SONOMA COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD MINUTES

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1 BOARD MINUTES Thursday, 8:34 A.M. Presiding: Present: Also Present: Absent: Chair Jerry Allen presided. Trustees Al Alys, Dianne Edwards, Tom Ford, Greg Jahn, Kiergan Pegg, David Rabbit, David Sundstrom, and Kimber Williams. Retirement Administrator Gary Bei; Assistant Retirement Administrator Kelly Jenkins; Accounting Manager Cathy Austin, Retirement Benefits Coordinator Helen Olson, Sr. Investment Officer James Failor, Investment Analyst Steve Marsh, Information Systems Manager Diane Ginn, Administrative Aide Jennifer Howze, Legal Counsel Neil Baker, Deputy County Counsel IV Jeff Berk, President Ed Clites of the Sonoma County Law Enforcement Association, Brian Williams, John Noble, TJ VanBebber, Christina Cramer, Carl Jackson and Kim Murphy. Donna Beels. I. CONSENT CALENDAR A. Membership as of November 30, 2012: Active = 3,640 Deferred/Transfer = 509 Retirees = 4,189 New Members = 49 Withdrawals = 8 = $153,049 Funds on Deposit/Members with Less than 5 Years = 373 = $5,701,449 B. SERVICE RETIREMENTS: Name Effective Date Department Carla Renking 11/13/12 CRA Erin Hardie 11/16/12 DCSS Gary Poffenholz 11/21/12 Water Agency Dyann Wolfe 11/26/12 Deferred Eric Greenband 11/27/12 Sheriff Robert Harper 11/27/12 Human Services Linda Hartley 11/27/12 SCWA Mark Netherda 11/27/12 Health Services Ellen Sullivan 11/27/12 DCSS Jan Sullivan 11/27/12 ACTTC Lonora Thoelecke 11/27/12 Human Services Ramona Turner 11/27/12 CRA Virgil Hardy 12/01/12 Deferred Lynn Susan Wetjen 12/02/12 TPW Cheryl Lucas 12/03/12 Probation Eric Lewis 12/10/12 Sheriff John Benyak 12/11/12 Sheriff 1

2 Leslie Comrack 12/11/12 Sheriff Name Effective Date Department Joyce Cote 12/11/12 Human Services Rex Cummins 12/11/12 TPW Celeste Donar 12/11/12 Human Services Levi Gurule 12/11/12 TPW Jo Mills 12/11/12 Sheriff Christine Minkel 12/11/12 Open Space Theresa Muir 12/11/12 Health Services Shemseddin Peterson 12/11/12 PRMD Carmen Puccini 12/11/12 Human Services Patricia Tighe 12/11/12 Health Services Mark Vanoni 12/11/12 Sheriff Total = 30 C. DEFERRED/TRANSFER: Name Effective Date Department Christopher Anderson 10/30/12 Board of Supervisors Pamela Spath 10/16/12 Sheriff Jennifer Sessi 05/15/11 CSS Total = 3 D. ACTIVE/DEFERRED/TRANSFER DEATH: None. E. THIRTY YEARS SERVICE: None. F. PURCHASE OF SERVICE: (Period from 10/01/12 10/31/12) Totals Service Prior LWOP (Sick &/or Military) Public Service Redeposit Years (safety) Years (general) Cost $0 $11,689 $102,264 $2,862 2

3 G. SERVICES: (Paid from 10/01/12 10/31/12) JP Morgan Investment Fees April- June 2012 $ 213,550 Turner Investment Fees April- June 2012 $ 112,472 County Counsel Legal Services- Sept $ 11,626 The Segal Company Actuarial Services & Retainer Fee $ 13,083 National Institute on Retirement Security (NIRS) Membership Dues $ 1,000 NCPERS Membership Dues $ 450 Lawrence Guinney, MD Consult- Sept $ 2,438 Gordon Baumbacher, MD Consult- July 2012 $ 4,575 II. MINUTES APPROVAL Approval of November 26, 2012 Special Meeting Minutes. Approval of November 29, 2012 Retirement Board Meeting Minutes. III. REGULAR CALENDAR A. PRESENTATION: None. B. ADMINISTRATIVE-BENEFITS COMMITTEE REPORT: As the next meeting of the Administrative-Benefits Committee is on January 10, 2013 no report will be given. 3

