FRESNO COUNTY BOARD OF RETIREMENT
BOARD OF RETIREMENT
FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
BOARD RETREAT – REGULAR MEETING
October 17 – 18, 2007
Trustees Present 10/17/07:
Alan Cade, Jr. Michael Cardenas
Nick Cornacchia Vicki Crow
Eulalio Gomez Steven J. Jolly
Stephanie Savrnoch Ronald S. Frye for John Souza
Trustees Absent 10/17/07:
Phil Larson John Souza
Others Present 10/17/07:
Michael Cunningham, Retired FCERA Member
Tom Iannucci, Cortex Applied Research
Carol Sheela, Retirement Benefits Manager
Thanaphat “Pat” Srisukwatana, Systems & Procedures Analyst
Robert Landen, Deputy County Counsel
Roberto L. Peña, Retirement Administrator
Becky Van Wyk, Assistant Retirement Administrator
Elizabeth Avalos, Administrative Secretary
1. Call to Order
Vice Chair Cardenas called the meeting to order at 9:09 AM and the Pledge of Allegiance was recited.
2. Public Presentations
None.
Consent Agenda/Opportunity for Public Comment
A motion was made by Trustee Crow, seconded by Trustee Frye, to Approve Consent Agenda Items 3 – 8. VOTE: Unanimous (Absent – Jolly, Larson, Souza)
*3. Summary of monthly statistics from the Retirement Association Office on buybacks, retirement benefit estimates, public service, age adjustments, final compensation calculations and disability retirement applications for September 2007
RECEIVED AND FILED; APPROVED
*4. Public Records Requests and/or Retirement Related Information Requests from Donna Marquez, Active FCERA Member; Mary Benson, Active FCERA Member; Susan Rutkowski, Active FCERA Member; Rachel Gomez, Active FCERA Member; Karen Heffron, Active FCERA Member; Paul A. Dictos, Paul A. Dictos Accountancy Corporation; Billy D. Reischling, Active FCERA Member; Linda Laine, Active FCERA Member; Ivonne Ripolle, Active FCERA Member; Cheryl Carlson, City of Fresno Fire Department
RECEIVED AND FILED
*5. Quarterly Trustee Travel Report and Anticipated Trustee Travel
RECEIVED AND FILED
*6. Budget Status for the period ending September 30, 2007
RECEIVED AND FILED
*7. Correspondence from Attorney Jeffrey Rieger, Reed Smith, to Nancy A. Jenner, North Central Fire Protection District Counsel, regarding a Public Records Act Request
RECEIVED AND FILED
*8. Certification of John P. Souza as Duly Nominated and Unopposed for Election as Retired Member Representative and Ronald S. Frye as Duly Nominated and Unopposed as Alternate Retired Member Representative. Approve request to place certification on the Board of Supervisors’ October 30, 2007 Agenda
RECEIVED AND FILED; APPROVED
9. Discussion and appropriate action on Strategic Planning presented by Tom Iannucci, Cortex Applied Research
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board of its desire to implement a Strategic Planning process. Mr. Peña encouraged the Board’s participation in the discussion.
Tom Iannucci, Cortex Applied Research, began the presentation by noting the benefits of an effective planning process as follows:
• Offers clarity as to the general approach to the business
• Aligns how time is spent and resources are allocated
• Focuses the organization
• Improves efficiency
• Allows progress to be gauged
• Orients new board members and staff
Mr. Iannucci stated that the planning process consists of the Board clarifying its strategy and determining any threats, identifying strategic priorities, documenting a strategic direction, and implementing a business plan. The outcomes of the process should include a mission statement, Statement of Strategic Direction, and a Business Plan.
The Mission Statement will be a concise description of FCERA’s business with the Statement of Strategic Direction being a more detailed description of the kind of organization FCERA is and how FCERA will approach the business. The Business Plan is a detailed description of specific projects that the Board will undertake to achieve the Mission and Strategic direction over the coming 18 months.
It was noted that, for the public sector, identifying the business customers, needs, markets, and ownership structure are generally set in statute.
