SDCERS BOARD MEETING -April 17, 2008
Submitted by Patricia Karnes

(Notes do not necessarily follow the order of the committees or the full Board meeting, they may be by subject. They are my understanding of what happened.)

Next meeting is May 15, 2008. Next Disability meeting is May 2, 2008 at 10:00a.m.

Board members not there: John Thomson and Peter Preovolos.

Non-Agenda Comment:
Kenneth Winklepleck ( see under Disability- the last section)

Patricia Karnes, as an individual and not as Vice President of Programs for City of San Diego Retired Employees' Association, thanked Roxanne Story Parks for her IRS work and exceptional clarity in reporting legal issues to retirees, and presented her with a flowering plant. Patricia invited the Board to the retiree association's Mayoral Forum on May 13th.

BOARD RULE REVISIONS
As Joe Flynn was not available, Patricia read Joe Flynn's request during non-agenda comment. Joe requested that the Board continue doing more than one reading of the Board Rule changes. Later, SDCERS' attorney, Chris Waddell concurred with Joe's request. He pointed out that the staff will be slowing down, in order for the Board to identify problems, on updating and organizing Board Rules into Charters, Policies, Rules and Resolutions that will be going on SDCERS new web site. The Business and Governance Committee deferred several of the proposed reviews and changes on the agenda to their May meeting.

OVERPAYMENTS & UNDERPAYMENTS:
Overpayments and Underpayments Policy Report dated March 27, 2008 from Elaine Reagan to the Board appears to refer to individuals. Part of the last paragraph of Elaine's comments on the policy's revision read: "…neither the Board nor the Administrator may 'forgive' any portion of an underpayment.

Possibility the Board was referring to Purchase of Service via obscure remarks.
(A guess- After the Closed Session, President Hebrank emerged and said the Board had approved a collection, but no details of what or who was involved.)
Board comments included:
City notified to participate.
Duty to correct if SDCERS problem.
Violating IRS rules that require City to be billed.
"Making trust whole again."

INVESTMENT REPORT
Chief Investment Officer, Doug McCalla reported that February 2008's net income of $317,817,701, was down 27.28% (or $86,697,928) from February 2007's net income of $231,119,773 , due to lower investment earnings and higher benefit payments.

Status report
· Net invested assets as reported by the custodial bank totaled $4.828 billion, as of April 4th, dropping to $4.813 billion by April 16th.
· $12.85 million wired out for February's monthly benefit payments and operating expenses.

Investment Developments
· Private Equity Program Design and Implementation continues to be developed.
· Callan, SDCERS' investment consultant will present current market projections in May.
· Keeping eye on long term returns, not short term returns.
· Sheffler noted that unless inflation shoots SDCERS in the foot, that SDCERS can achieve 8%.
· Ongoing growth in emerging economies will be tempered by USA's real estate problems.
· Diversity via geography, property type, manager, and vintage year. This also helps protect against new risks of climate change and terrorism. Opportunities read like a geography text book: Europe, Japan, India, China, etc.

NEW FIDUCIARY ATTORNEY SELECTED:
Board approved Manatt, Phelps and Phillips by 10-0.
The new firm said they appreciated the Board's new Fiduciary Policy and also that this Board had listened when they advised the Board in the past.

SDCERS BUDGET
Total is $41.8 million, which is down by 0.6%. Salaries and personnel are up $590,000 or 8.1%. Data processing expenses are down $1.6 million or minus 36%. Legal fees are down. Rent was free last year, and SDCERS will start paying it in August, bringing General Operating Expenses up to $866,000. Budget was a handout at the Board meeting.

DIVORCE AFTER RETIREMENT AND RETIREE DIES
The ex-spouse doesn't qualify under probate.
SDCERS says the City's intent is not clear and needs an Ordinance clarification. There will be more information at future meetings before deciding.
SDCERS says there is no problem, if the ex-spouses name is listed by name as the beneficiary. Check with SDCERS staff.