4 C. AUDIT COMMITTEE REPORT: As the next meeting of the Audit Committee is on May 22, 2013 no report will be given. D. DISABILITY COMMITTEE REPORT: The December Disability Committee meeting was cancelled as no cases were ready for review. E. FINANCIAL STATEMENTS & SUMMARY: 1. Investment Performance Summary for November The US market was dominated by the election which saw President Obama elected for a second term with the balance of power in the House remaining largely unchanged and the so called fiscal cliff. As measured by the broad based Russell 3000 index, the market returned a positive 77 basis points for the month, but posting an impressive return of 15% for the year to date. The modest 77 basis points masks that the month was fairly volatile and at the mid month stage was down over 5% month-to-date. Economic data was mixed over the month. Second quarter GDP was revised upward from 2.0 to 2.72% while third quarter estimates came in at 3.1%. Third quarter GDP was revised up to 3.1%. Spending and wages were weak during the month of October. Unemployment ticked up 0.1% in October to 7.9%, while inflation as measured by the CPI recorded 2.0% over the trailing 12 month period. Data for the Housing sector was mixed, but prices continue to firm up. Existing home sales increased 2.1% in October and the S&P Case Schiller Home Price Index which is a basket of homes covering twenty US cities was up 0.4% in October and was the eighth consecutive monthly gain. The consolidation in the global exchange and clearing market continued with the NYSE being sold to ICE, an independent company. Viewing the market from a sector basis, six of the nine sectors in the Russell 3000 index posted positive returns in November led by cyclical where Consumer Discretionary returned 2.7% and Industrials 1.9%.Growth outperformed value by a significant margin in November, with the Russell 1000 Growth index returning 1.7% while the Russell Value index was flat. However, year to date Value and Growth have been tied. November showed little return differentiation by market capitalization, but over the year to date large and mid cap have led small cap (large 15.2%, mid 14.7% and small 12.4%). Outside the US, tensions in the Middle East remained elevated, notably in Israel and Syria. The European equity market outperformed the global equity market buoyed by Greece structuring a deal to continue receiving bail-out funds despite violating previously agreed terms. The new rescue package comes with more strings attached and strict monitoring to see that reform is actually enacted. In response, the Greek equity market climbed 7.0% in November. 4

5 1. Investment Performance Summary for November 2012, cont. Greece and Italy were both up for the month. Emerging markets were mixed with Brazil down and India up. U.S. dollar was up against most currencies. Treasury yields declines slightly and spreads widened. The return of the plan for November was 1.2% which was 44 basis points over the target policy. Year to date the plan is up 13.2%, 130 basis points over benchmark. Arrowstreet was added to the most favorable manager list as they had a strong period. Dodge & Cox also was added to the list. The three year return is strong at 9.6% and the 10 year return is 7.1% with 7.5% over the 20 year period. In terms of manager returns over the one year period Calamos has been struggling due to their mix of global equities and convertible bonds. RREEF is still recovering from losses sustained during the 2008 downturn. Jacobs Levy has had good performance since inception, but has been struggling during the last year. All asset classes are performing well over the last year and three year periods. The 5 year returns still have two asset classes recovering from 2008 losses. Annual plan returns have been strong over the last four years. The plan currently is at $1.921 billion in assets. The top three managers for the period were all bond managers: Reams, Western, and PIMCO. They all outperformed the benchmark by a significant margin during the month. F. ADMINISTRATOR S REPORT: 1. Recognition of Trustees Completing Service on the Retirement Board. Administrator Bei said that Trustees Jerry Allen and Kimber Williams will be leaving the Board after December. He spoke about the contributions that each trustee has made to the Board and thanked them for their significant service to SCERA. A luncheon in their honor will be held after the January Board meeting. 2. Retirement Board Election/Appointment Seventh Trustee Representing Active Safety Members Election Results (Brian Williams received a majority of votes based on Official Vote Count from the Registrar of Voters) and Board of Supervisors Appointment of the Sixth Trustee Position Update. Administrator Bei said the election concluded on the 5 th and was certified by the Board of Supervisors on December 11 th. Brian Williams was elected to the position of 7 th trustee. It was also noted that Supervisor Rabbitt s seat will be appointed by the Board of Supervisors on January 8 th. 3. Swearing-in for New Trustee Terms in January New trustees will be sworn in at the Investment Committee meeting on January 9 th. 5