Mr. Iannucci stated that retirement systems should focus on continually ensuring clarity around other strategic issues such as:
• Role in influencing legislation
• Role in corporate governance
• Commitment to service quality
• Scope of member communications (narrow v. holistic)
• Approach to risk management
• Investment management v. investment oversight
• Independence vis-à-vis sponsor
Chair Jolly joined the Board at 9:29 AM.
Mr. Iannucci noted that through the planning process the Board will need to identify threats to the current business such as:
• Funding/Contribution levels
• Employer withdrawals
• Misinformed sponsors/stakeholders
• Competing pension arrangements
• Succession (Board, Staff, and Human Resource issues)
• Drains on the fund
• Internal governance/management
Mr. Iannucci described strategic programming as follows:
• Defining projects that will either:
o Move the organization in the desired direction
o Address threats to the business
• Defining project parameters:
o Deliverables
o Timing
o Responsible parties
o Reporting
It was noted that a mission statement should clearly and concisely describe what business an organization is in:
• What “needs” to meet
• What products/services to provide
• What customers we serve
• What market(s) we serve
FCERA’s mission statement, in essence, could read as follows:
“To administer the retirement benefits provided for by law to the members and beneficiaries of the Fresno County Employees’ Retirement Association in a prudent, accurate, and timely manner consistent with fiduciary duties.”
Discussions, questions, and comments followed regarding how the mission statement might differ between the trustees and FCERA staff in that their responsibilities differ.
Discussions ensued regarding to what extent, if any, FCERA requires greater autonomy [from the County] or authority to carry outs its mission in the following areas:
• Budget
• Human resources
• Legal services
• Management information services
Trustee Crow noted that with the exception of human resources FCERA has, for the most part, autonomy in the other areas.
Mr. Peña stated that he is comfortable with FCERA’s relationship with the County and the level of autonomy.
Trustee Savrnoch expressed her desire that FCERA become more autonomous in the area of legal services.
Discussions ensued regarding FCERA’s stakeholders and to what extent, if any, does FCERA need to be more stakeholder-focused as an organization and, if so, which groups will be emphasized and what types of efforts will be put forth. It was noted that the stakeholders include employers, active and retired members, and taxpayers.
Discussions, questions, and comments followed regarding FCERA’s current approach to stakeholder relations. Michael Cunningham, Retired FCERA Member, expressed his appreciation to the Board and Administration for their efforts in communicating with and educating the membership via the internet and the newsletter.
Discussions, questions, and comments followed regarding the differences between stakeholder relationships versus member/customer service relationships. Different approaches were discussed as to how and when to share information with the stakeholders, such as making the SACRS Economic Impact Study available to the Board of Supervisors (BOS) and having an occasional “after hours” Board meeting allowing the membership more opportunity for participation.
Trustee Savrnoch expressed her concern that information, such as scheduled Board meetings, are not being shared with the membership county-wide. Trustee Savrnoch suggested that the membership be notified of Board meetings via “All County” email distribution.
Mr. Peña noted that the Board meeting dates are available on the web-site and the Information Technology Services Department (ITSD) has guidelines as to the use of the “All County” email distribution and it may not be appropriate to notify the membership of the regularly scheduled Board meetings via “All County” email.
Mr. Iannucci noted that, through the Strategic Planning process, the differences between the “customer business” and “stakeholder business” should be well distinguished.
Discussions, questions, and comments followed regarding the importance of educating the stakeholders, mainly the Board of Supervisors, on the “business of retirement” so that sound business decisions can be made.
Discussions, questions, and comments followed regarding the different approaches/avenues to which information is shared with the BOS and County management.
Mr. Iannucci noted that he will summarize the Board’s concerns regarding the stakeholders and present an analysis at a future Board meeting.
Mr. Iannucci stated that because all retirement systems are committed to service quality, service quality must be well defined. Customer service has significant implications on the following areas:
• Organizational structure
• Staffing
• Training and development
• Technology
Mr. Iannucci stated that benchmarks are useful tools in identifying best practices and assessing customer service quality. It was noted that other 1937 Act retirement systems and custom internal benchmarks are good sources for indentifying best practices that FCERA may what to implement for measuring service quality.
Discussions, questions, and comments followed regarding the need for recording data so that custom internal benchmarks can be set before comparing FCERA with other 1937 Act Counties.
