human Services Agency

Hines-Torrey, Frances

July 30, 2005

Probation Department

Fields, Robert

July 30, 2005 (from deferred)

Department of Civil Defense

Poblete, Pepito

July 30, 2005

San Mateo County Medical Center

Sabin, Bruce

July 30, 2005

District Attorney’s Office

Continuance of Benefits:

None

Deferred Retirements:

Ellis, Eldreai B.

3/G2 vested

Galea, Aaron

G4 vested

Reciprocity

Kim, Sara J.

G4 vested

Reciprocity

Lavelle, Mary A.

G4 vested

Reciprocity

Maltbie, Shawnna A.

G4 vested

Reciprocity

Moore, Kimberly Y

G4 vested

Reciprocity

Refunds For July 2005:

Newell, Brian

G4 non vested

Rollovers for July, 2005:

None

0507.5.2

Consideration of items removed from Consent Calendar: Ms. Colson asked if Edward Bruseulas’ knee injury alone would qualify him for a service-connected disability or if his development of Non-Hodgkins Lymphoma was also linked to his job. Dr. Fracchia opined that Mr. Brusuelas’ position with the county did not seem to have a correlation to his development of lymphoma, removing the cancer presumption. However, Dr. Fracchia stated that Mr. Brusuelas’ knee injury alone did hinder his ability to perform his duty as a Deputy Sheriff Sergeant and recommended that the board grant him a service-connected disability. Ms. Stuart noted that Mr. Brusuelas has since passed away. Motion by Salas, second by Arnott, carried unanimously to find that Edward Brusuelas is unable to perform his duties as a Deputy Sheriff’s Sergeant, finds that his disability is service-connected and, GRANTS his application for a service-connected disability.

Mr. Bailey reported that Mr. Gamper and Mr. Bryant’s applications had gone to a hearing officer and suggested that the board follow the hearing officers’ recommendations. Motion by Salas, second by Hackleman, carried unanimously to find that Michael Bryant is not disabledfrom performing his usual and customary duties as a Shelter Care Counselor and DENY his application for a service-connected disability.

Motion by Stuart, second by Colson, carried unanimously to find that Gabriel Gamper is not disabledfrom performing his usual and customary duties as a Shelter Care Counselor and DENY his application for a service-connected disability.

0507.6

Investment Services

0507.6.1

Monthly Portfolio Performance Report: Mr. Clifton presented the monthly performance report for period ending June 30, 2005. SamCERA’s Fiscal Year to Date return of 10.15% is 215 basis points ahead of the Actuarial Discount Rate of 8.00% and 41 basis points ahead of the Total Plan Policy Benchmark of 9.74%. Mr. Clifton noted the county’s prepayment of employer contributions last year was over-estimated by $2.3 million and therefore was subsequently returned to the County on June 30^th. He also reported that all asset classes performed well this past fiscal year, especially in the Large Cap asset class attributable to the Alpha Tilts strategy which had commenced in October 2004. He noted the underperformance of Bank of Ireland, SamCERA’s former investment manager, which hindered the growth of International Equity.

Asset Class

Market Value

1-Month

1-year TTWRR

5-year TTWRR

Domestic Equity

806,103,194

0.93%

9.52%

-0.10%

International Equity

259,415,060

2.09%

14.73%

-0.74%

Total Equity

1,065,518,253

1.21%

10.69%

-0.28%

Fixed Income

470,889,667

0.62%

7.49%

7.87%

Real Estate Aggregate

59,252,508

4.19%

23.23%

11.94%

Cash Equivalents

3,425,801

0.25%

3.03%

3.19%

Total Fund

1,599,086,230

1.14%

10.15%

3.56%

Benchmark

1.20%

9.74%

3.04%

0507.6.2

Review of SamCERA’s Fixed Income Structure: Margaret Jadallah of SIS provided a brief overview of the bond market, the bond manager structure process as well as SamCERA’s current fixed income structure. John Meier of SIS further reviewed SamCERA’s fixed income structure. He proposed three alternative structures and evaluated their benchmark and portfolio styles, return and risk. Having been presented the three alternatives, trustees indicated that they favored the conversion of BGI Fixed Income Index to Enhanced, resulting in higher returns per unit of higher risk relative to SamCERA’s current passive structure. With direction from the board, Ms. Colson indicated that the Investment Committee will work with SIS regarding a Fixed Income Enhanced Manager search.

