Table of Contents. Actuarial Methods and Assumptions.14. Summary of Major Plan Provisions..16

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2 Table of Contents I. Executive Summary...1 II. Mission Statement 1 III. Business Plan 1 3 Executive.1 2 Internal Auditor..2 Investments 2 Member Services 2 Disability..2 Administrative Services Financial Services..3 Information Technology 3 Legal...3 Communications....3 IV. Review of Year 2010 Business Plan 3 6 Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G Appendix H Appendix I Organizational Chart 9 Organization Who We Serve Administrative Expenses.14 Actuarial Methods and Assumptions.14 Asset Allocation.15 Summary of Major Plan Provisions..16 Labor Management Committee.16 Business Plan Team.16

3 I. Executive Summary In 2010 OCERS studied a number of continuous improvement opportunities, including best of class Board governance policies, Defined Contribution program options, and both studied and initiated the conversion away from our legacy Pension Administration System will be a year of application efforts, as we apply what we learned in Recommendations from the review of Board governance policy will be both documented and implemented will be our first complete year of work on the new V3 pension administration system, requiring focused attention to ensure we remain on time and on budget. We will complete our first administrative benchmarking study with the assistance of CEM, as we tie budget to goals and measurable objectives. The initial steps in unitizing the OCERS Fund will lay the necessary foundation for the possible launch of a Defined Contribution program. The engagement of a Managing Director of Investments will allow for a strategic review of OCERS investment goals. The 2011 Business Plan is organized as a series of goals for the individual divisions at OCERS. Those goals with 2011 budgetary impact have been noted. A status report on the 2010 Business Plan follows the 2011 goals. With this report we will for the first time divide the Business Plan with its specific divisional goals for 2011 from the longer term Strategic Plan document that will identify those goals that are ongoing, prospective or multi year in nature. II. III. Mission Statement The role of the Orange County Employees Retirement System is to provide secure retirement and disability benefits, quality information concerning those benefits, and prompt, professional and courteous service that meets the highest standards of excellence. In carrying out that role, the Board of Retirement and staff are committed to act for the exclusive benefit of the plan and its participants, manage assets of the plan prudently, and administer benefits with impartiality. Business Plan Executive Create a succession plan for OCERS management team (Complete in 2011) Review Cost Impact Options. Review those areas of policy administration that may have impact on system costs, including: 5% earnings distributed to member accounts Deminimus write offs Collection of overpayments (Complete in 2011) Implement Governance policy and procedure modifications with Governance Committee through 2011 (Complete in 2011) Create a plan to move towards a Defined Contribution investment option administered by OCERS (Multi Year) 1

4 Complete a strategic review of OCERS Investment Policy and goals. With the addition of a Managing Director of Investments, it will be an opportunity to review OCERS long term investment plan (Complete in 2011) Obtain Board input into long term strategic planning. The current multi year strategic plan document is a staff document. The complete strategic planning cycle should include open discussion and interaction between staff and OCERS Board to craft long term objectives (Complete in 2011) Internal Auditor Development of Internal Audit Benchmarking (Complete in 2011) Implementation of 15 minute training session prior to each Audit Committee meeting (Complete in 2011) Develop and implement Internal Quality Assurance Program (Complete in 2011) Investments Complete RFP process for Investment and Real Estate Consultant (Complete in 2011) Evaluate investment assumption rate (Complete in 2011) Discussion on increased allocation to Absolute Return Strategies in order to have greater flexibility in asset allocation (Multi Year to be complete in 2011) Complete searches for agriculture and energy (Multi Year to be completed in 2011) Implement tools for risk management based on Board direction (Complete in 2011) Monitor disposition activity for real estate separate accounts (Multi Year) Monitor appropriate level of commitment for real estate and private equity (Multi Year) Complete review of securities lending program (Complete in 2011) Member Services Develop a quality assurance/compliance process for specific benefit payments (Complete in 2011) Provide technical support to the Pension Administration Software team throughout the requirements gathering phase (Multi Year) Disability/Death Evaluate the application phase of disability retirements to ensure maximum efficiency in processing time (Complete in 2011) Assess communication efforts with disability applicants and employers to ensure each stage of the process is understood (Complete in 2011) Administrative Services Coordinate with County and OCEA to update County job classifications for OCERS specific positions (Multi Year) 2

