AGENDA BOARD OF FIRE AND POLICE PENSION COMMISSIONERS. March 16, :30 a.m.

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1 AGENDA BOARD OF FIRE AND POLICE PENSION COMMISSIONERS March 16, :30 a.m. Sam Diannitto Boardroom Los Angeles Fire and Police Pensions Building 701 East 3rd Street, Suite 400 Los Angeles, CA Commissioner Diannitto will participate telephonically from 4612 El Reposo Drive, Los Angeles, CA An opportunity for the public to address the Board or Committee about any item on today s agenda for which there has been no previous opportunity for public comment will be provided before or during consideration of the item. Members of the public who wish to speak on any item on today s agenda are requested to complete a speaker card for each item they wish to address, and present the completed card(s) to the commission executive assistant. Speaker cards are available at the commission executive assistant s desk. In compliance with Government Code Section , non-exempt writings that are distributed to a majority or all of the Board or applicable Committee of the Board in advance of their meetings may be viewed at the office of the Los Angeles Fire and Police Pension System (LAFPP), located at 701 East 3 rd Street, 2 nd Floor, Los Angeles, California 90013, or by clicking on LAFPP s website at or at the scheduled meeting. Non-exempt writings that are distributed to the Board or Committee at a scheduled meeting may be viewed at that meeting. In addition, if you would like a copy of any record related to an item on the agenda, please contact the commission executive assistant, at (213) or by at rhonda.ketay@lafpp.com. Sign language interpreters, communication access real-time transcription, assistive listening devices, or other auxiliary aids and/or services may be provided upon request. To ensure availability, you are advised to make your request at least 72 hours prior to the meeting you wish to attend. Due to difficulties in securing sign language interpreters, five or more business days notice is strongly recommended. For additional information, please contact the Department of Fire and Police Pensions, (213) voice or (213) TDD. A. ITEMS FOR BOARD ACTION 1. APPROVAL OF AMENDMENTS TO BOARD POLICY SECTION 5.0 MEMBER ACCOUNTS AND POSSIBLE BOARD ACTION 2. REVISIONS TO BOARD POLICY SECTION 10.0: ACTUARIAL FUNDING POLICY AND POSSIBLE BOARD ACTION PROPOSED ANNUAL BUSINESS PLAN AND POSSIBLE BOARD ACTION PROPOSED BUDGET AND POSSIBLE BOARD ACTION

2 5. RECOMMENDATION OF CONTRACT AWARD FOR FINANCIAL PLANNING EDUCATION SEMINAR PROGRAM CATERING SERVICES AND POSSIBLE BOARD ACTION 6. CHIEF INVESTMENT OFFICER S QUARTERLY REPORT OF ASSET ALLOCATION STATUS AND POSSIBLE BOARD ACTION 7. APPROVAL TO ISSUE A REQUEST FOR PROPOSALS FOR INDEPENDENT REVIEW OF HEALTH SUBSIDY AND BENEFITS COSTS AND POSSIBLE BOARD ACTION B. REPORTS TO THE BOARD 1. RETIREE HEALTH BENEFITS PROGRAM OVERVIEW 2. QUARTERLY PORTFOLIO PERFORMANCE REPORT BY RVK 3. CONTRACTOR DISCLOSURE POLICY QUARTERLY REPORT 4. REVIEW OF 2017 PRIVATE EQUITY AND COMMODITIES INVESTMENT ACTIVITY BY PORTFOLIO ADVISORS 5. Miscellaneous correspondence from money managers, consultants, etc. Received and Filed. 6. General Manager s Report a. Monthly Report b. Marketing Cessation Information c. Benefits Actions approved by General Manager on March 2, 2017 d. Other business relating to Department operations C. CONSENT ITEMS 1. APPROVAL OF TRAVEL AUTHORITY (VON VOIGT) LAPPL, 2017 DELEGATES CONFERENCE 2. APPROVAL OF TRAVEL AUTHORITY (BABCOCK AND VEGA) IFEBP, THE WHARTON SCHOOL - PORTFOLIO CONCEPTS AND MANAGEMENT 3. APPROVAL OF TRAVEL AUTHORITY (NAVARRO) IFEBP, HEALTH CARE MANAGEMENT CONFERENCE D. CONSIDERATION OF FUTURE AGENDA ITEMS March 16,

3 E. GENERAL PUBLIC COMMENT ON MATTERS WITHIN THE BOARD S JURISDICTION F. CLOSED SESSION 1. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION TO CONSIDER THE PURCHASE OF TWO (2) PARTICULAR, SPECIFIC INVESTMENTS AND POSSIBLE BOARD ACTION 2. CLOSED SESSION PURSUANT TO SUBDIVISIONS (a) AND (d)(1) OF GOVERNMENT CODE SECTION TO CONFER WITH LEGAL COUNSEL REGARDING PENDING LITIGATION IN THE FOLLOWING CASE: ESTATE OF DENNIS SAL MASSA, DECEDENT (CASE NO. BP , LOS ANGELES SUPERIOR COURT) March 16,

4 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.1 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: APPROVAL OF AMENDMENTS TO BOARD POLICY SECTION 5.0 MEMBER ACCOUNTS AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board approve the proposed amendments to Board Policy Section 5.0 Member Accounts. BACKGROUND Currently, sworn personnel of the Airport Department ( Airport Peace Officers ) are members of the Los Angeles City Employees Retirement System (LACERS). On November 8, 2016, voters approved Measure SSS, a Charter amendment that would: 1) enroll new Airport Peace Officers into Tier 6 effective January 7, 2018; 2) allow current Airport Peace Officers to transfer into Tier 6 from LACERS at their own expense; and 3) permit new Airport Police Chiefs to transfer into LACERS rather than participate in Tier 6. On January 31, 2017, the City Council instructed the City Attorney to prepare and present all ordinances necessary to implement the measure, including the requirements and methodology for transferring Airport Peace Officers to purchase all of their LACERS service at LAFPP. The first reading of that implementing ordinance was approved by the City Council on February 22, The second reading and proposed final adoption of the ordinance is scheduled for March 24, The Mayor would then have ten days to approve or veto the ordinance. DISCUSSION Once the ordinance becomes law, Section Airport Peace Officer Service Purchase Program will be added to the Los Angeles Administrative Code. This new section provides for the voluntary transfer of current Airport Peace Officers (hired prior to January 7, 2018) to Tier 6 and requires them to purchase all of their prior LACERS service in order to do so. Staff has been informed that there are approximately 536 Airport Peace Officers who have the option to transfer to Tier 6. For the majority of these Airport Peace Officers, the transfer will become effective on January 7, A subgroup of Airport Peace Officers, Airport Safety Officers (ASOs), currently perform firefighting duties at Ontario Airport. These ASOs will have the opportunity to graduate from the LAFD drill tower and become LAFD firefighters. This group of Airport Safety Officers will have the right to transfer to Tier 6 upon graduation from the drill tower. As of November 2016, six out of thirteen ASOs were scheduled to begin training in the drill tower. These ASOs are expected to graduate on April 13, The remaining seven ASOs will enter the drill tower in May and August Upon

5 graduation, they can elect to enter Tier 6 membership in lieu of membership in LACERS. LAFPP and LACERS staff are scheduled to begin counseling the ASOs on March 29, Per the draft ordinance, for each member who elects to transfer and make a purchase under the Airport Peace Officer Service Purchase Program, LACERS will transfer to LAFPP sufficient funds to cover all funded accrued liability for pension and retiree health benefits for all periods of membership with LACERS, to include employee contributions, City contributions and earnings. As these purchases must be cost neutral, the transferring members are required to pay any remaining balance for the service to be purchased. Staff proposes modifying Board Policy 5.0 to implement Measure SSS and the ordinance by: 1) including references to the Airport Department and Airport Police members, as well as references to the November 2016 Charter language amendments; 2) documenting the special member contribution requirements for transferring Airport Peace Officers and former Airport Safety Officers, to the extent required by the Internal Revenue Code; 3) including language detailing the rules for and authorizing the purchase of all Airport Peace and Safety Officers service credit; and 4) establishing timeframes in which qualified survivors must elect to complete payments for service purchases agreed to by a member. Although the ordinance is not yet law, staff recommends that the Board adopt the amendments now to ensure that these policy changes are in place before the first ASOs graduate from the LAFD drill tower and (if they so choose) enter Tier 6. The policy amendments are subject to the Mayor s final approval of the ordinance which is expected in early April, following Council s final adoption of the ordinance on March 24. Miscellaneous Amendments In addition to establishing the policies for the new Airport Peace Officer Service Purchase Program, staff is also recommending an amendment to Section 5.5 B of the policy based upon new advice from outside tax counsel. The current policy states that if a member who is purchasing nonqualified permissive service (as defined by Internal Revenue Code Section 415(n)) and who has fewer than five service credit years and opted for trustee-to-trustee transfer or rollover will only be allowed to do so, if the purchase amount will be fully covered by the transfer or rollover. In practice, this can make it difficult for new members to purchase their academy or drill tower training time as members at this early career stage may not have sufficient funds in another plan, such as the City s Deferred Compensation Plan, to cover the full purchase amount. In reviewing the draft Airport Peace Officer Service Purchase Program ordinance, tax counsel noted that nonqualified service credit does not include service as an employee of a state or political subdivision, or an agency or instrumentality of a state or political subdivision (with some exceptions), provided the service credit would not cause a participant to receive a retirement benefit for the same service under more than one plan (see IRC 415(n)(3)(C)). In the case of LAFPP members, as long as they do not receive benefits under more than one plan for the same time period (in this case, members are paying into the City s Pension Savings Plan for part-time, seasonal and temporary employees while they participate in the academy or drill tower), this training time should not be viewed as nonqualified permissive service and there is no need to incorporate the five-year service requirement. Accordingly, staff recommends that the policy for training time purchases be amended to allow members who transfer all of their Pension Savings Plan funds to the City s Deferred Compensation Plan to pay any remaining balance using post-tax payroll deductions (i.e., if the amount of the trustee-to-trustee transfer is insufficient). Lastly, staff recommends a minor amendment to Policy Section 5.5 B, to clarify historical practice that purchases of training time made after the one year eligibility date will be charged interest (at Board Report Page 2 March 16, 2017

6 the rate applicable to member accounts) from the eligibility date until the beginning date of the purchase agreement. BUDGET There is no budget impact associated with this revised Board Policy as the service purchases made under the Airport Peace Officer Service Purchase Program must be cost neutral. POLICY The City Attorney s Office has reviewed and approved Board Policy Section 5.0 as amended. This report was prepared by: May Simmons, Manager Active Member Services Section RPC:JS:MS Attachment: Proposed Amendments to Board Policy 5.0 Board Report Page 3 March 16, 2017

7 ATTACHMENT Los Angeles Fire & Police Pension System MEMBER ACCOUNTS CREDITING OF INTEREST 5.1 The General Manager shall determine the approximate earned investment income of all funds for each (6) six-month period ending December 31 and June 30, excluding profits and losses from the sale of securities, as follows: Earned Investment Income for the six-month period divided by (1/2 of the beginning asset balance + each of the following five months asset balance + 1/2 of ending asset balance) divided by six months. A recommendation shall be presented to the Board, based upon this calculation. The Board shall adopt an official interest rate that shall be credited to individual member contribution accounts. REFUNDS OF CONTRIBUTIONS 5.2 Upon the written request of terminated System members, the General Manager shall process refunds of contributions, plus interest credited as of the last day of each June and December, and additional interest for any period of service between the next preceding last day of June and December and the end of the pay period preceding the date of termination, at the rate at which regular interest was last credited to plan member's individual accounts. Refunds for Public Service Purchases (PSP), as described in Section 5.5 below, are subject to the provisions of Administrative Code Section A member may elect that a refund, due to overpayment of PSP as determined by an actuarial true-up, be processed via trustee-to-trustee transfer to the City s Deferred Compensation 457(b) Plan upon termination of employment if the 457(b) plan was a source of the original PSP payment. As a limited exception to the provisions under Administrative Code Section , an overpayment correction of a PSP purchase, not due to a true-up, may be made, including to the City s Deferred Compensation 457(b) Plan, as described in Section 5.5(D) below without the requirement for a termination of employment. (Amended 03/17/16) Upon application by a former member of LAFPP who currently is employed by the City as a member of LACERS, the General Manager is authorized to transfer all contributions (including interest) of the former member directly to LACERS for the purpose of enabling the former member to purchase service credit and other benefits as authorized under the provisions of LACERS. In connection with this transfer, the former member shall be required to sign a written waiver of all rights to benefits from LAFPP. The purpose of this Board rule is to restore the rights that former members previously had (prior to December 21, 1996) to transfer their contributions to LACERS in order to purchase service credit and other benefits with LACERS in a manner that is consistent with the provisions of LACERS and current tax law. This rule shall not establish a reciprocity program between LACERS and LAFPP. (Section added 07/05/2012)

8 ATTACHMENT CONTRIBUTIONS OWED TO THE SYSTEM 5.3 The General Manager is authorized to collect mandatory regular pension contributions owed to the System that were not collected and voluntary additional pension contributions as defined in Administrative Code Section For amounts less than or equal to a member s biweekly contribution, no notification is required to the member. For amounts greater than a member s biweekly contribution, the member shall be notified of the amount due and provided an opportunity to pay the total amount in a lump sum. If the member does not pay such amount within 30 days of such notification, the General Manager is authorized to initiate deductions from the member's salary in the amount of 2% until the amount due has been collected. This 2% deduction may be reduced upon the member s election to pay interest equivalent to the Board approved assumed actuarial rate in effect when the agreement is made. The payment period, not to exceed ten years, shall be determined in advance by the member, except however, the General Manager may prescribe a minimum payment amount. The entire balance may be paid at any time. If the member applies for a pension prior to completing the agreement, the entire balance of the purchase agreement, including interest accrued to date, becomes due. (Amended 12/06/12) Members of the Airport Department who transferred from LACERS to Tier 6 shall continue to make member contributions at the rate applicable to his or her LACERS membership to the extent required by the Internal Revenue Code and as further described in Charter 1714(a)(3). A LACERS Tier 1 member who elected to transfer to Tier 6 will make member contributions at the following rates: 1) Before the LACERS ERIP obligation expires (June 30, 2026): 11% of compensation on a pre-tax basis. 2) After the ERIP obligation expires but before the member has 25 years of service: 11% of compensation of which 10% will be made on a pre-tax basis and 1% will be made on an after-tax basis; and 3) After the ERIP obligation expires, and after the member has 25 years of service up to retirement: 10% of compensation on a pre-tax basis. (Added 03/16/17) CONTRIBUTIONS COLLECTED IN ERROR 5.4 The General Manager is authorized to refund mandatory and non-mandatory contributions collected in error. PURCHASE OF SERVICE CREDIT 5.5 Upon the written request of a member of Tier 3, Tier 4, Tier 5 or Tier 6, application may be made for purchase of Years of Service Credit. Plan membership is defined by City Charter 1502(c), 1602(c), 1702(ed) and Administrative Code (c). Only active, non-drop members of the Police, Fire, and Harbor, and Airport departments are allowed to purchase service credit as defined in applicable Charter and Administrative Code provisions. (Amended 05/16/1303/16/17) (i) Recruit Training Time City Charter 1500(a), 1600(a), 1700(b), 1700(f) and Administrative Code (a)

9 ATTACHMENT A member may purchase their entire recruit training time or they may purchase a prorated amount. (Amended 05/16/1303/16/17) (ii) Prior Service Time City Charter 1500(b), 1502(m)(4), 1514(d), 1600(f), 1602(m)(4), 1700(d), 1702(qp)(4)&(6), 1714(e), Administrative Code (m)(4) and (d) A member may purchase the entire period of prior service as a former member of Tiers 1, 2, 3, 5, or 6 by re-depositing the entire amount of refunded contributions and interest, or may purchase a portion of such service by depositing a prorated amount of the refunded contributions and interest in accordance with paragraph B. (Amended 05/16/1303/16/17) (iii) Temporary Disability paid at State rate City Charter 1502(m)(4), 1514(e), 1602(m)(4), 1614(e), 1702(qp)(4) and 1714(g), Administrative Code (m)(4) and (e) A member may purchase their entire temporary disability paid at State rate, or they may purchase a prorated amount. (Amended 05/16/1303/16/17) (iv) Non-service connected disability pension City Charter 1502(m)(2), 1602(m)(2), 1702(qp)(2), Administrative Code (m)(2) Members who elect to have service credit restored for time spent on a non-service connected disability pension may purchase the entire time or a prorated amount. (Amended 05/16/1303/16/17) (v) Paramedic/Civilian Ambulance Service while a member of the City Employees Retirement System for current members of Tier 3 or Tier 4; former members of Tier 3 or Tier 4 who transferred to Tier 5; and former members of Tier 2 who transferred to Tier 5 City Charter 1500(d), 1600(g), Administrative Code (d) and (c)(4) Members who received a refund of contributions and interest from the City Employees Retirement System for a service as a paramedic/civilian ambulance employee can purchase this prior service, or a partial period of this service, by re-depositing the amount refunded plus interest that would have been earned had the member not received the refund. (Amended 07/21/2005) (vi) Public Service Purchase (PSP) Administrative Code A member may increase the monthly retirement allowance or survivorship benefits based upon the increased retirement allowance with the purchase of public service credit, not to exceed 4 years, that includes full-time service with a public entity, including a branch of the military service. Verification through a Certification of Service or presentation of original proof of military service time (DD214) will serve to establish eligibility of service time sought for purchase. (vii) Office of Public Safety (OPS) Service Purchase Program Administrative Code Members who were transferred to the Police Department from the Department of General Services OPS and gained status in Class Code 2214, 2217, 2223, 2227, 2232, or 2244,

10 ATTACHMENT and who become members of Tier 6 may purchase service. Only sworn service in Class Codes 3183, 3185, 3188, and 3198 is eligible for purchase. Former OPS officers are eligible to purchase either the minimum or the maximum eligible OPS service credit as determined by the Plan s actuary. Members shall not be allowed to purchase a different number of years of service for Tier 6 health benefit purposes than for purposes of other Tier 6 benefits. Eligible members must enter into a written purchase agreement on or before June 30, (Added 10/16/14) (viii) Airport Peace Officer Service Purchase Program Administrative Code Members of the Airport Department in class codes , , , , , , 3236, , , , 3227, 3203, , , , , 3205, 3234 or 3232, who were appointed prior to January 7, 2018, or who, on that date or the date immediately preceding the date of such person s appointment as a firefighter and employment by the Fire Department, had served as a sworn Airport Department employee in these class codes, and made an irrevocable election in writing to become a member of Tier 6 in lieu of membership in LACERS, must purchase all of their prior LACERS service. Eligible members must enter into a written purchase agreement prior to graduation from the Fire Department drill tower or prior to January 7, 2018, whichever is earlier. (Added 03/16/17) The following rules apply to the purchases above unless otherwise stated: A. Service credit may be purchased by a single cash payment or on an installment basis through payroll deduction, or both. However, if the member is purchasing nonqualified permissive service credit as defined by Internal Revenue Code Section 415(n), the member may not make the purchase with after-tax contributions unless the member has five or more service credit years. In accordance with Los Angeles Administrative Code Section (q) if a member making a purchase of nonqualified service has less than five service credit years, a trustee-to-trustee transfer from the City of Los Angeles Deferred Compensation Plan or a rollover from an eligible retirement plan is the only payment option available. The only exception to this rule is, if a member transfers all of his or her funds from the City s Pension Savings Plan (for Part-Time, Seasonal and Temporary Employees) into his or her Deferred Compensation Plan account to make this purchase via a trustee-to-trustee transfer, then the balance of the purchase, if any, may be paid on an installment basis with after-tax payroll deductions or a lump sum payment. Members who elect to purchase prior service, recruit training time or temporary disability through payroll deduction contract shall be limited to two such contracts for any one type of purchased service. Members who elect to make a public service purchase through payroll deduction contract shall be limited to one such contract for each period of service purchased. Each such purchase service contract may be initiated or ended by a lump sum payment. For OPS service purchases made through payroll deduction the member may terminate the payroll deduction contract and cease further payments. The member shall not be allowed to complete this purchase at a later date or enter into another agreement to purchase this service. The member will receive prorated years of service based on the payments already made. A member may make any cash payment or lump sum payment authorized above by

11 ATTACHMENT using a trustee-to-trustee transfer from the City of Los Angeles Deferred Compensation Plan. Should a trustee-to-trustee transfer not be large enough to cover the entire cost of the purchase, any balance owing may then be paid by the member either as a lump sum payment or on an installment basis through payroll deduction. If the member is purchasing nonqualified permissive service, the member must have five or more service credit years unless the exception noted above applies. A member who is purchasing nonqualified permissive service and who has fewer than five service credit years and opted for trustee-to-trustee transfer or rollover will only be allowed to do so, if the purchase amount will be fully covered by the transfer or rollover. A trustee-to-trustee transfer may also be used by Tier 2 members to purchase Lost Service Time. A member purchasing OPS service may make a lump sum payment by waiving his or her right to all benefits (based on all his or her non-ops service) with LACERS and authorizing a transfer of all his or her remaining LACERS member contributions and accrued interest from LACERS to LAFPP, provided that the total amount of the member s remaining LACERS contributions and interest does not exceed the remaining amount that the member owes to LAFPP for the purchase. (Amended 10/16/1403/16/17) B. When payment is made through payroll deduction, the member may elect a payment period not to exceed ten years for all purchases except public service, and OPS service purchases, and Airport Peace Officer service purchases. For public service and OPS service purchases, the member may elect a payment period that is not to exceed thirty years, does not extend past the date on which the member would attain the maximum years of service permitted by his/her tier when the public service or OPS service purchase is included, and establishes payment three months prior to the member s intended retirement/drop entry date for all contracts. For Airport Peace Officer service purchases, the member may elect a payment period that is not to exceed thirty years and establishes payment three months prior to the member s intended retirement/drop entry date for all contracts. The General Manager may prescribe a minimum payment amount for all contracts. The member s payroll deduction for a contract will be the greater of the minimum amount prescribed by the General Manager or the amount necessary to complete the contract within the allowable time as defined in the previous paragraph. The schedule, which shall be determined by the member in advance, cannot be changed except the member may pay off the balance at any time. The member shall be charged an amount equivalent to the Board determined assumed actuarial interest rate in effect when the contract is signed. However, OPS service purchases will pay an interest rate of 7.75%, and. Airport Peace Officer service purchases will pay an interest rate of 7.5%. For the purchase of prior service, an additional amount equivalent to the interest that would have been earned in accordance with Section 5.1 (i.e., the amount credited to member accounts) shall also be charged. For all purchases described in Section 5.5, except for purchase of prior service, public service, or OPS service purchases or Airport Peace Officer service purchases, no additional amount will be charged if the purchase agreement begins within one year of the member s eligibility to make the purchase. If the purchase is made after

