SONOMA COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD MINUTES

Transcription

1 BOARD MINUTES Thursday, 8:34 A.M. Presiding: Present: Also Present: Absent: Chair Jerry Allen presided. Trustees Al Alys, Mike Chrystal, Rod Dole, Dianne Edwards, Greg Jahn (arrived at 10:33 A.M.), Kiergan Pegg, David Rabbitt (left at 12:25 P.M.), Sharon Stockham, and Kimber Williams Retirement Administrator Gary Bei; Assistant Retirement Administrator Kelly Jenkins; Accounting Manager Cathy Lanz, Investment Officer James Failor, Information Systems Manager Diane Ginn, Legal Counsel Neil Baker, Deputy County Counsel IV Jeff Berk; Legal Counsel Ashley Dunning, John Lee and Shane Schurter of Hewitt EnnisKnupp, Administrative Aide Jennifer Howze, CPA Rosalva Flores of Brown Armstrong, HR Analyst Carol Allen, President Ed Clites of Sonoma County Law Enforcement Association (SCLEA). None. I. CONSENT CALENDAR A. Membership as of April 30, 2011: Active = 3,731 Deferred/Transfer = 537 Retirees = 3,813 New Members = 19 Withdrawals = 6 = $86, Funds on Deposit/Members with Less than 5 Years = 378 = $5,156, B. SERVICE RETIREMENTS: Name Effective Date Department Kathleen Austin 5/11/11 Deferred Michael Bailey 5/08/11 Deferred Eloyce Berethower 4/25/11 Deferred Margaret Byrne 5/03/11 Sheriff Lynn Carolin 4/05/11 Human Services Donald Dakan 4/05/11 General Services Kathleen Davis 5/03/11 Health Services Brian DeRousseau 4/03/11 Deferred Mary Eickmeyer 3/12/11 Health Services Joseph Farmer 5/17/11 Sheriff 1

2 Camilla Farrell 3/22/11 Human Services Gina Fata 3/03/11 Health Services Michael Ferguson 3/04/11 Deferred Carmen Garcia 5/03/11 Superior Court Benjamin Gigli 5/07/11 Deferred Stuart Hotaling 5/17/11 Regional Parks Donna Inman 5/03/11 ACTTC David Iverson 5/17/11 Sheriff Jeffrey Jaehing 5/03/11 General Services Betty Lee 3/22/11 Human Services Sherry McGuire 5/17/11 Human Services Robert Monroy 5/03/11 Sheriff Cynthia Myers 3/22/11 Superior Court Juanita Pena 3/22/11 Retirement Yadira Rosas 5/03/11 Sheriff Claude Rosenthal 5/17/11 Health Services Maryann Ryan 5/03/11 Health Services Jeanne Shaw 5/03/11 Health Services Patricia Stoddard 5/17/11 Board of Supervisors Lynn Vender 5/03/11 Human Resources David Walsh 5/03/11 PRMD Kenneth Williamson 5/03/11 Sheriff Total = 32 C. DEFERRED/TRANSFER: None. D. ACTIVE/DEFERRED/TRANSFER DEATH: None. E. THIRTY YEARS SERVICE: None. F. PURCHASE OF SERVICE: (Period from 03/01/11 03/31/11) Totals Service Prior LWOP (Sick &/or Military) Public Service Redeposit Years (safety) Years (general) Cost $4, $1, $27, $0.00 2

3 G. SERVICES: Hanson Bridgett Investment Legal Services- Jan $ 9, Hanson Bridgett Tax Determination Letter $ 13, Nossaman LLP Legal Services Jan - Feb $ 31, County Counsel Legal Fees Dec 2010/ Jan 2011 $ 5, Hewitt EnnisKnupp Management Fees- Jan - Mar $ 74, State Street Global Advisors Investment Management Fees $ 29, UBS Realty Investors Investment Management Fees- Oct Dec $ 272, Dodge & Cox Investment Management Fees- Oct Dec $ 108, Integrated Pension System Sonoma County Information Systems February Projects $ 3, Ayes 8 Noes 0 Abstain 0 Absent 1 II. MINUTES APPROVAL: Approval of April 21, 2011 Retirement Board Meeting Minutes. Ayes 8 Noes 0 Abstain 0 Absent 1 Approval of May 4, 2011 Special Retirement Board Meeting Minutes. Ayes 8 Noes 0 Abstain 0 Absent 1 3

