April 25, 2006 – Board Agenda

Call to Order: Mr. Lewis, chair, called the Public Session of the Board of Retirement to order at 1:02 p.m., April 25, 2006, in SamCERA’s Board Room, Suite 125, 100 Marine Parkway, Redwood Shores.

0604.2

Roll Call: Mr. Bryan, Ms. Arnott for Mr. Buffington, Ms. Colson, Mr. Hackleman, Mr. Hooley, Mr. Lewis, Ms. Salas, Ms. Stuart and Ms. Tashman. Excused: None. Staff: Mr. Bailey, Mr. Clifton, Ms. Dames, Ms. Lamica, Ms. Palu and Ms. Wong. Consultants: Ms. Carlson, Mr. Collier, Dr. Fracchia, Ms. Jadallah and Ms. Steffen. Retirees: 1, County: 4.

0604.3

Approval of the Minutes: Motion by Stuart, second by Colson, carried unanimously to approve the board meeting minutes of March 28, 2006, as submitted.

0604.4.1

Oral Communications From the Board: None.

0604.4.2

Oral Communications From the Public: None.

0604.5

Benefit & Actuarial Services

0604.5.1

Adoption of Consent Calendar: Motion by Bryan, second by Hackleman, carried unanimously to adopt the consent calendar, as submitted, as follows:

Disability Retirements:

The board finds that Bibiana Elumba is disabled from performing her usual and customary duties as a Medical Services Assistant, and GRANTS her application for a Non service-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:

Kline, Geoffrey

April 1, 2006

Department of Public Works

Stevensen, Sandra

April 1, 2006

Department of Mental Health

Becconsall, Paul

April 18, 2006 (from deferred)

Department of Public Works

Kabakov, Mary

April 21, 2006

Employee & Public Services Dept.

Baker, Barbara

April 29, 2006

Library

Saunders, Daniel

April 29, 2006

Assessor’s Office

Continuance of Benefits:

Rouse, Dorothy

Beneficiary of Allison

Laakso, George

Beneficiary of Marilyn

Van Jepmond, Howard

Beneficiary of Lu Ann

Deferred Retirements:

Puls, Cheri M

G2 Vested

Extended Purchase:

Guich Daniel A.

7 years 1 month 8.333 days

Refunds For March 2006:

Cranna, Elvira

G2 vested

Garibay, Aida

G4 non vested

Hinojos, Sureya

G4 non vested

Hwang, Ji

G4 non vested

Kirkpatrick, Kelly

G4 non vested

Pusser, Wendy

G4 non vested

Ramos, Alan

G4 non vested

Rhoades, M. I.

G4 non vested

Velasco, Noel

G4 non vested

Rollovers for March 2006:

Furmanski, Lisa

G4 non vested

Regalado, Sally

G4 non vested

Ribardo, Keve

G4 non vested

0604.5.2

Consideration of Items Removed from Consent Agenda: None.

0604.5.3

Approval of Milliman’s Review and Determination of the June 30, 2005, Actuarial Valuation: Nick Collier and Karen Steffen of Milliman, Inc. were present to review the actuarial audit of Public Pension Professional’s June 30, 2005, actuarial valuation as well as discuss Milliman’s version of the June 30, 2005, actuarial valuation. (The Actuarial Valuation is available for review on SamCERA’s website at www.samcera.org)

Reyna Ferrales, Deputy County Manager/Budget Director, thanked the board for allowing the county more time to examine SamCERA’s June 30, 2005, actuarial valuation and recommended employer and member contribution rates for fiscal year 2006/2007. Since the March board meeting, the county discussed three major issues with Mr. Collier and Ms. Steffen: (1) similar mortality rates between general and safety members as recommended by Milliman, (2) termination rates for future deferred vested members, and (3) the assurance that cost-sharing was integrated into the valuation. Ms. Ferrales stated that the county was satisfied with Milliman’s responses to their questions. Trustees extended their appreciation to Milliman for their thorough completion of SamCERA’s actuarial audit and valuation in a such a relatively short period of time.