12 ATTACHMENT the one year eligibility date, an additional amount equivalent to the interest that would have been earned in accordance with Section 5.1 shall also be charged from one year following the eligibility date until the beginning date of the purchase agreement. Such payments may be made on either a pre-tax or post-tax basis, except that payroll deductions for public service and, OPS service purchase, and Airport Peace Officer service purchase contracts may be made only on a post-tax basis, with pretax contributions subject to all requirements of the Internal Revenue Code. Purchases of service credit time for Tier 5 and Tier 6 Plan members are to be calculated based on the pension rate in effect during the period of service time to be purchased. If a contribution rate change falls within a pay period, a pro-rated rate shall be applied. (Amended 10/16/1403/16/17) C. A qualified surviving spouse/domestic partner may complete the purchase of years of service agreed to by a member, and subject to a true up for public service purchases, by remitting a lump sum payment prior to benefits being granted. (Amended 10/16/14) A qualified surviving spouse/domestic partner who elects to complete an Airport Peace Officer service purchase agreed to by a member, rather than to have the member s years of service pro-rated based upon the payments made prior to the member s death, shall have 90 days following the member s death to make his or her election. Payment must be received within 180 days following the member s death. (Added 03/16/17) D. The Board shall establish the amount of interest and the manner in which this interest is credited on PSP payments for refund purposes as provided by Los Angeles Administrative Code Section The amount of interest established by the Board for refunds of PSP purchases shall be the rate applied to individual member contribution accounts in accordance with Section 5.1. This contribution rate shall apply on a daily basis. With the exclusion of any correction necessary to adjust an overpayment of a PSP purchase (i.e., the transferor plan transferred an incorrect amount for the PSP purchase, or the Plan determined that there was an error in the calculation of the amount necessary for the purchase), a member shall not be paid a PSP refund until the member terminates employment. (Added 03/17/16) WORKERS COMPENSATION AWARD RECAPTURE 5.6 Disability pension payments must be reduced by the total amount of compensation awarded or paid pursuant to Workers Compensation in accordance with Los Angeles City Charter Article XI, Part 3, Section 1212 (Effect of Receipts of Workers Compensation). As to Workers Compensation payments being received concurrently with a disability pension, the General Manager is directed to reduce the monthly pension by the monthly equivalent of the Workers Compensation payments. As to Workers Compensation awards or payments received prior to the granting of the disability pension, the General Manager is directed to deduct from monthly pension payments on an installment basis until the total amount of prior Workers Compensation has been offset. Each deduction made on an installment basis shall be in an amount of no less than twenty-five (25) percent of the monthly gross pension amount. The member, at his or her discretion, may elect to

13 ATTACHMENT repay the full amount of prior Workers Compensation at any time. The member and General Manager may agree on deduction amounts greater than twenty-five (25) percent. If a member, upon being granted a disability pension, is eligible to receive a pension payment retroactive to a date earlier than the Board action date, the deduction provisions stated above shall be applied to the retroactive pension payment. (Amended 03/07/13) WORKERS COMPENSATION RECAPTURE SUSPENSION 5.7 Members receiving disability pension payments that are reduced by the Workers Compensation recapture amount may apply for a six-month recapture suspension. The recapture suspension will only apply to the amount determined as no less than twenty-five (25) percent of the monthly gross pension amount. The suspension request with justification must be made in writing addressed to the General Manager. The General Manager or the Board will review and may approve the recapture suspension request. However, Workers Compensation payments being received continuously on a bi-weekly basis are not subject to suspension and will continue to reduce the pensioner s monthly pension payment. In the event that the member would need an additional recapture suspension, a request addressed to the General Manager should be submitted. The request will be presented to the Board for consideration. The Board may request additional documentation prior to the approval of the Worker s Compensation recapture suspension. Upon the Board s approval, the succeeding six monthly pension payments will be issued without the deduction of the monthly worker s compensation recapture subject to suspension. Requests received during the first ten days of the current month will be presented to the Board on the second meeting of the current month. Requests received after the first ten days of the current month will be presented to the Board on the first meeting of the following month. (Amended 03/07/13) ACCEPTANCE OF ELECTRONIC SIGNATURES 5.8 The Board authorizes the acceptance of an electronic signature on a document that requires a signature. Such document shall be given the same force as a signed, valid original document, if the document and electronic signature are submitted using technology that the Board deems sufficient to ensure its integrity, security and authenticity. The system deemed sufficient shall embody all of the following attributes: a) User ID and password are unique to each member, and b) The User ID and password are capable of verification. (Added 05/02/13) FORFEITURE OF UNCLAIMED FUNDS TO THE PLAN 5.9 The Board authorizes the General Manager to declare a forfeiture of money or relieve a person from forfeiture of money. The General Manager is authorized to declare a forfeiture of all monies, including but not limited to contributions, interest, and benefits, that become payable or distributable from LAFPP to any owner who either cannot be found or refuses to accept payment or distribution within ten years of the date such monies become payable or distributable from LAFPP. (Added 09/03/15) HISTORY

14 ATTACHMENT 5.10 Adopted: Circa June 13, 1996; Amended 07/21/05, 04/05/12, 07/05/12, 12/06/12, 03/07/13, 05/02/13, 05/16/13, 02/20/14, 10/16/14, 09/03/15, and 03/17/16 and 03/16/17. (Also listed after amended sections). REVIEW 5.11 This policy shall be reviewed by the Board as needed and may be amended by the Board at any time.

15 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.2 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: REVISIONS TO BOARD POLICY SECTION 10.0: ACTUARIAL FUNDING POLICY AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board approve a revision to Board Policy Section 10.0: Actuarial Funding Policy to decrease from 25 years to 20 years the amortization period for future assumption and cost method changes (Attachment I). BACKGROUND A pension plan funding policy is designed to determine the total contribution required each year by the employer and active members to provide for the secure funding of benefits in a systematic fashion. A comprehensive funding policy is made up of three components: the actuarial cost method, the asset smoothing method, and the amortization policy. The Board adopted a comprehensive Actuarial Funding Policy in September The policy had one minor amendment in October 2014 to provide for ad hoc adjustments to the asset-smoothing component of the policy under certain conditions. The Board s funding policy had not undergone a complete review since it was adopted in The Actuarial Trend Education project (Project #3) of the Business Plan calls for a review of the Board s actuarial funding policy and for Staff to recommend any changes to the policy by March 31, On January 19, 2017, Mr. Paul Angelo of The Segal Company (Segal) and Staff engaged in a discussion with the Board regarding the goals and objectives of a funding policy, a review of the Board s current policy, and discussed possible changes to the policy. DISCUSSION Based upon the Board s discussion in January, Staff worked with Segal to draft changes to the funding policy. Segal is recommending that the Board decrease the amortization period for future assumption and cost method changes from 25 years to 20 years (Attachment II). Reducing the amortization period will help control negative amortization that occurs in the current 25-year amortization period. Negative amortization occurs in the first six years for each new unfunded actuarial accrued liability (UAAL) layer under the 25-year amortization period. Under the recommended 20-year amortization period there is only negative amortization in the first year.

16 In their letter, Segal provides the Board with an example that illustrates the potential cost impact that this recommendation may have by demonstrating how much the employer s UAAL contribution rate would increase if the investment return assumption were reduced from 7.5% to 7.25% in the June 30, 2016 valuation. As shown in Segal s letter, the recommended reduction in the amortization period would have resulted in a net increase in the City s contribution rate of 0.4% of payroll (increase of 2.6% would further increase to 3.0%). However, over the entire 20-year amortization period there would be savings to the City from less interest accruing as compared to the 25-year amortization period (i.e., savings of approximately $250 million based on the above scenario). Segal is also recommending that the funding policy clarify the two variations of the entry age actuarial cost method related to participation in the Deferred Retirement Option Plan (DROP). Government Accounting Standards require that plans with a DROP use a version of the Entry Age for financial purposes that differs from the Entry age version used for funding purposes. Lastly, based on feedback from the Board regarding options for reducing the amount of time to bring the retiree health benefits to full funding, Segal s letter also discusses an option to combine and reamortize the current UAAL for the retiree health benefits over a 15-year period in the June 30, 2017 valuation. Doing so would have the impact of shortening the period it would take the health benefits to achieve 100% funding by about 5 years, which would increase the City s contribution rate by about 1.7% of payroll. Staff is not recommending that the Board include this change in its policy at this time; however, Staff suggests the Board consider this option in the future depending on the future funding status of retiree health benefits. As requested by the Board, Segal provided an illustration of the run out of the current June 30, 2016 UAAL outstanding balances for the retirement plan. Segal also included a projection of the amortization payments for the current June 30, 2016 UAAL for the retirement plan. Mr. Paul Angelo from Segal will be present at today s Board meeting to discuss the proposed policy changes. BUDGET As the recommended reduction in the amortization period is with respect to future changes in actuarial assumptions and cost methods, the exact contribution rate impact is not known at this time but will be reflected beginning with the 2017 valuations. POLICY The recommended amendment to Board Policy Section 10.0 has been approved by the City Attorney as to form. This report was prepared by: Greg Mack, Chief Benefits Analyst Pensions Division RPC:JS:GM Attachments: I. Board Policy Section 10.0: Actuarial Funding Policy II. Proposed Changes to Actuarial Funding Policy prepared by The Segal Company Board Report Page 2 March 16, 2017

17 ATTACHMENT I Los Angeles Fire & Police Pension System 10.0 ACTUARIAL FUNDING POLICY This Actuarial Funding Policy supersedes any previous Actuarial Funding Policies. It is a working document and may be modified as the Board deems necessary. FUNDING POLICY GOALS 10.1 To achieve long-term full funding of the cost of benefits provided by the Los Angeles Fire and Police Pension System (LAFPP); 10.2 To seek reasonable and equitable allocation of the cost of benefits over time; 10.3 To minimize volatility of the plan sponsors contribution to the extent reasonably possible, while consistent with other policy goals; and, 10.4 To support the general public policy goals of accountability and transparency by being clear as to both intent and effect, allowing for an assessment of how and when the plan sponsors will meet the funding requirements of the plan. FUNDING REQUIREMENT 10.5 LAFPP s annual funding requirement is comprised of a payment of the cost attributed to the current year of service (Normal Cost) and a payment on the Unfunded Actuarial Accrued Liability (UAAL). The Normal Cost and the amount of the payment on UAAL are determined by the following three components of this funding policy: A) Actuarial Cost Method: The techniques to allocate the total present value of future benefits to each year (Normal Cost), including all past years (Actuarial Accrued Liability). B) Asset Smoothing Method: The techniques that spread the recognition of investment gains or losses over a period of time for the purposes of determining the Actuarial Value of Assets used in the actuarial valuation process. C) Amortization Policy: The decisions on how, in terms of duration and pattern, to reduce the difference between the Actuarial Accrued Liability and the Actuarial Value of Assets in a systematic manner. ACTUARIAL COST METHOD 10.6 The actuarial cost method is the Entry Age Normal (EAN) method, with the Normal Cost determined as a level percentage of payroll for each individual employee. A) For funding purposes, Normal Cost continues to accrue while members are in the DROP. Accordingly, salaries for members currently or anticipated in the future to elect the DROP are included in determining the Normal Cost.

18 ATTACHMENT I B) For financial reporting purposes, Normal Cost accrues only until members enter the DROP. Accordingly, salaries for members currently or anticipated in the future to elect the DROP are excluded in determining the Normal Cost. (Section amended 03/16/17) ASSET SMOOTHING METHOD 10.7 A) For investment gains/losses prior to July 1, 2008: The investment gains or losses of each valuation period, as a result of comparing the Market Value of assets at the end of the period with what the Market Value would have been if the assumed rate of return on assets was realized during the period, shall be recognized in a level amount over five (5) years in calculating the Actuarial Value of Assets; and B) For investment gains/losses after June 30, 2008: The investment gains or losses of each valuation period, as a result of comparing the Market Value of assets at the end of the period with what the Market Value would have been if the assumed rate of return on assets was realized during the period, shall be recognized in a level amount over seven (7) years in calculating the Actuarial Value of Assets; and 10.8 The Actuarial Value of Assets as determined above shall be limited to within a corridor of 60%-140% of the Market Value of Assets This policy anticipates that future circumstances may warrant adjustments to change the pattern of the recognition of the net deferred investment gains or losses after a period of significant market change followed by a period of market correction. Such adjustments would be considered by the Board upon receiving an appropriate analysis from LAFPP s actuary. Such adjustments would be appropriate for consideration when the net deferred investment gains or losses are relatively small (i.e., the actuarial and market values are very close together), but the recognition of that net deferred amount is markedly non-level. Any such adjustment would be made subject to the following conditions: A) The net deferred investment gains or losses are unchanged as of the date of the adjustment; and, B) The period over which the net deferred investment gains and losses are fully recognized is unchanged as of the date of the adjustment. (Section added 10/02/14) AMORTIZATION POLICY 10.9 The Unfunded Actuarial Accrued Liability (UAAL), the difference between the Actuarial Accrued Liability and the Actuarial Value of Assets, shall be amortized over various periods of time, depending on how the unfunded liability arose For UAAL identified before the June 30, 2012 actuarial valuation: A) The original UAAL bases for the Pension Plan:

19 ATTACHMENT I Tier 1 (including all UAAL identified in subsequent valuations through June 30, 2011): 70 years in 1967 with 26 years remaining in the June 30, 2011 valuation, and; Tier 2 (including all UAAL identified in subsequent valuations through June 30, 2008): 70 years in 1967 with 26 years remaining in the June 30, 2011 valuation, and; Tier 5: 30 years in 2002 with 21 years remaining in the June 30, 2011 valuation. B) The original UAAL bases for the Health plan (including all UAAL identified in subsequent valuations through June 30, 2011 for the Health Plan): All Tiers (except for Harbor Department): 30 years in 2006 with 25 years remaining in the June 30, 2011 valuation; and; Tier 5 (Harbor Department): 29 years in 2007 with 25 years remaining in the June 30, 2011 valuation. C) Actuarial gains or losses (for the Pension Plan) shall be amortized over 15 years; D) Changes in actuarial assumptions and cost methods (for the Pension Plan) shall be amortized over 30 years; E) Plan amendments, other than Early Retirement Incentives, (for the Pension Plan) shall be amortized over 30 years; F) Early Retirement Incentives (for the Pension Plan) shall be amortized over 30 years; G) Actuarial funding surplus (an excess of Actuarial Value of Assets over Actuarial Accrued Liability) (for the Pension Plan) shall be amortized over 15 years; For UAAL indentified beginning from the June 30, 2012 valuation: A) The original UAAL bases for the Pension Plan: Tier 1 (including all UAAL identified in subsequent valuations through June 30, 2011): 70 years in 1967 with 25 years remaining in the June 30, 2012 valuation, and; Tier 2 (including all UAAL identified in subsequent valuations through June 30, 2008): 70 years in 1967 with 25 years remaining in the June 30, 2012 valuation, and; Tier 5: 30 years in 2002 with 20 years remaining in the June 30, 2012 valuation. B) The original UAAL bases for the Health Plan (including all UAAL identified in subsequent valuations through June 30, 2011 for the Health Plan): All Tiers (except for Harbor Department): 30 years in 2006 with 24 years in the June 30, 2012 valuation; and; Tier 5 (Harbor Department): 29 years in 2007 with 24 years remaining in the June 30, 2012 valuation.

20 ATTACHMENT I C) Actuarial gains or losses shall be amortized over 20 years; D) Beginning from the June 30, 2012 valuation, Cchanges in actuarial assumptions and cost methods shall be amortized over 25 years. Beginning from the June 30, 2017 valuation, changes in actuarial assumptions and cost methods shall be amortized over 20 years; (Section amended 03/16/17) E) Plan amendments, other than Early Retirement Incentives, shall be amortized over 15 years; F) Early Retirement Incentives shall be amortized over 5 years; G) Actuarial funding surplus (an excess of Actuarial Value of Assets over Actuarial Accrued Liability) shall be amortized over 30 years; For all Tiers except for Tier 1, UAAL shall be amortized as a level percentage of payroll so that the amortization amount in each year during the amortization period shall be expected to be a level percentage of covered payroll, taking into consideration the current assumptions for general payroll increase (Tier 1 UAAL shall be amortized as a level dollar amount); The UAAL amortization payment rate shall be calculated for Tiers 2, 3 and 4 by dividing the amount required to amortize the UAAL for each of these Tiers by the total City sworn covered payroll (excluding the Harbor Department sworn covered payroll); The UAAL amortization payment rate shall be calculated for Tiers 5 and 6 by dividing the amount required to amortize the UAAL for each of these Tiers by the total City sworn covered payroll for these Tiers (excluding the Harbor Department sworn covered payroll); The UAAL amortization payment rate shall be calculated for Harbor Department Members of Tiers 5 & 6 by dividing the amount required to amortize the UAAL for each of these Tiers by the total Harbor sworn covered payroll for these Tiers (excluding the City sworn covered payroll); UAAL shall be amortized over multiple fixed layers for pension benefits; UAAL shall be amortized over multiple fixed layers for health benefits, with any annual changes in assumptions and plan elements (such as medical trend rate and annual premium rates) considered similar to actuarial gains/losses and amortized accordingly Layers generated by various sources of UAAL shall be combined and/or restarted when: HISTORY A) The net result of amortization of all layers combined is an amortization credit which would offset the Normal Cost; or B) Other conditions arise such that the Board, upon the advice of its consulting actuary considers that is appropriate to do so.

21 Adopted: 09/06/12; Amended 10/02/14; 03/16/17. (Listed after amended section.) ATTACHMENT I

22 ATTACHMENT II 100 Montgomery Street Suite 500 San Francisco, CA T VIA and USPS March 7, 2017 Mr. Raymond P. Ciranna General Manager City of Los Angeles Fire and Police Pensions 701 East 3 rd Street, Suite 200 Los Angeles, CA Re: City of Los Angeles Fire and Police Pension Plan (LAFPP) Proposed Changes to Actuarial Funding Policy Dear Ray: As requested, we have prepared this letter to provide our recommendations regarding changes to LAFPP s current Actuarial Funding Policy, along with examples that illustrate the potential cost impact these changes may have on the Retirement and Health Plans. In addition, as requested by the Board at its January 19, 2017 meeting, we have included in this letter an illustration of the run out of the amortization layers for the current June 30, 2016 Unfunded Actuarial Accrued Liability (UAAL), which includes both the future amortization payments as well as the future outstanding balances for the Retirement Plan. RECOMMENDATIONS REGARDING CHANGES TO ACTUARIAL FUNDING POLICY 1. Decrease the Amortization Period for Future Assumption and Cost Method Changes From 25 Years to 20 Years Under Section (D) of the Actuarial Funding Policy, any changes in actuarial assumptions and cost methods identified beginning from the June 30, 2012 valuation have been amortized over 25 years. Based on the discussion of the funding policy at the January 19 meeting, we understand there is Board interest in reducing the amortization period and accordingly we are recommending a 20-year period be used for assumption and cost method changes identified beginning from the June 30, 2017 valuation. Reducing the amortization period helps control negative amortization inherent in the current 25-year amortization period. Negative amortization occurs when amortization Benefits, Compensation and HR Consulting. Member of The Segal Group. Offices throughout the United States and Canada

23 Mr. Raymond P. Ciranna March 7, 2017 Page 2 ATTACHMENT II payments are not large enough to cover the interest that has accrued over the year on the outstanding balance. This leads to an increased outstanding balance in the following year. Under the 25-year amortization period, negative amortization will occur in the first six years for each new UAAL layer. In contrast, under a 20-year amortization period there is negative amortization only in the first year. As our recommended reduction in the amortization period is with respect to future changes in actuarial assumptions and cost methods, the exact contribution rate impact is not known at this time. However, by way of illustration, we can demonstrate how much the employer s UAAL contribution rate would increase from shortening the amortization period from 25 to 20 years if the investment return assumption were to be reduced from 7.50% to 7.25% in the June 30, 2016 valuation. Decreasing the investment return assumption for 2016 by 0.25% would have increased the UAAL by roughly $600 million for the Retirement Plan 1. For simplicity, if we assume that this increase was amortized over a level percent of payroll (i.e., we are not reflecting the level dollar amortization under the funding policy for Tier 1), the aggregate Employer Rate would have increased by 2.6% of payroll under the current 25-year amortization period. In comparison, the aggregate Employer Rate would have increased by 3.0% of payroll under the proposed 20-year amortization period for a net increase of 0.4% 2 of payroll. As noted above, a 20-year amortization period limits negative amortization to only one year. Furthermore, for this hypothetical increase in the UAAL of $600 million there would also be savings over the entire amortization period of approximately $250 million from less interest accruing under the proposed 20-year period as compared to the 25-year period. Attachment 1 compares the amortization of this hypothetical UAAL under the current policy and the proposed revision. 2. Consider Combining and Reamortizing the Current Unfunded Actuarial Accrued Liability for the Health Plan Over a 15-Year Period in the June 30, 2017 Valuation (or Future Valuation) For historical and other reasons, as of June 30, 2016, the 48.1% funded ratio for the Health Plan is only about one-half the 93.9% funded ratio for the Retirement Plan. Based on the discussion of the funding policy at the January 19 Board meeting, we understand there is also interest in considering shortening the amortization period used in the Health Plan, which would reduce the time it would take to bring the funded ratio of that Plan to 100%. 1 There would have been a corresponding increase of $100 million for the Health Plan. 2 Note that in practice, a change in the investment return assumption would also impact the Normal Cost contribution rate as well as the UAAL contribution rate associated with reamortizing the existing amortization layers over the new investment return assumption. These components would not be impacted by the proposed change (from 25 to 20 years) and therefore have not been included in this letter v5/

24 Mr. Raymond P. Ciranna March 7, 2017 Page 3 ATTACHMENT II In order to achieve that objective, the Board could consider combining and reamortizing the outstanding balance of all of the UAAL layers carried over into the June 30, 2017 Health Plan valuation (or future valuation) over a period of 15 years. Since the equivalent single amortization period for all the outstanding balance of the existing UAAL is slightly under 20 years in the June 30, 2017 Health Plan valuation, shortening the amortization period to 15 years would have the impact of shortening the period it would take the Health Plan to achieve 100% funded ratio by about 5 years. The contribution rate would increase by about 1.7% of payroll. 3. Clarify the Two Variations of the Entry Age Actuarial Cost Method Related to Participation in the Deferred Retirement Option Plan (DROP) There are two variations of the Entry Age actuarial cost method that are used for LAFPP. For funding purposes, Normal Cost continues to accrue for members enrolled in the DROP, so that the liability for those members continues to accrue until they retire from employment after their participation in the DROP. However, for financial reporting purposes, Normal Cost accrues only until members are enrolled in the DROP, so that the liability for those members is fully accrued when they enter DROP. This version of the Entry Age method is required under the Government Accounting Standards for plans with a DROP. Also, note we recommend changing the name of the cost method from Entry Age Normal to Entry Age consistent with both the GASB statements and current actuarial practice. We would propose Section 10.6 of the Actuarial Funding Policy be amended and expanded to read as follows: 10.6 The actuarial cost method is the Entry Age method, with the Normal Cost determined as a level percentage of payroll for each individual employee. A) For funding purposes, Normal Cost continues to accrue while members are in the DROP. Accordingly, salaries for members currently or anticipated in the future to elect the DROP are included in determining the Normal Cost. B) For financial reporting purposes, Normal Cost accrues only until members enter the DROP. Accordingly, salaries for members currently or anticipated in the future to elect the DROP are excluded in determining the Normal Cost. OTHER INFORMATION Illustration of Run Out of Current Amortization Bases As requested by the Board at its January 19 meeting, we have included a graph in Attachment 2 that shows the run out of the current June 30, 2016 UAAL outstanding balances for the Retirement Plan. The black line represents the net outstanding balance, v5/