4 III. REGULAR CALENDAR: A. PRESENTATIONS: Brown Armstrong 1. December 31, 2010 Financial Audit presentation of audit results by CPA Rosalva A. Flores of Brown, Armstrong, Paulden, McCown, Starbuck & Keeter, Accountancy Corporation. Ms. Flores briefly reviewed the financial audit saying the firm issued an unqualified opinion of SCERA s financial statements which is the highest opinion given. There were no findings on the yellow book report for issues with internal control. Additional disclosure on derivatives in the footnotes of the CAFR was added as required by GASB 53, but no other significant changes were made. Chair Allen asked if past recommendations for internal controls had been satisfactorily implemented. Ms. Flores replied that findings from two years prior have been addressed and properly implemented. There were no internal control recommendations last year to follow-up on for this year s audit. Chair Allen extended congratulations on behalf of the entire Board to Accounting Manager Cathy Lanz and the accounting staff for the continued high quality of their work. Hewitt EnnisKnupp 2. Quarterly Investment Performance Report. John Lee of HEK provided an overview of the quarterly performance report saying capital markets were quite favorable in the first quarter and included the best January since Despite international concerns such as the instability in the Middle East and the debt burden of the peripheral European countries the global stock market was up 4.4% for the first quarter as measured by the MSCI All Country World Index. Mr. Lee went on to discuss sector returns for the quarter and the year, noting that all sectors of the US stock market delivered positive returns for the quarter with oil delivering 17.4%. Interest rates rose across the curve over the quarter with government bonds down slightly for the period. All other bond sectors delivered positive returns for the quarter. Mr. Lee surveyed the returns of regional equity markets around the world noting that Japan, Israel and North Africa were down for the quarter while all other regions were up. The top performing region was Eastern Europe/Middle East. The Plan s total return net-of-fees was 4.6% and 14.5% for the quarter and year, respectively. The Plan s return exceeded its benchmark over both periods. Mr. Lee went on to review performance for each of the Plan s managers. What follows are select highlights. In US equities Dodge & Cox trailed slightly over the quarter as they were hurt by their underweight to health care. Dodge & Cox is a value manager and, as such, will often underperform in strong advancing markets. The firm s long-term performance record is quite strong. INTECH s mathematical volatility capture approach struggled in 2008 and 2009 but has been outperforming over the last year and added almost 100 basis points 4

5 A. PRESENTATIONS, cont.: 2. Quarterly Investment Performance Report, cont. of outperformance in the first quarter. Jacobs Levy managed a 130/30 strategy for SCERA, which allows them some amount of controlled shorting of stocks they view as overvalued and they have delivered strong performance over the benchmark with their quantitative approach adding nearly 4% over the quarter and 8% in the last year resulting in $16 million in outperformance. Jacobs Levy s models attempt to capture inefficiencies in the market due to the cognitive biases of other investors. Systematic s small cap value approach has added significant value over all periods ending with the first quarter and approximately 130 basis points over the most recent quarter. This manager s approach which focuses on strong cash flow and low levels of debt has delivered strong performance over the last two years. State Street s index strategies, including the US small cap growth and the non-us small cap equity strategies, have matched their benchmarks as expected. Turner s large cap growth strategy has typically delivers strong performance in advancing markets due to their fairly aggressive growth style. This manager has underperformed their benchmark over the last year and since SCERA s account inception in Over the most recent quarter stock selection in telecommunications and utilities have hurt their benchmark relative performance. While this has been a challenging period for the manager their long term performance remains attractive, Hewitt EnnisKnupp (HEK) continues to have confidence in the manager and they expect the manager to outperform over time. In non-us equities Artio has struggled to deliver performance in a quickly rising market. The firm stumbled in their handling of financials first being overweight when financials trailed in 2008/2009 and then being underweight when they subsequently outperformed. Over the most recent periods Artio underperformed by 150 basis points over the first quarter and 350 basis points over the last year. HEK is monitoring Artio closely but continues to believe they have a talented team of investors. Templeton is a bottom-up value oriented stock-picker and they manage both a non-us and a global equity portfolio for SCERA. While both portfolios have trailed over the last year both have also outperformed over the most recent quarter as they benefitted from strong stock selection in materials, financials and telecommunications. In global equities GMO underperformed by 1% for the quarter and 3% over the last year as their overweight to quality stocks held back performance. The firm continues to have strong 3-year, 5-year and since-inception returns. Arrowstreet is a new non-us equity manager for SCERA and Calamos is a new global equity manager for SCERA. Both were funded at the end of January and, as a result, have only a partialquarter of performance. 5