Mr. Iannucci suggested that the customer service criteria include the following:
• Customer service culture
• Performance evaluation tied to customer service
• Service quality measurement and reporting
• Customer service benchmarks
• Staff training
• Supporting technology
Chair Jolly expressed his concern that the Board may not be in a position to comment on the customer service criteria in that it is not familiar with the daily office operations. Mr. Peña encouraged the Trustees to spend time at the FCERA office in order to gain a better understanding of the daily operations and customer service issues.
Discussions ensued regarding the level in which Administration feels the customer service criteria are being satisfied. It was noted that, although improvement is needed in all areas, staff training, supporting technology, and customer service culture are satisfactory.
Trustee Gomez joined the Board at 12:25 PM.
Discussions ensued regarding the level in which the Board and Administration feel the FCERA investment program will look in the next 5 years. The discussions focused on the following topics:
• Internal investment resources
• Consulting resources
• Asset classes
• Risk management practices
• Board practices
In response to a question from Chair Jolly regarding the current and future growth of the Plan which is approaching $3 billion, Mr. Peña stated that the Plan’s assets and liabilities will continue to grow overtime.
Discussions, questions, and comments followed regarding the need for, costs of, and risk management issues related to using internal investment resources [investment analyst] as the Plan grows and becomes more complex.
Mr. Iannucci noted that performance management and risk management are the basic approaches to investment programs. Boards can allocate effort to both approaches.
The Performance Management approach includes:
• Manager interviews
• Manager selection
• Manager allocations
• Conducting due diligence
• Resolving member complaints
• Approving purchases and contracts
The Risk Management approach includes:
• Defining risks
• Asset allocation and diversification
• Policy (investment/operations)
• Due diligence process and oversight
• Business continuity and disaster recovery
• Internal controls and audit
• Investment compliance
• Monitoring service providers
• Organizational structure
Discussions, questions, and comments followed regarding the Board’s role in defining risk associated with the investment portfolio and the extent the Board is able to measure and control the amount of risk.
Discussions ensued regarding to the extent in which the Board needs to devote more resources to formally evaluating the performance of its advisors and service providers. It was noted that FCERA does not currently have a system in place for evaluating its advisors and service providers. Mr. Peña noted that Administration is developing a process to evaluate the investment consultant and would be presenting a suggested approach to the Board at a future meeting.
Discussions, questions, and comments followed regarding the importance of establishing an internal audit function. The Board expressed its desire to move forward in this area and requested additional education on the issue.
Discussions ensued regarding the Board’s passive/active role in retirement benefit policy. It was noted that Boards normally do not have authority over benefit design/levels, but may attempt to be influential in the design. Discussions, questions, and comments followed regarding the Board’s current role/position as “administering benefits only” with a desire to be more proactive in retirement legislation using the SACRS legislative platform and other avenues.
Mr. Iannucci stated that retirement systems are major shareholders in the U.S. and world economies and have a responsibility to exercise their duties as shareholders. There are a range of approaches retirement systems may take to exercise their duties such as low, medium, and high level activism. It was noted the Board currently takes a low level approach to Board Governance and a medium level approach to legislation. The Board expressed a desire to take a high level approach to class action lawsuits.
Discussions, questions, and comments followed regarding ways that FCERA should differentiate itself from other retirement systems of similar size. It was noted that emphasis should be placed on risk management, investments, and customer/member service.
Discussions, questions, and comments followed regarding a holistic approach to customer service by combining the different aspects of retirement such as deferred compensation, social security, and health benefits counseling.
Mr. Iannucci stated that developing specific skills such as a strong expertise in stakeholder relations, asset liability, and effective member counseling are strong advantages for successful Board positioning.
The Board addressed possible threats such as such as capital market returns, legislation, union influence, public opinion, and lack of autonomy that may impact its ability to administer retirement benefits.
The Board noted that it would like to address the following areas over the next 18 months:
• Customer service
• Stakeholder relations
• Risk management
• Fully implementing the investment strategy
• Establishing Board creditability
• Fresno Station Business Center
• Setting a policy regarding undistributed earnings
• Communicating directly with the membership
Discussions ensued regarding “County-wide” communication distribution. It was noted that after legal review and discussions with ITSD, the issue will be agendized for discussion at the November 7, 2007 Regular Board Meeting.