ACTUARY PRESENTATION
Gene fromm Cheiron has been SDCERS' actuary since the summer of 2005. He announced that risk assumptions will be a significant part of July's meeting. (This could mean the risk that SDCERS will be unable to pay future benefits, not necessarily investment risks.)

Gene did a training session to prepare the Board for the upcoming "Experience Study" that is prepared every 5 years, per the City's Municipal Code. The "Experience Study" looks at the correctness of assumptions about the age of retirements, highest salaries, life expectancies, employees leaving the City, service purchase, DROP, Employee contributions, etc. Gene will look at what is needed to pay future benefits. Actuarial liability is what should have been paid. Good assumptions can vary 6.5% to 8.5% from actual results. Low guesses on assumptions are more reliable.

Gene's study will include economic assumptions:
· Past experience in general and of the SDCERS' plan
· What SDCERS investment consultant expects.
· What other funds are doing.
· SDCERS' risk tolerance.
· Impact of changes on plan forecasts.

What creates unfunded liabilities? Gene's chart lists:
· Contributing less than the normal cost.
· Increasing past service benefits.
· Liability experience losses.
· Investment experience losses.
· Strengthening assumptions and/or methods.

The Board will be voting on whether to adopt Cheiron's recommendations. This is important because new assumptions could raise or lower the City's Annual Required Contribution (ARC), or create or lower the unfunded liability.  Impact, of any changes the Board makes, will be reflected in the upcoming June 30th 2008 valuation. Gene said the Board needs to make decisions on Cheiron's assumption recommendations by October 1st, for the annual valuation due to the City in January 2009.

AUDIT COMMITTEE
Chair Armon Kamesar looked forward to the day, when he can mention  he is on SDCERS Audit Committee, and eyes will not roll.

Audit of City Contributions
Internal Auditor Bob Wilson is conducting an audit of plan sponsor (City) contributions that will be complete in May or June. He reported that 5 union Presidents were affected by the VCP agreement with the IRS.

Comprehensive Annual Financial Reports (CAFR):
SDCERS' 2007 CAFR is finished and going to the printer. It is 20 pages shorter than the 2006 CAFR, and notably clearer in reporting than the 2005 CAFR. On March 31, 2008, SDCERS' outside auditors, Macias, Gini & O'Connell gave their "unqualified opinion" letter. Macias, Gini and O'Connell noted that Wescoe was one of the most "outward" executives that MGO has worked for and Wescoe made it easier to sign the report at the end.

SDCERS' 2007 Comprehensive Annual Financial Report is available on SDCERS new web site. The auditors also noted that the plan's "…actuarial accrued obligation exceeded the actuarial value of its assets by $1.18 billion…"

The 2008 CAFR will be the first "normal" year in some time.

Voluntary Compliance Program (VCP) and IRS Technical Tax Ordinance:
The pension system is now funded at approximately 80% and "qualified" by the IRS. Wescoe joked 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.

SDCERS is a "hot site":
Wescoe said other pension systems will be seeing SDCERS as a hot site of current success on a national level and an example to look at for "how to" expertise by other pension systems. Integrity is higher than Wall Street's standards, he added.

New Audit standard training for May's agenda:
At May's 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.

Adding other pension plans to SDCERS:
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".

SDCERS NEW WEB SITE AND TECH REPORT

Rebecca Wilson recommended the new web site for members at the Board meeting. Check out  Wescoe's information updates under "OF INTEREST". SDCERS meetings will be available as a video repeat.

The web site has healthy search functions by text and topic. Registering includes a user name and 6 character password combining numbers and letters, plus 5 items must match SDCERS data. Date of birth and Social security numbers never accesses SDCERS' site.