6 A. PRESENTATIONS, cont.: 2. Quarterly Investment Performance Report, cont. In fixed income both Reams and Western have performed well since 2008 and both have delivered strong performance over the trailing quarter and year. Over the most recent quarter both managers benefited from a shorter duration as the yield curve moved-up. PIMCO was funded at the end of March and, as a result, does not have a first quarter performance record to discuss. In real estate returns are booked with a lag so the fourth quarter 2010 return was booked in the first quarter of UBS trailed over the most recent quarter but has outperformed its peers over all of the longer period. UBS navigated the recent real estate downturn without experiencing the huge losses felt by many other real estate managers. The firm is now experiencing some slight underperformance due to its lower-than-average leverage. In a strongly appreciating market this firm may continue to underperform but they have added value over the long-term. BlackRock s higher leverage was accretive as valuations were written-up in the first quarter and the manager modestly outperformed. BlackRock has matched the benchmark over one year and trailed over longer periods as the result of higher leverage and a more aggressive use of forward commitments. RREEF is the Plan s value-added real estate manager and has struggled over all periods ending through the first quarter due to their higher leverage and significant exposure to development properties. The firm continues to be on watch as the manager plans to liquidate the portfolio and return the remaining equity to investors. The UBS Farmland Fund investment was incepted at the beginning of the quarter and delivered a benchmark-like return though it slightly trailed due to its lower than benchmark exposure to permanent crop land. 3. Educational Presentations of Risk Management Methodologies. Mr. Schurter of HEK explained that a more comprehensive review of the presentation was planned for the Investment Committee meeting in June but that they wanted to provide an overview for the full Board as well. This topic was born out of the Credit Crisis and market downturn of 2008/09 and the goal is to examine risk from multiple angles, including both investment and governance-related risks. On the investment side the methods SCERA uses to measure and manage risks is in line with peers and, in HEK s view, there is nothing else required to protect against these risks. Mr. Schurter then reviewed the various types of risks including, on the investment side, beta exposures, leverage, illiquidity, and fat tail risks. Chairman Allen noted that some other systems are acquiring downside protection to protect against downside fat tail risks. The experience over recent decades seems to suggest that some of these large downside events are more likely to occur than a normal distribution would suggest, hence 6

7 A. PRESENTATIONS, cont.: 3. Educational Presentations of Risk Management Methodologies, cont. the term fat tail risk. Mr. Schurter noted that there can be substantial costs to this kind of downside protection and that he was skeptical regarding the models used and whether the information was actionable but that they are working on a framework to analyze these risks. In response to a question from Chairman Allen regarding whether SCERA is sufficiently protected against possible fat tail events Mr. Schurter responded that we use history to model downside risks and, while the past is no guarantee of future performance, it is the best indicator of future performance over the longterm. He went on to say that the key with investing is to stick with your program even after large corrections in order to earn back those losses during the recovery periods rather than exiting the market and locking-in the losses. History has shown that market returns are fairly steady over longer periods of times such as 20 years. Mr. Schurter went on to say that while it is not possible to predict these extraordinary events we can build a portfolio in such a way as to minimize their impact. HEK is performing an asset-liability study that will help the trustees evaluate Plan level risk and the trade-off between expected risk and return. The results from that study are scheduled to be presented in July. Mr. Schurter then reviewed several risk management systems that could be used to analyze and mitigate risk. He noted that individual holding-based systems are usually very expensive and are not necessarily beneficial. In discussing risk controls on investment managers he noted that it is good to know where risks exist but that HEK does not believe in placing tight constraints on managers as it impedes their ability to add value. Mr. Schurter went on to review the governance-related risks SCERA faces and the policies and procedures that can be used to mitigate these risks. He commented that SCERA has all of the necessary systems in place to help mitigate these risks and is among their best prepared clients in this regard. Trustee Rabbitt commented on the political risks the system faces. Mr. Schurter pointed out SCERA s limited control over those risks but noted that SCERA s stable procedures and stable staff have allowed the organization to manage those risks as well as possible. Trustee Alys asked whether there is any merit to seeking out other 37 Act systems that were able to avoid or decrease the impact of the downturn to learn from them. In response, Mr. Schurter commented that it is always valuable to share ideas with sister plans, but in this instance everyone experienced significant losses through the downturn and there was no one plan that fared much better than the others. Administrator Bei did noted that because of SCERA s somewhat higher equity ratio we fared a little worse though the downturn and a little better through the recovery. 7

