February 28, 2006 - Board Agenda

Call to Order: Mr. Lewis, chair, called the Public Session of the Board of Retirement to order at 1:00 p.m., February 28, 2006, in SamCERA's Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0602.02

Roll Call: Mr. Bryan, Ms. Arnott for Mr. Buffington, Mr. Hackleman, Mr. Hooley, Mr. Lewis & Ms. Tashman (arr 1:05 p.m.). Excused: Ms. Colson, Ms. Salas & Ms. Stuart. Staff: Mr. Bailey, Mr. Clifton, Ms. Dames, Ms. Lamica & Ms. Palu. Consultants: Ms. Carlson, Dr. Fracchia & Ms. Jadallah. Retirees: 1, County: 0.

0602.03

Approval of the Minutes: Mr. Lewis submitted the following correction to the January board meeting minutes: 0601.6.2 ¶3 L2: "Mr. Dempsey stated that, per ~~AMOR~~ AIMR compliant reporting…" Ms. Arnott submitted the following corrections to the January board meeting minutes: 0601.4.2 L1: "John Murphy, representing SCORPA, reported that Dennis Cosgrove, former trustee, had passed away in November and should be recognized for his services to the Board of Retirement at the meeting's adjournment." ; 0601.7.7 L6: "they will integrate trustee comments and the county's travel policy and come back to the board with a revised version…"

Motion by Arnott, second by Hackleman, carried unanimously to approve the board meeting minutes of January 24, 2006, as amended.

0602.4.1

Oral Communications From the Board: Mr. Hackleman stated that GASB 45 requires the county to report the actuarial liability for retiree health benefit costs. The county is in the process of setting up a trust fund for county annual contributions. He reported that the county has interest in exploring the possibility of placing its assets with SamCERA with the Board of Retirement managing the investments. In doing so, the county hopes to reap the same rate of investment returns. The county will pay any additional costs incurred with the increased responsibility. Mr. Hackleman stated that the proposal is in its early stages and that John Maltbie, County Manager, has not yet discussed it with the Board of Supervisors. Mr. Lewis requested that a formal proposal be presented to the board prior to further consideration.

0602.4.2

Oral Communications From the Public: John Murphy noted that, in Ms. Stuart's absence, the retirees were not being represented at the day's board meeting due to the lack of a retiree alternate. Mr. Bryan responded that every board member looks out for the interest of SamCERA's retirees.

0602.5

Benefit & Actuarial Services

0602.5.1

Adoption of Consent Calendar: Mr. Lewis removed the disability application of Shawn Witaschek (Ms. Arnott) from the day's Consent Calendar to be considered under agenda item 5.2. Motion by Bryan, second by Tashman, carried unanimously to adopt the Consent Calendar, as amended, as follows:

Disability Retirements:

The board finds that Patricia Phelps is unable to perform her duties as a Clinical Services Manager I and GRANTS her application for Nonservice-connected disability.

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

Service Retirements:

Tse, Mary

February 2, 2006

Human Services Agency

Markham, Alice

February 7, 2006
(from deferred)

San Mateo County Medical Center

Schroeder, Michele

February 22, 2006

Sheriffs' Department

Johnston, Gary

February 24, 2006

Sheriffs' Department

Edington, Patricia

February 26, 2006

Human Services Agency

Johnson, Imogene

February 28, 2006

Assessor's Office

Merrick, David

February 28, 2006

Human Services Agency

Continuance of Benefits:

Miner, Ester

Beneficiary of Hubert

Deferred Retirements:

Awsare, Swati B.

G2 vested

Reciprocity

French, Linda J.

G2 vested

Reciprocity

Varela, Maria E.

G4 non vested

Reciprocity

Castano, Michele D.

G4 vested

Fynn, Gillian C.

G4 vested

Loux, John A.