0507.6.3

Approval of Conversion of Deutsche Asset Management’s Investment Management Agreement: Mr. Clifton reported that Deutsche Bank signed an agreement to sell parts of the UK and Philidelphia-based asset management businesses of DeAM to Aberdeen Asset Management. Mr. Clifton recommended that SamCERA continue its relationship with the Philadelphia-based team. He stated that the board must sign an Investment Management Agreement (IMA) with Aberdeen and that Ms. Carlson and himself will contact Aberdeen to discuss the most effective manner in which to enter an agreement. Mr. Clifton said that the transition of assets is expected to occur in November 2005. He also stated that the downside of the transition is the separation of the high-yield team from the fixed income team in the Philadelphia-based office. Mr. Clifton indicated that the fixed income team had sufficient staff resources to cover for the loss. Mr. Lewis opined that the board should continue its relationship with the Philadelphia-based fixed income team and closely monitor their progress during the transition. The rest of the board concurred with Mr. Lewis’ recommendation.

Motion by Colson, second by Arnott, carried unanimously to authorize staff to explore methods available whereby SamCERA may enter into an agreement with Aberdeen Investment Management which will be brought to the board for approval.

0507.6.4

Approval of Amendments to Appendix A-E and Glossary of SamCERA’s Investment Plan: Mr. Clifton stated that this was the final hearing of the Appendix and Glossary of SamCERA’s Investment Plan. With its approval, he will forward all parts of the Investment Plan to SamCERA’s investment managers for their opinions.

Motion by Salas, second by Arnott, carried unanimously to approve the Appendix A-E and Glossary of SamCERA’s Investment Plan, as amended.

0507.6.5

Approval of Topics for Investment Manager Review – Julius Baer Investment Management: Mr. Clifton reviewed the list of questions for Julius Baer Investment Management’s Annual Review scheduled in September. In response to a question from Mr. Lewis, Mr. Clifton stated that the questions are modeled from a list that staff and William Cottle, former trustee, had developed a few years ago and which has been gradually amended by trustees. Trustees and Ms. Jadallah suggested a few changes to the list of questions, including questions regarding commission recapture and the use of soft dollars.

0507.6.6

Approval of Topics for Investment Manager Review – Mondrian Investment Partners: Mr. Clifton stated that Mondrian’s list of questions was similar to that of Julius Baer’s. In response to a question from Ms. Colson, Ms. Jadallah indicated that Mondrian hard closed their product but opened a large cap only product. Mr. Clifton said that he would like to discuss that issue with Mondrian.

0507.6.7

Annual Review, Revision & Reaffirmation of the Investment Committee Charter: Mr. Clifton reviewed the main sections of the Investment Committee Charter. The board did not recommend any additional amendments to the Charter.

0507.7

Board & Management Support Services

0507.7.1

Monthly Financial Reports: Mr. Clifton submitted the preliminary monthly financial reports for June 2005. He reported that SamCERA’s Net Assets as of June 30, 2005, totaled $1,597,482,137 which will require slight adjustments with the county’s closure of its financial books for the fiscal year. He discussed last year’s county prepayment of employer contributions and the return of approximately $2.3 million to the county due to the overestimation of payroll. He said that this year’s county prepayment occurred on July 8^th in the amount of $74.7 million, $65 million of which has been reallocated to the portfolio in BGI products. Mr. Hackleman inquired on the Board of Supervisor’s intent to prefund SamCERA’s UAAL through the county surplus. Mr. Bailey indicated that he had spoken with John Maltbie, County Manager, and will continue to discuss the matter in the months ahead.

0507.7.2

Quarterly Budget Report: 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 84.7% of the total $2,398,950 appropriated for the fiscal year.

SamCERA’s Administrative Budget

		Adopted Budget	YTD Actual
	Salaries & Benefits	$ 1,378,000	$ 1,283,631
	Services & Supplies	$ 1,005,950	$ 749,174
	Fixed Assets	$ 15,000	$ 0
	Total	$ 2,398,950	$ 2,032,805

0507.7.3

Audit Entrance Interview Report: Mr. Clifton reported on the entrance fieldwork performed by SamCERA’s auditor, Brown Armstrong. He reviewed items found by the auditors in their initial fieldwork done in mid-July. Brown Armstrong will return in early August for their final fieldwork and will be prepared to render an opinion in September.