5 Obtain SPHR (Senior Professional in Human Resources) designation through the Society for Human Resources Management (Complete in 2011) Finance Establish coordination between OCERS and Plan Sponsors on Financial Reporting as required by GASB 25 & 27 (Complete in 2011) Review OCERS Interest Crediting Policy and provide appropriate recommendations to the Governance Committee (Complete in 2011) Complete a review of our current reserve accounts and make appropriate recommendations to the Governance Committee (Complete in 2011) Information Technology Legal Implement new Pension Administration System (First of a 3 year implementation) Implement new OCERS Intranet (Personal Centric Services) (Complete in 2011) Develop OCERS Paper form into online forms with approval and rejection workflow (Complete in 2011) Provide technical support to the Pension Administration Software team throughout the requirements gathering phase (Multi Year) Address IRS technical issues that arise during the Determination Letter application review (Multi Year) Communications Evaluate and enhance the Communications Plan to include key messages about the system and benefits offered (Complete in 2011) Expand video production capabilities and in person outreach (Complete in 2011) Complete a series of focus groups with Active members (Complete in 2011) Develop targeted communication to various member groups based upon focus group outcomes (Complete in 2011) IV. Year 2010 Business Plan Review & Evaluation Report Executive Assess Board Governance Board governance is a deciding component of organizational effectiveness. Evaluate where OCERS Board and organization are today, and ensure best practices are in place Status: In process Completed review in 2010 with Ennis Knupp. Continue implementation with Governance Committee in Evaluate possible Defined Contribution Program Management Status: Completed Evaluate organizational staffing needs with a focus on ensuring both the Investment Division and Disability Section are staffed to meet their challenging workloads. Improvements in IT system support, as well as possible staff retirements provide an opportunity for an 3

6 organizational overview of staffing needs while keeping budget limitations in view Status: In process The Disability Services Coordinator has been hired. The hiring of the Managing Director of Investments is in process. Evaluate all aspects of plan administration for tax compliance and implement necessary correction measures Status: Ongoing All necessary documentation to support the VCP and IRS Determination Letter filing has been scanned and provided to tax counsel with goal of submitting the application prior to January 30, Implementation Tasks 2009 allowed for review of a number of new processes and projects will focus on first year implementation of those that are approved. Could include: a. Strategic Planning Status: In process First year implementation completed. b. Benchmarking (CEM) Status: In process First year implementation completed for SACRS version will be first year for CEM version. c. IT Conversion Project Status: In process First year implementation has begun. d. Public Pensions Standards Award Status: Completed Internal Auditor Work with Member Services and Finance to reduce the number of reportable conditions within the external audit report Status: Completed Develop continuous audit program for finance regarding evaluation of investment manager fees Status: Completed Develop continuous audit program for testing retiree benefit payments Status: In process to be completed in 2011 Investment Implement the changes from the asset allocation policy adopted by the Board in 2009 Status: Ongoing Evaluate the various Real Return strategies in order to determine the appropriate fit for the Fund Status: Ongoing Evaluate manager structure for equity and fixed income Status: Completed Monitor appropriate level of commitment for real estate and private equity Status: Ongoing Complete evaluation of custodial relationship Status: Completed Continue to review and make changes to performance reporting practices to Board Status: Ongoing Evaluate investment staffing needs and continue cross training Status: Ongoing Continue Board education and communication on investment related topics and issues Status: Ongoing Member Services 4

7 Assess organizational structure of department to ensure maximum efficiency Status: Completed The primary duties of the Member Services Manager and Member Services Supervisor have been re defined. Refine receipt of accurate address information with enhanced delivery of communication and services Status: Completed Provide enhanced training for supervisory positions Status: Completed Member Services Director completed the CAPP Program. Review OCERS brochures in conjunction with Communications Division to ensure they are up to date Status: Ongoing Provide monthly staff training sessions Status: Ongoing Evaluate the necessity of expanding the imaging system to further refine the organization of documents Status: Deferred pending implementations of Pension Administration System. Disability/Death Enhance training for Disability Investigators Status: Completed Both investigators completed training classes and attended industry conferences. Evaluate the disability process to determine if changes are necessary In process to be completed in 2011 Coordinate with County s new EEO Access Manager to encourage return to work programs and reasonable accommodations Status: Completed Administrative Services Redesign and update written HR Procedures in OCERS standard format Status: Completed Image personnel and medical files of OCERS staff for enhanced data security Status: Completed Replace building alarm system to ensure ongoing building security; current alarm systems is obsolete Status: Completed Finance Develop an enhanced fixed asset system Status: Completed Apply for the GFOA Award for Distinguished Budgets Status: In process to be completed in 2010 Continue to enhance the financial reporting Status: Ongoing Complete imaging of financial records Status: Completed Implement upgrade of accounting software Status: Completed Information Technology 5

