FRESNO COUNTY BOARD OF RETIREMENT



BOARD OF RETIREMENT

FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

December 7, 2011

Trustees Present:

Michael Cardenas Nick Cornacchia Vicki Crow

Eulalio Gomez Phil Larson Regina Wheeler for John Souza

Trustees Absent:

Franz Criego Steve Jolly John Souza

Others Present:

Paul Angelo, Segal Company

Andy Yeung, Segal Company

Jeff MacLean, Wurts & Associates

Jeffrey Rieger, Reed Smith ~ via tele-conference

Ron Madsen, FCERA Member

Susan Coberly, Senior Deputy County Counsel

Becky Van Wyk, Assistant Retirement Administrator

Conor Hinds, Supervising Accountant

Elizabeth Avalos, Administrative Secretary

1. Call to Order

Vice Chair Gomez called the meeting to order at 8:37 AM.

2. Pledge of Allegiance

The Pledge of Allegiance was recited and a moment of silence was held in honor of Pearl Harbor Day.

3. Public Presentations

None.

Consent Agenda/Opportunity for Public Comment

A motion was made by Trustee Larson, seconded by Trustee Cardenas, to approve Consent Items 4-19. VOTE: Unanimous (Absent – Criego, Crow, Jolly)

*4. Approve the November 2, 2011 Retirement Board Regular Meeting Minutes

RECEIVED AND FILED; APPROVED

*5. Retirements

RECEIVED AND FILED; APPROVED

|Sandra J. Arakelian |Dept of Social Services |24.51 |

|Rose E. Callahan |Dept of Social Services |30.22 |

|Andrea M. Carrisosa |Dept of Social Services |13.53 |

|Jeffrey L. Champ |General Services |30.00 |

|Frances Collins |Superior Court |21.80 |

|Kristi L. Colwell |Behavioral Health |12.49 |

|Loren L. De Moss |ITSD, Deferred |8.35 |

|Sandra Dumlao |Public Health |12.47 |

|Wayne R. Ellison |District Attorney, Deferred |7.28 |

|Cynthia Garza |Dept of Social Services, Deferred |17.04 |

|Josephine A. Gonzales |Public Health |30.28 |

|Douglas E. Haas |District Attorney |33.08 |

|Roy A. Hines |Behavioral Health |39.14 |

|Martha Hodgson |Department of Social Services |27.28 |

|Yvonne M. Holt |Sheriff |32.60 |

|Catherine L. Houlihan |Assessor-Recorder, Deferred |5.83 |

|Jeffrey D. Jacoby |Sheriff |21.16 |

|Henry V. Lopez |Dept of Social Services |25.53 |

|Sandra B. Lynch |Dept of Social Services |13.76 |

|Michael Martin |Dept of Social Services |11.28 |

|Lydia I. Mendez |Public Health |21.90 |

|Robert Phillips |VMC, Deferred |7.54 |

|Socorro Romero |General Services |19.39 |

|Judy L. Rose |Behavioral Health |10.07 |

|Mary L. Sanchez |Behavioral Health |26.81 |

|Ajit Singh |Pubic Health, Deferred |8.97 |

|Peggy L. Stovall |Superior Court, Deferred |9.59 |

|Joanne Vargas |Public Health |32.87 |

|Phebe L. Wahl |Personnel, Deferred |5.06 |

|Roger E. Winrow |Public Works & Planning |34.23 |

|Kou X. Yang |Dept of Social Services |17.71 |

| | | |

*6. Disability Retirements

RECEIVED AND FILED; APPROVED

|Joice A. Carver |Dept of Social Services |6.28 |

*7. Deferred Retirement

RECEIVED AND FILED; APPROVED

|Glynis Alvarado |Behavioral Health |12.90 |

|Angelo M. Bautista |Superior Court |6.76 |

|William Beighey |General Services |10.43 |

|David F. Luchini |Public Health |18.40 |

*8. 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 October 2011

RECEIVED AND FILED

*9. Public Records Requests and/or Retirement Related Correspondence from Alex Rabrenovich LACERS; David Liu, MCERA; Amy Timmons, HP Enterprise Services; Nick Bonelli, BenXL; Lewis Griswold, Fresno Bee; Max Dillahunty, Pension Gold Retirement Solutions; Henna Jaisinghani, IREO; Lesley Tabernilla, Thomson Reuters; and Mary Burgess, FCERA Member

