Expense Budget Alameda County Employees Retirement Association 2015 APPROVED

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1 Expense Alameda County Employees Retirement Association 2015 APPROVED

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3 Table of Contents Section I Letter From the CEO to The Board Of Retirement...3 Section II Policies and Process...11 Section III Operating Expense...15 Staffing...19 Staff Development...21 Professional Fees...23 Office Expense...26 Insurance...27 Member Services...28 Systems...29 Board Of Retirement...30 Depreciation...31 Section IV Departmental Operating Expense s...35 Administration Department...36 Benefits Department...39 Fiscal Services Department...43 Human Resources Department...45 Internal Audit Department...47 Investment Department...49 Legal Department...51 Prism Department (Project And Information Services Management)...53 Section V Enterprise-Wide Projects...57 Section VI Administrative...63 Operating and Administrative Expenses Department Weighted Average...68 Department Weighted Average...68 Applied Factors...69 Section VII Capital Asset Outlay...75 Section VIII Portfolio Management Investment Expenses...79 Appendix A ACERA Three Year Business Plan Key Strategic Initiatives (Prioritized) Appendix B 2015 ACERA Change Proposal (ABCP)

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5 Section I Letter From the CEO to The Board Of Retirement

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7 Section I: Letter From the CEO to The Board Of Retirement Section I Letter From the CEO to The Board Of Retirement Members of the Board of Retirement, Over the past four years, much progress has been made to improve ACERA s budget process. As you know, one of my first priorities was working with senior management to refine the budgeting procedures and instill a sense of ownership in the budget process, which proved to be integral to controlling expenditures and increasing efficiency. In addition, business planning practices have been institutionalized to utilize the following essential budget-management principles: 1. Zero-based budget analysis of ACERA s enterprise-wide projects; 2. Utilization of Contingency Funds for one-time workload increases due to external mandates such as the implementation of PEPRA or judicial decisions rendered in the DSA lawsuit; 3. Change Proposal requests to justify project and line item expenditures; 4. Project management tools and techniques; and, 5. Improved technology-based business solutions. In, the Board took another step towards improving the budget process by establishing a Committee. Consequently, the Committee has provided additional oversight of ACERA s budget and expenditures to improve transparency. In 2015, staff will formally document all internal budget procedures and processes and look to improve the ACERA Change Proposal (ABCP) documentation. APPROVED 2015 BUDGET SUMMARY Staff recommends a approved 2015 budget of $20,540,000 which is: $1,149,000 or 5.9% greater than the 2015 baseline budget of $19,391,000 $2,355,000 or 13.0% greater than the forecast of $18,185,000 $1,808,000 or 9.7% greater than the approved budget of $18,732,000 The forecast is $547,000 or 2.9% less than the approved budget of $18,732,000 The 2015 administrative budget of $11.5 million is $4.8 million under the administrative cap of $16.3 million. As a comparison, the 2015 administrative budget of $11.5 million is $1.3 million more than the administrative budget of $10.2 million. November 3, 2:09 PM 3

8 Section I: Letter From the CEO to The Board Of Retirement 2015 APPROVED BUDGET The starting point for the 2015 operating budget is a continuation of the baseline budget which reflects the anticipated costs of carrying out the level of services proposed by the ACERA Board in the budget. All new and existing enterprise-wide projects are within the approved budget, adhere to zero-based budget methodology, and align with the three-year business plan. Staff was required to justify funding for business plan operations with formal budget change proposals for the following: a.) Deferred projects or positions approved in the 2015 ; b.) New programs or projects mandated by state legislation or the Board; and/or c.) Mission critical items. BUDGET HIGHLIGHTS Staffing: The three primary causes for changes to staffing costs in 2015 are as follows: 1. Funding of positions that were defunded in and slated for reclassification in 2015 at a cost of $327,000; 2. An average fringe benefit rate of 54% applied to all new and refunded positions; and, 3. Merit salary increases and COLAs at a cost of $333,000. The approved budget included 89 permanent positions; whereas, the 2015 Approved recommends 96 permanent positions. Specifically, the seven additional positions funded are as follows: Administration: Chief Deputy CEO Benefits: Funding two previously de-funded RSI positions Fiscal Services: Fill one vacant RAII and add an Assistant Accounting Manager Investment: Funding one previously de-funded Investment Analyst Legal: Funding the previously de-funded Compliance Officer position Insurance: Insurance costs for are forecasted at $610,000. Insurance premiums for the commercial carrier have increased by approximately seven percent for the second half of ; Alameda County s Risk Management and Worker s Compensation coverage increased by fifty seven percent in because of litigation and worker s compensation claims, due to ACERA s negative 5-year experience. The 2015 insurance budget is $797,000. Systems-Software Support: Staff has identified several opportunities for software upgrades, which include: 1. Web Member Services (WMS) and Pension Gold (PG) modification at a cost of $25,000; 2. Additional OnBase modules at a cost of $20,000; 3. Replacement of the FRx financial reporting system with Management Reporter at a cost of $10,000; and, 4. software at a cost of $75,000 4 November 3, 2:09 PM

9 Section I: Letter From the CEO to The Board Of Retirement Board Expenditures: A three percent inflation factor was used to increase the Board s conference attendance expenditures cap, raising the annual cap from $12,000 in to $12,360 in Staff is recommending a change to the Board Travel Policy to reflect an inflation factor. The Board s Travel and Education Policies will be reviewed by the Operations Committee in KEY ACCOMPLISHMENTS The Board will receive a separate report from senior managers at the Board Off-Site that summarizes accomplishments. The Approved 2015 Begins to Build for the Future The approved 2015 ACERA requests the Board make critical investments to build upon the budget improvements we have made over the last four years. The senior management team recommends the necessary funding of strategically important 2015 initiatives and projects. Strategic Planning: Staff has worked with The Results Group (TRG) during the last two years to prepare the senior and mid-level managers to develop a Strategic Plan. The senior managers completed a readiness assessment with the Board in 2013, and conducted strategic management development with mid-level managers in to develop ACERA core values and guiding principles. Now staff is recommending $79,000 in the 2015 to begin the work of strategic planning. ACERA Restructure: The Operations and Committees have reviewed the proposed restructure recommended in TRG s position paper, and staff has begun working with the County Human Resources Department on the restructure as well. Under the modified ACERA organizational restructure, staff recommends funding for the following positions: Chief Deputy CEO--$108,000 to fund the new position for four months Compliance Officer--$50,000 to fund the currently de-funded position for four months Three-Year Business Plan/Enterprise-Wide Projects: GASB 67 and 68--$96,000 Technology Improvement Plan--$150,000 Strategic Planning--$79,000 Technology Enhancement--$277,000 Project Management/Organizational Development--$26,000 November 3, 2:09 PM 5