25 Mr. Raymond P. Ciranna March 7, 2017 Page 4 ATTACHMENT II which is equal to the UAAL in a given year. Additionally, we have included Attachment 3 that shows the projection of amortization payments for the current June 30, 2016 UAAL for the Retirement Plan. The black line represents the net amortization payment for a given year. It should be noted that a net negative amortization payment (or contribution credit) would be projected for some plan years beginning July 1, 2026 that could cause some instability in the annual UAAL payments. That instability illustrates the need for some active management of the amortization layers in the later years of this projection, assuming no future layers are added. We would bring this topic back to the Board for further discussion well in advance of the actual onset of any net negative amortization payments. If you have any questions, please let us know. Sincerely, Paul Angelo, FSA, MAAA, EA, FCA Senior Vice President and Actuary Andy Yeung, ASA, MAAA, EA, FCA Vice President and Actuary EK/bqb Enclosures ( ) cc: Gregory Mack Joseph Salazar v5/

26 Attachment 1 ATTACHMENT II Comparison of Annual Payments from an Initial $600 Million in UAAL over a 20-Year and 25-Year Amortization Period $ in Millions Annual Payment Plan Year Beginning July 1, 25 Year Amortization 20 Year Amortization Comparison of Outstanding Balance from an Initial $600 Million in UAAL over a 20-Year and 25-Year Amortization Period $ in Millions Outstanding Balance Plan Year Beginning July 1, 25 Year Amortization 20 Year Amortization

27 Attachment 2 ATTACHMENT II $ in Millions 5,000 4,000 3,000 Amortization Schedule of $1,153 Million in Net UAAL as of June 30, 2016 (Retirement Plan Only) 2,000 1,000 - (1,000) (2,000) (3,000) (4,000) GAINS & LOSSES ASSUMPTION / PLAN CHANGES OTHER CHANGES NET UAAL BALANCE

28 Attachment 3 ATTACHMENT II $ in Millions Annual Payments Required to Amortize $1,153 Million in Net UAAL as of June 30, 2016 (Retirement Plan Only) (100) (200) (300) (400) GAINS & LOSSES ASSUMPTION / PLAN CHANGES OTHER CHANGES NET UAAL PAYMENT

29 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.3 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: PROPOSED BUSINESS PLAN AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board approve the attached Proposed Business Plan. DISCUSSION The Three-Year Strategic Plan (Attachment I) approved by the Board in February 2015 includes the Vision, Mission, Values and Strategic Goals for Los Angeles Fire and Police Pensions (LAFPP). This document serves as a blueprint to guide LAFPP in the development of the Proposed Business Plan. As indicated on the Project Summary Matrix included in the Proposed Business Plan (Attachment II Pages 3-4), the Plan consists of ten projects, including five projects continuing from the Business Plan and five new projects. The Proposed Business Plan was developed in conjunction with the Proposed Budget to ensure that all resources required to complete the Business Plan projects are adequately funded. The Business Plan is organized pursuant to the following LAFPP Strategic Goals to ensure that projects are prioritized relative to operational needs: 1) Ensure a Financially Sound Retirement System 2) Manage Risk Throughout the Organization 3) Enhance Customer Service to our Members 4) Pursue Operational Efficiencies 5) Enhance Communication Efforts and Outreach The five multi-year projects continuing from the Business Plan include: 1) Implement Health Care Options for Members (No. 4) (formerly Health Care Education and Research/Implement Options for Members): Establish alternative health care options for those who currently receive their coverage through LAFPP s agreement with the Los Angeles City Employees Retirement System (LACERS) or their health subsidy through the LAFPP Health Insurance Premium Reimbursement Program (HIPR). Enrollment in these health care plans would also be available to any new or existing pensioner or surviving spouse; 2) PARIS (Pension and Retirement Information System) Implementation (No. 5): Design and implement a new Pension Administration System that will result in improved overall efficiency in the department s business operations and continued superior service to our membership;

30 3) Employee Development and Training (No. 7): Enhance employee development, recruitment and training to help retain and further develop our talented workforce; 4) Administrative Manual Updates (No. 8): Update Department-wide procedures, including the Administrative Manual and the Document Imaging Governance Manual; and, 5) Increase the Number of Members Reached (No. 10) (formerly Increase the Number of Outreach Events and Seminars): Provide members with thorough and timely information regarding our Plan, utilizing a range of communication methods. The five new proposed Business Plan projects include: 6) Portfolio Risk Analysis (No. 1): Conduct a thorough risk analysis of the Fund s investment portfolio; 7) Private Equity Investment Fee Disclosure (No. 2): Provide the Board with specified information relating to the fees and returns of specified alternative investments in compliance with AB 2833; 8) Alive and Well Audit (No. 3): Verify the status of all age 95+ pensioners and confirm that benefits are received by the intended recipients; 9) Airport Police Transfer (No. 6): Implement the provisions of the Charter amendment (Measure SSS), enrolling all new Airport Police in Tier 6 and allowing existing Airport Police the option to transfer from LACERS to Tier 6; and 10) LAFPP Intranet Website Redesign (No. 9): Redesign the Department s intranet and leverage it as a resource to disseminate information within LAFPP. The Project Summary Matrix (Attachment II, Pages 3-4) lists all the projects and includes workload level indicators, which is intended to give the Board a sense of the staff and participant workload requirements for the upcoming fiscal year. Staff will continue to track the progress of all projects in the Business Plan Quarterly Update reports to the Board, and through these reports will recommend any necessary changes in scheduling or budget. This process allows the Board to measure progress and adjust periodically to reflect any changes that may occur. As this is the last of the annual Business Plans associated with the Three-Year Strategic Plan, staff will be working with the Board and management on developing a new Three Year Strategic Plan next fiscal year that will help guide a new cycle of Business Plans starting in BUDGET Funding for the proposed projects has been included in the Proposed Budget. POLICY There are no policy changes proposed in this report. This report was prepared by: Diana Pointer, Senior Management Analyst II Administrative Services Section RPC:WSR:SHC:DP Board Report Page 2 March 16, 2017

31 Attachments: I. Three-Year Strategic Plan II Proposed Business Plan Board Report Page 3 March 16, 2017

32 DEPARTMENT OF FIRE AND POLICE PENSIONS 360 East Second Street, Suite 400 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: FEBRUARY 5, 2015 ITEM: B.4 FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER CONSIDERATION OF THE THREE YEAR STRATEGIC PLAN AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board: 1. Consider and approve the Three Year Strategic Plan, which includes the following elements: Vision, Mission, Values, Goals, Objectives and Strategic Initiatives (Attachment); 2. Direct Staff to return to the Board with a Business Plan on March 19, 2015 that includes Business Plan Projects that will help to achieve LAFPP Goals, Objectives and Strategic Initiatives. DISCUSSION On December 4, 2014, the Board and LAFPP managers engaged in a second strategic planning session facilitated by an outside consultant (Alta Mesa Group). This session provided an opportunity for the Board and managers to work together to review and revise our Mission Statement, Values, Goals, Objectives and Strategic Initiatives. At that meeting, staff were directed to return to the Board with a completed Strategic Plan for approval that would include all of these elements. Mission Statement During the session, the Board remarked that the current LAFPP Mission is very similar to the Los Angeles Police Department motto To Protect and to Serve. Therefore, the Mission Statement language was revised to be more inclusive of our entire membership. Current: To advance the health and retirement security of those who dedicate their careers to serve and protect the people of Los Angeles. Proposed: To advance the health and retirement security of those who dedicate their careers and risk their lives to protect the people of Los Angeles.

33 Values Values are defined as LAFPP guiding principles, beliefs and a Code of Behavior that form an important part of the foundation on which LAFPP staff and the Board operate. Staff had previously proposed six Values: Accountability, Collaboration, Compassion, Dedication, Ethics and Transparency. At the December 4 th meeting, the Board and managers approved these Values in concept and asked that each of the Values be defined. The Board also asked that Efficiency be added as a Value to reflect our commitment to operational efficiencies. Based on recent staff meetings to define these Values, staff now recommends adding Respect as a Value in-lieu of Compassion and Dedication. Staff believes Respect best encompasses how we treat each other, our members and stakeholders. Current Values: Not applicable; Values have not been codified previously. Proposed Values and Definitions: 1) Accountability We recognize our responsibility to our members to deliver promised pension benefits. We ensure appropriate oversight to achieve excellence in service, operational and investment decision making. 2) Collaboration We value teamwork to achieve success and encourage staff at all levels to share ideas and offer suggestions for improving operations. We are enriched by our engagement with the Board, our members and our stakeholders. 3) Efficiency We continually search for ways to deliver quality services and reduce administrative expenses. We promote innovation throughout the organization and use performance measurement to drive decisions. 4) Ethics We preserve the public trust by adhering to the ethical standards established by the State, the City, and our Board Policies. 5) Respect We treat each other and our members with kindness and dignity. We promote a fair environment and support each other by sharing information and knowledge to ensure we deliver quality services. 6) Transparency We strive to always provide clear, accurate and complete information and transact business decisions in an open manner so that our members, the City, and the public can trust that our decisions are fair, honest and ethical. Goals, Objectives and Strategic Initiatives At the December 4 th session, the General Manager proposed an expansion of the primary goals from three to five to more fully capture the breadth of the longer-term theme and objectives of the Board. The General Manager also presented Objectives and Strategic Initiatives designed to help LAFPP meet its Goals. During this session, the Board and managers broke into groups to discuss these Goals, Objectives and Strategic Initiatives in greater detail and the results were presented to the full group. Based on these discussions, the Board and managers agreed to the five goals listed below with some minimal language revisions. Board Report Page 2 February 5, 2015

34 Current LAFPP Goals: 1) Customer Service 2) Risk Management 3) Communications and Stakeholder Relations Proposed LAFPP Goals: 1) Ensure a financially sound retirement system 2) Manage risk throughout the organization 3) Enhance customer service to our members 4) Pursue operational efficiencies 5) Enhance communication efforts and outreach Subsequent to the December 4 th session, Executive staff met over several days and revised the Goal Objectives and Strategic Initiatives to incorporate comments from the break-out sessions, and consolidate and refine the language. Also, Executive staff determined that some of the items initially labeled as Strategic Initiatives should be removed from the Strategic Plan as they reflected specific projects that were better suited for future Business Plans. Strategic Initiatives generally reflect high-level, aspirational statements that will guide the organization over the next several years. Conversely, the annual Business Plans will include specific, measurable projects to help us achieve our Strategic Goals, Objectives and Initiatives (Attachment). BUDGET LAFPP has incurred $10,500 to date utilizing the Alta Mesa Group, inclusive of travel expenses. Budgetary impact of the Business Plan will be included in Budget to be presented to the Board on March 19, POLICY No policy changes are being recommended. This report was prepared by: Stephanie Clements, Chief Management Analyst Administrative Operations Division RPC:WSR:SHC Attachment Board Report Page 3 February 5, 2015

35 Attachment LOS ANGELES FIRE & POLICE PENSIONS THREE-YEAR STRATEGIC PLAN Vision To be a leader and innovator in the public pension industry through an uncompromising dedication to excellence, customer service, transparency and education Mission To advance the health and retirement security of those who dedicate their careers and risk their lives to protect the people of Los Angeles Goals 1. Ensure a financially sound retirement system 2. Manage risk throughout the organization 3. Enhance customer service to our members 4. Pursue operational efficiencies 5. Enhance communication efforts and outreach 1

36 Attachment Values I) Accountability We recognize our responsibility to our members to deliver promised pension benefits. We ensure appropriate oversight to achieve excellence in service, operational and investment decision making. II) III) IV) Collaboration We value teamwork to achieve success and encourage staff at all levels to share ideas and offer suggestions for improving operations. We are enriched by our engagement with the Board, our members and our stakeholders. Efficiency - We continually search for ways to deliver quality services and reduce administrative expenses. We promote innovation throughout the organization and use performance measurement to drive decisions. Ethics We preserve the public trust by adhering to the ethical standards established by the State, the City, and our Board Policies. V) Respect - We treat each other and our members with kindness and dignity. We promote a fair environment and support each other by sharing information and knowledge to ensure we deliver quality services. VI) Transparency We strive to always provide clear, accurate and complete information and transact business decisions in an open manner so that our members, the City, and the public can trust that our decisions are fair, honest and ethical. 2

37 Goals, Objectives and Strategic Initiatives Attachment Goal 1: Ensure a Financially Sound Retirement System Objective Achieve our long-term investment performance targets. Strategic Initiatives a) Employ prudent risk-adjusted asset allocation strategies, measure portfolio performance against the appropriate benchmark(s) and take action when investment objectives are not met. Objective Pursue funding policies and strategies that fund our member benefits. Strategic Initiatives a) Adopt sound actuarial policies and assumptions that balance the goals of: 1) keeping contributions relatively stable; 2) equitably allocating the cost of benefits over the member s period of actual service; and 3) achieving long-term full funding of the cost of benefits over time; and b) Explore local and sustainable investment opportunities that complement our portfolio objectives and comply with our investment goals concerning risk, return and diversification. Goal 2: Manage Risk Throughout the Organization Objective Maintain & promote a culture of risk awareness with an enterprise-wide view. Strategic Initiative a) Develop a top-down risk-intelligent culture that proactively identifies and acts to manage risk exposure, through enhanced governance, Board and staff training, and collaboration with stakeholders. Objective Actively monitor systems and processes to reduce or minimize risk. Strategic Initiative a) Assess and test our systems and processes through periodic audits, risk assessments and technology to help mitigate and minimize risk in our organization. 3

38 Attachment Goal 3: Enhance Customer Service to our Members Objective Deliver superior customer service that is adaptive to our member needs. Strategic Initiatives a) Research and implement technology solutions to upgrade our business processes to better serve our members; b) Expand educational opportunities to our members regarding their benefits and our services so that they can make informed decisions about retirement security and health care; and c) Enhance member access to information regarding the cost of health care options and alternative methods of service delivery. Goal 4: Pursue Operational Efficiencies Objective Implement industry best practices for continuous improvement. Strategic Initiative a) Research, identify and pursue best practice opportunities throughout the organization. Objective Foster a team approach or culture of collaboration within and outside the Department to facilitate innovation. Strategic Initiative a) Increase team engagement and encourage ideas and suggestions from the Board, employees and stakeholders to improve knowledge and communications. Objective Ensure staff is provided the necessary support and tools for success. Strategic Initiative a) Develop and implement a comprehensive strategy that includes employee development, recruitment, retention, and succession planning. 4

39 Attachment Goal 5: Enhance Communication Efforts and Outreach Objective Enhance our communication to members, the City, and the public regarding our Plan. Strategic Initiative a) Provide members, the City, and the public with thorough and timely information utilizing a range of communication methods to help promote our system and build good relations with our stakeholders; and b) Strengthen relationships and enhance interactions with the Police, Harbor and Fire Departments, along with other City agencies, employee unions and retiree associations. Objective Promote LAFPP's Emerging Manager Program as a leader in the pension industry Strategic Initiatives a) Continue building and elevating the profile of our LAFPP Emerging Manager Program. 5

40 ATTACHMENT II LAFPP LOS ANGELES FIRE AND POLICE PENSIONS PROPOSED BUSINESS PLAN AS SUBMITTED TO THE BOARD: MARCH 16, 2017

41 PROPOSED BUSINESS PLAN INTRODUCTION The Strategic Plan serves as a blueprint to guide LAFPP in the development of the annual Business Plan and includes the Vision, Mission, Values and Strategic Goals for LAFPP. The Strategic Plan was approved by the Board on February 5, 2015, including the new LAFPP Vision Statement: To be a leader and innovator in the public pension industry through an uncompromising dedication to excellence, customer service, transparency, and education The Proposed Business Plan methodically allocates resources to the most critical areas of our operations to successfully accomplish our Mission: To advance the health and retirement security of those who dedicate their careers and risk their lives to protect the people of Los Angeles. Our Business Plan includes ten projects, including five new projects and five carried over from last year. We believe these ten projects are the most critical to ensure we continue to meet the Department s five primary Goals: 1) Ensure a Financially Sound Retirement System 2) Manage Risk Throughout the Organization 3) Enhance Customer Service to our Members 4) Pursue Operational Efficiencies 5) Enhance Communication Efforts and Outreach Over the last several years, the Department has been engaged in the Pension Administration System Project, otherwise known as PARIS (Pension and Retirement Information System). This significant Project, which commenced in , involves a complete transition of all member data and payment processing to a new system and h a s required a sustained, Department-wide effort to design and build the new system. For , the Project will continue to require a considerable amount of L A F P P resources to continue building and testing the system, with implementation anticipated by September Another significant project in the Business Plan is the Implement Health Care Options for Members Project to establish alternative health care plans for those who currently receive their coverage through the Los Angeles City Employees Retirement System (LACERS) or their health subsidy through the LAFPP Health Insurance Premium Reimbursement Program (HIPR). Enrollment in these health care plans would also be available to all LAFPP pensioners. The Business Plan also includes the Airport Police Transfer Project to ensure that the recently approved Charter amendment to enroll all new Airport Police into the LAFPP Plan is successfully implemented. Once again, I want to extend my deep appreciation to the Board and staff for its continued support for the Strategic and Business Plans over the years. Sincerely, Raymond P. Ciranna, General Manager 2

42 PROPOSED BUSINESS PLAN PROJECT MATRIX SUMMARY GOAL I Ensure a Financially Sound Retirement System Project Title Workload Level Duration Project Objective (1) (NEW) Portfolio Risk Analysis Lead: Moderate Participants: High To conduct a thorough risk analysis of the Fund s investment portfolio. GOAL II Manage Risk Throughout the Organization Project Title Workload Level Duration Project Objective (2) (NEW) Private Equity Investment Fee Disclosure (3) (NEW) Alive and Well Audit Lead: Moderate Participants: Moderate Lead: Moderate Participants: Low To annually provide the Board with specified information relating to the fees and returns of specified alternative investments in compliance with AB To verify the status of all age 95+ pensioners and confirm that benefits are received by the intended recipients. GOAL III Enhance Customer Service to our Members Project Title Workload Level Duration Project Objective (4) Implement Health Care Options for Members Lead: High Participants: High To establish health care plans for pensioners who currently receive their coverage through LAFPP s agreement with the Los Angeles City Employees Retirement System (LACERS) or their health subsidy through LAFPP s Health Insurance Premium Reimbursement Program (HIPR). These health plans would also be available to all LAFPP pensioners. 3

43 PROJECT MATRIX SUMMARY GOAL III Enhance Customer Service to our Members (5) PARIS (Pension and Retirement Information System) Implementation (6) (NEW) Airport Police Transfer Lead: High Participants: High Lead: High Participants: Moderate To design and implement a new Pension Administration System that will result in improved overall efficiency in the department s business operations and continued superior service to our membership To implement the provisions of the Charter amendment (Measure SSS), enrolling all new Airport Police in Tier 6 and allowing existing Airport Police the option to transfer from LACERS to Tier 6. Goal IV Pursue Operational Efficiencies Project Title Workload Level Duration Project Objective (7) Employee Development and Training (8) Administrative Manual Updates (9) (NEW) LAFPP Intranet Website Redesign Lead: Moderate Participants: Moderate Lead: Medium Participants: Moderate Lead: High Participants: Moderate To enhance employee development, recruitment and training to help retain and further develop our talented LAFPP workforce. To provide staff with LAFPP s manual updates on Department-wide procedures reflecting administrative operations and policies To fully leverage the Department s intranet as a resource to disseminate information within LAFPP. Goal V Enhance Communication Efforts and Outreach Project Title Workload Level Duration Project Objective (10) Increase the Number of Members Reached Lead: High Participants: Moderate To provide members with thorough and timely information regarding our Plan, utilizing a range of communication methods. 4

44 GOAL I Ensure a Financially Sound Retirement System Project 1: NEW Portfolio Risk Analysis Duration: Project Lead: Tom Lopez, Chief Investment Officer, Investments Division Project Participants: General Consultant, Investments Staff Stakeholders: Board Members, Investments Staff, LAFPP Members, and the City PROJECT OBJECTIVE PROJECT HISTORY To conduct a thorough risk analysis of the Fund s investment portfolio. Some commentators believe that the prolonged period of low interest rates has caused many investors, in their efforts to achieve their desired rates of investment returns, to assume too much risk in their portfolios. The purpose of this project is to explore and analyze risk in the pension fund portfolio, over time and in relation to its peers. The objective is to better understand the nature and causes of investment risk and how that risk may have changed over the years DELIVERABLES MILESTONES R.V. Kuhns and Staff will produce a report for the Board detailing the nature and extent of investment portfolio risk. BY DECEMBER 31, 2017: Staff to produce a risk analysis report and present the information to the Board RESOURCES Staff will utilize existing resources and will not require additional funding or authorized positions. 5

45 GOAL II Manage Risk Throughout the Organization Project 2: NEW Private Equity Investment Fee Disclosure Duration: Project Lead: Tom Lopez, Chief Investment Officer, Investments Division Project Participants: Investments Staff, Private Equity Advisors and Private Equity Funds Stakeholders: Board Members, LAFPP Members, and the City PROJECT OBJECTIVE PROJECT HISTORY DELIVERABLES To annually provide the Board with specified information relating to the fees and returns of specified alternative investments. Assembly Bill No was signed into law in 2016 and added Section to the Government Code, requiring that effective January 1, 2017 public pension plans annually disclose at a public meeting information relating to the fees, expenses and returns of alternative investments entered into on or after the effective date, as well as existing alternative investments to which additional commitments are made after the effective date, and to make reasonable efforts to obtain such information from such investments existing prior to January 1, The purpose of this project is to comply with the new law. An annual Private Equity Fee Report covering the preceding calendar year will be presented to the Board before the end of each calendar year MILESTONES BY DECEMBER 31, 2017: Staff will prepare and present to the Board a Private Equity Fee Disclosure Report for the 2016 calendar year. Subsequent reports will be presented before the end of each calendar year, and will cover the preceding calendar year RESOURCES Staff does not anticipate requiring additional funding or authorized positions. 6

46 GOAL II Manage Risk Throughout the Organization Project 3: NEW Alive and Well Audit Duration: Project Lead: Myo Thedar, Manager, Retirement Services Section Project Participants: Retirement Services Section Stakeholders: LAFPP Members PROJECT OBJECTIVE PROJECT HISTORY To verify the status of all age 95+ pensioners and confirm that benefits are received by the intended recipients. The City Controller s Office conducted an audit in 1986 which contained a recommendation that the Department verify the status of age 90+ pensioners. To achieve this objective, the Department utilized a contractor to conduct alive and well interviews with these pensioners in-person. The last in-person alive and well audit was completed in It consisted of 540 pensioners, 77% of whom resided in California. The audit took 10 months to complete and the total cost was $95,000. In February 2014, after reviewing the intent of these audits, required resources and associated costs, and having surveyed several other systems, staff recommended that audits be performed in-house using online electronic audit services without the assistance of an investigative services consultant. These electronic audits are conducted monthly by staff and have proven successful in identifying pensioners who have passed away. However, in light of recent news articles on pension fraud in New York, Japan, and Florida, some in-person interactions with our Age 95+ population is warranted to ensure that intended recipients are receiving pension payments. The in-person audit is intended to complement the use of existing online audit services DELIVERABLES MILESTONES Updated contact information for members; in-person visit with Age 95+ members; investigative reports to confirm intended recipient of pension benefits; investigator contact with Social Services if warranted; staff contact with Department of Aging and LARFPA if warranted; and improved welfare for members. BY SEPTEMBER 30, 2017: Board report to authorize RFP for investigative services and approve selection of consultant(s). BY DECEMBER 31, 2017: Pensioner notification of audit; pensioner response to such notification; pensioner notification of auditor information; in-person visits commence. BY JUNE 30, 2018: In-person visits completed and audit reports received/reviewed by staff RESOURCES The Proposed Budget includes a total of $40,000 for an investigative services consultant. 7