8 B. INVESTMENT COMMITTEE REPORT: Committee Chair Jerry Allen and Retirement Investment Officer Jim Failor reported on the Investment Committee meeting held on May 18, Presentation: UBS Realty Executive Directors James McCandless and Rod Chu and Director Deborah Ulian presented an update to the Investment Committee on the organization and the firm s market outlook as well as the portfolio positioning and performance of the Trumbull Property Fund (TPF), a core real estate fund, and the AgriVest Farmland Fund. Chair Allen reviewed the highlights of the presentation commenting that UBS believes core real estate funds are supposed to be stable funds with low levels of risk, provide a healthy income and that they should not take on large risks. TPF weathered the down market better than other similar funds but tends to lag during strong up markets due to their lower leverage. Properties owned by the fund are appraised externally every quarter with one full walk through appraisal and 3 desk top appraisals done each year. The organization and fund size both allow for the acquisition of good sized investments. The fund slowed making new investments during the market downturn and is now looking to ramp up acquisitions again in order to invest funds that are currently in queue. Mr. Failor added that UBS Trumbull is the top performing open-end core real estate fund over ten years and has demonstrated a consistent style and strong returns over time. Chairman Allen went on to review the farmland presentation saying the fund has $222 million in assets with another $80 million in the entrance queue. While the benchmark has more permanent crop land exposure the UBS fund is more strongly weighted towards row and vegetable crop land with only a small portion of the fund in permanent crop land. He also noted that there has been a strong recovery in the farm economy over recent years due to growing global demand and that food and farmland prices are up. This is making it difficult for UBS to invest the additional funds in the entrance queue at reasonable prices. As a result, it may take longer than previously expected to get all of SCERA s planned $52 million invested in the Farmland Fund. Regarding the recent flooding in the southern Delta states the UBS fund has no farms in the flood zones and has only one farm that is threatened which has not yet flooded and, if it does, is not expected to experience any significant financial impact. The overall impression regarding both UBS funds and the management thereof was positive. 2. Investment Consultant & Staff: a. Hewitt EnnisKnupp Approach to Evaluating Investment Managers This item was held over for discussion to the next Board meeting. b. Annual Manager Evaluation Report continued from prior meeting. This item was held over for discussion to the next Board meeting. 8

9 B. INVESTMENT COMMITTEE REPORT, cont.: 2. Investment Consultant & Staff, cont.: c. BlackRock Realty Leadership Announcement. It was explained that the lead portfolio manager on the BlackRock Granite Fund, Jay Alexander, was departing BlackRock and is being replaced by two co-pms, Andrew Pierkarski (who has served as a PM on the fund for several years) and Kathy Malitz. HEK and SCERA continue to have concerns regarding this manager and the manager continues to be on watch. David Rose, who participated by phone, expressed HEK s view that SCERA should not exit the fund at this time as its higherthan-average leverage is accretive during the commercial real estate recovery which is just getting under way. He went on to say that SCERA may want to consider leaving the fund at a later date as part of the Plan s long-term planning. d. Risk Management Educational Presentation. Reviewed above. e. Managers on Watch 3. Communications: 1. BlackRock Granite Fund March 2011 Update review. Covered in manager quarterly report above. 2. RREEF America III Fund March 2011 Update & Select Pages from Annual Investor Meeting Presentation review. Covered in manager quarterly report above. a. Investment Benchmark Summary April b. Systematic Letter Regarding Employee Ownership of Firm, May 2, c. PIMCO Investment Outlook, The Caine Mutiny (Part 2), May d. Wall Street Journal, China s Rising Wages Propel U.S. Prices, May 9, e. The Economist, America s Labour Market Perking Up, May 6,