10 Section I: Letter From the CEO to The Board Of Retirement Human Resource Management & Organizational Development Staffing Levels: The approved 2015 funds the Chief Counsel position at a cost of $325,000 including salary and benefits; creates a career path for four Benefits Department RSIII positions at an increased cost of $11,000; establishes an additional Assistant Accounting Manager at a cost of $187,000 to improve management in the Fiscal Services Department; funds a previously de-funded Investment Analyst at a cost of $118,000; and, funds two previously defunded Call Center positions at a cost of $148,000. Merit Salary Increase: The approved 2015 funds a performance-based merit increase of 5% for 19 deep class positions at a cost of $111,000. Organizational Development: The approved 2015 recommends $600,000 for staff development across the organization. This is an increase of $171,000 over the KEY GOALS Benefits Department Allow Retirees to opt in/out of receiving paper copies of EFT Advice forms and 1099(R) s. Allow for payments to be made and additional forms to be submitted through Web Member Services Portal. Conduct a Request for Proposal for Vision and Dental Plan Coverage and explore alternative funding arrangements. Fiscal Services Department Operationalize a rolling 12-month cash forecast to analyze cash outflow and conduct benefits and retirement pay trend analyses. Operationalize the Government Accounting and Standards Board (GASB) Statements 67 and 68 Enterprise-wide Project. Complete all the required procedure to implement Net Pension Liability (NPL) financial reporting for the plan and its participating employers. Operationalize administrative procedure for reporting and processing insurance claims and litigation through the county risk management unit and the commercial insurance broker to clarify appropriate insurance coverage for a given circumstance and identify when and how claims are submitted to ensure correct processing. Human Resources Department Increase management training and technology and skills training to assist staff as a result of changes due to the technology improvement project. Offer and encourage subject specific training for areas identified as deficient by the Agency. 6 November 3, 2:09 PM

11 Section I: Letter From the CEO to The Board Of Retirement Develop and implement an HR database that assists with record management and compliance. At the direction of the CEO, work on ACERA s organizational restructure and establish the appropriate classifications with the assistance of County HRS. Update and align the description and distinguishing features for all the ACERA specific job classifications. Internal Audit Implement an audit software solution to leverage technology to perform internal and employer audits more effectively. Have an outside governmental agency conduct a peer review to recommend ways to make the internal audit process more efficient. Design a more effective training strategy to capitalize on new audit trends, including a focus on technology risks. Investment Department As part of ACERA s strategy to diversify the Total Fund portfolio to increase return potential, while minimizing risk, the Investment Department will continue to review the asset allocation to ascertain that the target allocation is appropriate. Continue to fulfill the current asset allocation targets as prescribed by the current Investment Policy and investment work plan, including hiring a Real Estate Consultant through the RFP process. Continue to carry out the action plan responses to the CPS Workflow Analysis implementing risk control tools to mitigate the risks identified, including preparing a Strategic Plan for the Investment Department and working to complete Investment Department procedures. PRISM Department Begin initial planning stages for the implementation of various project initiatives as identified by the Grant Thornton Assessment and prioritized by management. Continue the efforts of migrating critical processes and reporting functionality from Access Databases into ACERA s Pension Administration System. As 2015 approaches, I am pleased and excited to begin the strategic investments in ACERA s future. Staff and I look forward to working with the Trustees to achieve ACERA s goals. Respectfully submitted, Vincent P. Brown Chief Executive Officer October 17, November 3, 2:09 PM 7

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13 Section II Policies and Process

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15 Section II: Policies and Process Section II Policies and Process Policies ACERA s budgeting policies and guidelines are based on the 1937 Act and the ACERA Board of Retirement Charter. Legal Requirements The California Constitution and statute section of the 1937 Act that govern the Alameda County Employees Retirement Association specifies that the Board of Retirement shall annually adopt a budget covering the entire expense of administration of the retirement system which expense shall be charged against the earning of the retirement fund The 1937 Act system administrative expense cap is 0.21% of Actuarial Accrued Liability. California statute sections , , , and (a) allow ACERA to exclude actuarial fees, investment, legal, technology, business continuity and SRBR related expenses from that portion of administration expense subject to the statutory limit. See Section VI. ACERA prepares the budget on an accrual basis in accordance with Generally Accepted Accounting Principles (GAAP) and consistent with ACERA s audited financial statements. Amending the amounts may be reallocated from one department to another or moved between categories at the discretion of the Chief Executive Officer. These reclassifications do not result in increases or decreases of the total approved budget. Increases or decreases to the total approved budget must be approved by the Board of Retirement. Action items to increase or decrease the budget are introduced by ACERA staff at the Committee meeting. If the Committee approves the action item, it recommend approval to the Board of Retirement. Process The Team, consists of the Fiscal Services Officer, the Analyst and Assistant Accounting Manager, and the Fiscal Services staff. Every July, the Team meets with each Senior Manager to review their requirements for the balance of the current year and the budget year. The Team drafts the budget which goes through several review cycles. Once the Senior Management Team agrees upon the, it is published and forwarded to the Board of Retirement for review. The Senior Management Team presents the approved budget to the Board at its annual off-site strategic planning meeting. The Board s feedback, if any, is incorporated into the budget to produce the final version. It is then submitted to the Committee for adoption. If the Committee accepts the budget, the Committee recommends that the be submitted to the Board for final adoption. November 3, 2:09 PM 11

16 2015 Process 1 Approved $ % $ % 2015 Baseline $ % 9.7% 2015 Proposed $ % 1. The starting point for the 2015 Operating was to develop a baseline budget that reflects the anticipated costs of carrying out the level of services approved by ACERA s Board in the. The 2015 Baseline is $19.4 million, an increase of 3.5% over the Approved due to filling of eight vacant positions. 2. The 2015 goal is to stabilize the proposed Baseline and only include new expenditures that adhere to the Association s Three-Year Business Plan. Accordingly, staff was required to justify funding for business plan operations with formal budget change proposals for the following: a) deferred projects or positions approved in the ; b) new programs or projects mandated by state legislation or the Board; and/or c) mission critical items. With the addition of those items, the proposed 2015 Proposed is $20.5 million or an increase of 9.7% over the Approved ; 3.1% of the proposed 2015 budget is primarily 2015 projects. 1 Rounding to tenths of millions may impact percentages. Percentages in this document are based on rounding to nearest dollar, as is done in the budget document. 12

