ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM BOARD OF RETIREMENT 2223 E. WELLINGTON AVENUE, SUITE 100 SANTA ANA, CALIFORNIA

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1 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM BOARD OF RETIREMENT 2223 E. WELLINGTON AVENUE, SUITE 100 SANTA ANA, CALIFORNIA REGULAR BOARD MEETING MAY 26, 2009 MINUTES The Chair called the meeting to order at 8:30 a.m. and read the opening statement into the record. Attendance was as follows: Present: Robert A. Griffith, Chair; Arthur A. Hidalgo, Vice Chair; Russell Baldwin; Anthony Bedolla; Frank E. Eley; Thomas E. Flanigan; Patti Gorczyca and Richard A. White, Jr. Absent: Keith Rodenhuis, the Treasurer/Tax Collector s Board alternate arrived at 8:53 a.m. and Chriss W. Street arrived at 9:57 a.m. Also Present: Steve Delaney, Chief Executive Officer; Shanta Chary, Chief Investment Officer; Stephen Cadena, Assistant Chief Executive Officer, Internal Operations; Julie Wyne, Assistant Chief Executive Officer, External and Legal Operations; Dr. Michelle Williamson, Director of Finance; Sally Koltunik, Manager, Human Resources; Suzanne Jenike, Member Services Director; Patricia Mazzeo, Internal Auditor; Amit Thanki, Investment Analyst; Isabel Linares, Disability Investigator; Jacqueline Reep, Disability Investigator; David Lantzer, Staff Attorney; Robert Kinsler, Manager, Communications; Anthony Beltran, Audio/Visual Technician and Emely Garcia, Recording Secretary Paul Angelo, The Segal Company Harvey Leiderman, Esq., Reed Smith Michael O Leary, CFA, and James VanHeuit, Callan Associates Mr. Hidalgo led the Pledge of Allegiance. CONSENT AGENDA All matters on the Consent Agenda are to be approved by one action unless a Board Member or a member of the public requests separate action on a specific item. A motion was made by Mr. Baldwin, seconded by Mr. White to approve the Consent Agenda. The motion carried unanimously. C-1 MATERIAL DISTRIBUTED Application Notices - Death Notices - C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc

2 C-2 BOARD MEETINGS AND COMMITTEE MEETINGS: Approval of Meetings and Minutes Governance Committee Meeting - April 17, 2009 Regular Board Meeting - April 20, 2009 Private Markets Committee Meeting - April 20, 2009 Special Board Meeting - May 7, 2009 Recommendation: Authorize all meetings and approve all minutes. C-3 RECOMMENDATIONS OF THE GOVERNANCE COMMITTEE RESULTING FROM A MEETING ON APRIL 17, 2009: A. UNDISTRIBUTED EARNINGS AND RESERVE POLICY UPDATE Presentation by Steve Delaney and Paul Angelo Recommendation: To recommend the following policy objectives: (1) Consistent recognition of market gains and losses between UAAL and Excess Earnings; (2) Excess Earnings not impacted by trading decisions; (3) Consistency between investment gain in valuation and excess earnings, and (4) No change in prior use of excess earnings, with all objectives consistent with actuarial value assets on both sides. B. CII VOTING POLICY Presentation by Steve Delaney and Julie Wyne A recommendation was not made. The Committee requested further staff development. C. IRS REGULATIONS ROLLOVERS AND PERMISSIVE SERVICE PURCHASES Presentation by Julie Wyne Recommendation: Approve OCERS Regulations Governing Plan Rollovers. D. EXTRAORDINARY EXPENSE POLICY Presentation by Julie Wyne Recommendation: Approve OCERS Extraordinary Expense Policy with the recommended change. E. DISCUSSION - BOARD PERFORMANCE REVIEW Presentation by Steve Cadena Recommendation: A recommendation was not made. The Committee requested further staff development. C-4 RECOMMENDATIONS OF THE PRIVATE MARKETS COMMITTEE RESULTING FROM A MEETING ON APRIL 20, 2009: C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 2

3 A. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION REGARDING PURCHASE OR SALE OF A PENSION FUND INVESTMENT Recommendation: Approve CB Richard Ellis (CBRE) request for $18,058,800 to pay down debt on the Courtyard at the Commons property held within the separately managed core portfolio. C-5 FINANCIAL STATEMENTS FOR THE MONTH ENDING FEBRUARY 28, 2009 C-6 LEGISLATIVE SUMMARY MAY 2009 C-7 DISPOSITION OF SURPLUS EQUIPMENT C-8 BOARD ELECTION SAFETY AND ALTERNATE MEMBER C-9 ALTERNATIVE INVESTMENTS FORUM (AIF), L.A. FORUM Recommendation: Authorize Anthony Bedolla s travel and meal expenses for attending the May 20, 2009 Alternative Investments Forum (AIF), to be held in Los Angeles. C-10 INSTITUTE FOR FIDUCIARY EDUCATION (IFE) MARKET MAKERS 2009 SEMINAR Recommendation: Authorize Thomas Flanigan to attend the June 28 July 1 Institute for Fiduciary Education (IFE) Market Makers 2009 Seminar in Carlsbad, California. C-11 OPTION 4 BENEFIT PAYMENT ELECTION FOR RETIRING MEMBER GREGORY WALEN Recommendation: Grant election of retirement benefit payment Option 4 based on The Segal Company s actuarial report. C-12 OPTION 4 BENEFIT PAYMENT ELECTION FOR RETIRING MEMBER LYNN NEHRING Recommendation: Grant election of retirement benefit payment Option 4 based on The Segal Company s actuarial report. C-13 CLIENT CONFERENCE REPORTS C-14 QUIET PERIOD IN PROGRESS C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 3

