Retirement Board Update - October 21, 2005 - By Joe Flynn

    The Retirement Board met today with 12 members; we lost John Torres (resignation) and gained George Murray a new appointee. George is a San Diegan who spent much of his career in New York with Prudential Securities. He is also retired, so now we have two retirees on the Board.

    The morning session on Finance and Investment included a report on the status of the Comprehensive Annual Financial Report for 2004. This report and the Financial Statements for July and August are running late due to the Kroll Audit committee's work and other investigations which has taken a great deal of time from both the City and SDCERS. The report is expected by year's end.

   The last published ratio of funding to liabilities for SDCERS is the 2004 65% figure. The actuary report expected in January will have the new funded ratio.

   James Casselberry, Ennis Knupp consultant hired to review Board activities said he would give the Board an "A." He based this on observations at three Board meetings, a special meeting on selection process for a new money manager, and the process for asset allocation. He will issue a report in December.

   The report was given on the investigation underway by Navigant Consulting Inc., hired by the Board to do an in-depth review of SDCERS operations. This report is to be thorough, independent, and transparent. When completed it will be issued directly to the public and will not be filtered through the Board. Fred Reich, Fiduciary counsel is the coordinator with Navigant. They have full access to SDCERS staff and records and anticipate interviewing some 90 people. I have already met with two Navigant representatives for a two hour interview. They were professional, with good attention to detail.

    With three audits and investigations underway, Kroll, KPMG, and Navigant, it will be, Reich said, "A race to be last." Board President Peter Preovolos, said, "We will go first. We know that we likely will be criticized one way of the other, but we will get the information out and fix any problems they find." The Board concurred.

    I raised some questions regarding Navigant's recent experience with the King-Drew hospital group where the auditor questioned their billing of both staff time and travel expenses. I suggested that we keep a close eye on the investigators. Mr. Reish said he would apply SDCER's billing guidelines. In all reality, it is likely that coming off that negative publicity, Navigant will pay close attention to time, travel, and billing. A shot across the bow never hurts.

   An election will be scheduled for general, active employees to fill the Board seat vacated by John Torres resignation. The process will likely take about 60 days.

   Intech Mathematical Investment Strategies was selected as the new Domestic Equity Large Cap Core (Stock in big U.S. businesses) investment manager. They came out number one in a search that screened 2,800 investment managers, asked for proposals from nine, then interviewed the final four. I think you would be pleased at the depth and detail of the process and the care in selecting an investment manager.

   The afternoon session started with public comment from three DROP participants which set the tone for the discussion on DROP distributions. David Arce of SDCERS advised that some 1,688 packets of information on DROP had been mailed out including instructions and forms on the new distribution rules. Group meetings are being scheduled. He said that they had received a number of favorable phone calls on the process. I said I was glad to hear he was getting positive calls because I was getting all the rest - and they were not happy with the process. Larry Grissom, SDCERS Administrator, said that staff would do everything possible to help DROP participants meet the IRS guidelines.

   Concerning the issue of interest on DROP accounts; after much discussion the Board agreed to, 1. Ask the City Council for clarification on the interest setting legislation, and 2. in the interim (until we hear from Council) to adopt the same 8% interest rate that applies to the pension fund.

   A new actuary, Cherion, was selected after a search and interview process. The search team was headed by Bill Sheffler, a Board member who is also an actuary. The team looked for an actuary who could function in arena marked by political conflict -- not for the faint of heart. We were assured that this group was qualified and not gun shy so they were given a three year contract.

   An executive search firm, EFL Associates has been selected to begin the search for a new SDCERS Administrator to replace Larry Grissom who retires at the end of this year.

   The Board then approved a contract for a firm to provide a "business continuity plan." That's a euphemism for a disaster plan to keep SDCERS functioning in case of a major disaster like an earthquake or fire.

   And finally, the Board agreed to provide attorneys for SDCERS staff members Larry Grissom, Lori Chapin, Sheila Jacobs, and Roxanne Parks who are to be interviewed as witnesses by the U.S. Attorney's office.

   The Board then went into closed session for an update on all of the various court cases that are still ongoing. All in all it was a full day, just short of 12 hours. Helluva way to break in a new Board member, on his birthday yet! But we did give him a cinnamon roll with a candle in it. Hope he comes back, I think he will be a good one! 

Joe Flynn, Retiree Rep. to the Retirement Board