17 Section III Operating Expense

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19 Section III: Operating Expense Section III Operating Expense The ACERA annual Operating Expense (OE ) is a detailed plan established to estimate the anticipated expense of services and deferred project costs approved to the ACERA Board. The OE does not include the estimated Portfolio Management Investment Expenses reported in Section VIII or Member Benefits such as pension and other post-employment member benefits. The basic precept of the budget is that it supports the Three Year Business Plan and provides the necessary resources to meet ACERA s baseline operating and mission critical expenses. The methodology for the budget begins with the development of the baseline. A baseline budget reflects the anticipated costs of carrying out the current level of services or activities as approved by the ACERA Board. It includes an adjustment for normal cost increases for staffing salaries and office expenses. Important assumptions in the 2015 include: An annually-established average fringe benefit rate of 54% for the 2015 budget; A performance-driven merit increase of five (5) percent for deep-class positions at a cost of $111,000; Hiring of a Chief Deputy CEO in the fourth quarter (Q4) 2015 at a cost of $108,000; Hiring of another Assistant Accounting Manager at a cost of $187,000; Re-funding of four (4) previously de-funded positions at a cost of $316,000; Funding of four (4) RSIII self initiated reclassifications to Retirement Analyst at a cost of $11,000; An increase in staffing development for professional training and development at a cost of $172,000; A three (3) percent increase in the Board of Retirement conference expense limit at a cost of $4,000; 2015 Board of Retirement election for 1 trustee at a cost of $25,000; Consultant expenses for strategic planning at a cost $79,000; Consultant expenses for planning of enterprise-wide technology improvement plan at a cost of $150,000; Technology enhancement initiatives at a cost of $227,000; Audit and actuarial expenses to implement GASB Statements 67 & 68 net pension liability financial reporting requirements at a cost of $96,000; and, Implementation of data base migration project at a cost of $50,000. November 3, 2:09 PM 15

20 Section III: Operating Expense 2015 Approved Operating Expense ($ in thousands) Forecast 2015 Proposed 2015 Approved vs. % Change Category % of Total Operating Expenses Staffing $ 12,052 $ 13,819 $ 1, % 67% Staff Development % 3% Professional Fees 1,588 1,458 (130) -8.2% 7% Office Expense % 3% Insurance % 4% Member Services % 2% Systems 1,015 1, % 6% Board Of Retirement % 2% Depreciation 1,193 1,182 (11) -0.9% 6% OPERATING EXPENSES Total $ 18,185 $ 20,540 $ 2, % 100% 2015 Proposed Staffing Staff Development Professional Fees Office Expense Insurance Member Services Systems Board Of Retirement Depreciation MEMBER SERVICES 2% SYSTEMS 6% BOARD OF RETIREMENT 2% DEPRECIATION 6% INSURANCE 4% OFFICE EXPENSE 3% PROFESSIONAL FEES 7% STAFF DEVELOPMENT 3% STAFFING 67% 16 November 3, 2:09 PM

21 Section III: Operating Expense Operating Expense 1 STAFFING (p.#19) Forecast vs Approved 2015 Approved vs. % Change Salaries $ 7,853,000 $ 7,384,000 $ (469,000) $ 8,773,000 $ 1,389, % Fringe Benefits 4,300,000 3,980,000 (320,000) 4,759, , % Temporary Staff/Misc.Staffing 94, , , ,000 (401,000) -58.3% Staffing Total 12,247,000 12,052,000 (195,000) 13,819,000 1,767, % STAFF DEVELOPMENT (p.#21) 428, ,000 1, , , % PROFESSIONAL FEES (p.#23) Actuarial Fees 294, ,000 65, ,000 (99,000) -27.6% Audit Fees 174, ,000 (52,000) 163,000 41, % Consultant Fees 762, ,000 (29,000) 760,000 27, % Legal Fees 374, , ,000 (99,000) -26.5% Professional Fees Total 1,604,000 1,588,000 (16,000) 1,458,000 (130,000) -8.2% OFFICE EXPENSE (p.#26) Bank Fees & Misc. Admin. 152, ,000 (20,000) 159,000 27, % Building Expenses 147, ,000 (27,000) 136,000 16, % Communications 132, ,000 (6,000) 134,000 8, % Equipment Lease & Maint. 89,000 83,000 (6,000) 95,000 12, % Minor Furniture & Equip. 18,000 18,000-21,000 3, % Office Supplies & Maint. 70,000 73,000 3,000 86,000 13, % Printing & Postage 51,000 42,000 (9,000) 46,000 4, % Office Expense Total 659, ,000 (65,000) 677,000 83, % INSURANCE (p.#27) 582, ,000 28, , , % MEMBER SERVICES (p.#28) Benefit Verification 3,000 3,000-3, % Disability - Arbitration 65,000 42,000 (23,000) 75,000 33, % Disability - Medical Expense 75,000 75,000-88,000 13, % Health Reimbursement Account - 37,000 37,000 41,000 4, % Member Training & Education 28,000 28,000-28, % Printing & Postage - Members 166, ,000 (6,000) 165,000 5, % Member Services Total 337, ,000 8, ,000 55, % SYSTEMS (p.#29) Business Continuity Expenses 130, ,000 (2,000) 143,000 15, % Computer Maintenance 26,000 24,000 (2,000) 27,000 3, % County Data Processing 87,000 87,000-87, % Minor Computer Hardware 52,000 39,000 (13,000) 55,000 16, % Software Maint./Support 836, ,000 (99,000) 832,000 95, % Systems Total 1,131,000 1,015,000 (116,000) 1,144, , % BOARD OF RETIREMENT (p.#30) Board Conferences & Misc. 428, ,000 (69,000) 483, , % Total Operating Expenses Before Depreciation 17,416,000 16,992,000 (424,000) 19,358,000 2,366, % DEPRECIATION (p.#31) 1,316,000 1,193,000 (123,000) 1,182,000 (11,000) -0.9% TOTAL OPERATING EXPENSE 18,732,000 18,185,000 (547,000) 20,540,000 2,355, % TOTAL PORTFOLIO MANAGE- MENT INVESTMENT EXPENSE 34,190,000 39,428,000 5,238,000 45,291,000 5,863, % TOTAL OPERATING AND PORTFOLIO MANAGEMENT INVESTMENT EXPENSES $ 52,922,000 $ 57,613,000 $ 4,691,000 $ 65,831,000 $ 8,218, % 1 All ACERA budget schedules with dollar amounts are rounded to the nearest thousand dollars. This may result in some rounding differences. Contingency Fund $ - $ 167,000 $ 167,000 $ 177,000 $ 10, % November 3, 2:09 PM 17