6 F. ADMINISTRATOR S REPORT, cont.: 4. Special Election for the Third Trustee Position Representing Active General Members. Jerry Allen communicated again his previously announced plans to retire at the end of December. His plans are firm. Administrator Bei reviewed a special election calendar that could be put in place shortly after Trustee Allen s retirement and minimize the gap in the Trustee vacancy. Motion to direct staff to implement the special election as outlined following Trustee Allen s retirement. 5. Administrative-Benefits and Disability Committee membership for January and February 2013 prior to new committee assignments for The minimal Committee coverage due to Trustee terms expiring and new Trustees coming on the Board was discussed. The full Committee assignments for 2013 will not occur until March. Trustee Edwards recommended that newly elected Trustee Brian Williams be added to the Disability Committee as there has traditionally been a safety member on the Committee. In addition, Brian Williams was suggested for the Administrative-Benefits Committee, David Sundstrom was available to cover the Disability Committee and Trustee Beels was recommended as an add to the Administrative-Benefits Committee, subject to her availability. Motion to place Brian Williams on the Disability and Administrative-Benefits Committees for the months of January and February Motion to place David Sundstrom on the Disability Committee in February and Donna Beels on the Administrative-Benefits Committee, subject to her availability. 6. Public Employees Pension Reform Act (PEPRA) Implementation: a. New Member Classification Policies, Enrollment Affidavit and Reciprocity Information Form. Asst. Administrator Kelly Jenkins said members must be placed in either Plan A (current 3% benefit formulas) or Plan B (PEPRA benefit formulas), generally based on the determination of whether they have developed reciprocity. It is expected that roughly 85% percent of all new employees will be new members and placed into Plan B. The remainder of new employees must be defaulted into either Plan A or Plan B until the time a final determination can be made. Either Plan could result in higher contributions for general or safety members so that alone cannot be 6

7 6. Public Employees Pension Reform Act (PEPRA) Implementation, cont.: a. New Member Classification Policies, Enrollment Affidavit and Reciprocity Information Form, cont.: used to assign a plan. Another consideration is the pay code categories that will be applied to the individual coming in. The broadest set of categories is with the current plan. Staff feels that for this reason, it is best to default members into Plan A for those with potential for establishing reciprocity, as this will create a better tracking of more complete compensation information, which will allow for easier adjustment of contributions if needed. Adjustment of any overpayments of contributions would be accomplished over time by reducing contributions going in, rather than making a direct payment to return contributions (which could be considered an impermissible in-service distribution of benefits). Under tax law, the employee should not have a choice as to how the offset is received, so a uniform contribution adjustment schedule will be set up that will apply to all employees. Administrator Bei noted that staff is making its best effort to place employees in the proper tier to begin with upon review of affidavit information to minimize the level of re-work in retirement earnings and contributions. Mr. Jenkins said the ultimate determination on reciprocity is made over time after detailed work by benefits staff. This can occur very quickly, or may take months depending on the process of the reciprocal retirement system. Staff will work with other systems and the members to make this determination as quickly as possible. Administrator Bei noted that this is an administrative aspect of implementation and does not require Board action. b. Return to Work Policy Mr. Jenkins said this is an attempt by the legislature to prevent what has been called double-dipping in a retirement system. There are restrictions regarding returning to work within 180 days of retirement. This is a stronger restriction that what is currently required by the IRS and being implemented by the County. Current rules require employees who have not reached the normal retirement age to have a break in service before returning to work, while the rules for employees of normal retirement age are more flexible. The County currently administers this policy by having retired employees fill out a form to determine eligibility to resume work. In addition to the longer break in service requirement, the new law under PEPRA only allows exceptions for public safety officers and firefighters, and for employees who have special skills in a critically needed position. It also requires that the appointment be made at a public meeting. Return to work issues are ultimately employer issues and are not administered by SCERA. We will provide input to the employers but it is ultimately their responsibility to enforce. 7