10 C. ADMINISTRATIVE-BENEFITS COMMITTEE REPORT: Benefits Committee Meeting held on May 16, Election of Committee Chair: Mike Chrystal was elected as Committee Chair by vote of the members. Kiergan Pegg was elected as Vice Chair. 2. Actuarial Topics: a. Follow up discussion to Actuarial Report presentation on May 4, No follow up items were targeted. b. Transfer of reserves to true-up reserve balances to the December 31, 2010 Actuarial Report. This is an annual process of aligning SCERA reserves to amounts in the actuarial valuation. Trustee Chrystal asked about the debits and credits listed on the transfer of reserves as they don t seem to match. Accounting Manager Cathy Lanz responded that the debits and credits do tie, but the page from the valuation report is a bit confusing since the market stabilization reserve is listed twice. This was an information item and a routine adjustment of reserves. c. Employee and employer contribution rates for Fiscal Year 2011/2012. The contribution rates for Fiscal Year 2011/2012 result from the December 31, 2009 actuarial valuation and Segal actuarial analysis adjusting the County employer rates for the receipt of POB proceeds in The contribution rates were reviewed in detail at the Committee meeting and recommended for approval. Formal approval of the contribution rates by Resolution is in the Administrator s Report section of the agenda. Motion to approve the rates as presented. Ayes 9 Noes 0 Abstain 0 Absent 0 d. SCERA Funding Policy Update. Trustee Chrystal reviewed changes to the policy developed by Segal saying the current policy needed updating as some areas no longer apply, and others needed further detail. Administrator Bei handed out the new policy incorporating the language changes suggested by the Committee under section III bullet point 3. The Board discussed the change to amortize benefit changes over a period of up to 15 years and the language addressing immediate funding for early retirement programs. Mr. Bei noted the framework for the up to 15 year policy for benefit changes was principles like the average remaining working lives of employees and the GASB proposals for retirement reporting. In the past, SCERA has generally amortized benefit changes over the UAAL amortization period, currently 20 years. After discussion, the Board 10

11 C. ADMINISTRATIVE-BENEFITS COMMITTEE REPORT, cont.: 2. Actuarial Topics, cont.: d. SCERA Funding Policy Update, cont.: decided that changing the up to 15 year amortization language to up to 20 years would allow for greater flexibility. The up to portion of the policy could accommodate the facts and circumstances of a particular benefit change and an appropriate amortization period could be selected. Motion to approve the SCERA Actuarial Funding Policy as presented with one adjustment for the benefit change amortization period to up to 20 years as discussed. Ayes 9 Noes 0 Abstain 0 Absent 0 e. Annual Review of Actuarial Services. Trustee Chrystal said the Committee held a brief discussion of Segal and as a whole feel very good about the service they provide. 3. Administrator s Report: a. SCERA Organizational Review implementation update. 1. Investment Job Series update. The investment job series classification study is being handled by HR and is approximately one month away from being ready for review. In completing the salary analysis for the Senior Investment Officer position, HR suggested that the Assistant Retirement Administrator be considered as well. This was an expansion of the scope of the study but was considered to be fair and is being included. The Board was supportive of this change. 2. Retirement Benefits Specialist II Recruitment to be reviewed later in the meeting. b. Posting of Annual Actuarial Valuation Report to SCERA Website discussion. The Committee decided after brief discussion that, while it is a complex document and best reviewed in a full meeting with presentation by the actuary, it would be best to post the valuation on the website in the interest of transparency. 4. Administrator Annual Performance Review Executive Session: Annual performance review of the Retirement Administrator. 11

12 C. ADMINISTRATIVE-BENEFITS COMMITTEE REPORT, cont.: 5. Report of Executive Session: The Admin-Benefits Committee approved the Administrator s Performance Evaluation. 6. Retirement Administrator Annual Salary Range Adjustment: No action was taken, and no recommendation was needed. D. AUDIT COMMITTEE REPORT: The newly elected Committee Chairperson Greg Jahn reported on the Audit Committee Meeting held on May 16, Election of Committee Chair: New Committee Chairperson Greg Jahn was elected by vote of the members. 2. Presentations: a. Partner Rosalva Flores of Brown Armstrong reviewed the results of the annual financial audit of SCERA for the year ended December 31, Ms. Flores presented the Audit report to the Board earlier in the meeting. Motion to accept the Financial Audit for SCERA. Ayes 9 Noes 0 Abstain 0 Absent 0 b. Comprehensive Annual Financial Report (CAFR) for the years ended December 31, 2010 Retirement Accounting Manager Cathy Lanz reviewed the CAFR Draft. Ms. Lanz will review the CAFR draft in more detail later in the meeting. 3. Administrator s Report: a. Internal Revenue Service (IRS) Tax Determination Letter and Voluntary Compliance Program Filing update. SCERA is currently waiting for the IRS to review the TDL and provide feedback. Staff is also working with the County on a short list of IRS compliance issues. b. Business Continuity Test of Integrated Pension System. There is a clone system in Springfield, IL that can be accessed by SCERA in the event of an emergency or disaster situation. A limited test was successfully run in April, and a more comprehensive test will be done in September. 12