Tech Report
At the Audit Committee, SDCERS' Tech Wizard, David Bond, presented "I.T. Strategic Plan Overview", as Wescoe wanted technology needs to be a strategic asset. Bond has been here one year. He had 2 Financial Analysts reclassified to I.T. positions, so he now has 3 supervisors for 12-15 "out sourced" contracts, including San Diego Data Processing' core technical staff. SDDP is 1/3 ti ½ of cost of other 3rd party vendors and offers a unique relationship with the City. They help interview when SDCERS' out sources. SDDP allows SDCERS to "right size" and gives Bond the greater flexibility to "fire" SDDP and other contracts..

Questions can now submitted to SDCERS staff by members, and are returned later.

Expenditures: Capital Replacement Plan is over the useful life, using industry standards and experience of peers.

Data Warehouse allows security of production systems. Members can only access the data warehouse.

There is an additional level of security, etc. with this independence from the City's system. Next year SDCERS' accounting system will be separate from the City. SDCERS will be developing there own security policies as some of the City's policies are not applicable.  There are three levels of back up. Pensions could be paid from an out of state site.

Email addresses for SDCERS staff is the same, or use " @ SDCERS.org" instead of "@sandiego.gov

DISABILIY PROBLEMS AND DISQUALIFICATIONS
Kenneth Winklepleck, disability retired police officer, reported during non-agenda comment to the Board that SDCERS' doctor had demanded push ups and twisted his shoulder, resulting in injuring his shoulder during an exam for SDCERS' disability retirement Affidavit and Re-Examination Project.
As a result, Winklepleck said he will need several surgeries.  SDCERS' doctor recommended discontinuing Winklepleck's disability retirement.
The Board later voted to send Winklepleck to a hearing, continuing the  process to review all pre-retirement age disability members' medical status. Disability Chair Bill Sheffler advised the Board of the importance of a member being under oath when reporting on injuries. 

Next Disability meeting is May 2, 2008 at 10:00a.m.

Request to speak on Disability:
Patricia also put in a request to speak on establishing the meaning of "Light Duty" in determining disability applications both for SDCERS, doctors, and departments. Instead, she was referred to the Disability Committee's Chair Bill Sheffler, and to SDCERS' Elaine Reagan, and Sheila Jacobs. Patricia pointed out to them that the most cooperative applicants are the most likely to overdo at an exam doctor's requests and many of SDCERS' doctors use their intimidation as a technique to determine disqualification.
Month after month, Patricia watches SDCERS' lawyers appear "mean" and debate, frequently with the police officers, whether or not their light duty assignment is permanent when their applications are being denied.
Sometimes, SDCERS interprets that the City has done "accommodation" as it should be doing and that light duty is actually permanent. Elaine Reagan told Patricia that if a department later gives a 30 day notice of not continuing light duty, that the applicant can reapply to SDCERS, if medical conditions were not the reason for denial. Later Sheila Jacobs added that Work Comp standards are lower than SDCERS' standards for disability retirements. Also, if the City was clearer, SDCERS decisions would be clearer.

Under "Affidavit and Re-examination Project" agenda item, SDCERS' attorney Chris Waddell discussed the liability of the City to return employees to work if they were disqualified from disability retirements. He had contacted Risk Management as this was the first time in 15-20 years that a disability retiree under retirement age had been disqualified and SDCERS was required to follow the Municipal Code and tell the disqualified member to "return to work".  A letter will be sent to the member with the reason.  Chris will add the City contact to the member's letter at Steve Meyer's request. Elaine added that the "Order" is served to the City at the same time as the member, but SDCERS can't force the City to re-instate the member, it is only implied, and SDCERS must say "return to work" before cutting off benefit payments.
Chris said Human Resources can send a copy of SDCERS' letter to the City Attorney. Human Resources said they will look at the person and positions available.
The letter to Ms. Kelly, who has completed the re-exam process, also says that when she is 62, she is qualified to return to SDCERS and retire. Effective date of cutting off pension payments is 30 days from the Board's direction.  
Bill Sheffler said SDCERS must follow the Municipal Code and he believed the City, not the Board, has a legal responsibility to correct inequities as they arise.

Pk 4/24/08