G2 vested

Tillotson, Christina

G4 vested

Extended Purchase:

None

Refunds For February 2006:

Acosta, Abigail

G4 non vested

Eden, Shelley

G4 non vested

Evripidou, Marianna

G4 non vested

Garcia, Joseph

G4 non vested
(active status death benefit)

Hernandez, Lisa

G4 non vested

Jallow-Avants, Neneh

G4 non vested

Martinez, Anne

G4 non vested

Montesinos, Mary

P4 non vested

Quinn, Natasha

G4 non vested

Ruane, Stephen

G4 non vested

Smith, Curtis

G4 non vested

Sololev, Angela

G4 non vested

Toy, Robert

G4 non vested

Voris, Nichole

G4 non vested

Womble, Michael

P4 non vested

Rollovers for February 2006:

Austin, Deanna

G4 vested

Brokenshire-Cyr, Janelle

G4 non vested

Karpovich, Vicki

G4 non vested

Kishi, Eric

G2 vested

Risher, Carollynn

G4 non vested

Tuaumu, Helen

G2 vested

White, Frances

G4 non vested

Yuson, Gene

G4 non vested

0602.5.2

Consideration of Items Removed from Consent Agenda: The board went into closed session for this agenda item.

Report on Actions taken in Closed Session: Ms. Carlson reported that Mr. Lewis convened the board in closed session at 1:18 p.m. with all trustees present for roll call and Ms. Tashman in attendance.

The board unanimously finds that Shawn Witaschek is unable to perform his duties as a Park Ranger II, finds that his disability is service-connected, and GRANTS his application for a service-connected disability.

There being no further business, Mr. Lewis adjourned the Closed Session at 1:28 p.m.

0602.5.3

Adoption of Cost of Living Allowance Resolution: Mr. Bailey reported that Milliman had determined that the ratio of the 2004 (198.8) vs. the 2005 (202.7) Annual Average Consumer Price Index for the San Francisco-Oakland-San Jose area reflects a 1.96% increase. The 1937 Act authorizes the Board to increase benefits by the change rounded to the nearest one-half of one percent, resulting in a recommended cost-of-living allowance increase of 2.0% payable April 30th and thereafter. He noted that General and Safety members who retired on or before 4/1/1975 and Probation members who retired on or before 4/1/00 will receive higher COLAs due to amounts remaining from their COLA banks. Motion by Bryan, second by Arnott, carried unanimously to adopt Resolution 05-06-06, as follows:

"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 Milliman, Inc. to provide actuarial services to the Board; and

"Whereas, Milliman, Inc., by its letter dated January 24, 2006, has reported that the appropriate annual cost of living adjustment for most members to be effective April 1, 2005, is 2.0%; and

"Whereas, Milliman, Inc. has transmitted exhibits which set 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, 2006, Be it further

"Resolved, that the Board adopts the schedule of cost of living adjustments set forth in the Milliman, Inc. exhibits transmitted January 24, 2006, and entitled "Plan 1 COLA Bank Accumulations, General and Safety" and "Plan 1 COLA Bank Accumulations, Probation." 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 schedules effective April 1, 2006."

0602.5.4

Report on the Purchase of Service Credit and The Upgrade of Service Credit: Mr. Bailey reported that while speaking with the county's tax consultant, Bob Blum, it was brought to staff's attention that the Internal Revenue Code does not support the transfer of pre-tax monies for the upgrade of service for active members. This includes the upgrade from General to Probation/Safety membership or the conversion from non-contributory Plan 3 to contributory Plan 2 or 4. However, the IRC does permit the use of pre-tax dollars for active members for the purchase of "permissive service credit", including that of Extra Help time. Mr. Bailey reported that, because of the high tax risk imposed on the association, SamCERA will no longer permit active members to upgrade their service credit using tax-free transfers from their 457 plans or other pre-tax accounts, prospectively. Members still have two options to upgrade their Plan 3 time or convert from General to Probation/Safety using pre-tax funds: (1) via pre-tax biweekly payroll deductions or (2) using their 457 funds during the 120-day period immediately following their retirement date. In response to a question from Mr. Bryan, Mr. Bailey stated that CalPERS has requested an opinion from the IRS regarding using IRC 457 funds to purchase "air"-time associated with AB55. CalPERS has not yet received a response.

0602.6

Investment Services

0602.6.1

Monthly Portfolio Performance Report: Mr. Clifton presented the monthly portfolio performance report for the period ending January 31, 2006. SamCERA's 3.21% Total Fund Return for January 2006 outperformed the Total Plan Policy Benchmark return of 3.07%. The Fund's Fiscal Year to Date (FYTD) return, 9.43% is 484 basis points above the FYTD Actuarial Discount Rate, 4.59%, and 6 basis points above SamCERA's Total Plan Policy benchmark of 9.37%.