13 D. AUDIT COMMITTEE REPORT, cont.: 3. Administrator s Report, cont.: c. Government Accounting Standards Board Pension Disclosure Preliminary Views update. The GASB Preliminary Views has been issued and an Exposure Draft is expected in June. The projected timeline is to release the final standard in June Communications: Institutional Investor April 22, 2011 article titled GASB Readying Public Pension Accounting Changes. E. DISABILITY COMMITTEE: As the next meeting of the Disability Committee is on June 9, 2011 no report will be given. F. FINANCIAL STATEMENTS & SUMMARY: 1. Investment Performance Summary for April Mr. Failor commented that equities were up again in April, the fourth month in a row, as the Federal Reserve assured the markets that their monetary easing policy would continue through June. The Russell 3000 index was up 3.0% in April and 9.6% year-todate. The Plan s total return gross-of-fees was 3.5% for April, 8.4% year-todate and 17.7% over the trailing year. In spite of two equity market downturns over the last decade the 15-year return has been creeping up and is now at 7.3%. The total value of the Fund reached $1.913 billion as of April 30 th. Mr. Failor commented on the performance of individual managers noting that Turner underperformed due to sector weighting which, by design, match those of the S&P500 while performance is measured against the Russell 1000 Growth Index. All of SCERA s other equity and fixed income managers matched or exceeded their benchmarks for the month with Dodge & Cox adding over 100 basis points of alpha, GMO adding over 130 basis points and Templeton adding approximately 150 basis points in each of their two portfolios, non-us equities and global equities. In real estate, RREEF outperformed the benchmark by 250 basis points for the first quarter (and booked in April) as they benefited from their higher-than-average leverage. Thus far in May the markets appeared to be refocusing on concerns regarding Europe s debt problems and a lackluster economic growth as the equity markets gave back some of their former advances. As of May 19 th the Plan s Target Policy return was -1.65% month-to-date. 13

14 F. FINANCIAL STATEMENTS & SUMMARY, cont.: 2. Monthly Financial Statement(s). Review of the draft Comprehensive Annual Financial Report (CAFR) for the year ended December 31, The title was changed on the cover by request of the GFOA to refer to only one year with comparative totals. The CAFR draft was reviewed with the Board and any inputs need to be received by early next week as it is schedule to go to print soon. G. ADMINISTRATOR S REPORT: 1. SCERA Board Ex-Officio Position planned retirement of Rod Dole on May 31, 2011 and replacement to be named by the County Board of Supervisors. The Board of Supervisors has not yet announced the replacement for the Treasurer position. The plan is for Donna Dunk, Deputy ACTTC, to become the acting ACTTC until an appointment is made. 2. Resolution #103 Authorizing Adoption of Employee and Employer Contribution Rates for the County of Sonoma. Motion to approve Resolution #103 as written. Ayes 9 Noes 0 Abstain 0 Absent 0 3. Resolution #104 Authorizing Adoption of Employee and Employer Contribution Rates for the Valley of the Moon Fire Protection District. Motion to approve Resolution #104 as written. Ayes 9 Noes 0 Abstain 0 Absent 0 4. Resolution #105 Authorizing Adoption of Employee and Employers Contribution Rates for the Superior Court of California- County of Sonoma. Motion to approve Resolution #105 as written. Ayes 9 Noes 0 Abstain 0 Absent 0 5. Integrated Pension System Project Update. Diane Ginn provided an update saying the project has run longer than scheduled, but remains well within the estimated budget. Even with estimated cost of changes not in the original scope of the budget, the cost is still well within the original budget projections. Staff did a considerable amount of the project management work which created a significant cost savings on consulting costs. Consultants were used mainly in areas where they could add significant value like experience with other implementations. The imaging phase also finished under budget. Development of comprehensive specs at the beginning of the 14

