SDCERS Audit and B&G Committee Meetings - April 16, 2008 Retirees: Patricia Karnes, VP of CSDREA covered the Audit Committee meeting in the morning and provided the following update and I covered the B & G Committee in the afternoon:
April 17, 2008
Everyone- (Note: Wescoe joked today that the first reading by the Council of the IRS Ordinance for VCP was read on April Fools Day and the second reading was on income tax due day. Audit Committee delightful experience today with SDCERS' 2007 CAFR finished and going to the printer. It is 20 pages shorter than the 2006 CAFR, and notably clearer in reporting than the 2005 CAFR. Macias, Gini and O'Connell, outside auditors, said that Wescoe was one of the most "outward" executives that MGO has worked for and he made it easier to sign the report at the end. The 2008 CAFR will be the first "normal" year in some time. Wescoe said other pension systems will be seeing SDCERS as a hot site of current success on a national level and example to look at for "how to" expertise by other pension systems. At the May Audit Committee, MGO will do a 20 minute presentation of new audit standards for Internal Controls that are coming down to government and private companies. Wescoe said that when the "Group Trust" status for SDCERS is approved by the IRS, other pension plans will want to join SDCERS because SDCERS has IRS qualification. After the meeting Chris Waddell said that it would be possible for SDCERS to have the Mayor's new pension plan and the old plan together in the "Group Trust".) Patti Karnes Note: At the last Board meeting I made a request in the Public Comment time asking for
some tables in the member/public seating area. The Board and Staff heard my plea. On Wednesday there were two tables, seating four each in the public area. That's great. It makes it much easier to make notes and to follow with the printed handouts that are available. So get there early; it's first come first served.
The Business and Governance Committee met on Wednesday afternoon April 16, 2008; a change from their previous schedule of Thursday morning. They are considering to change to this Wed. schedule permanently. The reason being that the B&G Committee covers a lot of ground and if changes are made in the material, staff has only a few hours to make the changes, and little opportunity to get it the the full Board prior to the hearing on Friday.
I think the Wednesday meetings are a great idea, for the Board and for members. It spreads the multiple meetings out a little, providing more options for attendance, and a break between B&G and the Board if you are following a particular item.
In addition, if you wish to speak on an Item scheduled for Board action, and it goes first to B&G, I suggest that you appear and speak on that item at the B&G Committee hearing. They have more time, frequent staff and consultant briefings, and your input is likely to have more impact. If you wait until the Board hearing, and the item comes from the committee recommending approval with a 5-0 vote, (only takes 7 to approve) your input better be good because the issue has momentum. Early is better.
These notes do not follow the agenda; the hot items are up front.
Patti had mentioned that the Council approved the IRS Voluntary Compliance Program on Apr. 15. Roxanne Story Parks, SDCDRS Compliance officer, stated that the approval was accomplished in sufficient time to meet IRS time requirements. A big sigh of relief, and a thank you to the outside Counsel who worked with the Council to accomplish this. SDCERS General Counsel Chris Waddell, Roxanne, D. Wescoe and Terry Mumford of Ice Miller tax attorneys, put a lot of blood sweat and tears into this effort. This was a program vital to the Pension System and to the City made unnecessarily difficult and time consuming by the City Attorney.
Chris Waddell told the committee that the Waterfall Issue is scheduled for Council on Apr. 28 and 28. This issue has been before the Council on numerous occasions last year. Initially, the City Attorney had drafted an Ordinance that would eliminate the Waterfall Concept, and the "surplus earnings" language - which everyone agrees to, but it also eliminated the Ordinance language that provided the mechanism to pay the Corbett Payment, the 13th Check, and COLA, and nobody agrees with that, save one. These three pension payments are the result of Court settlements and negotiated agreements.
After the initial presentation, SDCERS Gen. Counsel, reps from the Independent Budget Analyst, Council Pres. Peters office, and the City Attorney's office met and hammered out an agreement, supported by all, including the rep. from the CA. But, before the Council hearing, the CA decided that he did not agree with the revised ordinance agreed to by his representative. The CA pushed for adoption of his original ordinance, saying that SDCERS could work out a way to make these payments. Now, I am not an attorney, but I do know that SDCERS does not establish benefits - only the plan sponsor can do that; and that if it is not in the Municipal Code no payment to retirees can be made.