Mr. Iannucci stated that a summary of the discussions will be prepared and presented to the Board at a future date.
RECEIVED AND FILED
The Board recessed at 4:30 PM.
The Board reconvened October 18, 2007 and Chair Jolly called the meeting to order at 8:33 AM.
Trustees Present October 18, 2007:
Alan Cade, Jr. Michael Cardenas
Nick Cornacchia Vicki Crow
Eulalio Gomez Steven J. Jolly
Stephanie Savrnoch John Souza
Trustees Absent 10/18/07:
Phil Larson
Others Present 10/18/07:
Michael Cunningham, Retired FCERA Member
Ronald S. Frye, Alternate Trustee
Jeffrey MacLean, Wurts & Associates
Attorney Harvey Leiderman, Reed Smith
Carol Sheela, Retirement Benefits Manager
Thanaphat “Pat” Srisukwatana, Systems & Procedures Analyst
Robert Landen, Deputy County Counsel
Roberto L. Peña, Retirement Administrator
Becky Van Wyk, Assistant Retirement Administrator
Elizabeth Avalos, Administrative Secretary
10. Discussion and appropriate action PIMCO distressed mortgage offering presented by Jeffrey MacLean, Wurts & Associates
Jeffrey MacLean, Wurts & Associates (Wurts), opened discussions by reminding the Board of its prior decision to invest $85 million in the PIMCO Distressed Mortgage Fund. Wurts recently received the finalized Private Placement Memorandum (PPM) for the PIMCO Distressed Mortgage Fund which included clarifications and revisions to terms, along with additional details regarding the strategy. Mr. MacLean noted that none of these clarifications or revisions has altered his initial opinion regarding the attractiveness of this Fund.
Chair Jolly expressed concerns that the “normal” processes of evaluating/selecting investments are not being followed. Mr. MacLean explained the rationale behind the urgency of this investment in that there are occasions in the capital markets that present themselves with opportunities and if advantage is not taken, the opportunity for the investment will be gone.
In response to a question from Trustee Savrnoch regarding PIMCO’s lack of an Advisory Committee for this fund, Mr. MacLean stated that Wurts does not believe that the lack of an Advisory Committee should prevent the Board from making an investment if it believes in the rest of the aspects of the investment.
In response to a question from Trustee Savrnoch regarding interest rate swaps, Mr. MacLean stated that Wurts is more than comfortable with PIMCO’s capabilities in this area.
In response to a question from Chair Jolly regarding whether this fund is PIMCO’s only partnership, Mr. MacLean stated that it is not the only partnership. PIMCO will be launching another fund which is a lower risk fund with a target return of 8%.
In response to a question from Trustee Savrnoch regarding the meaning of the language “In-Kind Distributions”, Mr. MacLean explained that PIMCO has the right, when eliminating the fund, to settle with In-Kind Securities instead of cash which is a common practice in the Alternative Investment area. PIMCO has reassured Wurts, to the best of their ability, that they do not anticipate the need to distribute securities in-kind upon final maturity.
In response to a question from Chair Jolly regarding the “Feeder Fund” possibly diluting the gains, Mr. MacLean noted that the that PIMCO has established an offshore Feeder Fund, domiciled in the Cayman Islands which will not dilute the gains.
Roberto L. Peña, Retirement Administrator, noted that investing through Feeder Funds is expected to prevent the incurrence of unrelated business taxable income (UBTI). It was noted that FCERA is not impacted by UBTI.
In response to a question from Chair Jolly regarding the structure of the fund, Mr. MacLean noted that once the partnership is closed no other monies will be accepted.
Trustee Souza expressed his concern regarding the offshore Feeder Fund domiciled in the Cayman Islands. It was noted that FCERA will not be taking part in the Feeder Fund option because FCERA is not subject to UBTI.
Discussions, questions, and comments followed regarding the urgency of this investment. Mr. Peña stated that he thinks highly of Mr. MacLean’s and PIMCO’s ability to determine a good investment and recommended that the Board, noting the risks, move forward with this investment.