15 G. ADMINISTRATOR S REPORT, cont.: 5. Integrated Pension System Project Update, cont.: project was an important contributor to staying within budget as well. Overall, the project is on track to come in under budget. Staff was commended by the Board for continuing to be under budget, a rare status for a computer system implementation. 6. Preliminary Budget for Fiscal Year 2011/2012. The goal of the budget process is to set the right level of administrative expenses for the effective administration of the retirement system consistent with fiduciary duties. Fiscal Year 2010/2011 is projected to finish under budget by 7% ($215,000) reflecting careful expense management in the prior year. The preliminary budget for Fiscal Year 2011/2012 is well under the budget authority cap. Staffing costs represent approximately two thirds of the budget cost. Staff will remain flat at 15, while other systems of comparable size have 19 staff members. A reduction in staffing in the accounting area will allow a new investment analyst position to be added. The assumed timing of this new staff position is October Salary assumptions include MTO for five days and limited extra help support in the first quarter to assist in backfilling work during the high retirement processing period. A website enhancement project is planned with support from ISD. Building expenses increase primarily due to the Audit Division lease termination and SCERA absorbing the cost of that section of the building in administrative expenses. This means SCERA will now be responsible for the full expense of the building and maintenance. The projected budget for the coming year is $3 million, 13% of Actuarial Liabilities and well below the 21% of Actuarial Liabilities allowed administrative expense cap per Section The budget package was reviewed which includes detail behind major categories of administrative expenses and trust fund expenses. Legal expenses for private firms are not estimated in the budget since it is largely unknown what expenses will be depending on how the lawsuits play out. As noted previously, the prior authorized Integrated Pension System budget authority is adequate. Motion was made to approve the Preliminary Budget Package for Fiscal Year 2011/2012 as presented. Ayes 9 Noes 0 Abstain 0 Absent 0 7. County of Sonoma Request for SCERA to Pay a Portion of the Actuarial Cost Related to Retirement Benefit Studies- follow-up to May 4 th Special Retirement Board meeting and policy discussion. The legal framework reference in CERL and the California Constitution which apply to this item were reviewed. Administrator Bei provided further analysis of the breakout of previous cost sharing items. In reviewing the history since 2005, the County has been responsible for funding the full cost of areas like benefit changes, POB disclosure documents and early retirement program analysis; while a study to determine the impact of potential loss of employee 15

16 G. ADMINISTRATOR S REPORT, cont.: 7. County of Sonoma Request for SCERA to Pay a Portion of the Actuarial Cost Related to Retirement Benefit Studies, cont. contributions in a defined contribution environment for a statewide initiative several years ago was split between the County and SCERA. The current scope of work includes studies for new benefit formulas, one/three year final compensation modeling, with/without supplemental employee contributions, 30-year forward cost modeling, and the impact of lower staffing levels. Administrator Bei noted that it is hard to justify a link to the administration of the plan for the new benefit formulas or analysis related to supplemental employee contributions, but three year final compensation is a part of the Governor s statewide pension reform proposal and the forward modeling of costs is somewhat similar to the forward modeling of costs included in the actuarial report review meeting. The MOU proposed by the County laying out that SCERA would order the studies on behalf of the County and some cost sharing is indicated. The Board discussed the MOU and felt it was too vague and far reaching. Direction was given to staff to re-write the MOU to be specific to the studies being conducted, without establishing any precedent or ongoing approval. At the request of Administrator Bei for additional guidance concerning the appropriate amount for SCERA s contribution and in consideration of the legal parameters for trust fund expenditures, the Board determined that elements of the studies being done were sufficiently beneficial to the administration of SCERA to warrant cost sharing in the amount of $25,000. Motion to contribute $25,000 to the actuarial studies for this one-time event with Staff to incorporate the changes in the MOU language based on the Board input received. Ayes 8 Noes 1 Abstain 0 Absent 0 8. SCERA By-laws Change update regarding Board of Supervisors approval. Continued to the next meeting. 9. Draft Legislation Update. Continued to the next meeting. 10. California Supreme Court denial of a hearing in the Orange County lawsuit against the Deputy Sheriff s Association. Continued to the next meeting. 11. Service Provider Selection Policy review. Continued to the next meeting. 12. SCERA Organization Update. Continued to the next meeting. 13. SCERA Board and Committee Calendar for 2011 Update. Continued to the next meeting. 16