8 Legal Assist with implementation of new Pension Administration System. Status: Ongoing Upgrade Board/Training Room Audio Visual equipment. Status: Completed Research VOIP and Call Center Solutions and make appropriate recommendations Status: Completed Complete an RFP for additional Hearing Officers Status: Completed Complete an RFP for both general and specialized Investment Counsel Status: Completed Analyze legislative changes at the end of each legislative session, determine impact on operating procedures and communicate to staff Status: Ongoing for each legislative session Implement a review and oversight of written office procedures Status: Ongoing Communications Explore creation of Video Frequently Asked Questions for OCERS Website Status: Completed Implement steps to increase distribution of newsletters and publications via e mail Status: Completed Complete a series of focus groups with Active and Retired members In process to be completed in 2011 focus groups for retired members were completed in 2010, active member focus groups have been started. Implement an annual update of OCERS By The Numbers Status: Completed Other Accomplishments In addition to the items in the 2010 Business Plan, OCERS staff completed the following: Executive Expanded communications outreach program to include first annual Year In Review public meeting with active members. Also met individually with the majority of Orange County s state legislative representatives to open the communication channels with the retirement system in their own backyard Provided OCERS Board with first report on the history and evolution of the OCERS Unfunded Accrued Actuarial Liability (UAAL) Continued discussion with OCERS Board regarding smoothing options, as foundation for 2011 Actuarial Experience Study OCERS Board adopted Undistributed Earnings Allocation policy, bringing clarity to how various reserve accounts will interact with the UAAL in future years. The Segal Group indicates OCERS is one of, if not the, first 37 Act county to implement such an important funding policy Board approved multi year transition to new logo, with addition of employees to logo title. OCERS current logo had left off inclusion of our most important stakeholder group our members 6

9 Managed seven RFP s ; PAS, PAS Oversight Project Manager, Actuary, External Auditor, Governance Consultant and Financial Review Internal Audit Completed Peer Review and have begun implementation of recommendations Completed 80% of Certified Internal Auditor Exam requirements Investments Completed searches for global equity and domestic large cap growth managers Completed searches for international small cap and small cap growth managers Adopted a policy for Performances based fee arrangements Provided for Board education on energy, infrastructure and agriculture Completed Private Equity pacing review Consolidated real estate separate accounts Member Services Pension Administration System site visits to Iowa, Denver, Pennsylvania and New York Participated in 65 communications committee meetings Presented to County HR managers and SSA managers regarding the formula Participated in plan sponsor site visits with the CEO Assisted in development of PowerPoint for Active Member presentation at Hall of Administration Disability/Death Conducted disability training for county HR managers Disability staff met with several plan sponsors to improve disability retirement coordination efforts Created disability retirement statistics report tracking benefit outcomes through all levels of the administrative appeal process Administrative Services Completed 7 recruitments and assisting with the new Investment Executive recruitment Continue to improve efficiency and realize cost savings by re negotiating contracts and automating billings Worked to improve employee morale and education by sponsoring Brow Bag lunch sessions Oversight of data transfer to Board of Elections and worked with that entity to ensure a timely election for trustees Worked with building manager on all building related matters including repairs, build outs, modifications and safety issues 7

10 Purchased and installed two automated external defibrillator machines and arranged for staff training on their use Finance The new reporting requirements of GASB 43 and 45 were implemented with their inclusion in the CAFR Information Technology Legal Updated Member Information Center with retirement application customization, online member statement, and electronic request for service purchase contract Upgraded phone analog lines to new PRI line and enabled Caller ID Assisted with the creation of OCERS instructional/informational videos on OCERS web site Developed Member Services Administration Application for member Information Center Support Obtained successful Appellate Court ruling in Stevenson v. OCERS Defended a public records act request through Superior Court ruling Participated in Pension Administration System Steering Committee meetings and assisted in selection of PAS vendor Presented at the CALAPRS and SACRS conferences Communications Provided graphic input on 65 communication flyer In conjunction with Wells Fargo created gray scale logo in various formats for use on checks Completed a Summary Plan Description for the 55 safety formula Streamlined the Pre Retirement Seminar based on feedback from focus groups In conjunction with Administrative Services, completed the design phase of new OCERS logo Presented at CALAPRS conference 8