0507.8

Management Reports

0507.8.1

Chief Executive Officer's Report: Mr. Bailey stated that an American Disability Act audit occurred in the SamCERA office earlier in the month. He distributed a report of their findings to the board. He will return with a detailed report at a future board meeting to address the issues brought forth by the auditors. Mr. Bailey also discussed the options regarding office space to the board. He said that one option would be to move the location of the board room to a different floor in the building. He will research the various options and their relative costs and return to the board for their opinion.

Mr. Bailey then reported on SamCERA’s disaster recovery plan. He said that the backup server should be moved to the county offices in Redwood City. SamCERA also needs to improve the connection speed between the two offices. Staff has been working with ISD to discuss the available options.

He also mentioned that a presentation on the undistributed earnings policy was removed from the agenda. The actuary failed to provide the necessary figures on time. Public Pension Professionals’ performance review is slated for September. Mr. Bailey indicated that staff has been generally pleased with the association’s actuary and that this is the only instance in which they had not met expectations. He also noted that Tulare County has recently terminated their contract with PPP.

Lastly, Mr. Bailey distributed copies of a letter from a member, Gertrude Sandoval, in which she requests that the board support some changes in SamCERA’s benefit plan. Mr. Bailey requested that trustees notify him if they would like to take any action.

0507.8.2

Investment & Finance Manager’s Report: Mr. Clifton reported that (1) AMVESCAP has hired a new Chief Executive Officer, Martin Flannigan. (2) Deutsche Bank sold parts of its UK and Philadelphia businesses to Aberdeen Asset Management. This includes the fixed income team in Philadelphia. (3) SamCERA received approximately $75 million in prepaid contributions from the county. The monies were rebalanced to BGI Russell 1000 $35 million, BGI Alpha Tilts $15 million, BGI US Debt Index $15 million, and operating cash $10 million.

0507.8.3

County Counsel's Report: Ms. Carlson clarified that the non-recourse on fiduciary insurance payments are not mandatory by the insurance carrier. However, she would like trustees to write a check in the amount of $25 for liability reasons.

Regarding a question from the board at last month’s board meeting, Ms. Carlson discussed the issue of surgery and its weight in the board’s decision in determining whether or not a member is permanently disabled. She said that the “common sense rule” states that an employee can be found not permanently disabled if he or she unreasonably refuses medical surgery. The refusal of a routine, low risk medical procedure to improve a member’s ailment may be grounds to deny a disability application. Situations like these should be taken on a case-by-case basis.

Ms. Carlson reported on the legal issues surrounding San Diego City Board of Retirement. In November 2002, the city council had approved a benefits package that improved the pension of some pension board trustees. Three days later, the board of retirement approved the city manager’s recommendation that allowed the city to pay less than the actuarially required employer contribution rate. Ms. Carlson performed a detailed overview of the differences between the Public Reform Act and Government Code §1090. She distributed documents regarding the legal subtleties of the government code sections and welcomed any individual questions from trustees.

0507.8.4

Report on Actions taken in Closed Session: Ms. Salas reported that the board had met in closed session at 3:21 p.m., with all trustees present for roll call in attendance. The board discussed the Public Employee Performance Evaluation of the Chief Executive Officer. No action was taken.

There being no further business, Mr. Lewis adjourned the Closed Session at 3:41 p.m.

0507.9

Adjournment in Memory of the following Deceased Members: There being no further business, Ms. Salas adjourned the meeting at 3:43 p.m. in memory of the following deceased members:

Harding, Don

February 25, 2005

Sheriff’s Department

Dorrance, Nell

May 11, 2005

Assessor’s Office

Bogan, Equilla

June 2, 2005

Beneficiary Of Wiley

Pearson, Robert

June 17, 2005

Beneficiary Of Doris

Freil, Veronica

June 22, 2005

Department Of Mental Health

Brusuelas, Edward

July 1, 2005

Sheriff’s Department

Mckillip, Richard

July 5, 2005

Sheriff’s Department

Cagle, Russell

July 6, 2005

General Services Administration

Mackon, John

July 13, 2005

General Services Administration

Yost, Harold

July 13, 2005

Beneficiary Of Betty

Kenneth A. Lewis, Chair

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