22 Section III: Operating Expense Operating Expense Baseline vs Increments ($ in thousands) STAFFING Forecast 2015 Baseline 2015 Baseline vs. Forecast 2015 Baseline vs. Forecast % of change 2015 Approved Increments 2015 Approved (Baseline + Increments) 2015 Approved vs. Forecast Over/ (Under) 2015 Proposed vs. Forecast % Change Salaries $ 7,384 $ 8,297 $ % $ 476 $ 8,773 $ 1, % Fringe Benefits 3,980 4, % 257 4, % Temporary Staff (401) -58.3% (401) -58.3% Staffing Total 12,052 13,086 1, % ,819 1, % STAFF DEVELOPMENT % % PROFESSIONAL FEES Actuarial Fees (99) -27.6% (99) -27.6% Audit Fees % % Consultant Fees (187) -25.5% % Legal Fees (99) -26.5% (99) -26.5% Professional Fees Total 1,588 1,244 (344) -21.7% 214 1,458 (130) -8.2% OFFICE EXPENSE Bank Charges & Misc. Admin % % Building Expenses % % Communications % % Equipment Lease & Maint % % Minor Furniture & Equipment % % Office Supplies & Maintenance % % Printing & Postage % % Office Expense Total % % INSURANCE % % MEMBER SERVICES Benefit Verification % % Disability Arbitration % % Disability - Medical Expense % % Health Reimb. Account (HRA) % % Member Training & Education % % Printing & Postage - Members % % Member Services Total % % SYSTEMS Business Continuity Expenses % % Computer Maintenance % % County Data Processing % % Minor Computer Hardware % % Software Maint. & Support % % Systems Total 1,015 1, % 48 1, % BOARD OF RETIREMENT % % Total Operating Expenses Before Depreciation 16,992 18,232 1, % 1,126 19,358 2, % DEPRECIATION 1,193 1,159 (34) -2.8% 23 1,182 (11) -0.9% TOTAL OPERATING EXPENSE 18,185 19,391 1, % 1,149 20,540 2, % TOTAL PORTFOLIO MAN- AGEMENT INVESTMENT EXPENSE 39,428 45,291 5, % - 45,291 5, % TOTAL OPERATING AND PORTFOLIO MANAGEMENT INVESTMENT EXPENSES $ 57,613 $ 64,682 $ 7, % $ 1,149 $ 65,831 $ 8, % 1 All ACERA budget schedules with dollar amounts are rounded to the nearest thousand dollars. This may result in some rounding differences. Contingency Fund $ 167 $ - $ (167) % $ 177 $ 177 $ % 18 November 3, 2:09 PM

23 Section III: Operating Expense STAFFING (p.#17) Staffing expense includes Salary/Wages, Fringe Benefits, and Temporary Services. Forecast vs Approved 2015 Approved vs. Staffing by Department Administration Benefits Fiscal Services Human Resources Internal Audit Investment Legal PRISM STAFFING TOTAL Benefits head count does not include temporary Retirement Specialist to cover fluctuations in head count. Staffing Forecast vs Approved 2015 Approved vs. % Change Administration $ 347,000 $ 359,000 $ 12,000 $ 449,000 $ 90, % Benefits 2,644,000 2,487,000 (157,000) 2,795, , % Fiscal Services 1,233,000 1,236,000 3,000 1,407, , % Human Resources 298, , ,000 6, % Internal Audit 509, ,000 (1,000) 513,000 5, % Investments 945, ,000 (151,000) 1,059, , % Legal 762, ,000 (177,000) 899, , % PRISM 1,011,000 1,004,000 (7,000) 1,049,000 45, % Total Salaries 7,749,000 7,271,000 (478,000) 8,475,000 1,204, % Step Increases 23,000 21,000 (2,000) 32,000 11, % Merit Increases 15,000 - (15,000) 72,000 72, % COLA Increases 66,000 52,000 (14,000) 144,000 92, % Potential reclasification ,000 7, % Total Step, Merit, COLA & Potential Reclassification 104,000 73,000 (31,000) 255, , % Cafeteria Benefit Allowance , % Health and Dental ,342, % Retirement Contributions ,436, % Medicare and SDI , % Social Security , % Other Benefits (Life Insurance, Def. Comp. and Auto , % Allowance) Fringe Benefits 4,300,000 3,980,000 (320,000) 4,759, , % Overtime - 40,000 40,000 43,000 3, % Temporary Staffing/Miscellaneous Staffing 94, , , ,000 (401,000) -58.3% STAFFING EXPENSES Total $ 12,247,000 $ 12,052,000 $ (195,000) $ 13,819,000 $ 1,767, % Pension Reform Contingency Fund $ - $ 167,000 $ 167,000 $ - $ (167,000) % November 3, 2:09 PM 19

24 Section III: Operating Expense Staffing - Variance Narrative 2015 Approved vs. Variance Net cost of vacant positions and re-funded positions including salary & fringe benefits offset by cost of temporary staff $ 1,086,000 Merit increase for deep class employees, COLA and step increases including fringe benefits 280,000 Salary Actions (out-of-class, vacation sell backs, and employees on leave resume work full time) includes fringe benefits 372,000 Overtime 3, % increase in fringe benefit rate 26,000 Total $ 1,767,000 Staffing Expense - Variance Narrative vs. Variance Net savings vacant positions including salary & fringe benefits offset by cost of temporary staff $ (268,000) Salary actions (net of out of class, vacation sell backs, and savings from employees on leave) including fringe benefits 114,000 Savings on step, merit increase and COLA (48,000) 0.75% decrease in fringe benefits (55,000) Unbudgeted overtime including fringe benefits 62,000 Total $ (195,000) 20 November 3, 2:09 PM