Summary of the Results of SamCERA’s Last Three Actuarial Valuations

Valuation Date

6/30/2005

6/30/2004

6/30/2003

Market Value of Assets

$1,599,269,701

$1,435,359,423

$1,233,272,000

minus Market Stabilization Account

(16,315,468)

(48,785,679)

(154,249,000)

equals Actuarial Value of Assets

1,615,585,169

1,484,145,102

1,387,521,000

Valuation Assets

1,615,585,169

1,452,621,000

1,353,941,000

Actuarial Value of Liabilities

2,178,000,000

1,921,328,000

1,781,544,000

Funding Ratio (V Assets / AV Liabilities)

74.2%

75.6%

76.0%

Unfunded Actuarial Accrued Liability

$556,000,000

$468,707,000

$427,603,000

Contribution Rates Effective in Fiscal Year:

2006-2007

2005-2006

2004-2005

Employer Rate (Actuary’s Estimated Aggregate)

25.16%

21.22%

22.84%

% Increase

18.6%

-7.1%

22.2%

Member Rate (Actuary’s Estimated Aggregate)

9.71%*

7.09%

8.38%

% Increase

34.3%*

-15%

18.0%

*includes cost-share

0604.5.4

Discussion, Recommendation and Approval of the 2006-2007 Fiscal Year Employer & Member Contribution Rates: Mr. Collier and Ms. Steffen of Milliman, Inc. presented the recommended contribution rates to the board. Following the board’s review, motion by Bryan, second by Arnott, carried unanimously, to adopt Resolution 05-06-07 , as follows:

Whereas, Government Code §31453 mandates the periodic actuarial valuation of the Retirement Fund and requires that the Board...shall, at least 45 days prior to the beginning of the succeeding fiscal year, recommend to the Board of Supervisors such changes in the rates of interest, in the rates of contributions of members, and in the county and district appropriations as are necessary...; and

Whereas, the County of San Mateo and its bargaining units have entered into agreements to enhance benefit formulas contingent on supplementing basic employee contribution rates with cost sharing percentages and those benefit formulas and cost sharing percentages are assumed to continue, and

Whereas, the Board has received, reviewed and approved the reports and recommendations from its actuary, Milliman, Inc., and the Chief Executive Officer setting forth the changes necessary to assure the actuarial soundness of the Retirement Fund. Therefore, be it

Resolved that the Board hereby recommends that the Board of Supervisors adopt the actuary's recommended Employer Contribution Rates for Fiscal Year 2006-2007 for the County and Mosquito Abatement District in accordance with the following schedule, as a percentage of covered salaries:

	Plan 1	Plan 2	Plan 3	Plan 4
EFFECTIVE JULY 1, 2006
County General Member Rates:
Employer Normal Cost	10.92	11.18	7.59	9.78
Contribution To Unfunded Accrued Actuarial Liability	10.38	10.38	10.38	10.38
Total General Member Rates	21.30	21.56	17.97	20.16

County Safety Member Rates:
Employer Normal Cost	23.32	21.36	None	18.86
Contribution To Unfunded Accrued Actuarial Liability	32.02	32.02	None	32.02
Total Safety Member Rates	55.34	53.38		50.88
County Probation Member Rates:
Employer Normal Cost	25.57	22.92	None	19.45
Contribution To Unfunded Accrued Actuarial Liability	16.43	16.43	None	16.43
Total Probation Member Rates	42.00	39.35		35.88

Mosquito Abatement General Member Rates:
Employer Normal Cost	8.94	9.17	None	8.02
Contribution To Unfunded Accrued Actuarial Liability	8.51	8.51	None	8.51
Total General Member Rates	17.45	17.68		16.53

Be it further

Resolved that the Board hereby recommends that the Board of Supervisors adopt the actuary's recommended basic entry age member contribution rates for the County and Mosquito Abatement District in accordance with the schedule set forth in the attachment entitled Basic Member Contribution Rates, as a percentage of covered salaries, effective July 1, 2006. “Cost sharing” percentages, while not included in the Basic Member Contribution Rates table, are assumed to continue at their current levels in the valuation assumptions.

Be it further

Resolved that the Chief Executive Officer is hereby authorized to transmit these rates,
requests and certifications to the Board of Supervisors and to take all actions
necessary to provide for their implementation effective July 1, 2006.