47 GOAL III Enhance Customer Service to our Members Project 4: Implement Health Care Options for Members Duration: , Project Lead: Mark Granado, Manager, Medical & Dental Benefits Section Project Participants: Medical & Dental Benefits Section Staff, LACERS, LAFPP Health Consultant, and the City Attorney s Office Stakeholders: LAFPP Management, LAFPP Retired Members, and Board-approved Medical and Dental Insurance Plan Providers (aka, Associations ) PROJECT OBJECTIVE PROJECT HISTORY To implement alternative medical, dental and vision insurance coverage options for those who currently receive their coverage through LAFPP s agreement with the Los Angeles City Employees Retirement System (LACERS) or their health subsidy through the LAFPP Health Insurance Premium Reimbursement Program (HIPR). Enrollment in these Plans would also be available to all LAFPP pensioners. A small group of LAFPP pensioners has received medical/dental insurance coverage through LACERS health plans since LACERS took over civilian retiree health plan administration from the Personnel Department in Through an agreement with LACERS, LAFPP has offered coverage through LACERS health plans to Port Police who retired under the Fire and Police Pension Plan, as well as retired firefighters who were not eligible to participate in plans offered by the United Firefighters of Los Angeles City or the Los Angeles Firemen s Relief Association. LACERS has agreed to cover these LAFPP members through the end of December 2017, at which time only those pensioners who were enrolled prior to January 1, 2000, will be allowed to remain in their plans. At the November 17, 2016 meeting, the Board authorized the release of Requests for Proposals (RFPs) for group medical, dental and vision insurance plans. The purpose of the RFPs is to find suitable medical, dental and vision insurance plans for the group of LAFPP pensioners losing access to their current LACERS plans, as well as for future Port Police and Airport Police Officers as they retire. However, these plans would be open to all retired members and surviving spouses DELIVERABLES a) Work with LAFPP s health consultant to review carrier responses to the Requests for Proposals (RFP) for group medical, dental and vision plans. Implementation to include negotiation and contracting with health carriers. Present recommended plans to the Board for approval. b) Conduct Open Enrollment in Fall c) Successfully enroll pensioners and qualifying spouses into new plans with coverage effective January 1,

48 Project 4: Implement Health Care Options for Member (Continued) MILESTONES BY SEPTEMBER 30, 2017: Present recommended plans and rates to the Board for approval by July Work with LAFPP s health consultant to complete Open Enrollment packets and prepare for distribution RESOURCES BY DECEMBER 31, 2017: Complete enrollment of all LACERS subgroup members who lost LACERS plan coverage, as well as other pensioners or qualifying spouses who choose to enroll. The P r o p o s e d Budget includes a total of $75,000 for health consulting services, to account for the estimated costs for implementing the RFP s (negotiating and contracting with health carriers) and completing the Open Enrollment for Calendar Year The Proposed Budget also includes funding for additional staff to administer the new medical, dental and vision insurance coverage options. 9

49 GOAL III Enhance Customer Service to our Members Project 5: PARIS (Pension and Retirement Information System) Implementation (formerly Pension Administration System Replacement) Duration: , , , and Project Lead: Alfred Domagat, Sr. Systems Analyst II, Systems Section Project Participants: LAFPP Staff, Consultants, Northern Trust, the Information Technology Agency (ITA), and Office of the Controller Stakeholders: LAFPP Staff and Management, and LAFPP Members and Beneficiaries PROJECT OBJECTIVE PROJECT HISTORY To design and implement a new Pension Administration System that will result in improved overall efficiency in the department s business operations and continued superior service to our membership. The Request for Proposal (RFP) to replace the current Pension Administration System was released in July 2014 with several bids received in October The Evaluation Team reviewed the bids and selected Xerox State and Local Systems, Inc (Xerox) as the top-ranking vendor with the lowest cost. The Board awarded the contract to Xerox on May 21, 2015 and implementation of the project began in July The new system that is being developed was later named PARIS (Pension and Retirement Information System). For the last couple of years, staff has worked with the Xerox team to setup the hosting environment, confirm and document the various specifications for PARIS, and deliver in phases, newly developed system functionality for testing and validation by LAFPP staff. The major system functionalities delivered include Core Calculations for Service Retirement, DROP, Disability, and Terminations as well as Secondary Calculations involving Service Purchases, Enrollment, Deaths, and QDROs. All discrepancies and defects were logged and addressed for resolution and re-testing will serve as the third year of project implementation DELIVERABLES a) Identify for correction all system functionality that have issues/defects in prior rollout/testing. b) Configure and deliver for testing all system functionality for User Acceptance Testing which includes defect repair of major issues identified to move forward with the Go Live production rollout. c) Ongoing data cleansing and data conversion. 10

50 Project 5: PARIS (Pension and Retirement Information System) Implementation (formerly Pension Administration System Replacement) (Continued) MILESTONES BY December 31, 2017: Delivery for testing of corrected system functionality that had issues/defects in prior rollout testing. BY JUNE 30, 2018: Delivery and testing of all system functionality for User Acceptance Testing which includes defect repair of major issues identified to move forward with the Go Live production rollout (by April 30, 2018) RESOURCES On May 21, 2015, the Board approved an amount not to exceed $9.02 million to implement a new Pension Administration System (PAS) (3 years) and provide post-implementation services (5 years) by Xerox State and Local Systems, Inc. The Board also approved LRWL, Inc. to provide oversight project management and quality assurance services for an amount not to exceed $1.16 million. Approximately $2.293 million for the PARIS Project is included in the Proposed Budget, consisting of $1,903,000 for Xerox State and Local Systems, Inc. and $390,000 for LRWL, Inc. 11

51 GOAL III Enhance Customer Service to our Members Project 6: NEW Airport Police Transfer Duration: Project Lead: Joseph Salazar, Assistant General Manager, Pensions Division Project Participants: LAFPP, ITA, Department of Airports (LAWA), LACERS, and the City Attorney s Office Stakeholders: Airport Police and the City PROJECT OBJECTIVE PROJECT HISTORY To implement the provisions of the Charter amendment (Measure SSS), enrolling all new Airport Police in Tier 6 and allowing existing Airport Police the option to transfer from LACERS to Tier 6. During labor negotiations with the Airport Police bargaining units, the City agreed to place on the State General Election ballot a Charter amendment that proposes certain retirement benefit enhancements for this group. On November 8, 2016, a majority of voters approved the Charter amendment (Measure SSS) which includes the following provisions: 1) Enrolls all new Airport Police hired on or after January 7, 2018 into Tier 6; 2) Allows current Airport Police (hired prior to January 7, 2018) to transfer into Tier 6 from LACERS at their own expense; and DELIVERABLES MILESTONES 3) Permits new Airport Police Chiefs to join LACERS rather than participate in Tier 6. Adapt all internal/external systems, forms and publications to include Airport Police; work with LACERS to provide benefit counseling and service purchase estimates to all current Airport Police so they may make an informed transfer election. BY SEPTEMBER 30, 2017: a) Continue counseling sessions for Airport Police eligible to transfer from LACERS. BY DECEMBER 31, 2017: a) Complete counseling of all Airport Police eligible to transfer from LACERS. b) Finalize testing and implementation of City payroll system and pension administration system changes necessary to integrate Airport Police into Tier 6. c) Develop outreach plan for new Airport Police hires RESOURCES BY MARCH 31, 2018: Complete integration of Airport Police into all LAFPP materials and publications. Funding for related IT enhancements is included in the Proposed Budget. The Department of Airports will reimburse LAFPP for costs associated with this project, including staff salaries, legal, and actuarial consulting fees. 12

52 Goal IV Pursue Operational Efficiencies Project 7: Employee Development and Training Duration: , , Project Lead: Lindi Willhite, Sr. Personnel Analyst I, Administrative Services Section - Human Resources Project Participants: All Sections Stakeholders: LAFPP Staff and Management PROJECT OBJECTIVE PROJECT HISTORY To enhance the LAFPP employee development, recruitment and training program to help retain and further develop our talented workforce, to encourage employee professional growth creating a culture of excellence required for the long-term success of LAFPP. With approximately 37% of the current LAFPP workforce eligible to retire in the next few years, it is vital that LAFPP continue to support efforts to train, develop and recruit staff. LAFPP s training program is supported strongly by Executive Management and the Department has significantly increased the amount of training completed by staff over the last few years. Starting in as part of the Business Plan, all staff were required to take at least two training courses every fiscal year. Our compliance rate that year was 80%. For , we are on track to meet our goal of all staff taking at least two training courses and as of March, 2017, 41% have already met this requirement which is a significant improvement from In , brown bag seminars on Workplace Violence, Creating Work- Life Balance, and the LAFPP budget process have been conducted DELIVERABLES MILESTONES RESOURCES Ensure all LAFPP staff take at least two (2) non-mandated training sessions of their choice and schedule two (2) Brown Bag Lunch sessions in BY JUNE 30, 2018: Ensure all staff attend two training sessions of their choice and schedule two (2) Brown Bag Lunch sessions. Funding totaling $20,300 is estimated for Annual Training programs and this amount is included in the Proposed Budget. There is also additional training, travel, and tuition reimbursement funding for professional development opportunities. 13

53 Goal IV Pursue Operational Efficiencies Project 8: Administrative Manual Updates Duration: , Project Lead: Diana Pointer, Sr. Management Analyst II, Administrative Services Section Project Participants: Administrative Services Stakeholders: LAFPP Staff and Management PROJECT OBJECTIVE PROJECT HISTORY To provide staff with LAFPP s manual updates on Department-wide procedures reflecting administrative operations and policies. Administrative Operations manuals are designed for standard tasks that encompass general office policies & procedures, EEO, employment policies & procedures, building operations, document imaging, safety, emergency planning, budget programs, and related projects. LAFPP manuals exist but some need to be reviewed and updated. For , staff will complete new headquarters-related procedures and manuals including building operations and emergency procedures. Staff are also in the process of updating other manuals relating to Departmentwide Administrative Policies and Procedures, Contracts and Board Elections DELIVERABLES MILESTONES RESOURCES In , staff will continue to update these manuals and will complete them by June 30, Staff will also complete a Document Imaging Governance manual to provide policy and guidelines to staff. The document imaging manual will ensure the Department s operations align with the Los Angeles Administrative Code and document imaging industry standards. Staff will ensure the timely completion of this manual and will distribute it to LAFPP through the DocuShare system. BY JUNE 30, 2018: Complete the following manuals: Administrative Policies and Procedures, Contracts, Board Elections and Document Imaging Governance. Existing staff will be utilized to update manuals and procedures. 14

54 Goal IV Pursue Operational Efficiencies Project 9: NEW LAFPP Intranet Website Redesign Duration: Project Lead: Bob Yan, Director of Systems, Systems Section Project Participants: All Sections Stakeholders: LAFPP Staff and Management PROJECT OBJECTIVE PROJECT HISTORY DELIVERABLES MILESTONES To fully leverage the Department s intranet as a resource to disseminate information within LAFPP. The current LAFPP intranet website was developed more than ten years ago with tools available at that time. Since then, technology has advanced and many more tools have been developed that have enhanced features in navigation and user functionality. The redesign of the intranet website will provide easier access to information within a single portal and more flexibility in managing content. Redesign and develop a new intranet website with additional information for sharing and establish processes in updating the content. BY DECEMBER 31, 2017: a) Review existing content and gather new requirements from all sections and management; b) Research and evaluate available open source software tools to design and develop websites; and c) Complete training and implement the website tools. BY JUNE 30, 2018: a) Design, develop, test, and deploy new intranet website; and b) Implement processes and procedures in website maintenance and content update RESOURCES Existing staff will be utilized to redesign the website. No additional funding is required. 15

55 GOAL V Enhance Communication Efforts and Outreach Project 10: Increase the Number of Members Reached Duration: , Project Lead: Carol Tavares, Manager, Communications & Education Section Project Participants: Pensions Division Staff Stakeholders: Board Members, LAFPP Staff, LAFPP Members, and the City PROJECT OBJECTIVE PROJECT HISTORY To provide members with thorough and timely information regarding our Plan, utilizing a range of communication methods. This project expands from the last fiscal year where the number of seminars was increased and additional formats and locations were added to accommodate the growing interest in attending Financial Planning Education Seminars. Staff participates in various other outreach events hosted by the Unions and Associations, and benefit presentations are also offered to members at their work locations. The number of members reached increased approximately 10% from to A large percentage of the members reached were from LAPD because of the high number of events hosted by the Police Protective League. Outreach should be extended to the Port Police and Fire members. Beginning in January 2018, all new Airport Police hires will become members of LAFPP Tier 6 upon completion of basic training. These new members will need to be incorporated into our outreach efforts going forward DELIVERABLES MILESTONES Increase outreach efforts to include Port Police, Firefighters, and Airport Police. Increase the total number of members reached by 5%. BY SEPTEMBER 30, 2017: Develop a campaign strategy to reach more Port Police and Fire members. BY DECEMBER 31, 2017: Develop a plan for outreach to new Airport Police members. BY JUNE 30, 2018: Implement the outreach strategies and meet the 5% target goal RESOURCES No additional funds are anticipated. 16

56 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.4 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: PROPOSED BUDGET AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board approve the Proposed Budget (Attachment) and instruct staff to submit it to the City Administrative Officer (CAO) and the Mayor s Office for inclusion in the Mayor s Proposed Budget. DISCUSSION Los Angeles Fire and Police Pensions (LAFPP) is tasked with administering the defined benefit retirement plan for all sworn employees of the City of Los Angeles in an efficient manner. Consequently, we have sustained a disciplined approach to stay within our current year budget and we are confident that the Proposed Budget will help us continue providing excellent customer service to our members, maintain our fiduciary responsibilities, and implement best practices. The LAFPP Proposed Budget includes the estimated City s (employer) annual required contributions to prefund LAFPP retirement and healthcare benefits, and also member (employee) contributions, investment earnings, pension benefit payments, investment management fees, and the estimated departmental administrative expenses. A final Budget will be submitted for Board approval on June 15, 2017 to include the City s Adopted Budget contribution receipts from the City and estimated member contributions. To help develop the Budget, staff utilized the following key items: 1. The Three-Year Strategic Plan a plan that effectively guides our Department and includes our Vision, Mission, Strategic Goals and Values; 2. The Annual Business Plan a plan that includes specific projects in support of our Strategic Plan; 3. Performance Metrics a tool that helps us measure our services and provides a basis for prioritizing business improvements; and 4. Mayor s Priority Outcomes - goals aimed to drive greater efficiency and effectiveness in the operations and services provided by the City. In addition, staff were instructed that all new budget requests should relate to the following LAFPP budget priorities:

57 Continue Funding Existing Business Plan Projects Fund new Business Plan Projects that meet our Strategic Goals Pursue Innovative Technology Solutions Risk Assessment Customer Service Employee Development and Training Performance Metrics Succession Planning This year s Proposed LAFPP Budget totals approximately $1.3 billion, a $66.0 million increase from levels. This increase is mostly due to $60.8 million in anticipated increases in health and pension retirement payments. Investment expenses are projected to increase slightly by approximately $3.4 million because of projected growth in asset size in The proposed LAFPP Administrative Expense Budget totals approximately $23.7 million, a net increase of about $396,000 from The increase is due to additional administrative expenses associated with: The increased workload from the transfer of Police Airport Officers from the Los Angeles City Employees Retirement System (LACERS) to LAFPP. (Note: LAFPP will be reimbursed by Los Angeles World Airports for all costs associated with this Airport Police transfer); The creation and management of medical, dental, and vision plans for members transitioning from LACERS health plans, and new enrollees from Port Police, Airport Police, and any other member transferring from a health plan offered through an association; and, The next phase of the Pension Administration System Replacement Project. Provided below are additional details of the anticipated receipts and expenditures. RECEIPTS LAFPP receives revenue primarily from three sources; the City s (employer) contribution, member (employee) contributions, and investment earnings. Collectively for , these sources are estimated at $1.2 billion. 1) City s Contribution (Schedules 1 & 2) The City s total contribution is based on the application of the actuarial calculated rates for each Tier to the budgeted sworn payroll amounts. Each year, the LAFPP Board of Fire and Police Pension Commissioners (Board) adopts a contribution rate that is applied to the sworn payroll to fund the retirement and retiree health care benefits promised by the City to its sworn LAFPP members. On December 1, 2016, the Board adopted the pension and health valuation reports for the period ending June 30, 2016 that established the City s combined contribution rate of 44.26% for sworn members of the Los Angeles Fire Department and the Los Angeles Police Department, and 32.91% for the Harbor Port Police. These figures mark decreases of (-0.28%) and (-0.67%) from respectively, due to lower than expected Cost of Living Adjustment (COLA) in , lower than expected salary increases for active sworn members, as well as slightly higher than expected return on the valuation value of assets. Board Report Page 2 March 16, 2017

58 Because the sworn payroll amounts have not yet been finalized, LAFPP uses the sworn payroll amounts with the Board-adopted contribution rates to determine the City s estimated contribution for purposes of the Proposed Budget. Based on these amounts, the total City contribution to LAFPP, which is comprised of the City s General Fund, Special Fund (Harbor Department), and the City s Excess Benefit Plan payment, is estimated to be $616.9 million, a decrease of $3.9 million (-0.6%) from the Budget (Schedule 2). The City s actual contribution amount will be adjusted after the Adopted Budget for sworn payroll accounts is approved by the City Council and the Harbor Commission. The revised amount will be included in the Final Budget to be presented to the Board on June 15, ) Member Contributions (Schedules 1 & 3) Using sworn payroll amounts, total member contributions are estimated at $143.9 million, an increase of $1.7 million (1.2%) from the Budget (Schedule 3). The proposed member contribution amount will also be adjusted after the City s Budget is adopted. Member contributions are calculated based on the member s obligation or contribution rate for each Tier. These rates range from 7% to 9% for members in Tiers 2 through 5 while members in Tier 6 contribute 11% of salary. In addition, members of Tiers 2 through 5, who elected to unfreeze their future retiree medical subsidy, make additional 2% opt-in contributions. 3) Investment Earnings (Schedule 1) The third major source of revenue for the System is derived from investment earnings, which consists of Earnings on Investments and Gain (Loss) on Sale of Investments. Earnings on Investments - includes interest and dividends, real estate income, securities lending income and miscellaneous income. Earnings on Investments for are estimated at $392.6 million, an increase of $67.6 million (20.8%) from The increase is due to a projected higher earnings trend based on actual earnings received for the past two years. Gain (Loss) on Sale of Investments - includes capital gains/losses as investments are sold. These estimated receipts are not included in the Proposed Budget because it is difficult to determine in advance which investments will be sold within the year. Additionally, the gains and losses will fluctuate significantly from year to year depending upon market conditions. As such, gains/losses on sale of investments are recorded in our financial statements and future budget cycles after the amount is audited Budget - Receipts City (Employer) Contribution 34.1% 53.4% Member Contributions Investment Earnings* 12.5% *Investment Earnings do not include Gain (Loss) on Sale of Investments Board Report Page 3 March 16, 2017

59 Five-Year Receipts History In Millions $2,500 $2,000 $1,500 $1,000 $500 $ Actual Actual Actual * Budget * Budget Investment Earnings* Member Contributions City (Employer) Contribution *Investment Earnings do not include Gain (Loss) on Sale of Investments EXPENDITURES 1) Pension Benefits Expenses (Schedule 1) pension benefits expenses represent 90.5% of total estimated expenditures and are projected at $1.1 billion, a net increase of $60.8 million (5.7%) from the Budget. Expenses include service pensions, DROP distributions, disability and survivorship pensions, refunds of contributions, and health/dental subsidies and Medicare reimbursements. The benefit expense increases and decreases are grouped by Pension Expenses and Health Benefit Expenses: Pension Benefit Expenses ($990.5 million) $48.5 million net increase (5.1%) based on the following: o Service Pensions ($630.0 million) - $40.0 million increase (6.8%) based on a three-year average of rate changes in actual expenditures; o DROP Distributions ($115.0 million) - $10.0 million increase (9.5%) based on projected payments for 200 mandatory exits expected in ; o Disability Pensions ($115.0 million) - $5.0 million decrease (-4.2%) based on an average trend of Disability Pension claims received. Claim requests went from 40 in 2014, 46 in 2015, to only 33 in The decrease in pension claim requests was also checked against current year disability pension expenses; o Surviving Spouse Pensions ($124.0 million) - $3.0 million increase (2.5%) based on a threeyear average of rate changes in actual expenditures; and o Minor/Dependent Pensions ($3.0 million) - $500,000 increase (20.0%) based on a three-year average of rate changes in actual expenditures. Board Report Page 4 March 16, 2017

60 Health Benefit Expenses ($142.2 million) - $12.3 million increase (9.5%) based on the following: o Health Insurance Subsidy ($123.0 million) $10.0 million increase (8.8%) based on additional retirees receiving a health insurance subsidy and the maximum available rate increase of 7% effective July 2017 for non-medicare members (This item will be considered at a subsequent Board meeting and staff will adjust the amount for the Adopted Budget in June, per Board action) and a 7% projected rate of increase effective December 2017 for Medicare members. Pursuant to Los Angeles Administrative Code Section (c), the Medicare subsidy is linked to the highest Medicare plan premium for LACERS members; o Dental Insurance Subsidy ($4.5 million) $400,000 increase (9.8%) based on an increase in the number of retirees receiving a dental insurance subsidy and a 5% increase in the dental insurance subsidy. This subsidy is linked to the LACERS dental subsidy; o Medicare Reimbursement ($12.5 million) $1.0 million increase (8.7%) based on an increase in the number of retirees receiving a Medicare reimbursement and an anticipated 5% increase to the Medicare reimbursement rate effective January 2018; and o Health Insurance Premium Reimbursement (HIPR) ($2.2 million) $900,000 increase (69.2%) based on an expansion of the HIPR Program and contingency planning by LAFPP for those pensioners transferring from LACERS health plans who could enroll in HIPR, upon loss of their LACERS plan coverage. 2) Investment Management Expense (Schedule 4) Investment management expenses for the Proposed Budget represent 7.6% of total estimated expenditures and are projected at $94.5 million, an increase of about $3.4 million (3.7%) from the Budget and are derived as follows (amounts have been rounded): Type/Asset Class Investment Expense Budget Percentage of Total Investment Expense Budget Consultants & Bank $796, % Services Public Equity $24.52 million 26.0% Fixed Income $8.81 million 9.3% Private Equity $33.96 million 35.9% Commodities $3.57 million 3.8% Real Estate $22.86 million 24.2% TOTAL $94.52 million 100% Actual payments to investment managers depend on the dollar amount of assets under management, the portfolio performance, the period in which the fee is calculated, and the terms and conditions of the individual contracts as approved by the Board. These investment management expenses are reasonable and in line with the growth in the portfolio. The changes by asset class are primarily attributed to the following (amounts have been rounded): Public Equity $395,000 net increase to overall Public Equities as a result of a $491,000 decrease in public equity fees due to the reallocation of assets to lower cost managers and an increase of $886,000 in emerging market public equity fees due to an increase in asset values; Fixed Income $559,000 increase mainly due to increases in asset values; Board Report Page 5 March 16, 2017