8 6. Public Employees Pension Reform Act (PEPRA) Implementation, cont.: b. Return to Work Policy Ed Clites asked whether Park Rangers and Welfare Fraud Investigators who are not sworn peace officers will have to wait 180 days to return to work even though their positions are classified as public safety. Comments were made by trustees and staff that this is primarily a County issue and it is not appropriate for the Retirement Board to weigh in on whether these workers should be bound by the 180 day rule. c. Systems Implementation Update. Mr. Jenkins said that because central payroll and payroll for Courts and VOM will be reporting only pensionable compensation, the amount of system work that needs to be done has been substantially reduced. LRS will be able to implement a relatively simple solution for us. Staff will be able to assess whether the correct contributions were taken out for the employee, and provide estimates for retirement benefit. Only compensation that applies to the employee s plan will be included in the transmittal from the employer payroll and all items in the transmittal will be used to determine the benefit. Trustee Edwards asked if there will be audits by staff as to whether an element of compensation was accurately classified as being compensable. Mr. Jenkins said the system will flag all non compensable items with an exception for staff to review. Accounting Manager Cathy Austin said there is an annual audit done with Central Payroll, to be done quarterly in the future, to make sure there is agreement about which pay codes are includable and which are not includable. Trustees asked that the pay codes being included and excluded from compensation earnable be verified on a quarterly basis going forward. John Noble raised the issue of the total contribution rate for new members in the Board of Supervisors resolution, which includes an additional 3% for all safety members due to the negotiated obligation to pay for recognition of prior service at the higher benefit formula rate. He raised concerns on showing the total employee contribution rate vs. showing the components of the contribution rate. Administrator Bei said the total contribution rate was in the resolution, but the detail is shown in the supplemental information attached and the actuarial reports. The Retirement Board determines the actuarial rate necessary and notes the supplemental employee contribution based on the relevant agreement between the County and employees. Should different terms be negotiated, the total employee contribution rate can be revisited. d. General Update on Public Retirement Systems Implementations. SCERA is keeping track of other Retirement Systems through networking groups, there are no updates to report at this time. 8

9 6. Public Employees Pension Reform Act (PEPRA) Implementation, cont.: e. PEPRA Clean-up Legislation Update. Clean-up legislation continues to evolve but the latest version eliminated the disability retirement section. 7. Board of Supervisors December 11, 2012 Meeting Topics: a. Approval of PEPRA Retirement Contribution Rates Effective January 1, The rates were approved and communication letters have been sent out to various employers detailing the implementation. b. Adoption of Election Results for the Seventh Trustee Position. c. County Consideration of Possible New Benefit Tier for Reciprocal Members Effective December 31, This new benefit tier proposal was adopted by the Board of Supervisors, subject to approval of the proposal by all safety or general bargaining units, as appropriate for a safety or general new tier, respectively. If the new tier proposal does reach implementation stage, staff will proceed with necessary actuarial studies and contribution rate approval processes. These studies have not been initiated at this point given agreements have not yet been reached. The deadline for agreement with the bargaining units is December 22, Board Education Policy Updated for AB1519, effective January 1, The Board Education Policy has been revised based on AB1519 to make it compliant with the statute. Mr. Jenkins said provisions were added about posting on the website and that trustees should receive a minimum amount of training every two years. Trustee Ford suggested staff create some guidelines as to how trustees are to report their training. Motion to approve the policy as written with one word change from find to fund on Page 3, Item Lease of Suite 110 Office Space at 433 Aviation Boulevard Update. Trustee Sundstrom recused himself from this discussion and vote, leaving the Boardroom until the conclusion of the vote. Staff has been working to lease out Suite 110 in the building. It is approximately 5,000 square feet of space. The County needs space for a systems project which is projected to last 3-4 years. Administrator Bei reviewed the major provisions of the lease. Improvements will be needed including electrical work and carpet and paint totaling approximately $50,000. The potential rental income is about $260,000 throughout the course of the lease. This project is on a fast track to be completed. A final lease has not yet been agreed to, but improvements need to be started in order to finish the project on time. SCERA asked for a guarantee from the ACTTC to reimburse SCERA for up to $25,000 of improvement work that is being done in the event the lease should fall though. This will cover the tenant specific improvements and allow SCERA 9