In response to a question from Trustee Savrnoch regarding Chair Jolly’s primary concern on this investment, Chair Jolly stated that, although there is opportunity in this investment, his main concern is that the normal processes are not being followed in regards to this investment.
Discussions, questions, and comments followed the risks associated with this investment, such as the federal government providing regulatory relief that will prevent bankruptcies.
Mr. MacLean stated that Wurts has confidence in PIMCO in that they have the capabilities to navigate these risks and deliver the results they anticipate. Wurts wants to be sure that their suitable clients have the opportunity to consider this investment.
Attorney Harvey Leiderman, Reed Smith, opined that if the Board wishes to depart from its procedures it appears that it can do so based of having been presented a great deal of due diligence and a reasonable process of evaluating the investment.
Discussions, questions, and comments followed regarding the use of leverage. Mr. MacLean stated that PIMCO will use moderate amounts of leverage (a maximum of 50%), but does not intend to make money using a high leverage strategy.
Mr. MacLean stated that BlackRock and Western Asset Management Company also offer a similar investment, but PIMCO was selected for the following reasons:
• Reputation
• Skills
• Views of the market
• Structure of the Partnership
Discussions, questions, and comments followed regarding the lack of following the due diligence processes.
A motion was made by Trustee Souza, seconded by Chair Jolly, to not invest in the PIMCO Distressed Mortgage Fund. VOTE: Yes – Cardenas, Cornacchia, Crow, Gomez, Jolly, Souza. No – Cade, Savrnoch. Absent – Larson.
(Please see “housekeeping” issues on Page 15)
RECEIVED AND FILED; APPROVED
11. Discussion and appropriate action on Asset/Liability Study process presented by Jeffrey MacLean, Wurts & Associates
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board of the upcoming Experience Study and Actuarial Valuation to be completed by Segal. Mr. Peña stated that he requested Jeffrey MacLean, Wurts & Associates (Wurts), to present to the Board an Asset Liability overview to provide the Board with a better understanding of how the Experience Study and Actuarial Valuation impact the Asset Liability Study which is scheduled to be presented to the Board no later than April 2008.
Mr. MacLean stated that the Asset Liability Study will help the Trustees gain insights into the potential magnitude and volatility of future pension costs and help identify an optimal asset allocation to meet the Plan’s investment objectives.
This is done by using two types of modeling. Deterministic modeling based on a single set of assumptions, i.e., we know what will happen in the future and Stochastic modeling based on a wide range of possibilities with associated probabilities around the base assumptions.
The deterministic model will be based on actuarial assumptions provided by the actuary and the Plan’s current asset allocation and the stochastic model is based on Wurts’ proprietary Capital Market Assumptions.
Mr. MacLean stated that the Asset Liability Study process includes four stages as follows:
• Information Collection
o Determine objectives and financial priorities to provide a quantitative framework to evaluate the asset allocation mixes presented.
o Work with the actuary to collect plan benefit formulas, definitions and census data.
• Asset Liability Analysis
o A third party vendor creates the liability files from the above data.
o Wurts analyzes the liability files utilizing Pro Val Software.
o Wurts incorporates capital market assumptions with the liability data.
• Stochastic Portfolio Analysis
o Wurts analyzes current and alternative portfolio mixes and plan liabilities under 2000 economic scenarios over the next 10 years. This provides the best/worst case outcomes, along with the probability of those outcomes.
• Present Findings to Client
o Wurts presents the analysis to the client with any recommendations that result
Mr. MacLean reviewed the Asset Allocation Decision Framework as follows:
• Establish the overall financial priorities for the plan. This provides a quantitative framework to evaluate the potential asset allocation mixes.
• Consider the utility of the tradeoff between the expected outcomes and the worst case scenarios for these funding objectives.
• Make a qualitative judgment regarding the risk tolerance of the Board of Trustees and the Plan’s beneficiaries.
• Consider the ramifications of failing with a less conventional asset allocation.
Mr. MacLean briefly reviewed the funding ratio and contributions of a sample client using the deterministic and stochastic models.
It was noted that Wurts will compile information for the Asset Liability Study beginning January 2008 and will present their findings to the Board during the first week in May 2008.
RECEIVED AND FILED
Due to time constraints, the Board went into closed session at this time.