61 Private Equity $2.8 million increase due to an increase in private equity commitments because of asset allocation changes approved by the Board; Commodities - $1.1 million increase due to increased commitments to commodities; and Real Estate $1.5 million decrease mostly due to the sale of a property and increased commitments to core commingled funds. 3) Administrative Expense (Schedules 5 & 6) The proposed LAFPP Administrative Expense Budget totals approximately $23.7 million, a net increase of about $396,000 (1.7%) from Administrative expenses include staff salaries and benefits, operating costs, and funding for contingencies. The proposed budget aims to maintain critical programs that are prioritized as mandatory and essential to the Department s business operations. Details of the significant proposed changes are listed below (amounts have been rounded). Salaries, General $220,000 net increase to add four new positions for the following services: o (1) Management Analyst for the Investments Division due to, increased compliance regulations, reporting and growth of the Fund; and o (1) Benefits Specialist, (1) Senior Administrative Clerk, and (1) Management Analyst for the Medical & Dental Benefits Section to assist with an increased workload resulting from the creation and management of medical, dental, and vision plans for members transitioning from LACERS medical and dental plans, and new enrollees from Port Police, Airport Police and any other member transferring from a plan offered through an association; Salaries, As-Needed $26,000 decrease due to the completion of current year projects, such as the DocuShare document migration being completed in ; Overtime - $12,285 increase due to Airport Police outreach and testing of the new pension administration system; Employee Benefits $109,000 net increase to more accurately reflect estimated expenditures as a result of additional staff added and an increase in employee salaries; Printing and Binding $21,000 increase due to the estimated printing and mailing of Open Enrollment packages to all plan members for new LAFPP administered medical, dental, and vision plans; Contractual Expense increase of $447,000 based on the following: o $96,000 net decrease in City Attorney-related expenses including a $45,700 decrease in costs associated with the City Attorney s Office and a net decrease of $50,000 for outside legal counsel expenses to accurately reflect estimated expenditures; o $100,000 increase in Actuarial Services as a result of additional work required due to the transfer of Airport Police from LACERS to LAFPP. (Note: Los Angeles World Airports will reimburse LAFPP for actuarial costs associated with this increase); o $40,000 increase due to the investigative services needed for the new Business Plan Project, Age 95+ Alive and Well Audit, for the Retirement Services Section; and o $547,000 increase due to contractual obligations associated with the Pension Administration System Replacement Project; and o $144,000 net decrease in various contractual services as a result of the elimination of onetime expenses and other costs savings identified by staff. Election Expenses $25,000 decrease due to no scheduled elections planned for Active or Retired Board Members in ; Board Report Page 6 March 16, 2017

62 Office and Administrative Expense $67,000 decrease due to the elimination of one-time expenditures related to the purchase of new laptops and other replacements of department-wide PC, printers and hardware being completed in ; Furniture, Office and Technical Equipment $40,000 decrease due to the elimination of one-time funding for the Intrusion Prevention System and the Backup Network upgrade in ; and Unappropriated Balance (UB) $253,000 decrease to $0. LAFPP is not recommending any funding for contingencies in Budget - Expenditures Administrative Expense Investment Management Expense 1.9% 7.6% 11.4% Medical and Dental Subsidy Refund of Contributions 50.4% 0.3% 10.2% Surviving Spouse and Minors/Dependents Pensions Disability Pensions Service Pensions - DROP payout 9.2% Service Pensions 9.2% Five-Year Expenditure History In Millions $1,400 $1,200 $1,000 $800 $600 $400 Administrative Expense Investment Management Expense Medical and Dental Subsidy Refund of Contributions Surviving Spouse and Minor/Dependent Pensions Disability Pensions $ Actual Actual Actual Budget Proposed Budget Service Pensions - DROP payout Service Pensions Board Report Page 7 March 16, 2017

63 Personnel Resolution & Personnel Changes (Schedules 7 & 8) The Personnel Resolution provides employment authorization for all Department employees, whereas the Detail of Personnel Changes illustrates the proposed changes to the Civil Service classifications for Along with the four new positions being requested, the Personnel Resolution includes consolidation of several classifications and pay grades into one classification per the new Memorandum of Understandings with the unions. These pay grade consolidations include Management Analyst, Systems Analyst and Accountant as noted in in the Detail of Personnel Changes. This report was prepared by: Mark Granado, Senior Management Analyst I Administrative Services Section RPC:WSR:SHC:DP:MG Attachment: Proposed Budget Schedules Board Report Page 8 March 16, 2017

64 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Attachment TABLE OF CONTENTS Schedule Page BUDGET SCHEDULE 1 2 DETAIL OF CITY AND HARBOR CONTRIBUTION REQUIREMENTS SCHEDULE 2 3 DETAIL OF ESTIMATED PAYROLLS AND MEMBER CONTRIBUTIONS SCHEDULE 3 5 DETAIL OF INVESTMENT MANAGEMENT EXPENSE SCHEDULE 4 6 ADMINISTRATIVE EXPENSE SCHEDULE 5 8 DETAIL OF ADMINISTRATIVE EXPENSE SCHEDULE 6 9 PERSONNEL RESOLUTION SCHEDULE 7 12 DETAIL OF PERSONNEL CHANGES SCHEDULE 8 14 ORGANIZATION CHART SCHEDULE 9 16 TRAVEL RESOLUTION SCHEDULE Proposed Budget - March 16, 2017

65 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Attachment Schedule 1 Receipts Adopted Budget Estimated Receipts RECEIPTS Budget Change from Budget % Change from Budget ,463, ,234, ,234,998 Total General Fund 1 612,408,133 (3,826,865) (-0.6%) (563,500) (1,303,600) (1,303,600) less: Excess Benefit Plan (EBP) 1 (1,250,000) 53,600 (-4.1%) 623,900, ,931, ,931,398 General Fund to LAFPP 611,158,133 (3,773,265) (-0.6%) 4,237,083 4,547,876 4,547,876 Special Fund (Harbor) 4,456,881 (90,995) (-2.0%) 628,137, ,479, ,479,274 City Contribution (to LAFPP) 615,615,014 (3,864,260) (-0.6%) 129,733, ,160, ,506,908 Member Contributions 143,880,677 1,720, % 484,868, ,000, ,232,461 Earnings on Investments 392,616,090 67,616, % 439,703, Gain (Loss) on Sale of Investments ,356,964 2,000,000 3,043,935 Miscellaneous 2,500, , % 1,685,800,025 1,088,639,833 1,111,262,578 Total Receipts 1,154,611,781 65,971, % Expenditures Adopted Budget Estimated Expenditures EXPENDITURES Budget Change from Budget % Change from Budget ,741, ,000, ,194,042 Service Pensions 630,000,000 40,000, % 181,495, ,000, ,376,001 Service Pensions - DROP payout 115,000,000 10,000, % 112,097, ,000, ,679,236 Disability Pensions 115,000,000 (5,000,000) (-4.2%) 117,553, ,000, ,599,813 Surviving Spouse Pensions 124,000,000 3,000, % 2,407,917 2,500,000 2,467,740 Minor/Dependent Pensions 3,000, , % 3,067,069 3,500,000 2,668,628 Refund of Contributions 3,500, % 990,363, ,000, ,985,460 Subtotal Pension Benefits 990,500,000 48,500, % 102,171, ,000, ,922,258 Health Insurance Subsidy 123,000,000 10,000, % 3,861,676 4,100,000 4,071,046 Dental Insurance Subsidy 4,500, , % 9,614,045 11,500,000 10,119,553 Medicare Reimbursement 12,500,000 1,000, % 1,030,778 1,300,000 1,271,883 Health Insurance Premium Reimb 2,200, , % 116,678, ,900, ,384,740 Subtotal Health Benefits 142,200,000 12,300, % 1,107,041,623 1,071,900,000 1,082,370,200 Total Benefits Expenses (90.5%) 1,132,700,000 60,800, % 77,289,035 91,152,419 87,179,078 Investment Management Expense (7.6%) 94,518,234 3,365, % 20,897,310 23,270,652 22,552,053 Administrative Expense (1.9%) 23,667, , % 1,205,227,968 1,186,323,071 1,192,101,330 Total Expenditures (100.0%) 1,250,885,234 64,562, % 480,572,057 (97,683,238) (80,838,752) Increase (Decrease) in Fund Balance (96,273,453) 1,409,786 (-1.4%) 1,685,800,025 1,088,639,833 1,111,262,578 Total Expenditures and Increase (Decrease) in Fund Balance 1,154,611,781 65,971, % 1 On May 6, 2010, the Board authorized a credit to be applied towards the City's Annual Required Contribution equal to the amount budgeted for the Excess Benefit Plan (EBP), as calculated by the actuary. As such, beginning in , the total General Fund Contribution in a given fiscal year is the sum of the General Fund and EBP line items. However, since EBP revenue is not transferred to LAFPP, it is excluded from the Department's total revenue. 2 Gain (Loss) on Sale of Investments is recorded in LAFPP financial statements after the amount is audited and therefore an amount is not included in the budget Proposed Budget - March 16, 2017

66 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of City and Harbor Contribution Requirements (Assuming Contributions Made on July 15, 2017) % of Payroll Projected Payroll = Contribution 1 Required Attachment Schedule 2 TIER 1 requirements: 1. Unfunded supplemental present value annual amount N/A N/A 14,845, Health subsidy unfunded actuarial accrued liability annual amount N/A N/A 1,701,267 Subtotal 16,547,107 TIER 2 requirements: 1. Entry age cost 24.35% 1,383, , Unfunded supplemental present value annual amount* 0.41% 1,383,703,751 5,673, Pension Admin Expenses 0.91% 1,383,704 12, Health subsidy entry age cost 3.48% 1,383,704 48, Health subsidy unfunded actuarial accrued liability annual amount* 4.16% 1,383,703,751 57,562, Health Admin Expenses 0.06% 1,383, Subtotal 63,633,768 * Unfunded Actuarial Accrued Liability (UAAL) expressed as a percent of payroll for all active members. TIER 3 requirements: 1. Entry age cost 16.57% 89,940,744 14,903, Unfunded supplemental present value annual amount* 2.82% 1,383,703,751 39,020, Pension Admin Expenses 0.91% 89,940, , Health subsidy entry age cost 4.65% 89,940,744 4,182, Health subsidy unfunded actuarial accrued liability annual amount* 0.37% 1,383,703,751 5,119, Health Admin Expenses 0.06% 89,940,744 53,964 Subtotal 64,098,001 * Unfunded Actuarial Accrued Liability (UAAL) expressed as a percent of payroll for all active members. TIER 4 requirements: 1. Entry age cost 17.24% 34,592,594 5,963, Unfunded supplemental present value annual amount* 1.31% 1,383,703,751 18,126, Pension Admin Expenses 0.91% 34,592, , Health subsidy entry age cost 4.43% 34,592,594 1,532, Health subsidy unfunded actuarial accrued liability annual amount* 0.22% 1,383,703,751 3,044, Health Admin Expenses 0.06% 34,592,594 20,756 Subtotal 29,002,431 * Unfunded Actuarial Accrued Liability (UAAL) expressed as a percent of payroll for all active members. TIER 5 requirements: 1. Entry age cost 18.99% 1,126,334, ,890, Unfunded supplemental present value annual amount 7.60% 1,126,334,853 85,601, Pension Admin Expenses 0.91% 1,126,334,853 10,249, Health subsidy entry age cost 4.41% 1,126,334,853 49,671, Health subsidy unfunded actuarial accrued liability annual amount 3.02% 1,126,334,853 34,015, Health Admin Expenses 0.06% 1,126,334, ,801 Subtotal 394,104, Proposed Budget - March 16, 2017

67 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of City and Harbor Contribution Requirements (Assuming Contributions Made on July 15, 2017) % of Payroll Projected Payroll = Contribution 1 Required Attachment Schedule 2 TIER 6 requirements: 1. Entry age cost 15.64% 131,451,856 20,559, Unfunded supplemental present value annual amount 7.60% 131,451,856 9,990, Pension Admin Expenses 0.91% 131,451,856 1,196, Health subsidy entry age cost 7.02% 131,451,856 9,227, Health subsidy unfunded actuarial accrued liability annual amount 3.02% 131,451,856 3,969, Health Admin Expenses 0.06% 131,451,856 78,871 Subtotal 45,022,260 NET CITY (GENERAL FUND) ACTUARIAL CONTRIBUTION REQUIREMENT 612,408,133 Early Payment Savings (relative to payment at the end of each pay period) 20,738,858 TIER 5 Harbor requirements: 1. Entry age cost 19.58% 11,952,973 2,340, Unfunded supplemental present value annual amount 5.76% 11,952, , Pension Admin Expenses 0.91% 11,952, , Health subsidy entry age cost 5.94% 11,952, , Health subsidy unfunded actuarial accrued liability annual amount 1.21% 11,952, , Health Admin Expenses 0.06% 11,952,973 7,172 Subtotal 3,999,465 TIER 6 Harbor requirements: 1. Entry age cost 15.14% 1,588, , Unfunded supplemental present value annual amount 5.76% 1,588,250 91, Pension Admin Expenses 0.91% 1,588,250 14, Health subsidy entry age cost 5.72% 1,588,250 90, Health subsidy unfunded actuarial accrued liability annual amount 1.21% 1,588,250 19, Health Admin Expenses 0.06% 1,588, Subtotal 457,416 NET HARBOR (SPECIAL FUND) ACTUARIAL CONTRIBUTION REQUIREMENT 4,456,881 Early Payment Savings (relative to payment at the end of each pay period) 150,474 GENERAL FUND TO LAFPP 611,158,133 EXCESS BENEFIT PLAN 1,250,000 TOTAL GENERAL FUND CONTRIBUTION TOTAL SPECIAL FUND (HARBOR) CONTRIBUTION TO LAFPP 612,408,133 4,456,881 TOTAL CITY CONTRIBUTION 616,865,014 1 Figures may be rounded Proposed Budget - March 16, 2017

68 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Estimated Payrolls and Member Contributions Attachment Schedule 3 SWORN PAYROLL Tier 2 Tier 3 Tier 4 Tier 5 Tier 6 TOTAL 4 PENSIONABLE PAY Fire 363,554 23,630,988 9,088, ,932,686 34,537, ,553,668 Police 1,020,150 66,309,755 25,503, ,402,168 96,914,258 1,020,150,083 Harbor ,952,973 1,588,250 13,541,223 TOTAL 1,383,704 89,940,744 34,592,594 1,138,287, ,040,106 1,397,244,974 TOTAL General Fund 1,383,704 89,940,744 34,592,594 1,126,334, ,451,856 1,383,703,751 TOTAL Special Fund ,952,973 1,588,250 13,541,223 BASE PAY (2% OPT-IN) 1 Fire 120,765 1,382,413 3,795, ,472, ,771,628 Police 658,960 59,577,439 19,701, ,914, ,852,355 Harbor ,260,763-9,260,763 TOTAL 779,725 60,959,852 23,497, ,647, ,884,746 TOTAL General Fund 779,725 60,959,852 23,497, ,387, ,623,983 TOTAL Special Fund ,260,763-9,260,763 MEMBER CONTRIBUTIONS PENSIONABLE PAY Seven Percent 2 Eight Percent Eight Percent Nine Percent 3 Eleven Percent TOTAL Fire - 1,890, ,107 26,633,942 3,799,136 33,050,664 Police - 5,304,780 2,040,300 74,736,195 10,660,568 92,741,843 Harbor ,075, ,708 1,250,476 TOTAL - 7,195,259 2,767, ,445,905 14,634, ,042,983 BASE PAY (2% OPT-IN) Two Percent Two Percent Two Percent Two Percent n/a TOTAL Fire 2,415 27,648 75,918 4,249,451-4,355,432 Police 13,179 1,191, ,026 10,698,293-12,297,047 Harbor , ,215 TOTAL 15,594 1,219, ,944 15,132,959-16,837,694 TOTAL 15,594 8,414,456 3,237, ,578,864 14,634, ,880,677 TOTAL General Fund 15,594 8,414,456 3,237, ,317,881 14,459, ,444,986 TOTAL Special Fund ,260, ,708 1,435,691 1 This figure reflects estimated base pay amounts for those members who elected to unfreeze their future retiree medical subsidy by making additional 2% opt-in contributions. The 2% is calculated based on base pay, not pensionable pay. 2 Pursuant to Charter Section 1420, pension benefit-related deductions shall not be made from the salaries of Tier 2 System members who have completed 30 years of service. Accordingly, as of December 8, 2010, all Tier 2 members have completed at least 30 years of service and therefore no longer make pension contributions. 3 For Tier 5 only, City pays 1% of the 9% if the Plan is at least 100% actuarially funded for pension benefits. 4 Figures may be rounded Proposed Budget - March 16, 2017

69 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Investment Management Expense Adopted Budget Estimated Expenditures Budget Change from Budget 3 CONSULTANTS & BANK SERVICES Custodian Bank Services (STIF) 275, , ,589 17,251 General Consultant - RV Kuhns 503, , ,750 - CONSULTANTS & BANK SERVICES TOTAL 779, , ,339 17,251 ADVISORY PUBLIC EQUITY - LARGE CAP AllianceBernstein (Systemic Value) , ,704 Alliance Capital (S&P 500 Index) 174, , ,757 (32,151) Alliance Capital (Russell 1000 Growth Index) 213, , ,320 18,725 Alliance Capital (Russell 1000 Value Index) 27,654 26,985 - (27,654) Chicago Equity (Enhanced Index-Core) 530, ,711 - (530,939) LA Capital (Enhanced Index-Growth) 600, , , ,464 OakBrook Investments (Large Cap-Core) 148, , ,824 17,855 PIMCO (Enhanced Index-Value) 954, ,017 - (954,762) Redwood Investments (Large Cap-Core) 122, , ,472 13,441 Robeco (Value) 798, , ,069 (309,317) S&P 500 (Equal Weighted Index) , ,759 STOXX USA (900 Minimum Variance) , ,543 Subtotal 3,571,738 2,761,695 2,909,407 (662,331) PUBLIC EQUITY - SMALL CAP Channing Capital Mgmt. (Small Cap) 421, , , ,325 Daruma (Value) 2,357,838 2,250,495 1,897,147 (460,691) Frontier Capital Mgmt. (Growth) 3,472, , ,629 (2,748,306) Future Active Small Cap Manager - - 3,081,051 3,081,051 Granite Investment Partners (Micro Cap) 308, ,971 - (308,407) Phocas Financial (Small Cap) 459, , , ,440 Subtotal 7,020,117 4,378,917 6,817,529 (202,588) PUBLIC EQUITY - INTERNATIONAL Baille Gifford (Growth) 2,267,805 2,162,696 2,383, ,248 Blackrock (Core Passive) 283, , ,096 (3,156) Boston Common (ESG - Sustainability) 171, , ,462 (2,120) Brandes (Value) 3,735,275 3,412,263 3,914, ,891 FIS International (Mgr of Emerging Mgrs) 666, , ,588 14,503 Fisher (Core) 1,955,960 1,807,707 2,026,170 70,210 Northern Trust (Small Cap Index) 261, , , Subtotal 9,341,502 8,643,612 9,715, ,152 PUBLIC EQUITY - EMERGING MARKETS Dimensional Fund Advisors 1,689,060 2,060,701 2,263, ,108 Harding Loevner 2,500,645 2,949,554 2,812, ,369 Subtotal 4,189,705 5,010,255 5,075, ,477 PUBLIC EQUITY TOTAL 24,123,061 20,794,479 24,517, ,711 FIXED INCOME - INVESTMENT GRADE Bridgewater (Pure Alpha) 1,488,293 1,376,608 1,617, ,839 Bridgewater (TIPS) 1,438,994 1,359,391 1,516,146 77,152 CA Community Mortgage Fund - 13,357 13,357 13,357 GIA Partners (Opportunistic) 83,085 78,889 87,114 4,029 LM Capital (Opportunistic) 360, , ,138 (27,689) Loomis Sayles (Long Duration) 599, , , ,759 Northern Trust (Fixed Income Index) 207, , ,402 (2,874) Payden & Rygel (Unconstrained) 686, , ,038 5,778 Attachment Schedule Proposed Budget - March 16, 2017

70 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Investment Management Expense Adopted Budget Estimated Expenditures Budget Change from Budget 3 FIXED INCOME - INVESTMENT GRADE (Continued) Reams Asset Mgmt. (Opportunistic) 755, , ,353 12,879 Reams Asset Mgmt. (Passive TIPS) 111,485 96, ,456 (7,029) Reams Asset Mgmt. (Unconstrained) 386, , ,424 14,914 Semper Capital Mgmt. 83,392 80,507 89,887 6,495 Subtotal 6,201,368 5,793,277 6,564, ,611 FIXED INCOME - HIGH YIELD MacKay Shields 2,053,188 1,960,301 2,248, ,033 Subtotal 2,053,188 1,960,301 2,248, ,033 FIXED INCOME TOTAL 8,254,556 7,753,578 8,813, ,644 Attachment Schedule 4 PRIVATE EQUITY Fairview Capital Partners (Specialized Mandate) - 160, , ,000 Portfolio Advisors 1,225,000 1,057,533 1,300,000 75,000 Portfolio Advisors (Specialized Mandate) 45,000 45,000 45,000 - Private Equity Partnership Fees 1 29,871,455 29,871,455 32,375,519 2,504,064 PRIVATE EQUITY TOTAL 31,141,455 31,133,988 33,960,519 2,819,064 COMMODITIES Alliance (Public Equity) 255, , ,825 58,553 Gresham Invest. Mgmt. (Active) 529, , ,267 54,831 Goldman Sachs (Enhanced Index) 124, , ,407 10,995 Kleinwort Benson (Public Equity) 481, , ,661 29,320 Mellon Capital (Public Equity) 190, , ,421 73,982 Private Equity Partnership Fees 1 894,812 1,753,091 1,759, ,794 COMMODITIES TOTAL 2,475,712 3,418,172 3,568,187 1,092,475 REAL ESTATE Alliance Capital (Global REIT) 64,367 78,511 65, Total Pooled Funds 2 17,698,790 16,326,140 16,326,140 (1,372,650) Principal (Global REIT) 851, , ,293 (17,436) Principal (U.S. REIT) 1,642,506 1,539,932 1,681,270 38,764 Heitman (Asset Mgmt. Fees) 1,191,321 1,421,108 1,056,647 (134,674) Sentinel (Asset Mgmt. Fees) 1,342,634 1,826,511 1,498, ,457 Sentinel - Neptune (Headquarters) 530, , ,205 (158,795) Separate Accounts (Heitman/Sentinel) 757, , ,300 (27,700) Townsend (Consultant) 300, , ,200 - Subtotal 24,378,547 23,411,272 22,862,217 (1,516,330) REAL ESTATE TOTAL 24,378,547 23,411,272 22,862,217 (1,516,330) ADVISORY TOTAL 90,373,331 86,511,489 93,721,895 3,348,564 TOTAL INVESTMENT MANAGEMENT EXPENSE 91,152,419 87,179,078 94,518,234 3,365,815 ¹ Partnership fees do not include performance fees. Generally performance fees take 20% of the profit. In some cases, they can go as high as 30%. 2 Pooled Fund fees do not include performance fees. Generally performance fees take 20% of the profit. In some cases, they can go as high as 30%. 3 Figures may be rounded Proposed Budget - March 16, 2017