0604.6

Investment Services

0604.6.1

Monthly Portfolio Performance Report: Mr. Clifton presented the monthly portfolio performance report for the period ending March 31, 2006. SamCERA’s 1.36% Total Fund Return for the month underperformed the Total Plan Policy Benchmark return of 1.47%. The Fund’s Fiscal Year to Date (FYTD) return, 11.12%, is 518 basis points above the FYTD Actuarial Discount Rate of 5.94% and 2 basis points above SamCERA’s Total Plan Policy Benchmark of 11.10%. He reported that the Investment Committee discussed Goldman Sachs Asset Management’s underperformance. They briefly discussed the possibility of switching from a separate account to a GSAM commingled fund. Subsequent to further research, the committee will return to the board with a formal recommendation.

Asset Class

Market Value

1-Month

1-year TTWRR*

5-year TTWRR*

Domestic Equity

$909,442,674

1.93%

15.61%

6.60%

International Equity

296,349,422

2.10%

27.44%

8.81%

Total Equity

$1,205,792,096

1.97%

18.35%

7.11%

Fixed Income

493,495,462

-0.94%

2.91%

5.57%

Real Estate Aggregate

110,629,327

5.49%

21.06%

13.09%

Cash Equivalents

2,619,388

0.28%

3.34%

2.91%

Total Fund

$1,812,536,273

1.36%

13.66%

7.53%

Benchmark

1.47%

13.86%

7.46%

* Total Time-Weighted Rate of Return

0604.6.2

Review of Security Lending: Ms. Jadallah reported that Richard Blackman and Asim Azfar from State Street Bank & Trust were present at the Investment Committee to conduct an educational presentation on security lending. Mr. Blackman discussed the historical perspective of the security lending industry, the mechanics of lending along with security lending’s associated risks and the various levels of built-in controls to minimize those risks. Ms. Jadallah stated that the majority of public funds engage in security lending. The estimated annual revenue potential from security lending is approximately $550,000.

Ms. Jadallah said that most of SIS’ clients who are in relative size to SamCERA have a 70% / 30% split with their securities lending agents— a more preferable split to that of what State Street initially offered. Ms. Colson said that State Street seemed willing to negotiate the division of client versus agent share. Ms. Colson also noted that not every public fund is engaged in security lending and that trustees must seriously look into the risks associated with the program.

Mr. Clifton indicated that he will request security lending guidelines from the County Treasurer’s office from Ms. Arnott. Ms. Arnott said that she felt more comfortable about the program with a 70% / 30% split.

The Investment Committee has requested a list of parameters for both State Street’s
second-most conservative fund, also known as the “Quality D Investment Fund,” as well as State Street’s most conservative fund. The committee also wished to compare the parameters set by plan sponsors regarding what brokers to use, what investments to consider and other guidelines in order to get a better sense of security lending prior to making an explicit recommendation.

0604.6.3

Acceptance of Semi-Annual Compliance Certification Statement – Brandes Investment Partners, Chartwell Investment Partners and Goldman Sachs Asset Management: Mr. Clifton stated that there was nothing out of the ordinary to report on the semi-annual compliance certification statements for Brandes Investment Partners, Chartwell Investment Partners and Goldman Sachs Asset Management. Without objection, Mr. Lewis accepted the report.

0604.7

Board & Management Support Services

0604.7.1

Monthly Financial Reports: Mr. Clifton presented the SamCERA monthly financial report for the period ending March 31, 2006. SamCERA’s Net Assets Held in Trust for Pension Benefits as of March 31, 2006, totaled $1,810,674,991.

0604.7.2

Quarterly Budget Report for Period Ended March 31, 2006: Mr. Clifton reported that with 75% of the fiscal year completed, Administrative expenditures to date represent 56.9% of the total $2,488,200 appropriated for the fiscal year. All major categories are under budget.

Mr. Bailey stated that Scott Hood, SamCERA’s Assistant Executive Officer on military leave, is expected to return to work in mid-June.