4 * * * * * * END OF CONSENT AGENDA * * * * * * INDIVIDUAL ITEMS AGENDA I-2 CHIEF INVESTMENT OFFICER S REPORT Ms. Chary reviewed the CIO s report. The Board requested definitions on derivatives for the Special Board meeting in June. Ms. Chary agreed with the Board s request. Following discussion, a motion was made by Mr. Hidalgo, seconded by Mr. White to receive and file the CIO s report. The motion carried unanimously. I-3 QUARTERLY PERFORMANCE REVIEW CALLAN ASSOCIATES Mr. O Leary reviewed Callan Associates Quarterly Performance Review. Keith Rodenhuis, the Treasurer/Tax Collector s Board alternate arrived at 8:53 a.m. Following discussion, a motion was made by Mr. White, seconded by Mr. Baldwin to receive and file the Quarterly Performance Review. The motion carried unanimously. Mr. Street arrived at 9:57 a.m. Mr. Griffith requested that the manager watch list and termination policy be reviewed by the Investment Committee and Private Markets Committee. Staff agreed. Board recessed at 9:57 a.m. Board reconvened at 10:10 a.m. for the time certain agenda. DISABILITY APPLICATIONS/MEMBER APPEALS AGENDA 10:00 a.m. NOTE: WHEN CONSIDERING DISABILITY RETIREMENT APPLICATIONS, THE BOARD MAY FIND IT NECESSARY TO DISCUSS MATTERS RELATING TO THE EVALUATION OF THE WORK PERFORMANCE OF AN EMPLOYEE WHO HAS APPLIED FOR DISABILITY RETIREMENT, OR DISCUSS COMPLAINTS OR CHARGES MADE AGAINST SUCH EMPLOYEE. IF THIS OCCURS, THE BOARD MAY ADJOURN TO A CLOSED SESSION TO DISCUSS SUCH MATTERS PURSUANT TO GOVERNMENT CODE SECTION 54957, UNLESS THE EMPLOYEE REQUESTS THAT THE DISCUSSION BE IN PUBLIC. WHEN ADDRESSING THE BOARD, PLEASE STATE YOUR NAME FOR THE RECORD PRIOR TO PROVIDING YOUR COMMENTS. SPEAKERS WILL BE LIMITED TO THREE (3) MINUTES. C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 4

5 STAFF RECOMMENDATION IS TO GRANT SERVICE CONNECTED DISABILITY RETIREMENT WITH AN EFFECTIVE DATE OF THE DATE FOLLOWING THE DATE OF REGULAR COMPENSATION. (SAFETY MEMBER) (D-1) D-1: John L. Crowe Sheriff s Special Officer II, OC Sheriff s Department Application for service connected disability retirement Following discussion, a motion was made by Mr. White, seconded by Mr. Baldwin to grant service connected disability retirement with an effective date of the date following the date of regular compensation. The motion carried 9 to 0, with voting as follows: AYES NAYS ABSTAIN ABSENT Ms. Gorczyca Mr. Flanigan Mr. White Mr. Hidalgo Mr. Eley Mr. Royalty Mr. Baldwin Mr. Street Mr. Griffith STAFF RECOMMENDATION IS TO GRANT SERVICE CONNECTED DISABILITY RETIREMENT WITH AN EFFECTIVE DATE OF JULY 4, (SAFETY MEMBER) (D-2) D-2: Barry V. Hasterok Engineer/Paramedic, OC Fire Authority Application for service connected disability retirement Following discussion, a motion was made by Mr. Bedolla, seconded by Mr. Baldwin to grant service connected disability retirement with an effective date of July 4, The motion carried 9 to 0, with voting as follows: AYES NAYS ABSTAIN ABSENT Ms. Gorczyca Mr. Flanigan Mr. Bedolla Mr. Hidalgo Mr. Eley Mr. Royalty Mr. Baldwin Mr. Street Mr. Griffith STAFF RECOMMENDATION IS TO GRANT SERVICE CONNECTED DISABILITY RETIREMENT WITH AN EFFECTIVE DATE OF JUNE 6, (SAFETY MEMBER) (D-3) D-3: Hayward Miller Lieutenant, OC Sheriff s Department Application for service connected disability retirement C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 5

