SDCERS BOARD MEETINGS for July 2008
Reported by Patricia Karnes

Patti's Notes

SDCERS BOARD MEETINGS -July 14-16, 2008
(I attended the Audit Committee, Business & Governance Committee and the full Board meeting for these notes. Notes from the Investment Committee are from materials prepared for the meeting or the full Board meeting, as I did not attend that meeting.
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.
Official CDs of SDCERS' committees and Board meetings are available through the Board Secretary, visual recordings are available through City Channel 24. Live streaming will be available soon. If you live in the City of San Diego, f-ull Board meetings are on Channel 24 around 5 or 6pm, usually the third Friday of the month, and usually repeat on Sundays at 1pm. However August is legislative vacation and the  SDCERS meeting may be on more frequently.)

From EXECUTIVE SUMMARY OF STAFF REPORTS for July 17, 2008
July 17 Report- $15 million for benefit payments and operating expenses.
$4.805 billion as of July 2nd, net invested assets reported.

June 19 Report- $11 million benefit payments and operating expenses.
$4.947 billion net invested assets reported.

Plan Sponsors'advanced contributions paid on July 1st for FY 2009 totaled $172 million.
These contributions were used to rebalance SDCERS' total portfolio closer to the target policy allocations. The remaining funds were reserved for three months of benefit payments and operating expenses, pending real estate capital calls and other asset allocation adjustments.

From JULY LEGAL SERVICES REPORT- Elaine Reagan, General Counsel
*  "We have received written notice under the Government Tort Claims Act that Judie Italiano, the MEA, Gary Collins, Harry Eastus, James 'Bill' Farrar and the POA are asserting claims against SDCERS for breach of contract, breach of pension agreements, negligence, breach of fiduciary duty, misrepresentation and, in the case of Italiano/MEA, deprivation of due process.  The claimants are seeking specific performance and/or damages, including damages for emotional distress and attorney's fees."

· "SDCERS is required to review and amend its Conflict of Interest Code by August 22, 2008." Roxanne Story Parks will be working on this.
· Check out Elaine Reagan's new format for court cases.

(Note: Reportable action from June SDCERS Closed Session-
"The Board voted unanimously to approve the Consulting Agreement with Christopher W. Waddell."


CHEIRON- SDCERS ACTUARY

ACTURIAL EXPERIENCE STUDY - first draft.
The Board will vote next month on assumptions for mortality, retirement, turnover, inflation and disability.
Two recommended changes would balance each other out, and therefore not increase, the City's annual costs in the next evaluation:
1) Reduce expected Inflation from 4.25% to 4%.
2) Reduce Investment Returns from 8.00% to 7.75%, which will decrease interest crediting to Employee and Employer Reserves. Lower expectations would lower risk to SDCERS.

Gene Kalwarski, from Cheiron, will be back next month to give staff time to add information to the study. This study is done every three years. Gene said the important thing, for the Board, was to keep an eye on changes in the various assumptions and not go on "auto-pilot" regarding them.

He emphasized that San Diego has gone through a unique period during the last three years that is not likely to be repeated. The actual number of general employees leaving SDCERS was 1,646 versus the expected 432 and the number of safety employees leaving SDCERS was 383 versus the 55 expected. Sheffler pointed out that the actuarial study is meant to project over a long term (think 30 years) and not a 3-year experience. So Gene will only move part way to the number of people leaving the system.

CHEIRON CONTRACT
Board approved extending Cheiron's contract option by 10-0, to perform Actuarial Valuations for June 30, 2008, June 30, 2009, and June 30, 2010, with an additional 4% each year for three years. Cheiron gave a discount on non-retainer work.
Susan Gonick asked if SDCERS pays more than other clients do? Wescoe responded that he was still looking for ways that SDCERS is less complicated than other systems. And added that the money was well spent to be in Cheiron's hands.

GOOD PRACTICE: AUDIT OF ACTUARIES
Sheffler, an actuary when he is not a Board Trustee, said that in the past, the Business & Governance Committee has covered a 3rd party audit of the actuary, every three years. In the future, he added, SDCERS will need to do this, and MGO, SDCERS outside auditor, doesn't even come close, even with 40 hours of review annually.
SDCERS was last examined by the City for June 30, 2005-2006. Preovolos felt that as long as the City was paying, that SDCERS did not need to hire another opinion.