Asset Class

Market Value

1-Month

1-year TTWRR*

5-year TTWRR*

Domestic Equity

$898,915,277

4.22%

14.27%

2.97%

International Equity

287,297,900

7.08%

26.25%

5.00%

Total Equity

1,186,213,177

4.90%

17.03%

3.44%

Fixed Income

496,257,172

0.09%

2.55%

6.05%

Real Estate Aggregate

105,291,355

0.00%

20.98%

13.08%

Cash Equivalents

6,591,350

0.33%

3.62%

2.97%

Total Fund

$1,794,353,053

3.21%

12.57%

5.50%

Benchmark

3.07%

12.48%

5.11%

* Total Time-Weighted Rate of Return

0602.6.2

Quarterly Investment Performance Analysis for Period Ended December 31, 2005: Ms. Jadallah briefly reviewed the association's quarterly performance summary reporting that the composite fund return of 1.98% performed slightly behind policy index (2.15%) and ranked slightly below median in its peer group. She was pleased to see that over the longer term, the fund has benefited from SamCERA staying its course as well as showing discipline with re-balancing. The fund has performed above median looking at 1-5 year returns and ahead of policy index during those time periods. For the quarter, international equity and small cap portions of the portfolio have underperformed with Brandes Investment Partners in particular. Brandes returned -1.0% and ranked in the bottom fourth among small cap value managers. Negative performance attribution primarily came from stock selection in the Consumer Discretionary sector (Delphi Automotive, Visteon). Ms. Jadallah reported that Brandes has had three bankruptcies in the past year but that this great volatility is in line with its strategy. SIS is requesting some follow-up regarding Brandes' thesis behind auto components and more information on why the firm feels it should be substantially overweight. She opined that it is still early to put Brandes on a watch list. Mr. Bryan expressed that he did not feel comfortable with the amount of volatility that Brandes is illustrating. In response to a question from Mr. Lewis, Ms. Jadallah stated that there has been no fundamental change to Brandes' process. Mr. Clifton reported that the Investment Committee opined that its fifteen months with Brandes is too early to carry out any action. However, the committee will discuss placing Brandes on the watch list should the board show the same concern one year from now. Mr. Lewis requested that the Investment Committee discuss Brandes and other small cap value options at its next full committee meeting. Ms. Jadallah also discussed Goldman Sachs' quantitative approaches which is slightly value oriented and has utilized different factors and themes.

0602.6.3

Approval of the Investment Committee's Plan for Fiscal Year 2006/2007: Mr. Clifton noted that the Investment Committee had reviewed its schedule for the coming year. He proposed to the Investment Committee that annual investment manager reviews be conducted during the Investment Committee rather than the full board. The Investment Committee had no consensus or recommendation regarding the issue. The committee discussed the pros and cons- the educational value to the entire board and face to face contact versus the possible decrease in quality of the interview which often seems compressed. Ms. Tashman stated that the Investment Committee will try to make interviews more efficient by reviewing manager presentations and raising more pertinent questions. The committee would like to see less marketing pitch presented by the manger and more product-specific information. Mr. Hooley suggested that the full board may ask to hear interviews for certain investment managers that are of concern, such as Brandes, but allow the Investment Committee to conduct reviews for other managers. It was a consensus of the board to utilize Mr. Hooley's recommendation.

0602.7

Board & Management Support Services

0602.7.1

Monthly Financial Reports: Mr. Clifton presented the SamCERA monthly financial report for the period ending January 31, 2006. SamCERA's Net Assets Held in Trust for Pension Benefits as of January 31, 2006, totaled $1,790,818,630. Net assets increased in December due primarily to the appreciation of portfolio assets.

0602.7.2

Introduction of SamCERA's Sources, Uses & Budget for Fiscal year 2006/2007: Mr. Clifton reported that the board will see draft budget documentation within the upcoming months, which will incorporate the association's strategic plan and dollars involved in budget. He stated that there might be dollars involved for a moving expense next year as well as possible extra positions. Mr. Clifton also reported that he will be attending client conferences this upcoming year. He opined that the networking and due diligence content is valuable. He will report on the education content of the conferences. Mr. Lewis stated that it would be helpful that Mr. Clifton review the agenda before attending client conferences.

In response to a question from Ms. Tashman, Mr. Bailey noted that staff conducted an offsite retreat as part of the strategic planning process. He will update the plan and bring it back to the staff and board for input.

0602.7.3

Annual Review & Reaffirmation of SamCERA's Mission, Goals and Objectives: Mr. Clifton stated that staff has formed a committee to update SamCERA's mission, goals and objectives as well as to come up with a slogan for the association. This agenda item was deferred to a future board meeting.

