Retirees;

    Dan Toneck, disabled retired police officer led off the Sept. 22. 2006 Retirement Board hearing by urging the Board to do whatever it could to assist in the restoration of Corbett 10% benefits for the 121 non-service eligible disability retirees.  Payment of these funds were stopped when tax attorneys advised the Board that this group of retirees was not included in the implementing ordinance.  The Board had sent a letter to the Mayor and Council advising of this omission.

    Officer Toneck you may recall lost his leg when a drunk driver crashed into him when he was standing at the back of his patrol car at an accident scene.  He later rehabilitated himself and returned to duty for nine years, but the prosthesis took its toll and he was required to take a disability retirement. On the previous Tuesday, he appeared at Council, requesting the reinstatement of the Corbett benefits.  Council President Scott Peters said the Council would review his request.

 

    Before I go on, perhaps a word about "Hedge Funds" is in order.  Making the news this week was the investment loss by the County of San Diego Employees Retirement Association of from $45 to 60 million dollars in a Hedge Fund.  Investment Chair Tom Hebrank and staff prepared a brief explanation of;

    Now, to answer your next question, "No, SDCERS does not have any investments in Hedge funds.

    

       After a nationwide search, screened down to five interviewees, a new General Legal Counsel was hired by SDCERS today.

He is, Craig Wardell, who is currently serving as General Counsel for California State Teachers Employee Retirement System (CALSTERS.)  He has extensive pension system background, and is a native San Diegan now working in Sacramento.  I will provide more details as soon as I get the press release. 

 

    The Board this week also received word from the IRS that the use of 457 deferred comp funds could be used to pay for Purchase of Service Agreements.  When the question of IRS acceptance of use of those funds for PSA agreements arose, SDCERS stopped taking 457 funds until we could get resolution of the question.  This latest response should allow use of those funds for active employees, and remove any clouds of doubt on any previous agreements.

    Harvey Leiderman, fiduciary counsel to the Board, made a presentation on the Kroll Report.

And like other discussions of the Kroll report, this one led off with obligatory statements by Board members of deep dissatisfaction regarding the $20 million price tag.  Understood.  With that out of the way, Harvey went on to list  the  Kroll recommendations that apply to SDCERS.  The good news is that all these recommendations have either already been implemented, are or well under way.  You see, Kroll drew heavily upon the Navigant report commissioned by the Board late last year and released in January.  Since then, the Board has been implementing those recommendations by adding new auditing staff and procedures, changing our committee structure and changing operations.

    Once past the price tag, personally, I think the Kroll report has great value on two fronts.  One; it is a compendium of the people, the problems, the events, and the step by step machinations that led to the difficult financial straits in which we find ourselves.  And the second key function it fulfills is to point out the great deal of progress that the Retirement Board has made since April 2005 in improving the governance and functioning of the Board and in the operation of SDCERS.  We have come a long way in a short time, and Kroll by their recommendations, recognizes that progress. 

    One Kroll recommendation to the city that drew some Board attention is the suggestion that the Retirement Board be reduced in size to nine members, made up of five appointees and four elected positions; two from the active employees and two from retired employees.  While I of course welcome the increase to two elected retirees, active employees as you may surmise are not likely to welcome the reduction from four representatives to two.  Currently, there are four active employees on the Board representing 9,000 active employees.  And yours truly represents the 6,000 retired employees (which may explain why I don't always return your phone calls right away.)  So in this sense, the change would even out the ratio of board member to employees, active or retired, with a slight tilt this time toward the retirees.

    A number of Board members, including Board President Peter Preovolos spoke in opposition to the reduction in Board size.  He cited the extensive amount of work required by volunteer Board members, and the heavy workload of Board Committees.  And he is correct, there is a great deal of work that is involved and I recognize the sacrifice of citizen volunteers, especially Mr. Preovolos.

    My solution on saving time, of course, is that I do not believe the Board should be involved in Disability hearings, which is a difficult and time consuming process.  When I attended the Pension Trustee Training at Stanford University before I attended my first Board meeting, I voiced that opinion to the Trustees and Administrators gathered there.  No boos, but close.  But, on our last night of training our keynote speaker, the administrator for the State of Colorado Pension System (which includes municipal, county and state employees as well as teachers) told how that Board achieved its high degree of efficiency and effectiveness -- they got out of the disability hearing process.  And I thought, "Now there is a man who knows his business!"  So while it may not be the most popular opinion, I am not alone, and I am serious about it.  I made that recommendation at my first Board meeting.  Holding that opinion, however, has not prevented me from taking part in discussion of disability cases when they come before the Board.

 

    The Board Actuary, Gene Kalwarski, made a preliminary presentation on some recommendations for the Board to consider.  He will be back in October for additional discussion.  He talked about asset smoothing (averaging the highs and lows over time), and eliminating the concept of "surplus earnings." He also suggested including the Corbett payment and the 13th check as liabilities in the June 20, 2006 valuation.  Also in October he will be discussing amortization of the unfunded actuarial liability, (the $1.4 billion you see in every news article).  This will cover SDCERS current method of amortization (30 year declining), negative amortization, and Proposition G.  So if you are interested in learning more on this topic, I urge you to attend the October Board meeting.  Mr. Kalwarski is very good at explaining these concepts, has excellent slides and graphics, and if he does not clarify it, our resident Actuary, Board member Bill Sheffler will add to the discussion.

 

    It was a full meeting, from 8:30 AM to 4 PM with a working lunch.  We covered a lot of ground, and we are making progress.

 

    

For more detail, you can access the SDCERS website at:  http://www.sdcers.org/ 

Joe Flynn, Retiree Rep. to the Board