RECEIVED AND FILED

*10. Educational Reading Materials

RECEIVED AND FILED

• October 27, 2011 Asset International article – California Governor Announces Pension Overhaul

• October 30, 2011 Asset International article – Do You Know this Angry CIO?

• October 31, 2011 Asset International article – California Mega-Funds Voice Support For Pension Overhaul Discussion

• Fall 2011 CalPERS Employer News Newsletter

*11. Update of Board of Retirement directives to FCERA Administration

RECEIVED AND FILED

*12. Board of Supervisor’s decision to appoint Eulalio Gomez as Safety Member Representative on the Board of Retirement for a Term expiring December 31, 2014

RECEIVED AND FILED

*13. Board of Retirement General Member Special Election Notice

RECEIVED AND FILED

*14. Decision by the Supreme Court to deny Marsha Stillman’s petition for review

RECEIVED AND FILED

*15. FCERA Cash Flow position as of October 31, 2011

RECEIVED AND FILED

*16. Most recent investment returns, performance summaries and general investment information from investment managers

RECEIVED AND FILED

*17. Report – Hedge Fund Outlook October 2011, Wurts & Associates

RECEIVED AND FILED

*18. Correspondence from Christine Geiser, BlackRock, regarding two recent downgrades in the FCERA Fixed Income portfolio

RECEIVED AND FILED

*19. Update from Blackstone Alternative Asset Management regarding Diamondback Capital

RECEIVED AND FILED

20. Discussion and appropriate action on draft Actuarial Valuation report as of June 30, 2011 presented by Paul Angelo, The Segal Company

Paul Angelo, The Segal Company, opened discussions by noting that the valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and reviewed the actuarial valuation key findings as follows:

• As of June 30, 2011, after crediting interest to the various reserve accounts at the assumed earnings rate and reducing the 1% Statutory Contingency Reserve to a zero balance, the balance of the Contra Tracking Account increased from $300.0 million to $372.9 million for the six-month period ending December 31, 2010 and increased again from $372.9 million to $423.6 million for the six-month period ending June 30, 2011.

• In this June 30, 2011 valuation, the funding ratio on valuation value of assets has increased from 72.9% to 73.5%, and the Unfunded Actuarial Accrued Liability (UAAL) has increased from $1,109.4 million to $1,123.5 million.

Trustee Crow joined the Board at 9:11 AM.

• The aggregate employer rate calculated in this valuation has increased from 43.79% of payroll to 46.10% of payroll. The reasons for this change are: (i) lower than expected return on investments (based on valuation value of assets), (ii) one year delay in implementing employer and employee contribution rates calculated in the June 30, 2010 valuation, (iii) salary increases less than expected, (iv) increase in UAAL rate due to less than expected increase in total payroll, (v) Cost of Living Adjustment (COLA) increases less than expected, (vi) liability for new retirees higher than expected, (vii) reclassification of certain retirees to beneficiaries by the Association, and (viii) other actuarial gains and losses.

• The aggregate member rate calculated in this valuation has decreased from 8.81% of payroll to 8.80% of payroll. The change in the aggregate member rate is due to changes in membership demographics for the June 30, 2011 valuation.

• The employer and member rates developed in this valuation have been determined only with respect to the Regular and the Settlement benefits. Assets and liabilities associated the non-vested supplemental benefits (i.e., discretionary purchasing power and additional non-vested retiree health benefits) have been excluded from the development of the employer and member rates.