6 Following discussion, a motion was made by Mr. White, seconded by Mr. Eley to grant service connected disability retirement with an effective date of June 6, The motion carried 9 to 0, with voting as follows: AYES NAYS ABSTAIN ABSENT Ms. Gorczyca Mr. Flanigan Mr. White Mr. Hidalgo Mr. Eley Mr. Royalty Mr. Baldwin Mr. Street Mr. Griffith STAFF RECOMMENDATION IS TO ADOPT THE FINDINGS AND RECOMMENDATIONS OF THE REFEREE AND GRANT APPLICANT S APPLICATION FOR SERVICE CONNECTED DISABILITY RETIREMENT WITH AN EFFECTIVE DATE OF JUNE 18, (GENERAL MEMBER) (D-4) D-4: Aquila D. Scaggs Coach Operator, OC Transportation Authority Application for service and non-service connected disability retirement Following discussion, a motion was made by Mr. Baldwin, seconded by Mr. Street to adopt the findings and recommendations of the referee and grant applicant s application for service connected disability retirement with an effective date of June 18, The motion carried 7 to 1 to 1, with voting as follows: AYES NAYS ABSTAIN ABSENT Ms. Gorczyca Mr. Royalty Mr. Flanigan Mr. White Mr. Hidalgo Mr. Eley Mr. Baldwin Mr. Street Mr. Griffith Mr. Lantzer addressed the Board. * * * * * * * END OF DISABILITY APPLICATIONS/MEMBER APPEALS AGENDA * * * * * * * I-4 ASSET-LIABILITY STUDY Mr. O Leary and Mr. VanHeuit reviewed the policy alternatives. Mr. O Leary noted that page 24 unfunded actuarial liability chart labels are incorrect and will provide the Board a corrected chart. Following discussion, a motion was made by Mr. White, seconded by Mr. Eley to continue the asset liability study using OCERS current mix and mix C as the asset mixes going forward. C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 6

7 Following further discussion, a substitute motion was made by Mr. Street and seconded by Mr. Royalty to continue the asset liability study using OCERS current mix, mix B and mix C as the asset mixes going forward. The motion carried unanimously. Board recessed at 12:14 p.m. Board reconvened at 12:21 p.m. Mr. Bedolla left at 12:14 p.m. I-5 EMPLOYER AND EMPLOYEE CONTRIBUTION RATES FOR FISCAL YEAR REVIEW Mr. Delaney provided the Board the Projection of Retirement Costs Under Alternative Economic Scenarios Using Results from December 31, 2007 Valuation from The Segal letter dated May 22, Mr. Angelo reviewed the Employer and Employee Contribution Rates for the fiscal year review. Following discussion, a motion was made by Mr. Eley, seconded by Mr. Baldwin to receive and file the Employer and Employee Contribution Rates for fiscal year review. The motion carried unanimously. * * * * * * END OF INDIVIDUAL ITEMS AGENDA * * * * * * CLOSED SESSION The Board entered into Closed Session at 12:55 p.m. Mr. White recused himself from the Board deliberation and decisions concerning County of Orange v. Association of Orange County Deputy Sheriffs. E-1 CONFERENCE WITH LEGAL COUNSEL REGARDING SIGNIFICANT EXPOSURE TO LITIGATION INITIATED AGAINST ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM (GOVERNMENT CODE SECTION (a)) Adjourn pursuant to subdivision (a) of Government Code Section (one case: County of Orange, California v. Association of Orange County Deputy Sheriffs) Recommendation: Take appropriate action. The Board reconvened from Closed Session at 1:16 p.m. The Board took no reportable action. C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 7

8 * * * * * * END OF CLOSED SESSION * * * * * * PUBLIC COMMENTS None BOARD MEMBER COMMENTS Mr. Eley commended Mr. White as SACRS president and his presence at the SACRS Spring Conference. Mr. White highlighted on SACRS Spring Conference. He also stated that SACRS Fall Conference will be held in November in Costa Mesa. CHIEF EXECUTIVE OFFICER/STAFF COMMENTS Mr. Delaney stated that the May 18 th Special Board meeting summary will be included on the June Board meeting. COUNSEL COMMENTS Mr. Leiderman stated that outside factors should be considered in the risk analysis of selecting an asset mix. ADJOURNMENT: (IN MEMORY OF THE ACTIVE MEMBERS, RETIRED MEMBERS, AND SURVIVING SPOUSES WHO PASSED AWAY THIS PAST MONTH) Active Members: Retired Members: Surviving Spouses: Deaths (QDRO): None Horatio Cogswell; Maxine Giese; Horst Grandke; Mike Hess; Reinhard Krentz; Margaret Lane; Hal Lightner; Susan Martinez; Frederick Morse; Barbara Perkins; Michael Petersen; Marjorie Sexton; Rue Smith; Dolly Telepka; Eugene temple; James Teraz; Dam Ton; Paul Warner; Gladys Williams; Ronald Yielding None None There being no further business to bring before the Board, a motion was made by Mr. Eley, seconded by Mr. Baldwin to adjourn the meeting at 1:25 p.m. The motion carried unanimously. Submitted by: Approved by: Steve Delaney Secretary to the Board Robert A. Griffith Chair C:\Documents and Settings\cnguyen\Local Settings\Temporary Internet Files\OLK79\ Board Minutes.doc 8