25 Section III: Operating Expense STAFF DEVELOPMENT (p.#17) Staff Development includes education, training, professional dues, recruitment, and subscription expenses. Staff Development Forecast vs Approved 2015 Approved vs. % Change CONFERENCES/TRAININGS American Management Association (AMA) $ 32,000 $ 36,000 $ 4,000 $ 65,000 $ 29, % APPFA 7,000 4,000 (3,000) 4, % ARIBA 8,000 - (8,000) % Best Practices Center 8,000 - (8,000) % CALAPRS (Roundtable, Mgmt. Academy, General Assembly) 35,000 41,000 6,000 49,000 8, % CALPELRA 7,000 6,000 (1,000) 5,000 (1,000) -16.7% County Computer Training 12,000 16,000 4,000 15,000 (1,000) -6.3% GFOA 18,000 18,000-23,000 5, % GASB 8,000 3,000 (5,000) 5,000 2, % IFEBP 16,000 4,000 (12,000) 10,000 6, % MILKEN 18,000 19,000 1,000 22,000 3, % PG User, PG NUG, Onbase, Sungard Conference 30,000 29,000 (1,000) 30,000 1, % SACRS 26,000 19,000 (7,000) 31,000 12, % Other 113, ,000 (6,000) 176,000 69, % Sub-Total 338, ,000 (36,000) 435, , % PROFESSIONAL DUES 45,000 52,000 7,000 62,000 10, % SUBSCRIPTIONS & DUES 45,000 42,000 (3,000) 56,000 14, % RECRUITMENT EXPENSES - 33,000 33,000 27,000 (6,000) -18.2% EXPENSES Total $ 428,000 $ 429,000 $ 1,000 $ 580,000 $ 151, % November 3, 2:09 PM 21

26 Section III: Operating Expense Staff Development - Variance Narrative 2015 Approved vs. Variance CONFERENCE/TRAINING Continued emphasis on training created higher attendance at AMA, SACRS, IFEBP, CALAPRS Management Academy, etc. $ 60,000 Increase conferences/trainings due to all vacant positions to be filled in ,000 Sub-total 133,000 PROFESSIONAL FEES Increase in professional dues to obtain member pricing at conferences 10,000 SUBSCRIPTIONS Increase in Legal Subscriptions and others 14,000 RECRUITMENT Recruitment for Chief Deputy offset by cost of hiring Chief Counsel (6,000) Total $ 151,000 Staff Development - Variance Narrative vs. Variance CONFERENCE/TRAINING Increased attendance at AMA and CALAPRS $ 10,000 Savings on ARIBA, Best Practices Center, and IFEBP (28,000) SACRS - fewer attendees (7,000) Savings from reduced attendance or change of location at conferences/trainings (12,000) Increased cost of Milken 1,000 Sub-total (36,000) PROFESSIONAL FEES Increase in Professional dues for CII 7,000 SUBSCRIPTIONS (3,000) RECRUITMENT Recruitment primarily for Chief Counsel 33,000 Total $ 1, November 3, 2:09 PM

27 Section III: Operating Expense PROFESSIONAL FEES (p.#17) This category excludes investment professional consultant and advisor expenses. Professional Fees Forecast vs Approved 2015 Approved vs. % Change Actuarial Fees $ 294,000 $ 359,000 $ 65,000 $ 260,000 $ (99,000) -27.6% Audit Fees 174, ,000 (52,000) 163,000 41, % Consultant Fees 762, ,000 (29,000) 760,000 27, % Legal Fees 374, , ,000 (99,000) -26.5% Total Professional Fees 1,604,000 1,588,000 (16,000) 1,458,000 (130,000) -8.2% Consultant Fees Administration Integrated Solutions for Business Inc. 60,000 98,000 38,000 - (98,000) % Organizational Development & Project Management 40,000 40,000-26,000 (14,000) -35.0% Stategic Planning 25,000 25,000-79,000 54, % Total Administration 125, ,000 38, ,000 (58,000) -35.6% Benefits Benefit Cons./Open Enroll. 120, ,000 1, , % County Retirees Medical 126, , , % Health Exchange 50,000 50, (50,000) % Pharmacy Benefit Manager 40,000 - (40,000) % Total Benefits 336, ,000 (39,000) 247,000 (50,000) -16.8% Fiscal Services FRx Reporting System Consultant 6,000 6,000-10,000 4, % Total Fiscal Services 6,000 6,000-10,000 4, % Human Resources Lakeside Group (County Personnel) 78,000 77,000 (1,000) 80,000 3, % Total Human Resources 78,000 77,000 (1,000) 80,000 3, % Internal Audit Employer Audit 75,000 - (75,000) % ACL Consulting - Audit Software ,000 10, % Peer Review - Internal Audit Quality Assurance ,000 7, % Total Internal Audit 75,000 - (75,000) 17,000 17, % PRISM Access Database Migration 12,000 12, (12,000) % ACERA Intranet 75,000 75,000-96,000 21, % Software ,000 30, % Project Management Consulting 25,000 25,000-25, % SQL consultant 30,000 30, (30,000) % Technology Improvement Plan - 48, , , % Total PRISM 142, ,000 48, , , % Total Consultant Fees 762, ,000 (29,000) 760,000 27, % Legal Fees Contingency Fees (Lexin-like) 200, ,000 (50,000) 50,000 (100,000) -66.7% Corporate Executive Board/Health Reform 2,000 1,000 (1,000) 15,000 14, % Employment Litigation and Securities 30,000 30,000-35,000 5, % Fiduciary 35,000 35, ,000 65, % Pension Reform 100, ,000-20,000 (80,000) -80.0% Tax and Benefit Issues 7,000 58,000 51,000 55,000 (3,000) -5.2% Total Legal Fees 374, , ,000 (99,000) -26.5% November 3, 2:09 PM 23