SamCERA’s Administrative Budget

	Adopted Budget	YTD Actual
Salaries & Benefits	$ 1,530,300	$ 954,329
Services & Supplies	$ 942,900	$ 462,466
Fixed Assets	$ 15,000	$ 0
Total	$ 2,488,200	$1,416,795

Professional Expenses accrued year-to-date total $4,242,100, or 73% of the estimated total for the year. Mr. Clifton noted that, with the exception of actuarial services, professional expenditures are on target in accordance with the budget appropriations. The Board of Retirement mandated that SamCERA’s new actuary, Milliman, review the June 30, 2005, actuarial valuation report. That mandate cost SamCERA an additional $60,000 in actuarial fees for the 2005-2006 fiscal year. As of March 31, 2006, the aggregate professional services fee is approximately 32.3 basis points.

The budget reports also included a status report on SamCERA’s budget initiatives.

0604.7.3

Review of SamCERA’s Sources, Uses & Budget for Fiscal year 2006/2007: Mr. Clifton presented a draft budget report for fiscal year 2006/2007. The report listed the expenditures in FY 2004/2005, the adopted budget for FY 2005/2006, the progress of expenditures for FY 2005/2006 and the proposed budget for FY 2006/2007. Mr. Clifton briefly reviewed the items and services that compose the various budget categories.

In response to a question regarding the 15.7% budget increase, Mr. Clifton stated that the increase reflects expected moving costs with the office space expansion, Mr. Hood’s salary and benefits which were not expended this fiscal year due to his military leave, salary and benefits for the new Retirement Investment Analyst position, improvements to SamCERA’s members publications as well as the development of a comprehensive IT plan.

Staff will return with a final budget report at next month’s board meeting. Trustees were encouraged to forward any budget concerns to Mr. Clifton.

0604.7.4

Approval of Auditor’s Engagement Letter for June 30, 2006, Financial Audit: Mr. Clifton presented the audit engagement letter from Brown Armstrong. Motion by Lewis, second by Salas, carried unanimously to authorize the board chair to execute the Audit Engagement Letter with Brown Armstrong for the June 30, 2006, financial statement audit.

0604.7.5

County Presentation on Investment of Health Insurance Trust Funds: Ms. Ferrales, Deputy County Manager/Budget Director, was present to discuss the county’s proposal that the Retirement Board manage the investment of its health insurance fund. She reviewed GASB 45, which requires government employers to quantify and disclose the true cost of other post-employment benefits (OPEB) liabilities beginning in July 1, 2007. She said that the county would like to explore the feasibility of placing its health insurance trust funds into SamCERA for the purpose of funding retiree health, dental and other OPEB benefits. They will also research the associated costs with the proposal and will be willing to pay for any necessary costs of the increased responsibilities.

The board allowed the county to continue its research regarding the proposal, given the fact that the beneficiaries of the health insurance trust fund are also SamCERA beneficiaries. However, trustees brought up several concerns that they wish the county to address. The difference in the county’s time horizon with a 30-year amortization period versus that of SamCERA’s 15-year amortization might cause issues regarding asset allocation. It is important that further research regarding SamCERA staff time and operational costs also be performed. Mr. Hooley asked for the legal basis that governs the trust fund and the Board of Retirement’s fiduciary relationship to the responsibility of handling the county’s health insurance trust funds. Legislation might be required to address this issue. Ms. Tashman also wanted a cash flow analysis of the proposal. Ms. Ferrales will return at a future board meeting to present a more detailed proposal, answering the issues the trustees presented at the meeting.

0604.7.6

Acceptance of Report on Prepayment of the County’s Contribution for FY 2006/2007: Mr. Clifton reported that the County plans to prepay its Fiscal Year 2006/2007 contribution, which is estimated to be $95,027,707. The amount will be transferred from the county general fund to the SamCERA Trust Fund on July 7^th as an advance payment of the required county contributions.

0604.7.7

Approval of SamCERA’s Strategic Plan: Mr. Bailey presented an updated version of SamCERA’s Strategic Plan. He noted that it has only been four months since the board approved the last iteration of the document so not a significant amount has changed since then. Staff completed 27 projects from the 2005/2006 plan and added 15 projects for the next fiscal year. New projects include the acquisition of new office space, development of a comprehensive IT plan, further improvements to SamCERA’s publications and establishing educational retirement workshops for members. Motion by Bryan, second by Stuart, carried unanimously to approve SamCERA’s Strategic Plan for fiscal year 2006/2007.