71 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Administrative Expense Attachment Schedule 5 Actual Adopted Estimated % Change Acct Exp Budget Exp Budget from Budget No Account Titles ,533,199 11,800,000 11,701,000 Salaries - General 12,020, % , , ,000 Salaries - As-Needed 81,000 (-24.3%) ,602 69,715 48,000 Overtime 82, % 10,738,175 11,976,715 11,856,000 Sub-total Salaries 12,183, % ,787 36,654 36,654 Printing and Binding 58, % , , ,000 Travel Expense 157,000 (-1.5%) ,954,795 4,932,150 4,600,000 Contractual Expense 5,379, % ,250 6,000 6,000 Transportation 6, % , , ,000 Medical Services 330, % ,061,794 1,300,000 1,259,000 Health Insurance 1,355, % ,814 55,000 54,000 Dental Insurance 60, % ,000 40,000 40,000 Other Employee Benefits 40, % ,040,354 3,175,000 3,172,189 Retirement Contribution 1 3,220, % , , ,000 Medicare Contribution 177, % ,802 25,000 25,000 Election Expense - 0.0% , , ,000 Office and Administrative Expense 662,000 (-9.2%) ,349 20,000 15,000 Tuition Reimbursement 20, % ,506 60, ,210 Total Furniture, Office, & Tech Equip. 2 20, % 10,010,629 10,980,937 10,440,843 Sub-total Expense 11,484, % , ,000 Unappropriated Balance - (-100.0%) 20,897,310 23,270,652 22,552,053 TOTAL ADMINISTRATIVE EXPENSE 23,667, % 1 Beginning , LAFPP has made payments to LACERS for LAFPP employee retirement contributions pursuant to the released audit of the City Contribution to LACERS and LAFPP (Account ). 2 The following adjustments were made to the following accounts as authorized by the Board after the Adopted Budget was approved: a) On January 9, 2017, funds totaling $40,000 were transferred to Furniture, Office & Tech. to purchase a department vehicle. The transfer was processed based on the January 5, 2017 Board authority to move funds from Unappropriated Balance (Account ) to Furniture, Office & Tech. Equip. (Account ) for this purchase. b) On September 15, 2016, funds totaling $5,210 were transferred from Contractual Services (Account ) to Furniture, Office & Tech. Equip. (Account ) for Headquarters-related costs. The transfer was processed based on the July 16, 2015 Board authority to move funds between line items as needed for the Headquarters Project Proposed Budget - March 16, 2017

72 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Administrative Expense Adopted Acct Budget Budget Change from No. Account Titles Salaries - General 11,800,000 12,020, , Salaries - As-Needed 107,000 81,000 (26,000) Overtime 69,715 82,000 12,285 Total Salaries 11,976,715 12,183, , Printing and Binding 36,654 58,000 21, Travel Expense 159, ,000 (2,443) Contractual Expense City Attorney City Attorney Expense Paid to LACERS 35,700 30,000 (5,700) City Attorney Staff 740, ,000 (40,000) Legal Services: Fiduciary Counsel 150, ,000 (50,000) Legal Services: Legal Representation 100,000 50,000 (50,000) Legal Services: Real Estate and Investment Counsel 235, ,000 65,000 Legal Services: Securities Litigation Counsel 50,000 35,000 (15,000) Legal Services: Tax Counsel 100, ,000 - Subtotal 1,410,700 1,315,000 (95,700) Communications and Education Financial Planning Education - Venue 15,000 15,000 - Financial Planning Education Consultant 70,000 53,500 (16,500) Graphic Design Services 26,000 18,000 (8,000) Pre-Retirement Seminar Caterer 35,000 40,000 5,000 Survey Consulting Services 14,000 - (14,000) Web Site Support Services 30,000 30,000 - Subtotal 190, ,500 (33,500) Department-wide Contracted LAFPP Training 5,000 5,000 - Headquarters Contingency 75,000 50,000 (25,000) Photocopiers 20,000 30,000 10,000 Records Retention 5,000 5,000 - Secure Shredding Services 4,500 4,500 - Vehicle Maintenance 5,000 5,000 - Workers Compensation 60,000 54,000 (6,000) Subtotal 174, ,500 (21,000) Disability Pension Hearing Reporter 20,000 20,000 - Investigative Services 100, ,000 - Subtotal 120, ,000 0 Executive Actuarial Services 325, , ,000 Annual Retreat Services 8,000 10,000 2,000 Fiduciary Liability Insurance 50,000 40,000 (10,000) Governance Consultant 20,000 20,000 - Subtotal 403, ,000 92,000 Attachment Schedule Proposed Budget - March 16, 2017

73 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Administrative Expense Adopted Acct Budget Budget Change from No. Account Titles Internal Audit ALGA Peer Review 8,950 - (8,950) Financial Audit 90,000 82,000 (8,000) Subtotal 98,950 82,000 (16,950) Investments Proxy Service 40,000 40,000 - Subtotal 40,000 40,000 0 Medical and Dental Benefits Health Consultant 90,000 75,000 (15,000) Subtotal 90,000 75,000 (15,000) Retirement Services Investigative Services - Age 95+ Alive and Well Audit - 40,000 40,000 Subtotal 0 40,000 40,000 Systems Disaster Recovery - Verizon Terremark 73,000 43,000 (30,000) EMC/AT&T 24,000 24,000 - IT Network Security Penetration Test 20,000 - (20,000) IT Systems Security 30,000 30,000 - Offsite Media Storage 12,000 12,000 - OnPoint Enhancements 25,000 25,000 - OnPoint License & Maintenance 175, ,000 - Pension Administration System Consultant (LRWL) 390, ,000 - Pension Administration System (Xerox State & Local Solutions) 1,356,000 1,903, ,000 Retiree Benefit Payment Services 300, ,000 - Subtotal 2,405,000 2,902, ,000 Total Contractual Expense 4,932,150 5,379, , Transportation 6,000 6, Medical Services (Disability Cases) 330, , Health Insurance 1,300,000 1,355,000 55, Dental Insurance 55,000 60,000 5, Other Employee Benefits 40,000 40, Retirement Contribution 1 3,175,000 3,220,000 45, Medicare Contribution 173, ,000 4, Election Expense 25,000 - (25,000) Office and Administrative Expense Office & Administrative Expense 306, , Office Supplies 76,747 77, Telephone, Internet, and Tablet Devices 142, ,000 (17,300) Training Expense 79,450 77,000 (2,450) Dues & Subscriptions 29,844 30, Computer & Peripheral 94,000 46,000 (48,000) Total Office & Administrative Expense 728, ,000 (66,690) Tuition Reimbursement 20,000 20,000 - Attachment Schedule Proposed Budget - March 16, 2017

74 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Administrative Expense Adopted Acct Budget Budget Change from No. Account Titles Total Furniture, Office, & Technical Equip > $5, ,000 20,000 (40,000) Total Expense 10,980,937 11,484, , Unappropriated Balance (UB) Financial Planning Counseling Program 123,000 - (123,000) Internal Audit Consultant 90,000 - (90,000) Vehicle 40,000 - (40,000) Total Unappropriated Balance 253,000 - (253,000) Attachment Schedule 6 TOTAL ADMINISTRATIVE EXPENSE 23,270,652 23,667, ,348 1 Beginning , LAFPP has made payments to LACERS for LAFPP employee retirement contributions pursuant to the released audit of the City Contribution to LACERS and LAFPP (Account ). 2 The following adjustments were made to the following accounts as authorized by the Board after the Adopted Budget was approved: a) On January 9, 2017, funds totaling $40,000 were transferred to Furniture, Office & Tech. Equip. to purchase a department vehicle. The transfer was processed based on the January 5, 2017 Board authority to move funds from Unappropriated Balance (Account ) to Furniture, Office & Tech. (Account ) for this purchase. b) On September 15, 2016, funds totaling $5,210 were transferred from Contractual Services (Account ) to Furniture, Office & Tech. Equip. (Account ) for Headquarters-related costs. The transfer was processed based on the July 16, 2015 Board authority to move funds between line items as needed for the Headquarters Project Proposed Budget - March 16, 2017

75 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Personnel Resolution Attachment Schedule 7 A resolution authorizing the employment of personnel in the Department of Fire and Police Pensions of the City of Los Angeles BE IT RESOLVED, that: Section 1. Effective July 1, 2017, the number and classification of positions listed below are authorized within the Los Angeles Fire and Police Pension System: FIRE AND POLICE PENSIONS (a) Regular Positions: Change Code Title Salary Range Secretary ( 50,425-73,686 ) Executive Administrative Assistant II ( 60,656-88,698 ) Executive Administrative Assistant III ( 65,020-95,067 ) Payroll Supervisor I ( 62,202-90,912 ) Principal Clerk ( 54,121-79,156 ) Benefits Specialist ( 54,121-79,156 ) Administrative Clerk ( 37,584-54,935 ) Senior Administrative Clerk ( 46,374-67,818 ) Programmer Analyst III ( 75, ,852 ) Systems Programmer I ( 102, ,507 ) Systems Programmer II ( 91, ,924 ) Systems Programmer III ( 99, ,116 ) Accountant ( 53,808-78,697 ) Accountant II ( 53,808-78,697 ) Senior Accountant II ( 67,672-98,950 ) Principal Accountant I ( 77, ,817 ) Principal Accountant II ( 82, ,039 ) Management Assistant ( 48,797-71,326 ) Fiscal Systems Specialist I ( 85, ,698 ) Departmental Chief Accountant III ( 113, ,664 ) Systems Analyst ( 68, ,308 ) Systems Analyst II ( 68, ,308 ) Senior Systems Analyst I ( 81, ,661 ) Senior Systems Analyst II ( 100, ,766 ) Departmental Audit Manager ( 123, ,944 ) Internal Auditor IV ( 100, ,745 ) Investment Officer I ( 93, ,472 ) Investment Officer II ( 116, ,026 ) Investment Officer III ( 146, ,853 ) Chief Investment Officer ( 179, ,814 ) Chief Benefits Analyst ( 123, ,944 ) Senior Personnel Analyst I ( 84, ,401 ) Senior Management Analyst I ( 81, ,473 ) Senior Management Analyst II ( 100, ,745 ) Chief Management Analyst ( 123, ,944 ) Management Analyst ( 68, ,308 ) Management Analyst I ( 54,810-80,137 ) Management Analyst II ( 68, ,308 ) General Manager ( 164, ,299 ) Assistant General Manager ( 138, ,265 ) Director of Systems ( 123, ,944 ) Commission Executive Assistant II ( 68, ,308 ) Proposed Budget - March 16, 2017

76 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Personnel Resolution Attachment Schedule 7 (b) Resolution Authority Positions: Change Code Title Salary Range Management Assistant ( 48,797-71,326 ) Management Analyst ( 68, ,308 ) Management Analyst II ( 68, ,308 ) (c) To be Employed As Needed in Such Numbers as Required: (d) Commissioner Positions: 0820 Administrative Trainee 1133 Relief Retirement Worker 1501 Student Worker 1502 Student Professional Worker Administrative Intern I Administrative Intern II Commissioner 9 Section 2. One Assistant General Manager (Class Code 9269), when designated by the General Manager to assume the additional administrative and supervisory duties of Executive Officer, shall be compensated at the fourth premium level rate above the appropriate step rate or premium level rate of the incumbent. Upon approval of the General Manager, one additional Assistant General Manager (Class Code 9269) may receive salary up to the fourth premium level rate above the appropriate step rate of the prescribed salary range. Section 3. Whenever the General Manager is authorized pursuant to Charter Section 1164(b) to employ a person who is retired from City service, the employee may be employed at any step within the salary range prescribed for the class that is determined by the General Manager to be commensurate with, and based upon, the extent, responsibility, and importance of the work to be assigned and the experience, skill and ability of the employee. Section 4. Upon approval of the General Manager, substitute and resolution authority positions may be activated and filled using any class of position specified in Schedule "A" of Los Angeles Administrative Code Section 4.61 or approved Memorandum of Understanding. This approval shall specify the period during which the position shall be filled. The General Manager shall maintain a record of the substitute and resolution authority positions approved for filling. Section 5. The General Manager may employ persons and assign duties appropriate to the employee s classification and pay grade in any class of position specified in Schedule "A" of Los Angeles Administrative Code Section 4.61 in lieu of vacant positions in a related occupational series which vacant positions have a salary or salary range equal to or higher than the salary or salary range for the class of position in which the persons are to be employed; provided, however, that at no time shall the total number of persons employed in the department exceed the total number of positions authorized. Section 6. The personnel authority contained in this resolution shall be limited by the amount of money available on the records of the Departmental Chief Accountant for the payment of salaries and wages in the appropriate departmental account Proposed Budget - March 16, 2017

77 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Personnel Changes Attachment Schedule 8 CHANGE No. REASON FOR CHANGE ADD/DELETE POSITION Administrative Operations Division Management Analyst 1 Management Assistant -1 Alignment of duties and requirements of position with proper classification with progressively challenging assignments and increasing responsibilities. Accounting Accountant 7 Accountant II -7 Active Member Services Senior Management Analyst I 1 Senior Management Analyst II -1 Management Analyst 2 Management Analyst II -2 Administrative Services Management Analyst 3 Management Analyst II -3 Communication & Education Management Analyst 2 Management Analyst II -2 Disability Management Analyst 4 Management Analyst II -4 DROP/SP Senior Administrative Clerk 1 Administrative Clerk -1 Senior Administrative Clerk 1 Management Analyst I -1 Management Analyst 2 Management Analyst I -1 Management Analyst II -1 Elimination of paygrade per Memorandum of Understanding 01. The requested Senior Management Analyst downgrade is due to decreased workload since the position no longer oversees the Communications & Education Section. Elimination of paygrade per Memorandum of Understanding 01. Elimination of paygrade per Memorandum of Understanding 01. Elimination of paygrade per Memorandum of Understanding 01. Elimination of paygrade per Memorandum of Understanding 01. The requested change in position to Senior Administrative Clerk is to accommodate the change of workload and realignment of duties to those more suited to work at the level of Senior Administrative Clerk. The requested change in position to Senior Administrative Clerk is to accommodate the change of workload and realignment of duties to those more suited to work at the level of Senior Administrative Clerk. Elimination of paygrade per Memorandum of Understanding 01. Investments Management Analyst (NEW) 1 The requested Management Analyst position will assist with increased compliance regulations and reporting. Management Analyst 1 Management Analyst II -1 Elimination of paygrade per Memorandum of Understanding Proposed Budget - March 16, 2017

78 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Detail of Personnel Changes Attachment Schedule 8 CHANGE No. REASON FOR CHANGE ADD/DELETE POSITION Medical Dental Benefits Benefits Specialist (NEW) 1 Management Analyst (NEW) 1 Senior Administrative Clerk (NEW) 1 Senior Management Analyst II 1 Senior Management Analyst I -1 Management Analyst 2 Management Analyst II -2 Retirement Services Management Analyst 2 Management Analyst II -2 The requested Benefits Specialist, Management Analyst, and Senior Administrative Clerk positions will assist with increased workload resulting from the creation and management of medical and dental plans for all members, including those transitioning from LACERS medical and dental plans. The requested Senior Management Analyst upgrade is due to increased workload resulting from increased staffing and the management of new medical and dental plans. Elimination of paygrade per Memorandum of Understanding 01. Elimination of paygrade per Memorandum of Understanding 01. Systems Systems Programmer I 1 Programmer Analyst III Systems Analyst 6 Systems Analyst II -6-1 The requested change of classification is due to the need for specialized technical skillsets for safeguarding the Department's critical information assets and to manage the rapid changes in cybersecurity. Elimination of paygrade per Memorandum of Understanding 01. NET NUMBER OF POSITIONS Proposed Budget - March 16, 2017

79 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Organization Chart Members Attachment Schedule 9 LAFPP TOTAL POSITIONS Authorized 126 Filled 110 *Sub-Authorities Filled 4 4 *Resolution -Authorities 2 **As Needed 5 Filled 2 Filled 1 City Attorney 1 Assistant City Attorney Alan M. Manning 2 Deputy City Attorney IV John C. Blair James H. Napier 2 Deputy City Attorney III Anya J. Freedman Joshua M. Geller 1 Legal Secretary II Julie Cruz Board of Fire and Police Pension Commissioners Pedram Salimpour, MD President Ruben Navarro Vice President George V. Aliano Sam Diannitto Adam Nathanson Brian Pendleton Corinne T. Babcock Belinda M. Vega Robert von Voigt General Manager - #041 Raymond P. Ciranna Internal Audit 1 Departmental Audit Manager Erin Kenney 1 Internal Auditor IV James Yeung 1 Senior Management Analyst II Caroline Dinu #075 #119 #104 1 Executive Administrative Assistant III Martha Martinez 1 Secretary Joni Chavez #009 #086 Adminstrative Operations Division Executive Officer - William S. Raggio Investments Division Pensions Division Chief Investment Officer - Thomas Lopez Assistant General Manager - Joseph Salazar #077 #083 #042 Effective July 1, 2017 (as of March 16, 2017) Proposed Budget March 16, 2017

80 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget ADMINISTRATIVE OPERATIONS DIVISION Organization Chart Executive Officer #077 William S. Raggio Attachment Schedule 9 1 Director of Systems Bob Yan (Info Systems Manager II in-lieu) 1 Sr. Administrative Clerk Rita Harper ConSEPP 1 Senior Systems Analyst II Alfredo Domagat 1 Senior Systems Analyst I Teresa Guerrero 1 Fiscal Systems Specialist I Pat Kho 1 Systems Analyst Sharon Chan Server and Help Desk 1 Senior Systems Analyst II David Liu 1 Systems Programmer II Tarralyn Rose 1 Senior Systems Analyst I Kien Trieu 4 Systems Analyst Amorfina Stubblefield Robin Woo Sylvia Whelan Jack Huang 1 Systems Analyst * Elaine Good Ramirez Network and Security 1 Systems Programmer III Jimmy LIndsey 1 Systems Analyst Apollo Victoria Systems #064 1 Senior Systems Analyst I #102 Vacant 1 Systems Programmer I Vacant #109 #073 #074 #079 #092 #114 #094 #044 #046 #095 #103 #110 SA49 # #116 #049 1 Commission Executive Assistant II Rhonda Ketay 1 Administrative Clerk Laura Navarro 1 Principal Accountant II Cecilia De Los Angeles 1 Payroll Supervisor I Annett Anderson 3 Accountant Felicitas De La Cruz Maria Nina De Leon-Tabangin John Strand 1 1 Executive Administrative Assistant II Evange Masud (Secretary in-lieu) 1 Management Analyst Jennifer Shimatsu 1 Department Chief Accountant IV* Yolanda Huang 1 Department Chief Accountant III Vacant Held for Sub-Authority Relief Retirement Worker** Niela Chavez General Accounting/Pension Roll 1 Principal Accountant I Vacant 1 Senior Accountant II Narciso Magno Jr. 4 Accountant Lingying Hwang Ally Tang James Kawashima Jazmin Erenas #069 #011 #128 1 Senior Personnel Analyst I #118 Lindi Willhite 1 Management Analyst #051 Jennifer Barnych (Mgmt. Asst. in-lieu) 1 Sr. Administrative Clerk Accounting 13 Latesha Hamm SA52 Payroll/Investment Accounting #037 #091 #036 #018 #034 #062 #033 RRW6 #093 #035 #014 #032 #100 #117 1 Senior Management Analyst II Diana Pointer 1 Senior Management Analyst I Vacant 2 Management Analyst Wendy Kamayatsu 1 Principal Clerk Erick Kurimoto Administrative Unit Administrative Support Unit 1 Sr. Administrative Clerk James Pineda 1 Administrative Clerk Vacant 1 Sr. Administrative Clerk #016 Chris Dimaano 2 Administrative Clerk 2 1 Chief Management Analyst Stephanie Clements Human Resources Administrative Services Carissa Takahashi (Mgmt. Asst. in-lieu) #057 #106 #061 #105 #085 #056 #012 #088 #015 Relief Retirement Worker** Vacant RRW1 Vacant RRW Vacant #017 Vacant #101 Effective July 1, 2017 (as of March 16, 2017) Proposed Budget March 16, 2017

81 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Organization Chart Attachment Schedule 9 Support 1 Secretary Marie Prieto 1 Sr. Administrative Clerk Catherine Taylor-Gomez #008 #019 INVESTMENTS DIVISION Chief Investment Officer Thomas Lopez #083 Asset Class Management 1 Investment Officer III Richard Rogers #039 Public Equity & Real Estate Private Equity & Performance Mgmt. Commodities, Cash & Fixed Income 1 Investment Officer II Paul Palmer 2 Investment Officer I Annie Chao Daren Perlstein #108 #120 #084 1 Investment Officer II Susan Liem 1 Investment Officer I Vacant (Hold for Sub-Authority) #040 #038 1 Sr. Management Analyst I SA58 Miki Shaler 1 Investment Officer II Derek Niu 2 Management Analyst Adam Perez (Mgmt. Asst. in-lieu) Vacant New FY #107 #052 #TBD Effective July 1, 2017 (as of March 16, 2017) Proposed Budget March 16, 2017

82 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Organization Chart 1 Chief Benefits Analyst - #043 Robyn WIlder 1 Senior Management Analyst I May Simmons 2 Management Analyst Jackie Pallas 1 Benefits Specialist Diane Barragan Active Member Services 1 Sr. Administrative Clerk Elizabeth Lopez Service Purchase 3 Benefits Specialist Carin Batista Sandy Davis Rhodora Silverman Refund of Contributions 1 Benefits Specialist Travis King Communications & Education 1 Senior Management Analyst I Carol Tavares 2 Management Analyst Barbara Nobregas Conroy Gibson 2 Benefits Specialist Bernice Ortiz #127 Stephen Bayutas #130 1 Sr. Administrative Clerk #111 Samantha Villasenor (Admin. Clerk in-lieu) DROP/Service Pensions 11 #053 1 Senior Management Analyst II Diana Anderson 2 Management Analyst Kimberly McCullough Lorraine Chan (Mgmt. Asst. in-lieu) 1 Sr. Administrative Clerk #097 Vacant Counseling and Application Processing 3 Benefits Specialist (Entries) Lourdes (Lis) Burog #126 Jesse Hernandez #098 Roel Villanueva #071 3 Benefits Specialist (Exits) Kimberly Boyd Leneva Cobb Angela Espino #096 #078 #112 Vacant #124 1 Sr. Administrative Clerk Vacant 9 #082 #029 #063 #031 #025 6 #050 #054 #125 #099 #022 #023 #121 #113 #089 PENSIONS DIVISION Assistant General Manager - #042 Joseph Salazar 1 Chief Benefits Analyst - #131 Gregory Mack Disability Pension 9 1 Senior Management Analyst II Tina Zipper #060 Kyle Susswain SA64 2 Senior Management Analyst I Loanne Truong #065 Vacant #058 4 Management Analyst Devon Zatorski (Mgmt. Asst. in-lieu) #047 Lady Smith #048 Usha Papa #055 Timothy Morita (Mgmt. Asst. in-lieu) #129 1 Benefits Specialist Carleen Guzman 1 Sr. Administrative Clerk Anthony Samaniego (Admin. Clerk in-lieu) Retirement Services 1 Senior Management Analyst II Myo Thedar Pensioner Benefits Administration 1 Management Analyst Naomi Sukimoto 3 Benefits Specialist Deborah Campos Laura Gonzalez Ellis Lea Villero #028 #027 #080 #045 #021 #026 #122 #066 1 Sr. Administrative Clerk Pam Dacoff Pensioner Information & Support Services 1 Management Analyst #013 Ahna (Vivian) Chang (Mgmt. Asst. in-lieu) 4 Sr. Administrative Clerk Paul Guevara (Admin. Clerk in-lieu) #020 Sue Wells #024 Ramiro Lopez #072 Vacant # Executive Administrative Assistant II Lee Tsubaki PAS Coordination 1 Senior Management Analyst II #070 Anthony Torres 1 Management Analyst * RA1 Erika Robinson 1 Management Assistant* Jennifer Chan RA2 Medical and Dental Benefits 1 Senior Management Analyst II Mark Granado (Sr. MA I in lieu) 3 Management Analyst Joe McGlinchey #081 Laura Morales #090 Vacant New FY #TBD 3 Benefits Specialist Jorge Saenz #030 Edwina Valencia #087 2 Sr. Administrative Clerk Luis Pelayo 2 Attachment Schedule 9 #010 9 #059 Vacant New FY #TBD #076 Vacant New FY #TBD Relief Retirement Worker** Vacant #TBD Vacant #TBD 1 Effective July 1, 2017 (as of March 16, 2017) Proposed Budget March 16, 2017