28 Section III: Operating Expense Professional Fees Actuarial Fees Forecast vs Approved 2015 Approved vs. % Change Actuarial Valuation 65,000 65,000-65, % Contingency - 80,000 80,000 - (80,000) % SRBR Valuation 35,000 35,000-35, % Supplemental Consulting 102, , ,000 13, % GASB 67 & 68 60,000 45,000 (15,000) 45, % Triennial Investigation 32,000 32, (32,000) % Total Actuarial Fees $294,000 $359,000 $65,000 $260,000 $(99,000) -27.6% Professional Fees - Variance Narrative 2015 Approved vs. Variance ACTUARY Increase in supplemental consultations $ 13,000 Completion of triennial investigation in (32,000) Completion of monitoring process improvements for 2013 audit management letter (80,000) Sub-total (99,000) AUDIT GASB 67&68 project fees 38,000 Escalation in annual audit fees 3,000 Sub-total 41,000 LEGAL Decrease in contingencies offset by the cost of employment litigation & securities and health reform (84,000) Increase in fiduciary consultations 65,000 Pension reform litigation (80,000) Sub-total (99,000) CONSULTANTS Technology improvement plan 102,000 Strategic planning 54,000 ACERA Intranet 21,000 Increase consultant fees for county personnel, audit software, internal audit quality assurance, reporting system, and budget software 54,000 Completion of SQL and access database migration (42,000) Organizational development and project management (14,000) Postpone health exchange project (50,000) Completion of Benefits work flow analysis (98,000) Sub-total 27,000 Total $ (130,000) 24 November 3, 2:09 PM

29 Section III: Operating Expense Professional Fees - Variance Narrative vs. Variance ACTUARY Costs for monitoring process improvements for 2013 audit management letter $ 80,000 GASB 67 & 68 implementation (15,000) Sub-total 65,000 AUDIT Deferred work on implementing GASB 67&68 (52,000) CONSULTANTS Technology improvement plan 48,000 Integrated Solutions for Business for Benefits work flow analysis 38,000 Pharmacy benefit plan (40,000) Employer audits for pension reform (75,000) Sub-total (29,000) Total $ (16,000) November 3, 2:09 PM 25

30 Section III: Operating Expense OFFICE EXPENSE (p.#17) This category covers expenses such as building expenses, banking fees, telecommunications and office equipment. Office Expense Forecast vs Proposed 2015 Approved vs. % Change Bank Fees & Misc.Admin $ 152,000 $ 132,000 $ (20,000) $ 159,000 $ 27, % Building Expenses 147, ,000 (27,000) 136,000 16, % Communications 132, ,000 (6,000) 134,000 8, % Equip. Leasing & Maint. 89,000 83,000 (6,000) 95,000 12, % Minor Furniture & Equipment 18,000 18,000-21,000 3, % Office Supplies & Maint. 70,000 73,000 3,000 86,000 13, % Printing & Postage 51,000 42,000 (9,000) 46,000 4, % OFFICE EXPENSE Total $ 659,000 $ 594,000 $ (65,000) $ 677,000 $ 83, % Office Expense - Variance Narrative 2015 Approved vs. Variance BANK CHARGES & MISC. ADMINISTRATIVE Banking fees increase for upgrading services $ 23,000 ICM Security 4,000 Sub-total 27,000 BUILDING EXPENSES Building Expenses - expect 5% increase in escalation fees 16,000 EQUIPMENT LEASING & MAINTENANCE Increase due to new copiers contract 12,000 OFFICE SUPPLIES AND MAINTENCE Increase due to countertop installation for legal copy room and office carpet cleaning 13,000 PRINTING & POSTAGE, COMMUNICATION, AND MINOR EQUIPMENT 15,000 Total $ 83,000 Office Expense - Variance Narrative vs. t Variance BANK CHARGES & MISC. ADMINISTRATIVE Saving from delay issuing the bank RFP offset somewhat by unbudgeted ICM security $ (20,000) BUILDING EXPENSES No increase in escalation (27,000) EQUIP. LEASING & MAINTENANCE (6,000) COMMUNICATIONS Decrease in wireless charges, long distance and internet (6,000) OFFICE SUPPLIES & MAINTENANCE 3,000 PRINTING AND POSTAGE Projected savings (9,000) Total $ (65,000) 26 November 3, 2:09 PM

31 Section III: Operating Expense INSURANCE (p.#17) This category includes insurance premiums for business automobile, commercial, earthquake, fiduciary and criminal liability, risk management, umbrella, and workers compensation. Insurance Forecast vs Approved 2015 Approved vs. % Change Business Automobile $ 1,000 $ 1,000 $ - $ 1,000 $ - 0.0% Commercial Package 29,000 26,000 (3,000) 28,000 2, % Crime 8,000 8,000-9,000 1, % Earthquake 35,000 30,000 (5,000) 31,000 1, % Fiduciary Liability 178, ,000 (6,000) 200,000 28, % Risk Management 64, ,000 87, , , % Umbrella 9,000 9,000-10,000 1, % Worker's Compensation 258, ,000 (45,000) 223,000 10, % INSURANCE Total $ 582,000 $ 610,000 $ 28,000 $ 797,000 $ 187, % Insurance - Variance Narrative 2015 Approved vs. Variance ARTHUR GALLAGHER Anticipated rate increase $ 33,000 COUNTY RISK MANAGEMENT Increase due to the claims in litigation 144,000 WORKER'S COMPENSATION Anticipated increase in county cost allocation 10,000 Total $ 187,000 Insurance - Variance Narrative vs. Variance ARTHUR GALLAGHER Rate savings in commercial package, earthquake, and fiduciary liability policies $ (14,000) COUNTY RISK MANAGEMENT Increase due to the in number of claims in litigation, offset somewhat by worker's compensation being less than budgeted 42,000 Total $ 28,000 November 3, 2:09 PM 27

32 Section III: Operating Expense MEMBER SERVICES (p.#17) This category includes expenses for services provided to members, including health plans, enrollment, wellness, seminars, communications, disability hearings and evaluations. Member Services Forecast vs Approved 2015 Approved vs. % Change Benefit Verification $ 3,000 $ 3,000 $ - $ 3,000 $ - 0.0% Disability - Legal Arbitration & Transcripts 65,000 42,000 (23,000) 75,000 33, % Disability - Medical Expense 75,000 75,000-88,000 13, % Health Reimbursement Account (HRA) - 37,000 37,000 41,000 4, % Member Training & Education 28,000 28,000-28, % Printing & Postage - Members 166, ,000 (6,000) 165,000 5, % MEMBER SERVICES EXPENSE Total $ 337,000 $ 345,000 $ 8,000 $ 400,000 $ 55, % Disability - Legal Contingency Fund $ - $ - $ - $ 177,000 $ 177, % Member Services - Variance Narrative 2015 Approved vs. Variance DISABILITY - LEGAL ARBITRATION & TRANSCRIPTS Increase in number of cases for 2015 $ 33,000 DISABILITY - MEDICAL Increase in number of cases for ,000 HEALTH REIMBURSEMENT ACCOUNT (HRA) 4,000 PRINTING & POSTAGE - MEMBERS 5,000 Total $ 55,000 Member Services - Variance Narrative vs. Variance Disability - Legal Arbitration & Transcripts Arbitration case load decreased $ (23,000) Health Reimbursement Account Unbudgeted - new ACERA program 37,000 Printing & Postage - Members Issued 3 newsletters instead of 4 (6,000) Total $ 8, November 3, 2:09 PM