16. Closed Session:
A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a):
1. Fresno County Employees’ Retirement Association v. Public Pension Professionals
2. Marsha Stillman v. Fresno County Employees’ Retirement Association Board of Retirement, No. 1:07-CV-01437-LJO-DLB, United States District Court, Eastern District of California (Fresno Div.)
17. Report from Closed Session
16.A.1. Nothing to report.
16.A.2. A motion was made by Chair Jolly, seconded by Trustee Cornacchia, to authorize Counsel to defend the action. VOTE: Unanimous. Absent – Larson.
12. Educational presentation – “The Orange County Challenge to Safety Member Benefits” presented by Attorney Harvey Leiderman, Reed Smith
Attorney Harvey Leiderman, Reed Smith, stated that there has been a challenge announced in Orange County which has rippled throughout the Country regarding the granting of benefits to Safety Members.
For the record, Attorney Leiderman noted that his purpose is to report the status of events and outline the role of the Board of Retirement and not to comment on the merits of any party’s position.
Attorney Leiderman stated that Orange County Supervisor John Moorlach contends that the County Board of Supervisors lacked authority in 2001 to make the “3% at 50” formula of CERL applicable to all past service credit of County Deputy Sheriffs because by doing so the County incurred a debt in violation of the limitation set forth in Article XVI, section 18 of the state Constitution; made a gift of public funds, in violation of Article XVI, section 6 of the state Constitution; and paid extra compensation for work already performed, in violation of Article XI, section 10(a) of the state Constitution.
In response to a comment from Trustee Savrnoch regarding the [Fresno County] 2001 Settlement Agreement terms that raised the benefit formula retroactively, Attorney Leiderman agreed that someone could argue that the terms of the agreement may be unconstitutional and therefore could not be agreed to.
Attorney Leiderman stated that Supervisor Moorlach also contends that CERL section 31678.2 is unconstitutional to the extent that it attempts to grant a gift of public funds and extra compensation to employees by its grant of retroactive benefits at the employers’ cost.
The Orange County Board of Supervisors voted on July 31, 2007 to consider at its September 18, 2007 meeting whether to rescind its 2001 resolution applying the “3% at 50” formula to all past service credit, to issue an RFP for litigation counsel to file a declaratory relief action against the retirement system and the deputy sheriffs’ union to nullify the retroactive application of “3% at 50” to past service credit and to enjoin the system from continuing to pay retirement benefits based on the retroactive portion of the formula, to work with OCERS to determine the cost to active Deputy Sheriffs of shifting the cost of applying “3% at 50” to past service credit from the County to the Deputy Sheriffs, and to seek the advice of independent counsel.
The Orange County Board of Supervisors met again on September 18, 2007 and received discouraging legal opinion, postponed its decision, hired new litigation counsel, and agreed to continue evaluating the issues.
Attorney Leiderman stated that the Deputy Sheriffs contend that the County had the legal authority to bargain for the benefits it granted, the increase in benefits were collectively bargained for and made part of an employment contract, the Deputy Sheriffs have relied on the contract in continuing their employment, and the liability associated with the bargained-for benefits was not a “debt” created in excess of Constitutional limits.
The Deputy Sheriffs also contend that the County is not paying for most of the cost of the benefits out of its general fund - the money is coming via federal and state mandates, it is not a “gift of public funds” to pay compensation to government employees, employment beyond the date of the benefit enhancement constituted valid new consideration for the increased benefit, and they have a vested right to the promised benefits which cannot be impaired, under federal and state “anti-cutback” laws.
Attorney Leiderman noted that in the ordinary course, Orange County “prepaid” all of its employer contributions to OCERS for Fiscal Year 2007-08. The payment was made at a discount, as determined by OCERS actuary and there has been no withholding of contributions.
Attorney Leiderman stated that OCERS, like FCERA and all CERL systems, is a qualified tax exempt government pension fund under IRC section 401(a). The Retirement Board is obligated to follow and implement the system’s “plan document” and modifications not duly adopted do not become plan terms. OCERS’ and FCERA’s “plan document” is the state Constitution, CERL and the Board’s regulations and by-laws.