• The total unrecognized investment gains as of June 30, 2011 is $15.6 million. This is a significant change compared to the total unrecognized investment losses of $441.5 million as of June 30, 2010. These investment gains will be recognized in the determination of the actuarial value of assets for funding purposes in the next few years, and will help offset any investment losses that may occur after June 30, 2011. This means, if the Association earns the assumed net rate of investment return of 7.75% per year on a market value basis, it will result in investment gains on the actuarial value of assets in the next few years. So, if the actual market return is equal to the assumed 7.75% rate and all other actuarial assumptions are met, the contribution requirements would decrease in the next few years.

• Under the asset smoothing method the $15.6 million in net deferred gains will be recognized in the next nine six-month interest crediting periods, but in a very non-level pattern. In particular, there will be losses recognized in the next two years, followed by offsetting gains in the two and one-half years after that, so as to ultimately recognize all of the current total net deferred gains of $15.6 million. This means that, absent any new gains or losses in the future, there will be two more years of increases in the average employer contribution rate followed by three years of decreases before the $15.6 million in deferred gains are fully recognized.

Mr. Angelo noted that, in keeping with model actuarial practice, effective July 1, 2011 the asset smoothing method could be modified by combining the net deferred gains of $15.6 million from the current valuation into a single four and one-half year smoothing “layer” and thereby recognizing those net deferred gains over the next four and one-half years in nine level amounts of approximately $1.7 million for each six-month period. This would reduce the volatility associated with the current pattern of deferred gain/loss recognition and thereby result in both more stable funded ratios and more level employer contribution rates.

The Board agreed to discuss this policy option at a future meeting.

• In preparing the breakdown of the total costs of the General Tier I plan into the cost to provide the “Regular” and the “Settlement” benefits, Segal has followed the Association’s practice of allocating the cost to provide a benefit under section 31676.12 as the cost for the “Regular” benefit and allocating the difference between this “Regular” benefit cost and the cost to provide a benefit under Section 31676.14 plus Section 31627 as the “Settlement” benefit. In particular, this means that the difference between benefits under Sections 31676.12 and 31676.14 is considered “Settlement” and so under the Settlement Agreement could be funded out of future undistributed earnings.

Mr. Angelo reviewed, in detail, the changes in the recommended employer contribution rate from the prior valuation to the current year’s valuation and the average member contribution rates noting the rates vary based on data such as tier level, age, and salary.

Detailed discussions, questions, and comments ensued regarding the demographic and financial data provided in the valuation.

A motion was made by Trustee Crow, seconded by Trustee Larson, to Adopt the Actuarial Valuation as of June 30, 2011 and to Adopt the employer and employee contribution rates as recommended. VOTE: Unanimous (Absent – Criego, Jolly)

RECEIVED AND FILED; APPROVED

21. Presentation of the September 30, 2011 Quarterly Research Report presented by Jeffrey MacLean, Wurts & Associates

Jeffrey MacLean, Wurts & Associates, began the presentation with an overview of the current economic environment and its impact on the investment markets noting that global economic growth doesn’t seem to be heading in the right direction. There has been a steady decline in global manufacturing activity, real consumption, and gross domestic product (GDP) growth year to date.

In addition, the European debt crisis and the underlying forces that caused it are taking their toll on global finances. Perceived risk in the European banking system has eroded hundreds of billions of euros in market capitalization. This heightened risk aversion is not only bad for interest costs of sovereign nations, but for consumer and corporate spending as well.

Mr. MacLean noted that there is one bright spot on the horizon, the residential real estate market. Rental income is at some of its highest levels as a percent of GDP, whereas household values are at some of their lowest. Sales have never been lower for half a century and homes are more affordable now than in years. Eventually things will turn around and be a net positive for GDP. Rental income cannot outpace prices indefinitely and banks will eventually start lending again.

The Board engaged in a general discussion regarding the current market environment.