33 Section III: Operating Expense SYSTEMS (p.#17) This category includes the costs of business continuity planning, county data processing (payroll, etc.), software maintenance and support, and uncapitalized computer hardware and software. Systems Forecast vs Proposed 2015 Approved vs. % Change Business Continuity Expenses $ 130,000 $ 128,000 $ (2,000) $ 143,000 $ 15, % Computer Maintenance 26,000 24,000 (2,000) 27,000 3, % County Data Processing 87,000 87,000-87, % Minor Computer Hardware 52,000 39,000 (13,000) 55,000 16, % Software Maintenance & Support 836, ,000 (99,000) 832,000 95, % SYSTEMS Total $ 1,131,000 $ 1,015,000 $ (116,000) $ 1,144,000 $ 129, % Systems - Variance Narrative 2015 Approved vs. Variance MINOR COMPUTER HARDWARE/MAINTENANCE Replace and/or upgrade hardware $ 28,000 SOFTWARE MAINTENANCE & SUPPORT Software and Access Database Migration 39,000 Internet connection with San Ramon 3,000 ACERA Intranet - hardware and license 14,000 Web Mbr Svcs and PG modification 25,000 Two additional modules in OnBase system 20,000 Total $ 129,000 Systems - Variance Narrative vs. Variance MINOR COMPUTER HARDWARE/MAINTENANCE Anticipate fewer purchase in computer hardware $ (15,000) SOFTWARE MAINTENANCE & SUPPORT No increase from LRS for the database migration (11,000) Health Exchange was postponed (44,000) software was postponed (28,000) Other various savings (18,000) Total $ (116,000) November 3, 2:09 PM 29

34 Section III: Operating Expense BOARD OF RETIREMENT (p.#17) This category covers Board compensation and expenses for meetings, conferences and training, employer reimbursement (elected members only), and election expenses. Board of Retirement Forecast vs Proposed 2015 Approved vs. % Change Board Compensation $ 28,000 $ 22,000 $ (6,000) $ 29,000 $ 7, % Board Conference and Training 116,000 58,000 (58,000) 131,000 73, % Board Elections ,000 25, % Board Employer Reimbursement 248, , ,000 13, % Board Miscellaneous Activities 32,000 27,000 (5,000) 32,000 5, % Board Strategic Planning 4,000 4,000-5,000 1, % BOARD OF RETIREMENT Total $ 428,000 $ 359,000 $ (69,000) $ 483,000 $ 124, % Board of Retirement - Variance Narrative 2015 Approved vs. Variance BOARD COMPENSATION & MISCELLANEOUS Increase in attendance at meetings & postage costs $ 12,000 BOARD EMPLOYER REIMBURSEMENT Increase in fringe benefits and COLA 13,000 BOARD STRATEGIC PLANNING 1,000 BOARD CONFERENCE & TRAINING Increase in Milken cost and conference attendance 73,000 BOARD ELECTIONS - NO BOARD ELECTION IN 25,000 Total $ 124,000 Board of Retirement - Variance Narrative vs. Variance BOARD COMPENSATION Reduced meeting attendance $ (6,000) BOARD MISCELLANEOUS ACTIVITIES (5,000) BOARD CONFERENCE AND TRAINING Two Trustees budgeted for Milken did not attend (20,000) Reduced attendance at other conferences (38,000) Sub-total (58,000) Total $ (69,000) 30 November 3, 2:09 PM

35 Section III: Operating Expense DEPRECIATION (p.#17) Depreciation expense is the allocation of a capital asset cost over the asset s useful life. Depreciation Forecast vs Approved 2015 Approved vs. % Change BCP $ 435,000 $ 423,000 $ (12,000) $ 430,000 $ 7, % Computer Hardware 27,000 15,000 (12,000) 18,000 3, % Computer Software 242, ,000 (84,000) 132,000 (26,000) -16.5% EDMS Admin. Share 432, ,000 (12,000) 427,000 7, % Equipment 53,000 49,000 (4,000) 49, % Furniture 30,000 30,000-30, % Leasehold Improvements 95,000 96,000 1,000 96, % Office Equipment-Invest 2,000 2, (2,000) % DEPRECIATION Total $ 1,316,000 $ 1,193,000 $ (123,000) $ 1,182,000 $ (11,000) -0.9% Depreciation is computed using the straight-line method for most assets over the following estimated useful lives: Computer Hardware 5 years Computer Software 3 years Equipment 5 years Furniture 7 years Information System-Retirement 7 years Information System-Fiscal Services 5 years Disaster Recovery 5 years Leasehold Improvements 27.5 years EDMS 5 years Depreciation - Variance Narrative 2015 Approved vs. Variance Savings from fully depreciated assets offset by new assets for web member services enhancements, OnBase upgrade and EDMS workflows $ (11,000) Total $ (11,000) Depreciation - Variance Narrative vs. Variance Actual cost for website redesign is lower than expected and phone system for member services is deferred $ (84,000) Two EDMS Workflows are deferred (24,000) Decrease in purchasing for computer hardware and equipment (16,000) Generator curb barrier was not budgeted 1,000 Total $ (123,000) November 3, 2:09 PM 31

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37 Section IV Departmental Operating Expense s

