December 16, 2005 - Board Minutes

December 16, 2005 – Board Agenda

PUBLIC SESSION – The Board will meet in Public Session at 1:30 p.m.
1.	Call to Order
2.	Roll Call
3.	Oral Communications From the Board
4.	Oral Communications From the Public

Matters Set for a Time Certain: Times listed are approximate. In no case will any item be heard before it is scheduled.
1:45 p.m.			Finalist Interview – Actuarial Services: Milliman, Inc. (Item 5.1 a)
2:45 p.m.			Finalist Interview – Actuarial Services: The Segal Company (Item 5.1 b)

5.	Benefit & Actuarial Services
	5.1	a.		Finalist Interview – Actuarial Services: Milliman, Inc. (Special Order at 1:45 p.m.)
		b.		Finalist Interview – Actuarial Services: The Segal Company (Special Order at 2:45 p.m.)
		c.		Selection of Actuary
6.	Investment Services
	6.1	Monthly Portfolio Performance Report
	6.2	Approval of Investment Management Agreement (IMA) – Fidelity Management Trust Company
7.	Board & Management Support Services
	7.1	Monthly Financial Reports
	7.2	Acceptance of Auditor’s Report
	7.3	Acceptance of SamCERA’s Comprehensive Annual Financial Report & Popular Annual Financial Report
	7.4	Discussion on Internal Controls
8.	Adjournment


December 16, 2005 – Board Minutes

0512.1		Call to Order: Mr. Bryan, vice chair, called the Public Session of the Board of Retirement to order at 1:30 p.m., December 16, 2005, in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0512.2		Roll Call: Mr. Bryan, Ms. Arnott for Mr. Buffington, Ms. Colson (arr. 2 p.m.), Mr. Hackleman, Mr. Hooley, Mr. Lewis (arr. 1:52 p.m.), Ms. Stuart & Ms. Tashman. Excused: Ms. Salas. Staff: Mr. Bailey, Mr. Clifton, Ms. Wong & Ms. Dames. Consultants: Ms. Carlson. Retirees: 1, County: 0.

0512.3		Oral Communications From the Board: Mr. Hackleman gave a status report regarding AB55. After speaking with John Maltbie, County Manager, AB55 will be put on the agenda of the Board of Supervisors’ legislative subcommittee based on an original recommendation made on March 1^st. Upon direction of the subcommittee, county counsel will then draft legislation.

0512.4		Oral Communications From the Public: Mr. Murphy inquired on the staff’s use of the June 30, 2004, actuarial results in SamCERA’s Popular Annual Financial Report for the fiscal year ending June 30, 2005. More information is discussed in agenda item 7.3. Mr. Bryan then took up agenda item 6.1.


0512.5		Benefit & Actuarial Services

0512.5.1a		Finalist Interview – Actuarial Services: Milliman, Inc.: Karen Steffen, Principal and Consulting Actuary, and Nick Collier, Principal and Consulting Actuary, of Milliman, Inc. presented their proposal for actuarial services and answered questions from staff and trustees.

0512.5.1b		Finalist Interview – Actuarial Services: The Segal Company: Paul Angelo, Vice President and Actuary, Drew James, Consulting Actuary, and Andy Yeung, Associate Actuary of The Segal Company presented their proposal for actuarial services and answered questions from staff and trustees.

0512.5.1c		Selection of Actuary: Following the actuarial finalists’ presentations, the board then discussed the pros and cons of each actuarial candidate. The board found great value with Milliman’s experience transitioning from other Public Pension Professional clients. The board also expressed concern with The Segal Company’s workload. Ms. Colson stated that capacity issues probably have led to the higher fees proposed by the firm. Ms. Tashman found stronger comments from references for Milliman regarding meeting deadlines— a strong indication that they are better resourced and better staffed. The board also found Milliman’s review process impressive and more structured than that of Segal’s. Ms. Carlson also expressed concern with The Segal Company’s $5 million liability insurance coverage spread across all seven of its 1937 Act clients. An error made by the firm may affect all seven clients who must then share the coverage amount. Mr. Bailey stated that he has had experience working with Milliman, Inc. in the past and felt that they would adequately fulfill SamCERA’s actuarial needs. Following extensive discussion, motion by Hackleman, second by Arnott, carried unanimously (8-0), to adopt Resolution 05-06-05, authorizing negotiation and approval of a contract for actuarial services with Milliman, Inc. as the association’s actuary, as follows:

		“Whereas, Article XVI, §17(e) of the Constitution of the State of California vests the Board with “the sole and exclusive power to provide for actuarial services in order to assure the competency of the assets of the...system”; and “Whereas, Government Code §31453 requires periodic valuations of SamCERA’s actuarial soundness and §31596.1(a) provides for the payment of “the costs, as approved by the Board, of actuarial valuations and services rendered pursuant to §31453"; and “Whereas, at its October 2005 meeting the Board of Retirement authorized the staff to issue a Request for Proposal for Actuarial Services and instructed staff to review proposals submitted and to schedule such firms as the staff believed most suited to the services required for presentations before the Board; and “Whereas, on December 16, 2005, the Board reviewed proposals and heard presentations from representatives from two firms that submitted proposals after screening by staff; and “Whereas, this Board desires the Chief Executive Officer to negotiate a contract for the services set forth in the Request For Proposal for Actuarial Services with the firm selected by the Board under the parameters set by the board and further desires that said negotiated agreement shall be approved and signed by the Chair of the Board, it is therefore “Resolved, that the Chief Executive Officer is directed and ordered to negotiate an agreement for actuarial services as set forth in the request for proposal for actuarial services with the firm selected by the Board under the parameters set by the Board and such negotiations shall be subject to the approval of the Board Chair. It is further “Resolved, that the chair of this Board is hereby authorized and directed to execute said agreement for and on behalf of the San Mateo County Employees' Retirement Association.”

		Mr. Lewis then took up agenda item 7.2.

0512.6		Investment Services

0512.6.1		Monthly Portfolio Performance Report: Mr. Clifton presented the Preliminary Monthly Performance Report for the period ending November 30, 2005. He stated that SamCERA’s Total Fund Return of 2.86% for the month outperformed the Total Plan Policy Benchmark return of 2.64%. The Fund’s Fiscal Year to Date return, 4.88% is 172 basis points above the Actuarial Discount Rate of 3.16% and 8 basis points ahead of SamCERA’s Total Plan Policy Benchmark of 4.72%.

		Asset Class			Market Value	1-Month	1-year TTWRR*	5-year TTWRR*
		Domestic Equity			$894,281,564	4.45%	10.77%	3.40%
		International Equity			286,031,708	2.84%	17.18%	3.65%
		Total Equity			1,180,313,272	4.06%	12.23%	3.44%
		Fixed Income			477,381,533	0.44%	3.23%	6.54%
		Real Estate Aggregate			63,723,919	0.00%	23.59%	13.01%
		Cash Equivalents			6,817,535	0.37%	3.60%	3.10%
		Total Fund			$1,728,236,259	2.86%	9.83%	5.60%
		Benchmark				2.64%	9.19%	5.27%
		* Total Time-Weighted Rate of Return

0512.6.2		Approval of Investment Management Agreement (IMA) – Fidelity Management Trust Company: Mr. Clifton reported that he and Margaret Jadallah of Strategic Investment Solutions completed a site visit to Fidelity Investments’ Merrimack, New Hampshire offices on December 2, 2005. Having concluded their due diligence trip to Fidelity, both Mr. Clifton and Ms. Jadallah are comfortable with SamCERA proceeding with its funding of the Broad Market Duration product through Fidelity’s commingled fund. Motion by Hackleman, second by Arnott, carried unanimously (6-0), to adopt Resolution 05-06-04, authorizing the chair to execute Fidelity Management Trust Company’s Participation Agreement for the Fidelity Group Trust for Employee Benefit Plans as follows:

		“Whereas, Article XVI, §17 of the Constitution of the State of California vests the board with "plenary authority and fiduciary responsibility for the investment of moneys and the administration of the system"; and “Whereas, Government Code §31595 vests in the board ". . . exclusive control of the investment of the employees retirement fund."; and “Whereas, Government Code §31596.1 (d) authorizes the board to retain investment managers ". . . in connection with administration of the board's investment program . . . "; and “Whereas, on September 27, 2005, the board considered proposals from six firms for investment management services under an enhanced fixed income mandate, and Baird Advisors, Barclays Global Investors, and Smith Breeden Associates were eliminated, and BlackRock, Fidelity Management Trust Company, and Lehman Brothers Asset Management were invited to return for a second interview as finalists; and “Whereas, the board interviewed representatives from all three firms on October 25, 2005, before offering Fidelity Management Trust Company SamCERA’s enhanced fixed income mandate to be funded with approximately $165 million; and “Whereas, the Participant Agreement for the Fidelity Group Trust for Employee Benefit Plans has been approved by County Counsel as to form and the Investment & Finance Manager has recommended approval of the agreement. Therefore, be it “Resolved that the board hereby approves the contract between the board and Fidelity Management Trust Company. The board or Fidelity Management Trust Company may terminate the contract on thirty days written notice. Be it further “Resolved that the board hereby delegates full discretionary authority to Fidelity Management Trust Company to manage the assets of the retirement fund as allocated by the board in accordance with the terms of the contract, and applicable law governing the conduct of fiduciaries entrusted with the management of public employees' retirement funds. Be it further “Resolved that the board hereby approves the fees as specified in the contract and authorizes the disbursement of funds as provided for in GC§31596.1 in accordance with SamCERA's internal controls. Be it further “Resolved that the board hereby authorizes the chair to execute the contract on behalf of the board. Be it further “Resolved that the board hereby designates the Investment & Finance Manager as its designee to perform those functions so identified in the contract and hereby authorizes the Investment & Finance Manager to take all actions necessary to initiate, implement and monitor assignments, approve payments and provide the board with timely reports regarding the progress and satisfactory completion of the assignments authorized pursuant to the contract.”

0512.7		Board & Management Support Services

0512.7.1		Monthly Financial Reports: Mr. Clifton submitted the preliminary monthly financial report for the period ending November 30, 2005. SamCERA’s Net Assets Held in Trust for Pension Benefits totaled $1,726,628,107. Mr. Lewis then assumed his role as chair and took up agenda item 5.1a.

0512.7.2		Acceptance of Auditor’s Report: Ms. Arnott reported that the Audit Committee had met earlier in the day to discuss SamCERA’s audit for fiscal year ending June 30, 2005, by Brown Armstrong. Andy Paulden from Brown Armstrong was present at the Audit Committee to perform an overview on his firm’s findings. Ms. Arnott stated that Brown Armstrong had issued an unqualified opinion on SamCERA’s financial statements. She stated that no major issues were found during the audit process. Three recommendations for improvement were made by the auditor. She reported that the responses by management to the recommendations were found acceptable. All four of the prior year’s recommendations have been addressed by management. Motion by Hooley, second by Bryan, carried unanimously to accept Brown Armstrong’s audit report and SamCERA’s financial statements.

0512.7.3		Acceptance of SamCERA’s Comprehensive Annual Financial Report & Popular Annual Financial Report: Ms. Arnott reported that Mr. Murphy brought forth an issue regarding a discrepancy between SamCERA’s Popular Annual Financial Report and Comprehensive Annual Financial Report. The PAFR uses actuarial valuation information from the June 30, 2004, Actuarial Valuation whereas the CAFR uses actuarial valuation information from the June 30, 2005, Actuarial Valuation. Since the June 30, 2005 Actuarial Valuation is still unsettled, Mr. Paulden recommended that the CAFR only use 2004 actuarial data. The audit committee recommended that the board direct staff to amend SamCERA’s Comprehensive Annual Financial Report as recommended by Mr. Paulden. Footnotes regarding the use of the previous year’s actuarial data will be reviewed by Brown Armstrong. Mr. Lewis also stated that he requested Mr. Bailey to include the passing of Michael McMahon in the Administrator’s Letter of Transmittal in the CAFR. Motion by Stuart, second by Hooley, carried unanimously to accept SamCERA’s Comprehensive Annual Report & Popular Annual Financial Report, as amended.

0512.7.4		Discussion on Internal Controls: Ms. Arnott stated that Mr. Paulden performed a brief overview on other 1937 Act county’s efforts to implement internal controls within their system. She said that some measures were more extreme than others. The audit committee requested that Mr. Paulden forward a list of internal controls to staff. Staff will then select key internal control issues and report back with information to the audit committee, addressing staff’s progress in meeting these internal controls.


0512.8		Adjournment: There being no further business, Mr. Lewis adjourned the meeting at 4:09 p.m.

Kenneth A. Lewis, Chair

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December 16, 2005 – Board Agenda

December 16, 2005 – Board Minutes