11 Appendix A. Organization Chart as of August 2010 OCERS Board of Retirement Secretary III (1) Executive Secretary (1) CEO Steve Delaney Internal Auditor Patricia Mazzeo Managing Director of Investments Vacant Chief Investment Officer Shanta Chary Investment Analyst (2) Assistant CEO (External & Legal Operations) Julie Wyne Assistant CEO (Internal Operations) Stephen Cadena Member Services Director Suzanne Jenike Member Services Manager Heidi Halbur Disability Supervisor (1) Disability Investigator (2) Office Specialist (2) Member Services Supervisor (1) Sr. Staff Development Specialist (1) Sr. Retirement Program Specialist (1) Retirement Program Specialist (8) Benefits Technician (3) Office Specialist (1) Office Technician (2) Payroll/Transmittal Specialist (1) Retirement Contribution Reconciliation Specialist (1) Public Relations Analyst Robert Kinsler IT Supervisor - Operations Jenny Sadoski Systems Technician (3) IT Supervisor - Programming Maria Weese Systems Programmer Analyst II (2) Finance Director Michelle Williamson Finance Reporting Manager (2) Accountant Auditor II (3) Accounting Technician (2) Senior Accounting Assistant (1) Administrative Services Manager Sally Koltunik Graphics Specialist (1) Staff Attorney (3) Staff Specialist (1) Staff Assistant (1) Store Clerk (1) 9

12 Appendix B. Organization Board of Retirement The Board of Retirement is responsible for establishing policies governing the administration of the retirement plan, making benefit determinations, establishing investment policy for the system and monitoring execution of its policies. The Board of Retirement consists of nine members and one alternate. The Board of Supervisors of the County appoints four members of the Board of Retirement; active participants of the system elect four members, one safety and two general and an alternate; the retirees elect one member; and one member is ex officio, the Treasurer of the County. Executive Division This division consists of the Chief Executive Officer (CEO) who implements and executes policies promulgated by the Board of Retirement. The Assistant Chief Executive Officer for External and Legal Operations, Assistant Chief Executive Officer for Internal Operations, the Chief Investment Officer (CIO) and the Internal Auditor assist the CEO in the daily operations of the system. Investment Division This division is responsible for the administration and management of the investment program, in accordance with policies, regulations, and guidelines set forth by the Board of Retirement. It is responsible for the interface with investment managers, including monitoring investment performance objectives, adherence to investment guidelines, conducting due diligence visits to investment managers, and interviewing prospective investment managers. The department is also responsible for the interface with outside investment consultants in reviewing and evaluating all investment managers performance and investment manager fees. External Operations Division This division is comprised of the Member Services and Communications divisions. The Member Services Division is responsible for providing all benefit services to the members of the System. This includes benefit calculations, evaluation of claims for disability retirement, preparation of data to support applications for retirement, preparation of the retiree payroll, and membership counseling. The Communications Division is responsible for developing and coordinating information for members and plan sponsors through publications and newsletters. Internal Operations Division This division is comprised of the Accounting Section, Administrative Services and Information Technology. The Accounting Section, headed by the Finance Director, is responsible for all the financial records and reports of OCERS. This includes the preparation of the Comprehensive Annual Financial Report, monthly and quarterly financial statements and the annual operating budget. The Accounting Section also maintains OCERS system of internal control; balances retirement payroll, reconciles investment portfolios and processes all invoices for goods received and services rendered. The Administrative Services Division is responsible for providing administrative and human resources services for OCERS. Specifically, the areas of responsibility include contract 10

13 administration, purchasing, and personnel functions of OCERS. The Information Technology Division is responsible for OCERS Network systems, personal computers and Web site, while providing programming and technical support on our Benefits Administration System. In addition, this section is responsible for the production of retiree payroll and administering all audio/visual functions. Legal Division The Legal Division provides legal advice and representation to the Board of Retirement and the Orange County Employees Retirement System on a wide variety of issues affecting OCERS. Among other things, this includes issues involving disability retirements, investments, legislation, vendor contracts, and family law. 11

14 Appendix C. OCERS MEMBERSHIP The following is a summary of OCERS membership as of December 31, 2009 and 2008: Active Members 22,633 23,720 Inactive (Deferred) Members 4,094 3,881 Service Retirements 9,322 8,924 Disability Retirements 1,274 1,267 Survivors 1,399 1,349 Additional Payees Total 38,970 39,379 SCHEDULE OF AVERAGE MONTHLY PENSION CHECK For the years ended December 31, 2009 and General Members $2,508 $2,373 Safety Members $4,926 $4,724 SCHEDULE OF AVERAGE YEARS OF SERVICE AT RETIREMENT For the years ended December 31, 2009 and General Members Safety Members SCHEDULE OF AVERAGE RETIREMENT AGE For the years ended December 31, 2009 and General Members Safety Members