83 DEPARTMENT OF FIRE AND POLICE PENSIONS Proposed Budget Travel Resolution Attachment Schedule 10 BE IT RESOLVED, that the Board of Fire and Police Pension Commissioners and staff are authorized to travel and incur required expenses to the functions and for the reasons listed below, adopted effective July 1, Travel under the following categories (A, B and C) is automatically approved to a maximum of four Commissioners (Board Operating Policies and Procedures, Section 2.6). A. Business Trips 1. To meetings with investment advisors, a master custodian bank and various consultants under contract in connection with the management of fund assets. 2. To the offices of investment advisors and consultants who are under consideration to be hired. 3. To the site of proposed real estate property investments. B. Conferences, business meetings and educational programs held or sponsored by the following organizations as necessary to conduct the business of LAFPP: Association for Information and Image Management (AIIM) Association of Asian American Investment Managers (AAAIM) Association of Local Government Auditors (ALGA) Association of Public Pension Fund Auditors (APPFA) Association of Records Managers and Administrators (ARMA) California Association of Public Retirement Systems (CALAPRS) California Public Employees' Retirement System (CalPERS) California State Teachers' Retirement System (CalSTRS) Callan Investment Institute Chartered Financial Analyst Institute (CFA Institute) Client conferences of current contractors EMC Corporation Government Finance Officers Association (GFOA) Institute for Fiduciary Education Institute of Internal Auditors (IIA) Institutional Investor Institute Institutional Limited Partners Association (ILPA) International Foundation of Employee Benefit Plans (IFEBP) MIS Training Institute (MISTI) National Association of Investment Companies (NAIC) National Association of Public Pension Attorneys (NAPPA) National Association of Securities Professionals (NASP) National Conference on Public Employee Retirement Systems (NCPERS) National Employment Law Institute (NELI) New America Alliance (NAA) Opal Financial Group Conferences Pension Real Estate Association (PREA) Public Safety Employees Pension and Benefits Conference Stanford Law School - Fiduciary College State Association of County Retirement Systems (SACRS) Sworn active employee or retired member associations Xerox State and Local Solutions, Inc. (Pension Administration System) Wharton School (Partnership w/ IFEBP) C. Pension industry organization meetings of officers and directors, when a Commissioner or staff member is an officer in that organization and expenses are not reimbursable by the organization. D. Other educational or continuing education training and seminars (not listed in B above), approved by the General Manager up to $4,500 per staff member per trip. AUTHORIZATIONS FOR TRAVEL Travel expenses incurred by any Commissioner or General Manager shall require the approval of the Board President Proposed Budget - March 16, 2017

84 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.5 FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER RECOMMENDATION OF CONTRACT AWARD FOR FINANCIAL PLANNING EDUCATION SEMINAR PROGRAM CATERING SERVICES AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board: 1) Approve the selection of Something Special, to provide financial planning education seminar program catering services for a total amount not to exceed $120,000; and 2) Authorize the General Manager to negotiate and execute the terms and conditions of the threeyear contract; and 3) Authorize the President of the Board, on behalf of the Board, to execute the contract subject to the approval of the City Attorney as to form. BACKGROUND Catering for the LAFPP Financial Planning Education Seminars is necessary, as the primary event facility is located in a semi-secluded location and attendees would not be able to return from lunch within a reasonable time. Since there are no restaurants in the immediate area, a continental breakfast and lunch are served to members and their spouses/domestic partners during the sixhour educational session. Something Special currently holds a one-year contract to provide catering services which will expire on July 31, The number of seminars planned for the current year as well as next fiscal year have been increased due to a number of factors, including a growing interest in the education seminars, new locations being utilized throughout the City, and new seminar formats designed to reach the mid-career and retiree audience. To accommodate these changes, staff requested that the term for a new contract be increased from a one-year term to a three-year term, with additional funding. DISCUSSION On December 15, 2016, the Board authorized staff to issue a Request for Proposal (RFP) for catering services for a three-year term. The RFP was posted to the Department s website and the City s Business Assistance Virtual Network (BAVN) website. Additional bids were solicited via from other prospective caterers. Accordingly, responding firms were required to submit a response that included a listing of past clients, potential menus and food items, and corresponding fees. A

85 total of four proposals were received by the February 1, 2017 deadline. All four firms were deemed responsive, having met the minimum proposal requirements. Staff is recommending to award the proposed new three-year contract to Something Special, for a total amount not to exceed $120,000. Something Special is competitively priced and offers more goods and services for the cost: No service charge imposed Food is prepared both on and offsite Food servers remain onsite to replenish the breakfast menus, coffee, water, etc. Sufficient side dishes to accommodate alternative diets. Consideration was given to Something Special s versatility to offer both hot lunch entrées and boxed lunches at a comparable cost, which was not offered by the other bidders. Their extensive menu and the services offered are favorable when accommodating up to 100 attendees for a six-hour session. Something Special has consistently received very good reviews from our members and complies with the policies imposed by the seminar facility. The attached valuation provides a summary of the proposals received. The price of a boxed lunch was used to calculate the average total cost per seminar attendee as it was the item that was similarly listed by all proposers. BUDGET Sufficient funding is included in the FY budget and additional funding to account for the increased number of seminars will be included in future budgets. POLICY No policy changes are recommended. This report was prepared by: Carol Tavares, Manager Communications and Education Section RPC:JS:CT:CG Attachment: Summary of Financial Planning Education Seminar Caterer Proposals Board Report Page 2 March 16, 2017

86 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.6 FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER CHIEF INVESTMENT OFFICER S QUARTERLY REPORT OF ASSET ALLOCATION STATUS AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board approve the actual asset allocation of the Fund and Staff s plans for bringing asset classes currently outside of their target allocation ranges back within their allocation ranges. BACKGROUND The Rebalancing Policy (Board Policies Sec 1.7) specifies that the Board will review and affirmatively approve any allocations of Fund assets outside of their target ranges. It states: Staff will monitor the portfolio s asset allocation relative to the target allocations. If the actual allocations fall within the defined ranges, no rebalancing will be required. If actual allocations fall outside the predetermined range, Staff will implement a rebalancing back to within the range of the target allocation. Staff will report all rebalancing activities to the Board on a quarterly basis at a minimum. In circumstances where it is impractical to rebalance the portfolio for any market or portfolio-specific reason, Staff shall assess the rebalancing options, notify the Board of the out of balance situation, and report its recommendations to the Board. Staff shall seek approval from the Board to implement rebalancing according to Staff s recommended rebalancing plan in situations that involve leaving the portfolio, or some portion of the portfolio out of balance for an extended period of time. On June 16, 2016, the Board approved the current asset allocation: Target Upper Lower Asset Class Allocation Range Range Dom. Large Cap Equity 23.0% 25.8% 20.2% Dom. Small Cap Equity 6.0% 7.3% 4.7% Int'l Equity 16.0% 18.4% 13.6% Int'l Emerging Markets 5.0% 6.4% 3.6% Core Bond 12.0% 12.7% 11.3%

87 (cont d from previous page) Target Upper Lower Asset Class Allocation Range Range TIPS 5.0% 5.3% 4.7% High Yield Bond 3.0% 3.4% 2.6% Unconstrained Fixed Income 2.0% 2.2% 1.8% Real Estate 7.0% 8.0% 6.0% REITS 3.0% 3.5% 2.5% Commodities-Energy 5.0% 6.2% 3.8% Private Equity 12.0% 15.0% 9.0% Cash Equivalent 1.0% 4.0% 1.0% Together with the General Consultant RVK and Staff, rebalancing range limits were established. DISCUSSION Portfolio Status As of February 28, 2017, all asset classes were within their target ranges except Domestic Equity and Private Equity (Attachment I). During the last three months, the global equity markets including both US and international markets continued to improve resulting from encouraging economic trends and positive earnings. In addition, the growth sentiment in the US grew stronger due to the expectations of fiscal spending, tax policy and pro-business regulations from the new administration. The strong return experienced by Domestic Large Cap Equity continued to drive its allocation above its upper limit. Due to the denomination effect, Private Equity dipped slightly below its lower target range. Attachment II illustrates the portfolio and allocation status of each asset class as of February 28, Rebalancing With the approval by the Board on November 3, 2016 to restructure the Domestic Large Cap Equity asset class, Staff began rebalancing this asset class by 1) moving approximately $428 million in securities and cash out of the Alliance S&P 500 and Alliance Russell 1000 Value accounts into a new Alliance Smart Beta account (implemented in January 2017); 2) transferring in cash and securities approximately $1.2 billion from three active domestic equity managers (two of the three managers were terminated) and $235 million from the Alliance S&P 500 account to one active domestic manager account, two new Smart Beta accounts and approximately $196 million to the cash account (implemented in February 2017). Board Report Page 2 March 16, 2017

88 CASH FLOW The actual and estimated cash flows (in millions) for 1Q2017 and 2Q2017 are summarized as below. Jan 1 - Mar 31, 2017 Apr 1 - Jun 30, 2017 Actual/Projected Projected City Contributions (Net) 1 $ - $ - Member Contributions $ 31.5 $ 32.4 Securities Lending $ 2.1 $ 2.3 Investment Income $ 82.6 $ 86.9 Earnings on Cash/Misc. $ 0.8 $ 1.3 Real Estate $ 24.6 $ 15.0 Private Equity $ 24.6 $ 12.0 DROP $ (37.1) $ (16.6) Benefits & Administrative Expense $ (259.2) $ (277.7) Net Cash Flow (est.) $ (130.1) $ (144.4) 1 The Net City Contribution = (the Total General Fund Contribution the retirement contribution payment from LAFPP to LACERS for LAFPP staff) + the Special Fund (Harbor) contribution. CURRENT EVENTS Asset Allocation/Asset Structural Review On December 1, 2016, the Board approved a search to add an additional active US REIT manager. On December 15, 2016, the Board also approved the restructure of the Small Cap asset class in which one or more additional small cap managers will be hired in Similarly, on March 2, 2017, the Board authorized Staff to conduct a search for Real Estate separate account managers. In addition to the Domestic Large Cap Equity, Small Cap Equity, US REIT, and Real Estate structural changes, a series of other asset allocation structure studies which include International Equity (including Emerging Markets) and Fixed Income will be conducted by RVK in April This report was prepared by: Tom Lopez Chief Investment Officer RPC:TL:DN:AP Attachments: I. Portfolio Allocation Chart as of February 28, 2017 II. Total Portfolio as of February 28, 2017 Board Report Page 3 March 16, 2017

89 Attachment I Portfolio as of January 29, 2016 Total Fund Portfolio Allocation 35.00% 30.00% 25.92% 25.00% % 15.00% 10.00% 5.00% % % Core Equity (23%) Small Cap. Equity (6%) Int'l Equity (16%) Int'l Emerg. Mkts (5.0%) Core Bonds Iincluding TIPS) (17.0%) 15.52% % % % High Yield Bonds (3%) 1.89% Unconstrained Fixed Income (2.0%) Actual Allocation, Target Allocation in parenthesis Over-allocated (Blue), Under-allocated (Red) % % 8.76% Cash (1.0%) Total RE (Including REITS) Private Equity (12.0%) (10.0%) *Board approved ranges on 6/16/ % Commodities Energy (5.0%)

90 Attachment II A Portfolio as of February 28, 2017 EQUITIES STOCKS BONDS CASH TOTAL ALLOC. PRIVATE EQUITY STOCKS / EQUITY / RE BONDS CASH TOTAL ALLOC. Alliance Capital (S&P 500 Index) 1, ,728.2 Abbott Capital Alliance Capital (Russell 1000 Value Index) Hamilton Lane AllianceBernstein Systematic Value PCA Alliance Capital (Russell 1000 Growth Index) 1, ,082.3 Fairview Capital Chicago Equity (Enh. Index-Core) Portfolio Advisors 1, ,293.4 LA Capital (Enh. Index-Growth) Aldus Equity NTI S&P 500 Equal Weight Stepstone Group NTI Stoxx USA TOTAL PRIVATE EQUITY MGRS (12%) 1, , % PIMCO (Enh. Index-Value) Target Differential (3.24)% (648.9) Robeco (Value) OakBrook Investments (Large Cap-Core) REAL ESTATE Redwood Investments (Large Cap-Core) Alliance Capital Global REIT Terminated Domestic Equity Managers Principal Global REIT Core Equity Managers (23%) 5, , % Principal U.S. REIT Target Differential 2.92% Terminated REIT Managers REIT Managers (3.0%) % Frontier Capital Mgt (Growth) Target Differential 0.13% 26.3 Daruma (Value) REAL ESTATE COMMINGLED FUNDS SUMMARY Channing Capital Mgt. (Small Cap.) Total Pooled Funds % Phocas Financial (Small Cap.) REAL ESTATE SEPARATE ACCT. SUMMARY BY MANAGER Granite Investment Partners (Micro Cap) Heitman Attucks (Mgr of Emerging Mgrs) / New Accts Sentinel Small Cap. Equity Mgrs (6%) 1, , % Real Estate Equity Mgrs % Target Differential 0.91% TOTAL REAL ESTATE (10%) 1, , % Target Differential (0.16)% (32.3) Brandes (Value) COMMODITIES Fisher (Core) Alliance (Commodities, Public Equity) Blackrock (Core Passive) Gresham Invest. Mgmt. (Commodities, Active) Baille Gifford (Growth) Goldman Sachs (Commodities, Enhanced Index) Boston Common (ESG) Kleinwort Benson (Commodities, Public Equity) Northern Trust (Int'l Small Cap Index) Mellon Capital (Commodities, Public Equity) FIS (Mgr of Emerging Mgrs) International PA (Commodities, Private Equity) Terminated Int'l Equity Managers TOTAL COMMODITIES (5.0%) % Int'l Equity Mgrs (16%) 3, , % Target Differential (1.01)% (214.6) Target Differential (0.48)% (95.4) Harding Loevner CASH Dimensional Fund Advisors HOUSE ACCOUNTS Terminated Int'l Emerg. Mkts. Mgrs Tier 1 (Article 17) Int'l Emerg. Mkts Mgrs (5.0%) % Tier 2 (Article 18) Target Differential (0.89)% (179.3) Tier 3 (Article 35) TOTAL EQUITIES MGRS (50.0%) 10, , % Tier 4 (New) Int'l Tax Reclaims Tier 5 (New) FIXED INCOME Tier 6 (New) Northern Trust (Fixed Income Index) CASH SUMMARY Reams Asset Mgmt. (Opportunistic) Unallocated Cash Reserve (1%) % LM Capital (Opportunistic) Target Differential 2.98% GIA Partners (Opportunistic) Transition SemperCapital Mgt TOTAL FUND Loomis Sayles (Long Duration) PRIVATE REAL CA Comm. Mort. Fund COMMODITIES EQUITY STOCKS BONDS ESTATE CASH TOTAL Bridgewater (TIPS) ACTUAL ASSET MIX Reams Asset Mgmt. (Passive TIPS) Current Month , , , , , ,028.6 Bridgewater Pure Alpha % 8.76% 51.60% 20.69% 9.81% 5.20% % Core Bond Mgrs (17.0%) - 3, , % Last Month , , , , ,730.8 Target Differential (0.56)% (112.6) % Change -0.74% -0.13% 0.98% 0.44% 1.47% 17.98% 1.51% MacKay Shields High Yield Bond Mgrs (3.0%) % Target Differential (0.35)% (70.2) Reams Asset Mgmt. (Unconstrained) Payden & Rygel (Unconstrained) Unconstrained Fixed Income (2.0%) % Target Differential (0.11)% (22.0) TOTAL FIXED INCOME MGRS (22.0%) 1.7 4, , % Subtotals & totals may not sum up exactly due to rounding. Note: City Pension Contribution received on 7/15/16 Note: Data is unaudited Dollars expressed in Millions.

91 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: A.7 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: APPROVAL TO ISSUE A REQUEST FOR PROPOSALS FOR INDEPENDENT REVIEW OF HEALTH SUBSIDY AND BENEFITS COSTS AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board authorize the General Manager to issue a Request for Proposals (RFP) for an independent review and measurement of (1) LAFPP health insurance subsidy expenditures and benefits costs, and (2) the efficiency of Board-approved health insurance plan premium negotiations. DISCUSSION On March 2, 2017, the Board reviewed data that summarized LAFPP health insurance subsidy expenditures since FY The data revealed a considerable growth of health insurance subsidy expenditures over the last 10 years. The General Manager noted that other factors have contributed to the overall expenditure increases (i.e., increase in surviving spouses and the subsidy plan population), and not just the increases in the maximum health insurance subsidy over the past ten years. Subsequently, the Board adopted a motion to release a RFP for an independent review of the health subsidy program and costs and an evaluation of LAFPP health consultant, Keenan & Associates (Keenan), health plan bids and proposed plan designs. As instructed, Staff is reporting back to the Board on a proposed scope of work for the independent review, which may include, but is not limited to, the following: A. Proposed scope of work related to current health plans structure: Consult with LAFPP regarding the effectiveness of the System s Medical and Dental insurance program and highlight any proposed changes. Provide an evaluation of the current LAFPP health benefits program available to LAFPP retirees and surviving spouses. Conduct a cost benefit analysis of the current LAFPP health benefits program. Analyze the current plan design effectiveness and the cost to pensioners and LAFPP. Provide cost saving recommendations for the current health benefits program. Conduct a comparison of the current health benefits program to other retired public safety employee health benefits programs. Analyze the most recent plan renewals by current plan providers.

92 B. Proposed scope of work related to new health plans structure: Consult with LAFPP regarding new coverages in anticipation of the next year s insurance program, including but not limited to, the evaluation of alternative program proposals. Evaluate the LAFPP Health Plan Bids and Proposed Plan Design. Review and analysis of Keenan s recommended plan designs. Review and analysis of proposed health plan rates. Provide extensive review of RFP bids and make recommendations to the Board as to the most advantageous insurance program providing the highest level of coverage at the best possible price to meet the System s needs and objectives. Recommend cost saving changes to proposed plan designs. Analyze proposals received from various insurance carriers and verify the reasonableness of the price for the coverage provided. Conduct a cost benefit analysis of LAFPP administering the entire health benefits program. It should be noted that in 2006, the Board contracted with The Segal Company (Segal) to conduct audits of the Los Angeles Police Relief Association, Los Angeles Firemen s Relief Association, Los Angeles Police Protective League and the United Firefighters of Los Angeles City (Associations). The audits took over two and a half years to complete and the principal areas covered by the audits were review of eligibility records, financial operations of the plans, and benefits sufficiency and comparability to other providers of retiree benefits. The audits did not uncover any material deficiencies and the plans were all deemed to be competitive within the benchmark universe and well run with respect to effective plan designs and economies of administration. The audits determined that the cost to LAFPP of the benefits being offered to retirees is more than competitive than what other employers are charged for the same benefits and meet or exceed market benchmarks for monthly premiums. Subsequent audits of the Associations were conducted by the Internal Audit Section and were more limited in their scope as they related only to subsidy payments. Upon approval, the RFP will be published on the LAFPP Web site, on the City's Web site (Los Angeles Business Assistance Virtual Network - LABAVN), and forwarded directly to firms providing related consulting services. The evaluation of responses, cost information and a contract award recommendation will be presented to the Board at the earliest possible date. BUDGET There is sufficient funding in the FY Budget to cover the estimated costs for issuing the RFP. However, savings within the administrative budget would need to be identified to cover the cost of the independent review. Staff expects that there would be an increase in fees payable to Keenan due to their having to perform additional collaborative work with the newly hired consultant. It is anticipated that the cost of the independent review will range from $100,000 to $150,000. Board Report Page 2 March 16, 2017

93 POLICY No policy changes as recommended. This report was prepared by: Greg Mack, Chief Benefits Analyst Pensions Division RPC:JS:GM:MG:JM Attachment: Health Fund Audit by Segal dated April 23, 2009 Board Report Page 3 March 16, 2017

94 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: B.1 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: RETIREE HEALTH BENEFITS PROGRAM OVERVIEW THIS REPORT IS PROVIDED TO THE BOARD FOR INFORMATIONAL PURPOSES. DISCUSSION On March 2, 2017, the Board discussed the attached data chart that summarized all LAFPP health benefits program expenditures since FY , which include: Health insurance premium subsidies for retired members; Health insurance premium subsidies for qualified surviving spouses/domestic partners; Dental insurance premium subsidies for retired members; and Medicare Part B premium reimbursements for retired members and qualified survivors The Board then directed staff to prepare a report to seek authorization to issue an RFP for an independent review of the health subsidy program cost efficiency and an evaluation of upcoming LAFPP health plan bids and proposed plan designs. The Board s instruction to issue this RFP will be considered as a separate item on today s agenda. In light of the Board s discussion concerning health benefits program expenditures, Staff believes it would be beneficial to review the history of the program, including benefit modifications made by the City over the years. Staff will present an overview of the program during today s meeting to include the following: Evolution of the LAFPP health benefits program What portion of the retiree health benefit program does the LAFPP Board have control over? Breakdown of health benefit program expenditure chart BUDGET No impact as recommended.

95 POLICY No policy changes as recommended. This report was prepared by: Joe Salazar, Assistant General Manager Pensions Division RPC:JS Attachment: 10-Year History of Total Annual Benefits Paid Board Report Page 2 March 16, 2017

96 ATTACHMENT TOTAL ANNUAL BENEFITS PAID $1,000,000 $900,000 $800,000 $733,810 $754,312 $762,205 $768,114 $786,861 $831,191 $856,237 $856,036 $915,163 $987,269 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 $62,216 $70,879 $77,502 $82,911 $89,271 $93,536 $98,306 $104,371 $110,411 $116, PENSION HEALTH SUBSIDY LAFPP TO SERVE THOSE WHO PROTECT

97 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3 rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: B.3 FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER CONTRACTOR DISCLOSURE POLICY QUARTERLY REPORT THIS REPORT IS PROVIDED TO THE BOARD FOR INFORMATIONAL PURPOSES. The Board adopted the Contractor Disclosure Policy to provide transparency in LAFPP s contracting process and to help ensure that investment and procurement decisions are made solely on the merits of the goods or services proposed to be provided by Contractors to LAFPP. Section 1.18.G.2.f of the Policy reads as follows: LAFPP internal audit staff will compile a quarterly Board report containing the names and amount of compensation agreed to be provided to each Intermediary by each Contractor; the campaign contributions and gifts of each Contractor as reported in the Contractor Disclosures; the List of Contacts; and the List of Exclusions. In accordance with the above section, Staff is providing its quarterly report to the Board. Twohundred and thirty disclosure reports were received by the Internal Audit Section (IAS) for the period ending December 31, The following table is a breakdown of the reports received by IAS and the reports outstanding at the time this report was prepared. Description No. Outstanding No. Received Quarterly Disclosures (83 Required) Completed Quarterly Reports 83 Outstanding Quarterly Reports Annual Disclosures (138 Required) Completed Annual Reports 135 Outstanding Annual Reports 3 Additional Disclosures (12 Required) 12 Total Attachment 1 lists outstanding disclosure reports, exclusions, disclosed contributions, contacts, gifts, and intermediary information. Attachment 2 contains summaries of the gift information disclosed by private equity consultant, Portfolio Advisors. Fairview Capital s disclosure report is included in the above numbers. Information disclosed by Fairview will be provided in future quarterly reports.