0602.7.4

Annual Review & Reaffirmation of SamCERA's Strategic Services Resolution: Ms. Tashman recommended that the strategic services resolution include an annual customer satisfaction survey. Motion by Bryan, second by Hackleman, carried unanimously to reaffirm Resolution 95-96-06, as amended, as follows:

"Whereas, Government Code 31520 vests the management of SamCERA in the Board; &

"Whereas, Resolution 95-96-05 defines the Board's mission and goals; &

"Whereas, the Board wishes to direct its efforts and the efforts of its staff in concert with the spirit of the law and the Board's Mission and Goals. Now, therefore, be it

"Resolved, that the Board hereby adopts the following:

"Board Responsibilities

o Determine Eligibility for Benefits & Provide for the Disbursement of those Benefits

o Provide for the Investment & Safekeeping of Retirement Fund Assets

o Assure the Actuarial Soundness of the System

o Establish & Arrange for the Collection of Contributions

o Manage the Association & System in accordance with the Law

o Define Fiduciary & Ministerial Responsibilities and Effectively Delegate them to Designated Fiduciaries

o Select & Monitor the Performance of Designated Fiduciaries, including but not limited to chief executive office, investment managers, consultants and other advisors

o Approve & Monitor Policies, Internal Controls & Audit Programs

"Strategic Staff Services

Member Benefit & Actuarial Services

o Implement the Benefit Services Plan, including individual member counseling

o Establish Eligibility & Process Applications for Membership & Benefits

o Provide for & Monitor Payment of Benefits & Refunds

o Accurately Maintain & Monitor Member & Benefit Databases

o Provide Timely, Accurate & Useful Services, Reports & Recommendations for Members, Retirees, Beneficiaries & the Board

oConduct Annual Customer Satisfaction Survey

Investment Management Services

o Implement the Investment Plan

o Monitor Manager & Custodial Activity

o Project & Monitor Retirement Fund Cash Flows

o Provide Timely, Accurate & Useful Reports & Recommendations to the Board

Board Support Services

o Faithfully execute the Duties & Responsibilities Delegated by the Board

o Support the Board in its execution of its Powers & Duties

o Provide Timely, Accurate & Useful Information & Recommendations to the Board

o Direct the Benefits, Investments & Management Services Programs

o Provide Member Education, Public Information & Inter-Agency Services

o Propose, Implement & Monitor Internal Control Systems

Management Services

o Implement the Management Services Plan, including Human Resources, Information Systems, Fiscal, Accounting, Analytical, Facilities & Support Services

o Manage Contracts

o Maintain liaison with providers of County support services

o Direct Catastrophe Recovery Planning

Be it further

"Resolved, that the Board hereby expresses its intent to review annually the responsibilities and strategic services set forth herein."

0602.7.5

Annual Review & Reaffirmation of SamCERA's Internal Controls Policy: Mr. Clifton presented the Internal Controls Policy which controls the method in which retiree payroll disbursements are sent out as well as the manual disbursements of checks. Mr. Lewis recommended that the audit committee review the policy and defer the item to a future board meeting. In response to a question from Ms. Tashman, Mr. Clifton indicated that he will work with the association's auditor, Brown Armstrong, to find key internal control issues.

0602.7.6

Approval of the Audit Committee's Plan for Fiscal Year 2006/2007: Mr. Clifton presented the audit committee agenda for the upcoming fiscal year. He indicated that other issues may also be added to the schedule depending on who is selected to next year's audit committee.

0602.7.7

Authorization to Obtain Fiduciary Liability Insurance upon Expiration of Current Policy: Mr. Clifton stated that the board's current fiduciary liability insurance is set to expire on May 27, 2006. After concerns raised by the board, Mr. Clifton suggested that a representative from the insurance carrier discuss the details of the policy at a future board meeting.

0602.7.8

Approval of SamCERA's Office Space Proposal: Mr. Bailey discussed three new options available in the acquisition of adequate office space for SamCERA. A more in-depth analysis of all options and a formal recommendation will be presented at the March board meeting.

0602.7.9

Report on Process and Schedule of Trustee Elections. The Terms of the Second Seat, Mr. Hackleman, & the Seventh Seat, Ms. Salas, Expire on 6/30/2006. Mr. Clifton reported that staff has worked with the county elections office to generate an election schedule. Staff will keep the board informed of any notable changes.