It was noted that as a local governmental agency, the system must follow its statutory obligations unless and until a court orders otherwise or the statute changes. The board does not have judicial authority to determine that a statute is unconstitutional or unenforceable.
Discussions, questions, and comments followed regarding Orange County’s requirement to perform an actuarial analysis projecting the cost of the benefit.
Discussions ensued regarding the Orange County issue as to how it may relate to Fresno County’s decision to not have an actuarial study completed on the impact that Tier III will have on the retirement system.
Attorney Leiderman noted that if the County [Orange] sues the system, the Board must continue to pay the statutory benefits unless ordered otherwise and the Board would have to oppose a request for injunction on that basis.
As to the underlying dispute over the validity of the County’s 2001 resolution, the retirement system need not take any position. The matter is internal to the County and the County would be seeking to invalidate its own legislative action. The system has no role in that process. The system’s obligation is to follow its plan document, which provides the benefits the County granted by legislative action.
RECEIVED AND FILED
Housekeeping
Chair Jolly noted that the motion on Item 10 [PIMCO Distressed Mortgage Fund] was out of order. The Board approved an $85 million dollar investment with this Fund at the October 3, 2007 Regular Board Meeting.
Trustee Souza rescinded his motion to not invest in the PIMCO Distressed Mortgage Fund. Chair Jolly rescinded his second to the motion.
A motion was made by Chair Jolly, seconded by Trustee Cornacchia, to reconsider the Board’s October 3, 2007 action to fund the PIMCO Distressed Mortgage Fund Partnership. VOTE: Unanimous (Absent – Larson)
A motion was made by Trustee Souza, seconded by Chair Jolly, to not invest in the PIMCO Distressed Mortgage Fund. VOTE: Yes – Cardenas, Cornacchia, Crow, Gomez, Jolly, Souza. No – Cade, Savrnoch. Absent – Larson.
13. Educational presentation – “Navigating a Steady Fiduciary Course During Hurricane Season” presented by Attorney Harvey Leiderman, Reed Smith
Attorney Harvey Leiderman, Reed Smith, began the presentation by noting that retirement systems face challenges such as underfunded retirement benefits, retiree health care, legislative initiatives, social investing policies, portfolio risks, and conflicts of interest.
Attorney Leiderman reminded the Board of its fundamental fiduciary responsibilities as follows:
• Exclusive benefit rule
o The assets of the retirement system are trust funds and shall be held for the exclusive purposes of providing benefits and defraying reasonable expenses of administration.
• Duty of loyalty
o The Board’s duty to its participants and their beneficiaries takes precedence over any other duty.
• Duty of prudence
o Members of the retirement board shall discharge their duties with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with these matters would use.
Attorney Leiderman stated that there are mechanisms in place to aid the Board with following its fundamental fiduciary responsibilities such as:
• Conducting open meetings
o It’s the public’s and member’s money – they are entitled to know what you are doing with it
o Following the published agenda
o Avoiding “closed-door” deals and serial meetings
• Maintaining confidentiality of communications and deliberations
o Closed sessions must be limited, meaningful, candid, and safe. It is a misdemeanor to disclose information from a closed session meeting
• Maintaining responsible communications
o Board policies
o Clarity of roles
o Respect for colleagues
o Avoids potential liability or compromise of the system
Attorney Leiderman referred to FCERA’s Code of Conduct policy and noted that Board members are to speak on behalf of the Board only when explicitly authorized to do so by the Board.
Trustee Savrnoch expressed concern that a Board member has the right to communicate, without approval, with the membership on subjects that have been discussed in an open session setting.
Discussions ensued regarding notifying/preparing, as a courtesy, Administration in advance of any communications to the membership by a Board member.
RECEIVED AND FILED
14. Operational presentation on benefit services offered to members presented by Carol Sheela, Retirement Benefits Manager
Roberto L. Peña, Retirement Administrator, opened discussions by noting that Carol Sheela, Retirement Benefits Manager, was present to enlighten the Board on the complex processes of calculating county service “buybacks”.