RECEIVED AND FILED

22. Presentation of the September 30, 2011 Investment Performance Review presented by Jeffrey MacLean, Wurts & Associates

Jeffrey MacLean, Wurts & Associates reviewed the Plan’s various asset classes and the individual managers within the asset classes noting any significant over or under performance over the three and five year periods.

Mr. MacLean noted that the Plan’s market value as of September 30, 2011 is approximately $2.8 billion.

RECEIVED AND FILED

23. Presentation of the September 30, 2011 Guideline Compliance Report presented by Jeffrey MacLean, Wurts & Associates

Jeffrey MacLean, Wurts & Associates, had no violations to report.

At the request of Becky Van Wyk, Assistant Retirement Administrator, Mr. MacLean commented on the American Airlines recent bankruptcy filing and the Plan’s exposure to losses, noting that the Plan’s losses were minimal and more than likely not permanent.

RECEIVED AND FILED

24. Discussion and appropriate action on person(s) authorized to direct and approve cash movement at State Street Bank

Conor Hinds, Supervising Accountant, opened discussions by reminding the Board that FCERA’s custodian bank requires the submission of persons authorized to initiate and confirm transfers of cash in order to transact FCERA’s daily business. This is accomplished via two forms, the Incumbency Certificate and Funds Transfer and Transaction Security Procedures “FTTOP” authorization forms. Mr. Hinds gave a brief description highlighting the purpose of each form.

A motion was made by Vice Chair Gomez, seconded by Trustee Cardenas, to authorize Becky Van Wyk, Conor Hinds, and/or Eulalio Gomez to provide direction to the custodian bank as stated in the Incumbency Certificate and to authorize Trustee Crow to execute said document. VOTE: Unanimous (Absent – Criego, Jolly)

A motion was made by Trustee Larson, seconded by Vice Chair Gomez, to authorize Becky Van Wyk, Conor Hinds, Pam Fine, and Kay Vang to provide written instruction to transfer funds held at State Street as stated in the FTTOP form and authorize Trustee Crow to execute said document. VOTE: Unanimous (Absent – Criego, Jolly)

RECEIVED AND FILED; APPROVED

25. Discussion and appropriate action on claim by Gary Johnson to include, as compensation earnable, the flat monthly allowance received during his participation in the statewide CalWIN program

Jeffrey Rieger, Reed Smith, opened discussions by reminding the Board that at the November 2, 2011 Regular meeting the Board considered proposed findings and recommendations prepared by a hearing referee regarding Gary Johnson’s request to have his “CalWIN Flat Monthly Allowance” included in his “compensation,” compensation earnable,” and “final compensation,” for the purposes of calculating his retirement.

Mr. Rieger noted that the Board passed a motion simply denying Mr. Johnson’s claim. Reed Smith interpreted that as a rejection of the hearing officer’s recommendation and a decision to require a transcript or summary of all the testimony, plus all other evidence received by the referee, and then take such action as in the Board’s opinion is indicated by such evidence. Mr. Johnson’s attorney raised objections to that interpretation and stated his desire to forego any further administrative proceedings.

Mr. Rieger stated that Reed Smith, Scott Emblidge (attorney for Mr. Johnson), and Bruce Johnson (attorney from Fresno County Counsel) have tentatively agreed that the most appropriate action under the circumstances is to accept the Board’s action on November 2, 2011 as a final denial of Mr. Johnson’s claim, dispense with further administrative proceedings before the FCERA Board, and allow Mr. Johnson to proceed with an action in the Superior Court to challenge the Board’s denial. If the Board adopts this recommendation, formal findings will be prepared for adoption by the Board at the December 21, 2011 Regular Board meeting.