10 9. Lease of Suite 110 Office Space at 433 Aviation Boulevard, cont.: to move forward with work on the improvements while being protected from financial loss. Motion to move forward with $50,000 in tenant improvements and $25,000 for related legal costs or commissions and to authorize the Retirement Administrator to sign a lease. Ayes 7 Noes 0 Abstain 1 Absent Trustee/ Staff Training & Conferences: a. CALAPRS Board Leadership Institute: Advanced Principles in Governance To be held January 29-31, 2013 at the UCLA Anderson School of Management in Los Angeles, CA. Cost of attendance is approximately $3,200. Trustee Pegg will attend. b. CALAPRS Trustee Roundtable to be held February 8, 2013 at the Doubletree Hotel in San Jose, CA. c. CALAPRS General Assembly Conference to be held March 2-5, 2013 at the InterContinental Hotel in San Francisco, CA. d. CALAPRS Principles of Pension Management Course for Trustees to be held March 26-29, 2013 at the Stanford Law School in Palo Alto, CA. Approximate cost per attendee is $2,700. Motion to approve up to two trustees to attend. 11. Succession Planning Update Retirement Administrator Gary Bei communication announcing his planned retirement date in one year. Administrator Bei announced his plans to retire on December 24, He mentioned that succession planning efforts have been in place in preparation for his retirement. Chair Allen acknowledged Administrator Bei s hard work and integrity in dealing with the many issues that have faced the Retirement Board. Trustee Ford thanked Mr. Bei for his service and leadership in the organization as well as in the state-wide affiliate organizations. He also said that he would like the Board to offer the 5% salary increase for providing a one-year notice of retirement, as is typical and appropriate for County department heads. It was noted that effective January 1, 2013 the 5% salary increase for advance notice of retirement will not be included in retirement compensation. He also suggested that the Board create an ad-hoc committee beginning in January with a goal to have a new administrator on board prior to the departure of Administrator Bei and provide some time for overlap. 10

11 11. Succession Planning Update, cont.: Motion to accept Administrator Bei s notice of resignation, to approve a 5% pay increase for the Administrator, and to establish an ad-hoc committee to develop a process for filling the position of Retirement Administrator. G. EXECUTIVE SESSION: None. H. REPORT ON EXECUTIVE SESSION None. I. COMMUNICATION(S): 1. Letter from the Sonoma County Association of Retired Employees (SCARE) requesting designation as a recognized retiree organization. This topic will be considered at the January meetings of the Administrative- Benefits Committee and the Retirement Board following the effective date of the enabling legislation, SB Staff is working on policies relevant to the relationship between SCERA and recognized retiree organizations. 2. Council of Institutional Investors Annual Letter and 2012 Council Accomplishments. 3. SCERA Fall 2012 Newsletter. J. GENERAL DISCUSSION MATTERS: There was an opinion piece in the Press Democrat on Saturday from Ken Churchill. The commentary discusses the discount rate and implies that the Moody s proposal for calculating unfunded liability (which hasn t been adopted) is an appropriate method of calculation, ignoring the extensive work done and standards recently adopted by the Governmental Accounting Standards Board (GASB). The GASB studied the discount rate issue over the past five years and concluded discounting at the actuarial rate is appropriate. The discount rate adjustment is a big factor in the increased cost projections. In addition, the article s cost projections being extrapolated to the next decade without consideration of PEPRA, among other oversights. These projections should not be considered accurate. Trustees discussed the article and felt no response was warranted. In terms of general communications, the Board suggested that Staff put together communications in the future to publicize the Board s work on asset allocation and downside protection as well as the positive investment returns for the fund. 11

12 IV. PUBLIC COMMENT None. V. NEXT MEETINGS ADMINISTRATIVE/BENEFITS COMMITTEE: AUDIT COMMITTEE: DISABILITY COMMITTEE: INVESTMENT COMMITTEE: RETIREMENT BOARD: Thursday, January 10, 2013 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100 in Santa Rosa, CA. Wednesday, May 22, 2013 at 1:30 P.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, Santa Rosa, CA. Wednesday, February 13, 2013 at approximately 12:00 P.M. (immediately following the Investment Committee Meeting) in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100 in Santa Rosa, CA. Wednesday, January 9, 2013 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, Santa Rosa, CA. The presentations scheduled for this meeting include a performance update by Arrowstreet. Thursday, January 17, 2013 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 10:37 A.M. to the Retirement Board meeting on Thursday, January 17, 2013 at 8:30 A.M. in the SCERA Board Room located at 433 Aviation Boulevard, Suite 100, Santa Rosa, CA. Respectfully Submitted, GARY BEI SECRETARY/RETIREMENT ADMINISTRATOR By Jennifer Howze 12