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39 Section IV: Departmental Operating Expense s Section IV : Departmental Operating Expense s ACERA operations are organized into eight departments: Administration, Benefits, Fiscal Services, Human Resources, Internal Audit, Investments, Legal, and Project and Information Services Management (PRISM). Departments Forecast vs Approved 2015 Approved vs. % Change Administration (p.#36) $ 3,778,000 $ 3,706,000 $ (72,000) $ 4,108,000 $ 402, % Benefits (p.#39) 5,282,000 5,414, ,000 5,653, , % Fiscal Services (p.#43) 2,296,000 2,212,000 (84,000) 2,674, , % Human Resources (p.#45) 564, ,000 3, ,000 18, % Internal Audit (p.#47) 911, ,000 (79,000) 878,000 46, % Investment (p.#49) 1,561,000 1,501,000 (60,000) 1,845, , % Legal (p.#51) 1,768,000 1,499,000 (269,000) 1,980, , % PRISM (p.#53) 2,014,000 2,009,000 (5,000) 2,189, , % Total Depart. Expenses 18,174,000 17,740,000 (434,000) 19,912,000 2,172, % PROJECTS 1 558, ,000 (113,000) 628, , % Total Depart. Exp. + Projects $ 18,732,000 $ 18,185,000 $ (547,000) $ 20,540,000 $ 2,355, % Contingency Fund $ - $ 167,000 $ 167,000 $ 177,000 $ 10, % 1 See Section V November 3, 2:09 PM 35

40 Section IV: Departmental Operating Expense s ADMINISTRATION DEPARTMENT (p.#35) The Administration Department is led by the Chief Executive Officer who plans, manages, and administers the business of the retirement system and coordinates external outreach with legislators and member organizations. Administration Department Forecast vs Approved 2015 Approved vs. % Change STAFFING Salaries $ 350,000 $ 362,000 $ 12,000 $ 458,000 $ 96, % Fringe Benefits 192, ,000 (9,000) 290, , % Temporary Staff % Staffing Total 542, ,000 3, , , % STAFF DEVELOPMENT 33,000 42,000 9,000 75,000 33, % PROFESSIONAL FEES Actuarial Fees 234, ,000 80, ,000 (99,000) -31.5% Consultant Fees 60,000 98,000 38,000 - (98,000) % Professional Fees Total 294, , , ,000 (197,000) -47.8% OFFICE EXPENSE Miscellaneous Administrative 3,000 10,000 7,000 14,000 4, % Building Expenses 147, ,000 (27,000) 136,000 16, % Communications 132, ,000 (6,000) 134,000 8, % Equipment Lease & Maintenance 89,000 83,000 (6,000) 95,000 12, % Minor Furniture & Equipment 18,000 18,000-21,000 3, % Office Supplies & Maintenance 70,000 73,000 3,000 86,000 13, % Printing & Postage 37,000 28,000 (9,000) 35,000 7, % Office Expense Total 496, ,000 (38,000) 521,000 63, % INSURANCE 582, ,000 28, , , % SYSTEMS County Data Processing 87,000 87,000-87, % Systems Total 87,000 87,000-87, % BOARD OF RETIREMENT Board Conferences & Miscellaneous Activity 428, ,000 (69,000) 483, , % TOTAL CONTROLLABLE EXPENSES 2,462,000 2,513,000 51,000 2,926, , % DEPRECIATION Depreciation Expense 1,316,000 1,193,000 (123,000) 1,182,000 (11,000) -0.9% GRAND TOTAL $ 3,778,000 $ 3,706,000 $ (72,000) $ 4,108,000 $ 402, % 36 November 3, 2:09 PM

41 Section IV: Departmental Operating Expense s Administration Department - Variance Narrative 2015 Approved vs. Variance STAFFING Fill Chief Deputy CEO, transfer Administrative Specialist II from Fiscal Services in October 2015 $ 139,000 Increased fringe benefit rate 50,000 2% COLA includes fringe benefits 14,000 Sub-Total 203,000 STAFF DEVELOPMENT Increased cost of Milken and an increase in attendance in other trainings/conferences 13,000 Recruitment expense for Chief Deputy CEO position 20,000 Sub-Total 33,000 PROFESSIONAL FEES Completion of triennial investigation, 2013 audit management letter, and Benefits workflow analysis (210,000) Increase in actuarial consulting 13,000 Sub-Total (197,000) OFFICE EXPENSE Overall increase in expenses Vacant positions will be filled ,000 Office maintence increase due to countertop installation for legal copy room and office carpet cleaning 13,000 Expected 5% increase in building expenses 16,000 Sub-Total 63,000 INSURANCE Arthur Gallagher Anticipated rate increase 33,000 County Risk Management Increase due to the claims in litigation 144,000 Worker's Compensation Anticipated increase in county cost allocation 10,000 Sub-Total 187,000 BOARD OF RETIREMENT Increase number of trustees attending meetings 7,000 Increase cost of supplies and offsite meeting 6,000 Board Employer Reimbursement: Increase in fringe benefits and COLA 13,000 Increase Milken cost and conference attendance 73, board election 25,000 Sub-Total 124,000 DEPRECIATION EXPENSE Savings from fully depreciated assets offset by new assets for web member services enhancements, OnBase upgrade and EDMS workflows (11,000) Total $ 402,000 November 3, 2:09 PM 37

42 Section IV: Departmental Operating Expense s Administration Department - Variance Narrative vs. Variance STAFFING Executive Secretary vacation cash out $ 12,000 Savings in Fringe Benefits (9,000) Sub-Total 3,000 STAFF DEVELOPMENT Increased costs of Milken and professional dues for CII 9,000 PROFESSIONAL FEES Actuarial Fees: unbudgeted cost for consultation from 2013 audit management letter 80,000 Expected higher cost for Benefits workflow analysis 38,000 Sub-Total 118,000 OFFICE EXPENSE Unbudgeted ICM security 7,000 Building expenses - no increase in escalation charges (27,000) Communications Decrease in wireless charges, long distance and internet (6,000) Equip. Leasing & Maint. (6,000) Office Supplies & Maint. 3,000 Printing and Postage Projected savings (9,000) Sub-Total (38,000) INSURANCE Arthur Gallagher Rate savings in commercial package, earthquake, and fiduciary liability policies (14,000) County Risk Management Increase due to the number of claims in litigation, offset by worker's compensation less than budgeted 42,000 Sub-Total 28,000 BOARD OF RETIREMENT Board Compensation - reduced meeting attendance (6,000) Board Miscellaneous Activities - saving in parking and postage (5,000) Board Conference and Training - saving in Miken and other conferences (58,000) Sub-Total (69,000) DEPRECIATION EXPENSE Actual cost for website redesign is lower than expected and phone system for member services is deferred (84,000) Two EDMS Workflows is deferred (24,000) Decrease in purchasing for computer hardware and equipment (16,000) Generator curb barrier was not budgeted 1,000 Sub-Total (123,000) Total $ (72,000) 38 November 3, 2:09 PM