17 G. ADMINISTRATOR S REPORT, cont.: 14. Trustee/ Staff Training & Conferences a. Trustee Roundup- held February 28- March 1, 2011 at the Gateway Sheraton Hotel in Los Angeles, CA. Trustee Williams will report out on the meeting. b. SACRS Spring Conference to be held May 10-13, 2011 at the Doubletree Resort in Santa Barbara, CA. Staff and Trustees who attended will report on the conference. c. National Conference on Public Employee Retirement Systems (NCPERS) 2010 Trustee Educational Seminar held from May 21-22, 2011 and the Annual Conference held from May 22-26, 2011 at the Fontainebleau Hotel in Miami, FL. Trustee Kimber Williams will attend. d. CALAPRS Trustees Round Table to be held June 3, 2011 at the Los Angeles Marriott Burbank Airport Hotel. e. Pensions & Investments and Towers Watson Pension Risk Management in a New Era Conference on June 7, 2011 at the Westin St. Francis in San Francisco, CA. f. SACRS Public Pension Investment Program Program for Trustees and Staff to be held July 11-13, 2011 at UC Berkeley. Cost of attendance is $2,500/ person and includes registration, materials, meals, and transportation between UC Berkeley and the Claremont Hotel. Total cost for attendees is approximately $3,200. Trustees Dianne Edwards and Kimber Williams will attend. g. International Foundation of Employee Benefit Plans (IFEBP) Advanced Investments Management- Program for Trustees and Staff to be held September 12-15, 2011 at The Wharton School in Philadelphia, PA. This course includes more advanced investment topics which build on those covered at the SACRS Public Pension Investment Program at UC Berkeley training. Cost of attendance is approximately $5,000. Trustee Kiergan Pegg has expressed interest in attending. h. Compass Conference- Exploring New Directions in Fiduciary Duty to be held June 28-30, 2011 at the Robert F. Kennedy Center for Justice and Human Rights in Hyannis Port, MA. Trustee Jerry Allen is interested in attending. Motion to give Administrator Bei authority to approve out of state travel for the Compass Conference within the established travel policy. Ayes 8 Noes 0 Abstain 1 Absent 0 17

18 H. EXECUTIVE SESSION: (12:15 P.M. 12:45 P.M.) 1. LITIGATION: a. Pending Litigation - The Press Democrat v. Sonoma County Employees Retirement Association. b. Possible exposure to litigation pursuant to Government Code Section (b)(3)(c) Claim of Goodrich. I. REPORT OUT OF EXECUTIVE SESSION: 1. LITIGATION: a. Report was given on the Press Democrat case, and instructions were given to counsel. b. Report was given on the Claim of Goodrich, and instructions were given to counsel. J. COMMUNICATION(S): 1. National Institute on Retirement Security (NIRS) Member Alert: PEW Center on States Releases Pension Report; Relies Heavily on Outdated Funding Data. 2. Wall Street Journal article on the Dodd-Frank Act, Overhaul Grows and Slows, dated May 2, Santa Rosa Press Democrat Articles: Sonoma County Pension Contributions to Grow by two-thirds, dated May 4, 2011 and Court Rules Public Pension Data Public, dated May 12, K. GENERAL DISCUSSION MATTERS: IV. PUBLIC COMMENT None. 18

19 V. NEXT MEETINGS ADMINISTRATIVE/BENEFITS COMMITTEE: Thursday, September 8, 2011 at approximately 9:30 A.M. (immediately following the Disability Committee meeting) in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100 in Santa Rosa, CA. AUDIT COMMITTEE: DISABILITY COMMITTEE: INVESTMENT COMMITTEE: RETIREMENT BOARD: Wednesday, November 9, 2011 at approximately 11:30 A.M. (immediately following the Investment Committee meeting) in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, Santa Rosa, CA. Thursday, June 9, 2011 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100 in Santa Rosa, CA. Wednesday, June 8, 2011 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, Santa Rosa, CA. The presentation scheduled for this meeting is by JP Morgan Strategic Property Fund. Thursday, June 16, 2011 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, in Santa Rosa, CA. VI. ADJOURNMENT The meeting was adjourned at 12:18 P.M. to the next Retirement Board meeting on Thursday, June 16, 2011 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, Santa Rosa, CA. JERRY ALLEN, CHAIR Respectfully Submitted, GARY BEI SECRETARY/RETIREMENT ADMINISTRATOR By Jennifer Howze 19