0602.7.10

Information Only- By June, the Board of Supervisors is Scheduled to Appoint the Fourth Seat, Ms. Tashman, and the Sixth Seat, Mr. Hooley, whose terms expire 6/30/2006. Mr. Clifton stated that Mr. Lewis will remind the Board of Supervisors of the upcoming term expirations for the fourth and sixth seat on the Board of Retirement.

Mr. Lewis then took up agenda item 7.12.

0602.7.11

Annual Review of SamCERA's Chief Executive Officer: The board went into closed session for this agenda item.

Report on actions taken in Closed Session: Mr. Lewis reported that he convened the board in closed session at 3:09 p.m. with all trustees present for roll call and Ms. Tashman in attendance. The board conducted the annual review of David Bailey, SamCERA's Chief Executive Officer. The board then conferred with counsel on Jack Stroppini v. San Mateo County Employees' Retirement Association Board of Retirement (San Mateo County Superior Court Case No. 452620).

No action was taken. There being no further business, Mr. Lewis adjourned the Closed Session at 4:02 p.m. Mr. Lewis then took up agenda item 9.0.

0602.7.12

Approval of SACRS Officer Nominations: Mr. Bailey stated that SACRS has issued its slate of officer candidates who will be voted on at the SACRS Spring Conference, May 9^th through May 14^th in Sacramento. Motion by Tashman, second by Bryan, carried unanimously to approve the slate of candidates as nominated by the SACRS Nominating Committee.

0602.8

Management Reports

0602.8.1

Chief Executive Officer's Report: Mr. Bailey reported the results of a customer satisfaction survey sent via e-mail to all SamCERA active members. He stated that more than 200 active members participated in the survey. The link to the survey website will be provided to retired members in the March newsletter. The ratings of overall performance are slightly above "Good", indicating that SamCERA is serving most members well. Lack of timely responses for some requests was noted. Although some timeliness issues are beyond staff's control, staff will communicate issues more clearly to the members. Mr. Bailey indicated that staff is planning to improve SamCERA publications to make them more easily understandable and give them a more professional look. He said that staff has discussed the results and shall incorporate items into the strategic planning process. Overall, he is pleased with the results of the survey.

Mr. Bailey also brought up the issue of the retention of board meeting recordings. The current policy retains .mp3 recordings for three months. He opined that staff should retain all .mp3 recordings from previous board meetings as historical record. He will formally discuss the topic as part of a future CEO Report when all trustees are present.

0602.8.2

Investment & Finance Manager's Report: Mr. Clifton reported that (1) SamCERA's growth manager, Chartwell Investment Partners, announced that they are sub-advisors for the Vanguard group in the mid-cap product. (2) Western Asset Management selected two Russian securities from the emerging market LLC, created a Yankee LLC, reasoning that those securities are no longer emerging market securities but investment grade. (3) Aberdeen Asset Management had notified SamCERA that its Ford Motor credit has been downgraded in the portfolio. Mr. Clifton elected to keep it in the portfolio per Aberdeen's recommendation. (4) Mr. Clifton announced that he shall be attending client conferences this year. He will provide a schedule at the next board meeting should trustees also wish to attend.

0602.8.3

CountyCounsel's Report: Ms. Carlson reported that a court of appeals decision was made in regards to a law suit against the County of San Diego Board of Retirement. An increase in a $1.1 billion actuarial liability resulted from the county's granting of enhanced pension benefits. The county funded the increased liability with the use of pension obligation bonds. After their voluntary payment, the county requested that the board of retirement conduct an interim valuation to review the employer contribution rates. This was challenged by the public. The court of appeals sided with the board of retirement, opining that it was under the board's discretion to be able to perform the interim valuation to reflect the receipt of the voluntary payment from the county at the time it was made.

Mr. Lewis then took up agenda item 7.11.

0602.9

Adjournment in Memory of the following Deceased Members: There being no further business, Mr. Lewis adjourned the meeting at 4:03 p.m., in memory of the following deceased members:

Miner, Hubert

January 12, 2006

Crystal Springs Rehab. Center

Gillaspy, Donald

January 16, 2006

Assessor's Office

Hoffman, Julie

January 18, 2006

Department Of Health Services

Pindroh, Ann

January 25, 2006

Department Of Mental Health

Lee, Martin

January 29, 2006

Probation Department

Kenneth A. Lewis, Chair

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