15 Members of the Plan Sponsors as of August 2010 EMPLOYER General Probation Safety TOTAL Tier 2 Tier 1 Sub Total Tier 2 Tier 1 Tier 2 Tier 1 Sub Total County O.C. T. A O.C. Superior Court O.C. Fire Authority O.C. Sanitation District TCA City of San Juan Capistrano O.C. Retirement System U.C.I O.C. Law Library O.C. Cemetery District O.C. Children & Family Local Agency Formation Department of Education O.C. I.H.H.S Total

16 Appendix D. Administrative Expenses Section of the Government Code limits the annual administrative expenses of the retirement system to eighteen hundredths of 1 percent (18 basis points) of the total assets of the system. Total budgeted expenses for 2009 that were subject to the 18 basis point test were $10,554,801 or basis points. Additionally, Section of the Government Code allows certain expenses to be excluded from the calculation. The excluded expenses are included, however, in the amount reported in OCERS Financial Statements. Appendix E. Actuarial Methods and Assumptions The Entry Age Normal method was used with gains and losses being amortized over a 15 year period from the date first identified. The following actuarial assumptions were also used: 1. Interest: 7.75% per annum. 2. Salary scale: 3.5% per annum plus merit and promotional increases varying by years of service. 3. Cost of Living Adjustment: Consumer Price Index subject to a maximum increase of 3% per annum. 4. Spouses and dependents: 80% of male employees and 50% of female employees assumed married at retirement, with wives assumed four years younger than husbands. 5. Asset valuation: Asset values are based on fair market valuation as of December 31 each year. See OCERS year 2008 CAFR pages 69 and Rates of termination of employment. See OCERS year 2009 CAFR page Expectation of life after retirement. See OCERS year 2009 CAFR page Expectation of life after disability. See OCERS year 2009 CAFR page Amortization of Unfunded Actuarial Accrued Liability: Outstanding balance as of December 31, 2004 amortized over a declining 26 year (remaining) period, with any subsequent actuarial gains and losses amortized over separate 15 year periods. 14

17 Appendix F. Asset Allocation as of August 2010 Real Return 12.64% Real Estate Int'l Fixed 8.37% Income 5.17% Actual Cash 1.43% Absolute Return 7.49% Domestic Equity 15.97% Alternative Investments 2.77% Global Equity 3.60% Domestic Fixed Income 21.50% Emerging Mkts Equity 5.33% Int'l Equity 15.74% Policy Int'l Fixed Income 5% (3%-7%) Real Estate 10% (7%-13%) Cash 0% Absolute Return 7% (5%-9%) Domestic Equity 16% (12%-20%) Real Return 13% (10%-16%) Alternative Investments 5% (3%-7%) Domestic Fixed Income 19% (15%-23%) Emerging Mkts Equity 5% (3%-7%) Int'l Equity 16% (12%-20%) Global Equity 4% (2%-6%) 6% 4% 2% 0% -2% -4% -6% 1.43% Cash 0.49% Absolute Return -0.03% Domestic Equity -2.23% -0.40% Deviation from Policy -0.26% 0.33% Alternative Global Equity Int'l Equity Emerging Investments Mkts Equity 2.50% Domestic Fixed Income -0.36% Real Return 0.17% Int'l Fixed Income -1.63% Real Estate 15

18 Appendix G. Summary of Major Plan Provisions OCERS is a cost sharing multiple employer, defined benefit pension plan covering employees of the County of Orange and various districts with the County. Benefit provisions vary depending on options adopted by the participating employers. A more complete explanation of the benefit provisions may be found at page of OCERS 2009 CAFR. Appendix H. Labor Management Committee This committee is comprised of four staff members; Sally Koltunik, Anthony Beltran, Sandy Guevara, and Suzanne Jenike and one representative from Orange County Employee s Association (OCEA). LMC members meet on a quarterly basis in a cooperative partnership to address and resolve workplace issues. Appendix I. Business Plan Team Steve Delaney, Chief Executive Officer Julie Wyne, Assistant Chief Executive Officer, External and Legal Operations Stephen Cadena, Assistant Chief Executive Officer, Internal Operations Shanta Chary, Chief Investment Officer Tracy Ayres, Executive Secretary II 16