Today, twelve Board members, the new General Counsel Chris Wardell, the near new Administrator David Wescoe, our new (but very familiar) Compliance Officer Roxanne Story Parks, and our seasoned Fiduciary Counsel Harvey Leiderman were all in place for our November Board meeting.  That is a first, and a real accomplishment.  It has taken a long time to get that team on the field.  If you recall, we went through 35 people to get to our full complement  of Trustees.  That number counts all appointees to the Board.  Some got cold feet before the Council hearing to confirm, some got cold feet at the hearing to confirm, and four resigned when City Attorney Mike Aguirre named all Board members and even the gray haired retiree rep. in a lawsuit.  Ahh yes, the City Attorney is truly an equal opportunity litigator; no age discrimination there.

    Title for shortest time on the Board is a tossup.  One duly appointed member did make it through our first orientation but I knew he wouldn't last.  Way too much heavy breathing as staff led us through successive binders, describing all of the "duties and privileges" that went along with the position.  I made it a point to never stand between him and the door.  We never saw him again.  The reason I say it was a tossup for the title is that we did have one member who only made it through half of a Board meeting.  He resigned when the Mayor called for resignations; the only one to take the early out. 

    But today, when I looked around and saw that we had a full team, it was a very comforting feeling.  It is a comfort you should share because the Board as I have told you in previous messages, has a cross section of talent, training, and experience to cover all the necessary bases.  And the staff and outside counsel provide confidence that we are on solid ground and on the move.

    And one move you will appreciate is, the Board moved today to approve the 13th Check and the Corbett payment.  It should show up on the pension check you receive at the end of this month.  As I mentioned earlier, the Board has approved a change that would include your 13th Check and Corbett payment in the fund liabilities.  It cleans up the bookkeeping, makes the Feds happy (it complies with new accounting regulations) and it is a step in the effort to get rid of the Waterfall.  It is also a step on the way to having both payments included in your monthly pension checks.  Takes time, but it is headed in the right direction.

    Speaking of funds, our Chief Financial Officer Doug McCalla informed us today that the Pension Fund just hit a new high; $4.617 billion with a "B."  And you saw it here first.  Doubt you will ever see it in the U-T; they are locked on "...the pension deficit of $1.43 billion dollars ... this is a recording."  And yes, it is true, the City does owe that money to the pension fund and they are working on ways to pay it.  In the meantime, being the optimist that I am, I prefer to look at what is in the Fund, and say that "the glass is over three quarters full."  Not only sounds better but it's true.  

    This is also the time of year to consider the interest rate to be applied to DROP accounts.  Part one; retired DROP participants can relax, this does not affect you.  Your DROP account interest was set at 8% last December when you had to make that forced choice on distribution of your DROP accounts.  The current matter applies only to active member DROP accounts.  But as always, the topic is surrounded by confusing rules on setting the interest rate.  Last year, we went through this same drill.  At that time, we drafted a detailed report to the City Council requesting guidance on this issue.  The ordinances were not clear, and the intent of the plan sponsor was not clear.  We hoped for clarification.  At this writing, we are still waiting at the mailbox; haven't heard from them yet.

    In the meantime, the Board President stated that he would name an ad hoc committee to try to get a handle on this DROP interest issue.  I volunteered for that committee, and hope to serve on it.  I have a head start; we considered this item at the Business and Governance Committee on Thursday and we had a good discussion on the issues and a number of speakers.  DROP account interest is addressed in MOU's from Fire Safety, POA, and a SDCERS handbook on DROP.  Members should be able to rely on information provided and agreements negotiated.  The Municipal Code addresses the subject, but not with the clarity one would hope. We will work on it and we will keep you posted.

    If you will recall, in March 2006 the Board voted 7-2 to provide legal defense, with collateral, in the criminal indictment of Lori Chapin, former Board attorney, and Larry Grissom, former SDCERS administrator.  The idea was that the defense would be funded and if acquitted of all charges, SDCERS would pay for their defense.  If, however, either individual was convicted of any of the 16 counts, they would be responsible for their own defense.  Our fiduciary counsel had advised the Board that this action was discretionary if we could make four preliminary findings relating to their actions and the interests of the System.  As I told you at that time, I could not make those four findings and therefore voted against the measure.  The item before the Board today was the agreement for collateral that the individuals would encumber in return for SDCERS paying initial defense costs.  It was a well prepared agreement, and will likely serve its stated purpose.  The findings necessary for this action today had been consolidated but still contained the same four   issues.  I could not make the findings in March, and I could not make them today and therefore voted against the measure.  It was approved 11-1.  I respect the decision of the Board, but I bring different background, experience, and information to this consideration.

    The Board today approved the Charter of a new Audit Committee.  One of the recommendations of the Navigant Report was to establish a new committee to conduct, coordinate, and review audits of SDCERS funds.  The Audit committee created consists of three non-board volunteers  and two Board members, with the President of the Board sitting in as an ex-officio (non-voting) member.  The qualifications were carefully established and the volunteers thoroughly screened. The Audit Committee has already met a number of times and was instrumental in the selection of a new Auditor for SDCERS.  The new Auditor, Marcias, Gini, O'Connell LLP, was approved by the SDCERS Board today.

    Speaking of Committees, I would urge you to review their agendas, which I forward to you, for an item in which you are interested.  Then attend that committee meeting because frequently you will receive a more complete briefing and discussion than occurs at the full Board hearing.  The Committees allow more time on the target and often have presentations by professionals in the field. You also have the opportunity for non agenda public comment and opportunity to speak on agenda items. This Thursday at the Investment Committee for example,  in response to a Board request for more information on Securities Lending, four key people from our Custodial Bank, State Street Bank, gave a one hour briefing and answered pointed questions from Board members.  Following that, was a presentation on private equity investment by two representatives of  Callan Assoc. and SDCERS  investment staff.  Both were detailed and informative, and they are free.  No lunch is served, but then again no one will try to give you a sales pitch or call your home for the next four years. 

    So come on down; no reservations required since you are a member, and it's festival seating.

 

    Joe Flynn, Retiree Rep. to the Board