DISABILITY:
The number of applicants waiting to be processed has been reduced by 35%. The Board is working to bring the wait to less than one year.

CLOSED DISABILITY SESSIONS FOR PRIVACY?
Sheffler presented a discussion on sensitive information versus transparency in decisions, for applicants and the public who pay the bill.
Some applicants believed there is a right to privacy and were pushing to hold hearings in Closed Session. Elaine Reagan, SDCERS General Counsel, said applicants waive the right to privacy. Steve said "shrouded" was not good and wanted criteria to be clarified. Board appeared comfortable with continuing to have staff to take applicants' requests for privacy to the Disability Committee for consideration.


BOARD CHARTERS, POLICIES, RESOLUTIONS AND RULES
This month the following topics were revised in minor ways and updated as Charters:
· Duties of the Retirement Administrator. Adopted the Administrator/CEO Charter.
· Duties of the General Counsel. Adopted the General Counsel Charter.
· Duties of the Internal Auditor. Adopted the Internal Auditor Charter.
· Board Committee Structure/Committee Charter.
· Approved repeal of Designation of Alternates by Ex-Officio Board Members.
City Management can no longer appoint an alternate (as the auditor-controller once appointed his assistant to sit in his seat), so this is obsolete as it is no longer in the City Charter.

TECHOLOGY
The City is installing SAP. SDCERS' will be going to a separate financial accounting system and plans to finish SDCERS' new installation by January 1, 2009. Contracts with Sikich and Linea Solutions were approved.

David Bond reported there are no high-risk security problems, SDCERS' web site tested A- and work was being completed to lower risk to a full A.  There is no A+.

AUDIT COMMITTEE

The FUTURE DATES for audit committee meetings:
September 17, 2008 Wednesday 10:00am. (McCalla will be invited to speak on the pricing of SDCERS assets, I believe.)
December 17, 2008 Wednesday 10:00am
March 18, 2009 Wednesday 10:00am
June 17, 2009 Wednesday 10:00am

THANK YOU LETTER
Patti read a letter from City of San Diego Retired Employees Association's President Nancy Acevedo expressing appreciation to the Audit Committee, and especially applauding the first outside, independent members, Armon Kamesar- Chair, Marilyn Brown, Michael Collins. The letter saluted the committee's national recognition and being a forerunner in public pension auditing standards. The results are increased credibility in the public's and the SEC's eyes.

INTERNAL AUDITOR CHARTER- Elaine Reagan
Board Rules 4.30 were repealed, allowing the adoption of the Internal Auditor Charter, which incorporates duties of the Internal Auditor.  Duties will include vetting informal practices at SDCERS, as Bob Wilson, Internal Auditor, comes across them.

AUDIT COMMITTEE CHARTER- Bob Wilson
*Clarification of appointments and terms of members.
*The outside auditor will determine if the Government Accounting Standards Board (GASB) requirements are met and report this to the Audit Committee. An Audit Committee member presents the audit to the full SDCERS Board as an information item. The Board then receives the recommendation of the Audit Committee.
*Committee may set special meetings consistent with the requirements of the Brown Act.
*The Audit Committee will prepare an annual performance evaluation for the Internal Auditor.

DATA INTEGRITY
Wescoe reported City errors gave lower salaries for 8 employees than their actual salaries. A discussion followed that was stereotypical of what most SDCERS members think happens at these meetings. Wescoe repeated that SDCERS is focusing on data integrity this year.

INVESTMENT COMMITTEE MATERIALS for July 17, 2008 1:30pm
Next meeting is August 14 at 1:30pm

Doug McCalla:  "Review and Discussion of the Role of Market Neutral Investing in SDCERS Manager Structure".

Callan Assoc.: "Review and Discussion of SDCERS' Manager Structure Analysis"

Steve Meyer, Investment Committee Chair, reported the big question was how to categorize Market Neutral and structure management in the future?

The Board amended the SDCERS Investment Policy Statement by 9-0 to clarify roles in the manager search process.

The proxy service was extended for one year.

Next SDCERS Board Meeting is Friday, August 15, 2008 at 8:30am