98 Prior Quarterly Report Update There were no outstanding reports for the prior quarter. BUDGET No impact. This report was prepared by: Caroline Dinu Senior Management Analyst II Internal Audit Section RPC:EJK:CD Attachments: 1. Contractor Disclosure Summary 2. Private Equity Disclosure Information Board Report Page 2 March 16, 2017

99 DEPARTMENT OF FIRE AND POLICE PENSIONS CONTRACTS As of March 9, 2017 Attachment 1 Contract Vendor / Contract Name Contract Term Responsible Number Start Date Exp. Date Section Reason for non-disclosure PE Fund Black Diamond Opportunity Fund III Investments Unresponsive PE Fund Black Diamond Opportunity Fund IV Investments Unresponsive PE Fund Lone Star X Investments Unresponsive NEW EXCLUSIONS Contract Number Contract Number PE Fund RE Commingled Fund PE Fund PE Fund 649PEN PE Funds 599PEN 650PEN and 662PEN None None None Argland Partners Fund I Greycroft Growth II Vendor / Contract Name Vendor / Contract Name Incline Equity Partners IV (updated information) R.V. Kuhn & Associates, Inc. Vendor / Contract Name Lightyear Capital Funds III and IV Los Angeles Capital Management Portfolio Advisors Vendor / Contract Name Vendor / Contract Name CityView So. Calif. Fund II Vendor / Contract Name Exclusion Date Contract Term Start Date Exp. Date Contract Term Start Date Exp. Date Contact Date Various Dates Various Dates CAMPAIGN CONTRIBUTIONS DISCLOSED CONTACTS Exclusion Information Campaign Contribution Information Contribution Information Contact Information Argland reports its intermediary firm, MVision, contacted Tom Lopez, Chief Investment Officer, in 2015 and 2016, through one and three telephone calls. CityView reports the company President, Sean Burton, had contact with Mayor Eric Garcetti, Councilmember Joe Buscaino, and Councilmember Curren Price through text messages, calls, events, and occasions as summarized below. The reported nature of all contacts listed was personal or related to Los Angeles World Airports (LAWA) and CityView business was not discussed. Month(s) Calls Events Text Messages CityView reports Mr. Burton had 232 text messages with Mayor Garcetti, 5 text messages with Councilmember Buscaino, and 4 text messages with Councilmember Price. Greycroft reports two partners of the firm, Dana Settle and Mark Terbeek, serve on the LA Mayor's technology council in unpaid Various Dates positions. Incline Equity reports its intermediary firm, Sixpoint Partners, had contact with Tom Lopez, Chief Investment Officer, and Susan Liem, 9/3/2015 Investment Officer II. 5/4/2016 R.V. Kuhns reports Becky Gratsinger, CEO, had social contact with Commissioner Von Voigt and no LAFPP business was discussed. DISCLOSED GIFTS Gift Date 5/2/ /6/2016 Various Dates Intermediary CONTRACTOR DISCLOSURE POLICY OUTSTANDING DISCLOSURES OTHER CONTRIBUTIONS 7/13/2016-1/2/2017 See attached summary. INTERMEDIARY INFORMATION 0 Compensation Disclosure Date MVision Private Equity 0.25% to 1.25% of aggregate PE Fund Argland Partners Fund I Advisors USA LLC commitments. 12/29/2016 PE fund approved at meeting. PE Fund Incline Equity Partners IV (updated information) Sixpoint Partners 1.2% of capital commitments. 12/16/2016 PE fund approved at meeting. Subsequently Nossaman, LAFPP legal counsel, reports there is an intermediary, and the PE firm reports compensation. 0 Gift Information Lightyear Capital reports providing dinner at Marea, valued at approximately $300.79, to Ms. Amanda Peacock, Senior Associate with Portfolio Advisors. Portfolio Advisors confirmed Ms. Peacock received the gift and the firm made a donation. Los Angeles Capital Management reports gifts, valued at approximately $85.73 each, were provided to Susan Liem, Investment Officer, Miki Shaler, Cash Management Officer, and Adam Perez, Cash Management Officer, at the Los Angeles Investment Professionals Holiday Party/Charity Benefit. Mss. Liem and Shaler and Mr. Perez confirmed receipt of the gifts. Notes Page 1

100 Attachment 2 PRIVATE EQUITY DISCLOSURE INFORMATION Portfolio Advisors In response to the Contractor Disclosure Policy as modified in June 2015, LAFPP s private equity consultant, Portfolio Advisors, submitted its contractor disclosure for the quarter ending December 31, Portfolio Advisors employees attend annual and advisory board meetings of the underlying portfolio funds as part of its due diligence and in order to fulfill its responsibilities to its clients. IAS summarized disclosure information in consideration of due diligence protections in certain limited partnership agreements. The table below is a summary of gifts of meals, lodging, and transportation, as defined in LAFPP s Contractor Disclosure Policy and as reported by Portfolio Advisors for the fourth quarter of Number of Annual and/or Advisory Board Meetings Number of PA Staff Attending as Advisory Board Members Total Number of PA Staff in Attendance Number of Attendees w/ Travel and Lodging Provided by GP Number of Attendees w/ Lodging Only Provided by GP * 1 4 Note: It is understood that meals are provided by the General Partner (GP) of the private equity fund. * This number includes one PA Staff attending via teleconference. In addition, Portfolio Advisors has in place a Gifts and Entertainment Policy. IAS has reviewed the Portfolio Advisors Gifts and Entertainment Policy and notes that it is robust, comprehensive, and demonstrates commitment to ensuring employees actions are free from conflicts of interest, the appearance of conflicts of interest, and potential violations of law. Key provisions of the policy include restrictions on gifts and entertainment, quarterly reporting (in addition to those required by LAFPP), references to Portfolio Advisors Code of Ethics, and consideration of applicable laws and ERISA. Prior Quarter Information from Portfolio Advisors There is no information outstanding from the prior quarter; however, based on reconciliation of annual information received from private equity funds, IAS would like to revise information previously reported for the second quarter of 2016, as indicated on the following table. Information for the second quarter of 2016 is revised as follows: Number of Annual and/or Advisory Board Meetings Number of PA Staff Attending as Advisory Board Members Total Number of PA Staff in Attendance Number of Attendees w/ Travel and Lodging Provided by GP Number of Attendees w/ Lodging Only Provided by GP Note: It is understood that meals are provided by the General Partner (GP) of the private equity fund.

101 Los Angeles Fire & Police Pensions March 2017 Review of 2017 Private Equity & Commodities Investment Activity by Portfolio Advisors, LLC March 16, 2017

102 Los Angeles Fire & Police Pensions Contents Review of 2017 Private Equity Investment Activity Private Equity Commitment Pace Page 4 Private Equity Investment Strategy Page Approved/Closed Private Equity Commitments Pages 6-7 Specialized Manager Criteria and Investment Strategy Page 8 Specialized Manager Commitments Pages 9-10 Review of 2017 Commodities Investment Activity Commodities Criteria and Investment Strategy Page 12 Commodities Commitments Page 13 Page 2

103 Los Angeles Fire & Police Pensions Review of 2017 Private Equity Investment Activity Page 3

104 Los Angeles Fire & Police Pensions Private Equity Commitment Pace Portfolio Advisors recommended commitments averaging $263 million per annum from 2010 to During this time frame, the exposure target was 9% LAFPP approved an increase in the exposure target to 10% in late 2013 which led to an increase in the commitment pace during 2014 and 2015 In 2016, LAFPP approved another increase in the exposure target to 12%. As a result, PA will be targeting commitments of $425 to $475 million per annum $500.0 $400.0 If the $45.0 million of private equity commitments up for discussion are approved by the Board, commitments totaling $157.5 million will have been approved/closed for 2017 Vintage Year Approved/Closed 1 $433.8 MM $300.0 $200.0 $264.9 $261.2 MM $246.0 MM MM $280.0 MM $360.0 MM $336.1 MM $100.0 $ $112.5 MM 1) Commitments made by prior investment advisors are attributed to their respective fund vintage years. Each commitment recommended by Portfolio Advisors beginning in April 2010 is attributed to the year in which the commitment was approved/closed. In 2010, Portfolio Advisors recommended $264.9MM with the balance of $85.0MM committed by prior investment advisors. In 2011, Portfolio Advisors recommended $261.2MM with the balance of $20.0MM committed by a prior investment advisor Page 4

105 Los Angeles Fire & Police Pensions Private Equity Investment Strategy Focus on the following objectives: Achieve and maintain a target allocation of approximately 12% of total Plan assets (increased from 10% on 6/16/2016) As of December 31, 2016, the private equity program is approximately 9.0% of total Plan assets Commit approximately $425 million to $475 million to private equity per year (increased from $300 million to $350 million) From 2010 to 2014, $1,412.1 million was closed across 81 funds** In 2015, $336.1 million was closed across 21 funds In 2016, $433.8 million was approved/closed to 24 funds YTD 2017, $112.5 million has been approved/closed to 5 funds Achieve long-term sector weightings approximating 50% Buyout (range 40% to 60%), 30% Special Situations (range 15% to 40%) and 20% Venture Capital & Growth Equity (range 15% to 35%) Seek geographic weightings approximating 65% to 85% US and 15% to 35% International, as well as increase weighting of Asia within International Emphasize diversification and investment manager selection Since Portfolio Advisors was hired in April 2010, LAFPP has approved/closed 131 commitments to 71 investment managers that total $2,294.6 million Several commitments were made with the goal of increasing the Portfolio s exposure to: Asia ($100.0 million to five funds), Diversified Emerging Markets ($15.0 million to one fund), Europe ($131.0 million to five funds) and Specialized Managers ($254.0 million to 31 funds) During this time period, LAFPP has re-invested with 25 existing investment managers and invested with 46 new investment managers Page 5 ** Please note that Palladium Equity Partners IV is double counted due to the original commitment in 2010 and the subsequent re-up in 2013

106 Los Angeles Fire & Police Pensions 2017 Approved/Closed PE Commitments PA expects several of LAFPP s existing managers to launch new funds in 2017 Depending on Board approval and allocations to funds, LAFPP may close on approximately $450.0 million of commitments for the year Commitment sizes will likely range from $7.5 to $40.0 million Long-Term YTD 2017 Long-Term YTD 2017 $s in MM Sector Targets Commitments Sector Targets Commitments Under / (Over) Investment Strategy Buyout 50% 42% $225.0 $47.5 $177.5 Special Situations 30% 36% $135.0 $40.0 $95.0 Venture Capital & Growth Equity 20% 22% $90.0 $25.0 $65.0 Cumulative 100% 100% $450.0 $112.5 $337.5 Please note long-term sector targets are based on an annual commitment pace of $450.0MM to private equity, the midpoint of Portfolio Advisors' target range of $425.0MM to $475.0MM statistics are based on YTD approved/closed commitments of MM Page 6

107 Los Angeles Fire & Police Pensions 2017 Approved/Closed PE Commitments (Continued) Buyout Special Situations Venture Capital & Growth Equity Cumulative Manager Specialized or Core Investment $s in MM Status Manager Strategy Commitments P4G Capital Partners New Specialized Middle Market $7.5 Silver Lake Partners V Existing Core Large Cap $40.0 YTD 2017 $47.5 Long-Term Sector Target $ Remaining $177.5 Fund Manager 1 1 Existing Core Middle Market $25.0 EnCap Energy Capital XI Existing Core Multi-Strategy & Other $40.0 YTD 2017 $40.0 Long-Term Sector Target $ Remaining $95.0 SG Growth Partners IV Existing Core Growth $15.0 Oak HC/FT II Existing Specialized Growth $10.0 YTD 2017 $25.0 Long-Term Sector Target $ Remaining $65.0 Fund Manager 2 1 Existing Core Multi Stage $20.0 YTD 2017 $112.5 Target Commitments for 2017 $ Remaining $337.5 Page 7 1) The $45.0MM in commitments to two funds that are pending Board approval are not factored into any of the 2017 statistics above

108 Los Angeles Fire & Police Pensions Specialized Manager Criteria and Investment Strategy The LAFPP Specialized Manager program focuses on private equity commitments to funds with a preference for the following: First-, second- or third-time institutional funds for a given manager; Funds with a stated target size of less than or equal to $500 million; Managers of funds that are owned at the General Partner level by one or more minorities, women, disabled veterans or members of the LGBT community; Funds that target companies which offer demographically-focused products and services to minorities and women; and Funds that have a specialized strategy such as investing in companies located in California or Los Angeles In August 2016, LAFPP s Board approved $100 million for Portfolio Advisors to commit to Managers that fit one or more of the above criteria Commitment sizes will range from $7.5 to $15 million Specialized Manager investment activity is listed below: $s in MM YTD Remaining Pending Year Allocation Commitments Allocation Commitments 2014 $60.0 $25.0 $35.0 $ $35.0 $30.0 $5.0 $ * $105.0 $22.5 $82.5 $ $82.5 $17.5 $65.0 $0.0 *LAFPP Specialized Manager program was put on hold in early 2016 as a result of a request from the Commissioners to conduct an RFP process. LAFPP s Board of Commissioners recently approved a $100 million pool of capital for investment in Specialized Managers, and the program has resumed. Page 8

109 Los Angeles Fire & Police Pensions Specialized Manager Commitments First, Second or Third Target Fund Size Minority/Woman/Disabled Veteran/LGBT* California Specialized Cumulative $s in MM Institutional Fund $500.0 Ownership** Office Investments Commitments Commitments 2010 Bertram Growth Capital II, LP $25.0 Total $25.0 $ Gridiron Capital Fund II, LP $5.0 Incline Equity Partners III, LP $5.0 Longitude Venture Partners II, LP 4 $10.0 Palladium Equity Partners IV, LP 5 1 $10.0 Pelion Ventures V, LP 6 $10.0 Vivo Ventures Fund VII, LP 2 $10.0 Total $50.0 $ Alta Growth Capital Mexico Fund II, LP $5.0 Carrick Capital Partners, LP 3 $4.0 Clearlake Capital Partners III, LP 1,2 $5.0 GenNx360 Capital Partners II, LP 3 $5.0 ICV Partners III, LP 3 $10.0 Mainsail Partners III, LP $5.0 SG Growth Partners II, LP $10.0 Siris Partners II, LP 1,3 $5.0 StepStone Secondary Opportunities II, LP 1 $5.0 Total $54.0 $ Palladium Equity Partners IV, LP*** 1 $15.0 Vista Foundation Fund II, LP 3 $15.0 Total $30.0 $159.0 *LGBT and Disabled Veteran criteria added in 2016 ** Minority Ownership Legend: 1) U.S. Hispanic 2) Asian American 3) African American 4) Woman 5) LGBT *** Represents an additional commitment made to Palladium Equity Partners IV, which was originally approved in Total commitment to the fund is now $25 million. 5) Palladium Changed its strategy in fund III to focus on investments targeting the Hispanic community 6) Pelion is a merger of two venture funds. Pelion IV was the first fund under this new management structure Page 9

110 Los Angeles Fire & Police Pensions Specialized Manager Commitments (Continued) First, Second or Third Target Fund Size Minority/Woman/Disabled Veteran/LGBT* California Specialized Cumulative $s in MM Institutional Fund $500.0 Ownership** Office Investments Commitments Commitments 2014 Blue Sea Capital Fund I, LP $5.0 NMS Fund II, LP 1 $5.0 Oak HC / FT Partners, LP 4 $5.0 Stripes Growth III, LP $10.0 Total Total $25.0 $ Carrick Capital Partners II, LP 3 $10.0 New Water Capital Partners, LP $ Capital, LP 4 $5.0 CenterGate Capital Partners I, LP 4 $5.0 Angeles Equity Partners I, LP $5.0 Total Total $30.0 $ *** Astra Partners I, LP 3,4 $7.5 Bain Double Impact, LP 3 $7.5 DEFY Partners I, LP 4 $7.5 Total Total $22.5 $ P4G Capital Partners, LP 3,4,5 $7.5 Oak HC/FT II, LP 4 $10.0 Total Total $17.5 $254.0 Cumulative Grand Total: $254.0 $254.0 *LGBT and Disabled Veteran criteria added in 2016 ** Minority Ownership Legend: 1) U.S. Hispanic 2) Asian American 3) African American 4) Woman 5) LGBT ***LAFPP Specialized Manager Program was put on hold in early 2016 as a result of a request from the Commissioners to conduct an RFP process. LAFPP s Board of Commissioners recently approved for PA to manage $100 million pool of capital for investment in specialized managers, and the program has resumed. Page 10

111 Los Angeles Fire & Police Pensions Review of 2017 Commodities Investment Activity Page 11

112 Page 12 Los Angeles Fire & Police Pensions Commodities Criteria and Investment Strategy LAFPP approved an allocation to private equity funds focused on commodity investments in March 2012 Investment strategy is focused on the following objectives: Source, review and close on commitments to groups that invest in agriculture, metals & mining, oil & gas and timber. Emphasize diversification and investment manager selection, with two to three commitments per year Target net asset value of approximately $160.0 million over a 4-6 year period As of December 31, 2016, the Commodity Portfolio has $92.1 million of net asset value Commit approximately $50.0 million per year In 2012, $43.8 million was closed across three funds In 2013, $25.0 million was closed to one fund In 2014, $50.0 million was closed to two funds In 2015, $55.0 million was closed to two funds In 2016, $45.0 million was closed to two funds Commodities investment activity is listed below: $s in MM Annual YTD Remaining Pending Year Commitment Pace Commitments Commitments Commitments 2012 ~$50.0 $43.8 $0.0 $ ~$50.0 $25.0 $0.0 $ ~$50.0 $50.0 $0.0 $ ~$50.0 $55.0 $0.0 $ ~$50.0 $45.0 $5.0 $ ~$50.0 $0.0 $50.0 $0.0

113 Los Angeles Fire & Police Pensions Commodities Commitments Manager Investment $s in MM Status Strategy Commitments 2012 Apollo Natural Resource Partners, LP Existing Commodity Multi-strategy $15.0 EnCap Energy IX, LP New Oil and Gas $18.8 NGP Natural Resources X, LP Existing Oil and Gas $ Total: $ NGP Agribusiness Follow-on Fund, LP Existing Agribusiness and Food Processing $ Total: $ Molpus Woodlands Fund IV, LP New Timber $25.0 NGP Natural Resources XI, LP Existing Oil and Gas $ Total: $ EnCap Energy X, LP Existing Oil and Gas $30.0 Apollo Natural Resource Partners II, LP Existing Commodity Multi-strategy $ Total: $ Tillridge Global Agribusiness Partners II, LP New Agribusiness and Food Processing $20.0 Resource Capital Fund VII, LP New Metals & Mining $ Cumulative 2016 Total: $ Total: $0.0 Grand Total: $218.8 Page 13

114 Los Angeles Fire & Police Pensions Thank you! Todd A. Hughes, CFA (203) Geoffrey Kelleman (203) Page 14

115 DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: MARCH 16, 2017 ITEM: B.6.a FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER FEBRUARY 2017 MONTHLY REPORT AND UPDATE THIS REPORT IS PROVIDED FOR INFORMATIONAL PURPOSES DISCUSSION The February 2017 Monthly Report includes the following notable items: 1) Airport Police Transfer to Tier 6 and Technical Amendments to Administrative Code In anticipation that the Airport Safety Officers may transfer to our Plan as early as April, staff met with the Controller s Office and the Information Technology Agency staff on February 16, 2017 to discuss the requirements needed in the City s payroll system (PaySR). On February 22, 2017, the ordinance was approved by the City Council at its first reading and the second reading is scheduled for March 24, LACERS and LAFPP staff are preparing for a counseling session scheduled for March 29, 2017 for the Airport Safety Officers. There is currently one Airport Safety Officer participating in the Fire Department s Drill Tower. 2) Proposed Financial Counseling Program On April 6, 2017, staff will present to the Board the additional information that was requested on Four Square Financial Literacy Partners. 3) Pension Administration System Replacement The issues and discrepancies found during the prior build testing are being corrected. Staff will continue to test and validate these fixes. The issue concerning the method of calculating service credit in a leap year has been resolved. However, the initial Go Live date of the project has been pushed back from January 2018 to April To prevent similar issues from negatively impacting the project, Xerox and LAFPP staff will closely monitor the project requirements. 4) 2017 Fire Department Employee Member Board Election The Notice of Intent packets have been mailed by the Office of the City Clerk to eligible active Fire Department employee members to qualify as candidates for the ballot. The deadline for candidates to submit the Notice of Intent packets is March 17, Thereafter, the Office of the City Clerk will begin preparations to mail ballots to eligible voters. 5) Private Equity - The following private equity investments have closed since the last meeting announcement: On October 20, 2016, the Board, in closed session pursuant to Government Code Section , approved a commitment of up to $25 million in the following alternative investment:

116 Resource Capital Fund VII, L.P. and the investment closed on February 10, Board vote: Ayes 7, Nays 0 The following searches and firms are within the Marketing Cessation Period Policy*: Vendor / Contract Contract Start Date Contract Expiration Date Market Cessation Start Date Domestic Equity (New search) TBD TBD 12/15/16 Real Estate Investment Trust Manager (Active) (New search) TBD TBD 12/01/16 FIS Group, Inc. (International Manager of Emerging Managers) 07/01/14 06/30/17 04/01/17 MacKay Shields, LLC (Fixed Income High Yield Bond) 07/01/14 06/30/17 04/01/17 *Marketing Cessation: In accordance with Section 9.0 of the Investment Policy, from the time the search begins with the Board s approval of the minimum criteria for the search until the search ends with the selection of the firm(s) to receive contract(s), all direct marketing contact with firms that meet the search criteria will be limited to meetings with the Consultant, information sent to the Consultant or Department, questions about the search directed to the Staff or Consultant, one meeting at the Department s office with Staff and any site visits. The Board members, Department Staff or Consultant will accept no entertainment or gifts of any kind from any firm qualifying for the search. This policy does not prohibit contact with potential interview candidates at group social events, educational seminars, conferences, or charitable events so long as there is no direct marketing. During the three months prior to the renewal of a contract with a firm currently under contract, the Board Members, Department Staff and Consultant will accept no entertainment or gifts from that firm until the contract has been renewed or terminated by the Board. Firms who currently have contracts with LAFPP are allowed to continue contact related to the existing contract with Staff and the Consultant. Attachment Board Report Page 2 March 16, 2017

117 Item: B.6.a MONTHLY REPORT FEBRUARY 2017