A motion was made by Vice Chair Gomez, seconded by Trustee Crow, to accept the agreement between Reed Smith, Scott Emblidge, and Bruce Johnson to dispense with further administrative proceedings before the FCERA Board, and allow Mr. Johnson to proceed with an action in the Superior Court to challenge the Boar’s denial. VOTE: Unanimous (Absent – Criego, Jolly)

RECEIVED AND FILED; APPROVED

Becky Van Wyk, Assistant Retirement Administrator, pulled Closed Session Items 26.A.1. and 2. as there was nothing to discuss.

26. Closed Session:

A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a)

1. Fresno County Employees’ Retirement Association v. Countrywide Financial Corporation, et al., United States District Court Central District of California Case No. CV11-0811-PA-SHX

2. Stephanie Mallen, Individually, and et al. v. Alphatec Holdings Inc., et al., United States District Court Southern District of California Case No. 3:10-CV-1673-BEN-JMA

3. Geraldine Chisom, et al. v. Board of Retirement, etc., et al., Fresno County Superior Court Case No. 10 CECG 02372

B. Disability Retirement Applications – Personnel Exception (G.C. §54957):

1. David Moore

2. Lynn Adams

3. Marvin Johnston

4. Craig Singer

Trustee Larson departed at 11:39 AM.

C. Personnel – (G.C. § 54957)

1. Public Employment Title: Retirement Administrator

27. Report from Closed Session

26.A.1. Pulled.

26.A.2. Pulled.

26.A.3. Chisom - The case was heard in Fresno County Superior Court and was decided in favor of FCERA.

26.B.1. Moore - Decision - To Grant David Moore Service Connected Disability benefits based on the Findings of Fact and Decision. M - Cornacchia. S - Crow. VOTE: Yes - Cornacchia, Crow, Larson, Wheeler. No - Gomez. Abstain - Cardenas. (Absent – Criego, Jolly)

26.B.2. Adams - Decision - To formally adopt the Findings of Fact and Decision and Grant Lynn Adams Service Connected Disability benefits. M - Cornacchia. S - Crow. VOTE: Unanimous. (Absent – Criego, Jolly)

26.B.3. Johnson - Decision - To Grant Marvin Johnston Non-Service Connected Disability benefits based on the Findings of Fact and Decision. M - Crow. S - Gomez. VOTE: Unanimous. (Absent – Criego, Jolly)

26.B.4. Singer - Decision - To direct Administration to notify the applicant that the application will be denied unless the applicant requests a hearing in accordance with the Administrative Proceedings and Appeals to the Board policy. M - Crow. S - Cornacchia. VOTE: Unanimous. (Absent – Criego, Jolly)

26.C.1. Nothing to report.

28. Report from FCERA Administration

Becky Van Wyk, Assistant Retirement Administrator, reported on the following:

1. In anticipation of the Board of Supervisors action to decrease the pay of certain County employees, Administration has taken a proactive approach to manage the additional requests to retire.

2. The recent changes to the Loomis investment guidelines have been reviewed and approved by Administration, Counsel, and the Investment Consultant.

3. An update on the “Health Benefit” project. The project consists of 641 current retirees with a payout of approximately $588,000 and $75,000 on-going monthly costs.

4. The annual audit by Brown Armstrong is completed and the findings will be presented to the Board at the December 21, 2011 Regular meeting.

29. Report from County Counsel

Susan Coberly, Senior Deputy County Counsel, had nothing report.

30. Board Member Announcements or Reports

Trustee Crow noted that a discussion of the Retirement Administrator position is scheduled for December 8, 2011. Those scheduled to attend the meeting include:

Supervisor Debbie Poochigian

Supervisor Judy Case

John Navarrette, County Administrator

Kevin Briggs, County Counsel

Vicki Crow, FCERA Trustee

Harvey Leiderman, Reed Smith

Becky Van Wyk, Assistant Retirement Administrator

Vice Chair Gomez and the Board thanked Becky Van Wyk and the staff for their extra efforts in the absence of a Retirement Administrator.

There being no further business the meeting adjourned at 11:53 AM.

Franz Criego

Chair to the Board

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