Ms. Sheela stated that in addition to calculating buybacks the staff, which includes 10 permanent employees and 6 extra help employees, must also focus on the following daily tasks:
• Servicing and counseling members and retirees
• Processing disability applications
• Processing death benefits
• Processing separation benefits
• Reciprocity verifications
• Domestic relation orders
• Earn code calculations
• Preparation of retiree payroll and adjustments
• Contribution adjustments
• Verifying data from the payroll import activity
• 30-year stop calculations
The staff also assists with the following projects:
• Final compensation recalculations
• COLA UAAL refunds
• Benefit Statements
• Testing of new releases of the PENSIONS™ system
Ms. Sheela noted that currently there are 155 buyback requests that have been submitted to the office for processing and the calculation process is approximately 1 year behind schedule due to special projects that staff must tend to.
It was noted that 5 of the 6 extra help employees are currently working on the final compensation project.
Discussions, questions, and comments followed regarding issues related to retaining extra help employees.
Discussions ensued regarding the need, if any, to add additional permanent staff to the organizational structure. Mr. Peña noted that the current level is sufficient assuming there are no other major projects to contend with.
Discussions, questions, and comments followed regarding avenues in which FCERA’s infrastructure could be, if needed, upgraded and/or expanded to meet the needs of the staff. Mr. Peña noted that Administration is planning system upgrades in the future.
In response to a question from Michael Cunningham, FCERA Retired Member, regarding FCERA staff turnover rate, Becky Van Wyk, Assistant Retirement Administrator, stated that the retention rate for Retirement Coordinators and Accountants is approximately 5 years. The retention rate for Account Clerks and Office Assistants is approximately 1½ years. It was noted that typically staff resign due to the excessive workload or better opportunities.
Ms. Sheela reviewed the buyback process and noted the four types of service that can be purchased as follows:
• Prior Service – hours worked prior to membership
• Unpaid Medical Leave of Absence – can only purchase up to 12 months of consecutive medical leave
• Unpaid Military Leave of Absence – can purchase all or any part of unpaid military leave of absence
• Redeposit of withdrawn contributions – must purchase the entire period
Ms. Sheela noted that there are limitations to the PENSIONS™ system in that employee pay history and employment history prior to December 31, 1997 (conversion date) must be keyed into PENSIONS™ manually and is not programmed to calculate buyback service periods prior to January 1, 1970 due to changes in the pay cycles (monthly and semi-monthly).
Ms. Sheela outlined, in detail, the procedures for calculating and processing the buyback requests. It was noted that the processes and required research is very labor intensive.
It was noted that when a request is received, a letter is generated informing the member of the backlog and an anticipated time of completion.
Suggestions were made as to ways of keeping the member better informed during the buyback process such as notifying the member of their status at different intervals in the process and placing more information on the website.
Ms. Van Wyk briefly explained the Contribution Adjustment process to the Board. It was noted that there are currently 55 contribution adjustments to be processed and the process is approximately 1 year behind schedule.
Discussions, questions, and comments followed regarding the impact of the COLA UAAL refund on the buyback and contribution adjustment processes.
RECEIVED AND FILED
15. Discussion and appropriate action on Voting Proxy for SACRS Fall Conference 2007
A motion was made by Chair Jolly, seconded by Trustee Cade, to authorize Trustee Crow as the Voting Delegate with no alternate at the SACRS Fall Conference 2007. VOTE: Unanimous. (Absent – Larson)
RECEIVED AND FILED; APPROVED
Due to time constraints Closed Session was heard after Agenda Item 11.
16. Closed Session:
A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a):
1. Fresno County Employees’ Retirement Association v. Public Pension Professionals
2. Marsha Stillman v. Fresno County Employees’ Retirement Association Board of Retirement, No. 1:07-CV-01437-LJO-DLB, United States District Court, Eastern District of California (Fresno Div.)
17. Report from Closed Session
Please see report on page 13.
18. Report from FCERA Administration
Roberto L. Peña, Retirement Administrator, reported on the following:
1. Administration will be contacting the Personnel Committee members to schedule a meeting to begin the Administrator’s evaluation process.
19. Report from County Counsel
Nothing to Report.
20. Board Member Announcements or Reports
Chair Jolly requested that Administration agendize a discussion regarding an actuarial study for the Tier III retirement benefit.
There being no further business, the meeting adjourned at 2:45 PM.
Roberto L. Peña
Secretary to the Board
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