SDCERS General Counsel prepared a letter stating clearly the issues, and drafted an Ordinance that would excise the Waterfall Concept, and maintain the ability to pay court ordered and agreed to benefits. That letter was circulated to you last year.
This year, SDCERS General Counsel will be sending another letter to the City Attorney and Council clarifying the issue, and I am sure, delineating a reasonable and legal solution to this issue that will not create undue financial hardship on retirees and generate a blizzard of litigation.
This is an issue that retirees need to pay attention to; and make sure your elected representatives are fully informed on the issue and the sensitivity of the matter.
Now on with the rest of the B&G Committee meeting;
Elaine Ragan, deputy Counsel for SDCERS reported on some Board Rule changes being proposed. One issue, dealt with email service on some disability issues, but not to worry, this is only for the convenience of members who wish to provide information to SDCERS. And SDCERS will provide confirmation. Committee Chair Mark Sullivan and other committee members wanted it made clear that SDCERS would not be sending email notification to members; that this was only for the benefit of members.
She said something else that caught my attention. That staff was going to recommend that the Board adopt rule changes on the first reading. I hope that is only preliminary because I don't think that would be a good idea. The Board needs to realize that retirees have a very hectic schedule, which frequently requires them to be out of town for cruises, reunions, data gathering trips on how other cities operate, the layout of St. Andrew's Golf course and urban planning in Europe. All with the eye of bringing these ideas back to San Diego to improve our quality of life.
Which means that sometimes we need that extra month to participate in the process when new Rules affecting retirees, or the active employees on the train behind us, are proposed. So if this comes up when you are at a Board meeting, tell them we need a little more time.
There was additional discussion of the interest rate for DROP accounts. But this relates only to active employees DROP accounts, so fill in your friends who are still working. The issue is still not clear; IRS needs to make a ruling on maximum interests rates a pension system can pay on those accounts. This will be discussed at the May Board hearing, so tell your active duty friends to tape that session on Channel 24 to stay up to date.
The Committee also conducted interviews to select a Fiduciary Counsel for SDCERS. Two firms were selected as finalists to be interviewed, Russ Richeda of Saltzman and Johnson and Ashley Dunning and Michael Toumanoff of Manatt and Phelps.
Russ Richeda went first, missing his partner and a little slow out of the blocks. He gained some momentum later in the interview with a good answer on "Why do you want to work here?" He said he would like to know what really happened here and would like to be part of the reconstruction.
Ashley Dunning and Michael Toumanoff of Manatt and Phelps followed with a compelling tag team interview. They recognized that they would be getting the tough questions where the Board was deadlocked. In those situations they would bound to displease half of the Board but it goes with the territory. On the why do you want to work for us? Toumanoff said, "Because SDCERS is the epicenter of the Public Pension field. A new Board and a new staff; will be setting standards for others to follow."
Toumanoff, if you will recall, was the Fiduciary Council prior to MP1. At that time, when asked for review of MP1 he gave a negative and unwavering opinion -- don't do it. He was summarily relieved, Hanson and Bridgett was hired and Robert Blum and Constance Hyatt provided an acquiescing opinion for MP1 and the spiral began. With this information, I gave Mr. Toumanoff a red badge of courage.
The interviews were lengthy with a lot of interaction by the committee. Member and attorney Susan Gonick has a soft voice but asks hard questions which focused on the depth of experience and support of the competing firms. Saltzman & Johnson, it turns out has only eight attorneys and only two of them work in the Fiduciary Counsel side. Richeda has excellent credentials and good experience. But in the end, he could not overcome the small size of the firm, made obvious by the absence of his partner.
In the end, the Committee voted 5 - 0 to recommend to the Board the selection of Manatt and Phelps as Fiduciary Counsel. Not only the performance and experience of Dunning and Toumanoff but the support of the large firm behind them appeared to convince the Board. They convinced me too. In fact I found myself looking for the "Yes" button when the vote was called. But while SDCERS did provide tables, they do not have any of the buttons, and the Committee did not ask for a show of hands. Otherwise, it would have been 6-0.
You will have the opportunity to see and hear some of this on Friday when the full Board considers the applicants and makes the final choice. The Committee considered a number of other things, but you will have to catch those in person at the Friday meeting or catch it on Channel 24.
Joe Flynn, Retiree |