0604.7.8

Approval of Office Space Option: Mr. Bailey provided an update on the progress of negotiating for office expansion space. Staff has worked with the building architect to review the floor plan in the office adjacent to SamCERA’s current location, making specific modifications to fit SamCERA’s needs. Costs associated with the expansion are still being researched. Upon Mr. Hood’s return, SamCERA will be able to rent a small office next door in the interim. Ms. Carlson along with an employee from the county will work on building lease negotiations.

0604.7.9

Approval of SACRS Voting Delegate and Alternates; and board direction on SACRS Initiatives: Mr. Bailey presented a memo from State Association of County Retirement Systems (SACRS) listing the final names that will appear on the SACRS ballot. He also reviewed the initiative to be voted on at the conference business meeting. Ms. Colson, Mr. Hackleman and Ms. Stuart are the board members registered to attend the SACRS Conference. Motion by Bryan, second by Lewis, carried unanimously to approve Mr. Hackleman as SamCERA’s voting delegate at the Spring SACRS Conference.

0604.7.10

Approval of Fiduciary Insurance Policy: Steve Rossi, County Risk Manager, and Ms. Carlson reported that they had spoken with SamCERA’s fiduciary liability insurance carrier to address some questions regarding its coverage. Ms. Carlson said that she wanted the carrier to answer their questions as specifically as they could as to what board actions can or cannot be covered under their policy. She stated that she was impressed with their straight forward answers. Mr. Rossi and Ms. Carlson reviewed a few items that were discussed during the conference call.

Motion by Bryan, second by Arnott, carried unanimously to authorize the Investment & Finance Manager to work with the County Risk Manager to arrange for fiduciary liability insurance coverage effective upon the expiration of the current policy.

0604.8

Management Reports

0604.8.1

Chief Executive Officer's Report: Mr. Bailey reported on AB 1568, a new legislation in the California Senate, which prohibits individuals who market investment products to 1937 retirement systems to serve on any 1937 Act retirement boards.

A website link to a retiree customer service survey was distributed in SamCERA’s most recent newsletter. Mr. Bailey stated that the responses were very consistent. Retirees scored SamCERA’s service 0.21 higher (on a scale from 1-4) than active members. He was pleased with the retiree survey results but there is always room for improvement.

Mr. Bailey also distributed the new CALAPRS’ directory.

0604.8.2

Investment & Finance Manager’s Report: Mr. Clifton stated that David Gallagher of Chartwell Investment Partners has accepted a position at a different investment firm effective May 1. He also said that he has seen several flyers aiming towards education on social investing and fiduciary duty.

0604.8.3

County Counsel's Report: Ms. Carlson reviewed the requirements of AB 1234 regarding trustee ethics training. Although SamCERA trustees are not mandated to attend ethics training, they can attend the SACRS ethics training seminar at the spring conference should they wish to do so. She reported that the county will conduct ethics training seminars geared towards the Board of Supervisors and commissions throughout the summer. She can arrange a special workshop for the Board of Retirement at the board’s pleasure.

0604.9

Report on Actions Taken in Closed Session: None.

0604.10

Adjournment in Memory of the following Deceased Members: There being no further business, Mr. Lewis adjourned the meeting at 3:09 p.m., in memory of the following deceased members:

Wolfe, Janice

March 8, 2006

County Clerk’s Office

Wobig, Edith

March 12, 2006

Department Of Social Services

Thomas, Shigeko

March 13, 2006

Beneficiary Of Owen

Peterson, Arthur

March 14, 2006

Assessor’s Office

Stroupe, Ethel

March 18, 2006

Department Of Social Services

Bennett, Cora

March 24, 2006

Beneficiary Of Henry

Gargaritano, Emile

March 25, 2006

Beneficiary Of Philip

Van Jepmond, Lu Ann

March 28, 2006

Department Of Mental Health

Cicero, Wilma

March 29, 2006

San Mateo County Municipal Court

Kenneth A. Lewis, Chair

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Minutes Index

April 25, 2006 – Board Agenda

April 25, 2006 – Board Minutes

Domestic Equity

Adopted

Budget

YTD Actual