SDCERS BOARD MEETINGS -August 14-15, 2008
Reported by Patricia Karnes

(I attended the Business & Governance Committee and the full Board meeting for these notes. Notes from the Investment Committee are from materials prepared for the meeting, discussions with SDCERS staff, or the full Board meeting, as I did not attend that meeting. We need a volunteer to attend the Investment 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. Full 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.)

SDCERS 1st ANNUAL MEMBERS' MEETING -
SEPT. 9th 
***BALBOA PARK CLUB -different location from CSDREA meetings.
11:00am to 1:00pm 
(Special note from the City of San Diego Retired Employees Association: CSDREA is offering retirees a reserved $10 buffet lunch following the meeting. Deadline for lunch reservations is NOON, September 5th. For reservations call  858-272-0494 or 619-464-8595. This meeting supercedes the CSDREA monthly meeting. Note alternate location - Balboa Park Club.)

Retired and active members will hear Chief Administrative Officer, David Wescoe, present the status of SDCERS, with time for members to ask questions. It is not planned as a media event, said Cynthia Queen, SDCERS Member Services Director. Parking is available and free.

WATERFALL - 2nd CITY COUNCIL READING- SEPT. 2, 2008?
The item, below, is from SDCERS Memorandum, August 4, 2008 Legal Services Report, from Elaine Reagan to the Board of Administration-

II. LEGISLATIVE DEVELOPMENTS

"Waterfall Odinance: .... On July 21, 2008, the City Council passed Version A of an ordinance to amend Division 15 and eliminate the concept of surplus undistributed earnings as a source of paying benefits outlined in the Waterfall. Second reading of the ordinance is currently scheduled for September 2, 2008. The passage of this ordinance will bring the plan document into harmony with SDCERS' current practice of including these benefits as actuarial liabilities to be paid out of plan assets but will not otherwise change the way SDCERS has paid the benefits in past years."

INVESTMENTS RETURNS: SHORT AND LONG TERM
SDCERS Fund Balance as of July 31st  was  $4.79 Billion , (from Executive Summary for August 14, 2008).
July's Operating expenses were $7.4 million and monthly benefits were $14.1 million ( from Investment Division Report August 1, 2008.)

SDCERS' total investment return for Fiscal Year 2008 ( July 1, 2007 to June 30, 2008) was negative, -4.67%, which put SDCERS in the 47th percentile of public pension plans. (Subprime mortgages, weak housing market, equities and small cap.)
Wescoe pointed out Liza Crisafi's remark that last year's performance is offset by the past five year performance. He noted that potentially, a member's connection with SDCERS is as long as 60 years, between contributions to SDCERS and benefits from SDCERS. Think long term.

SDCERS' earnings were back up to 2% for the last quarter (April, May and June 2008), putting SDCERS in the top 4th percentile of public pension funds.

When Callan Associates compared returns for the last ten years, SDCERS ranked in the top 3rd percentile of public pension funds at the end of the fiscal year. SDCERS continues to expect earning 8% a year before expenses over the long term.

The retirees' favorite chart of realized and unrealized gains/losses shows plunging unrealized gains/losses (values went down). Mark Hovey, Chief Financial Officer, reported at the Business and Governance meeting that much of  SDCERS losses are unrealized because investments were not sold.
Liza Crisafi's August 1st Status Report- Investment Division: "The realized gains for the first 11 months of FY 2008 totaled $292.6 million. The level of unrealized gains totaled $12.6 million. These values are unaudited."
The realized gains (profits from selling) crossed the hurtle for the 13th Check and Corbett. The Board still needs to await audited numbers, approve checks, etc.
Liza Crisafi- Deputy Chief Investment Officer, (McCalla's next in command) told me personally that the unrealized losses will not affect realized gains.

Discretionary Private Equity Advisor: SDCERS' RFP for Private Equity had an astounding 63 responses and showed confidence in working with SDCERS' Investment staff, according to Wescoe.

Fisher Investments Institutional Group was selected for managing Small Caps, replacing Putnam Investment Domestic Equity Small Cap Value Strategy. The Investment Committee liked that Fisher is consistently over their bench mark and they tell SDCERS their policies and procedures. Steve Meyer noted that SDCERS' bank holds SDCERS assets and not the money managers who invest our money.

SDCERS BUDGET OUTCOME- FY 2008
SDCERS came in at 96% of Fiscal Year 2008 budget.

Real Estate fees pushed investment fees to 101%.

Legal costs came in at 71%, actual was $2,595,725 and budgeted was $3,645,000.

Due to compliance issues, POB plan, etc., SDCERS' actuary, Cheiron, came in at $671,077 for FY 2008, with FY 2009 budgeted at $250,000.

Pre-Retirement Seminar costs are now getting back on track with a new plan, reported Cynthia Queen.

MISSION, VISION, AND THREE YEAR GOALS
Mission, Vision and Goals were approved by the Board with little new discussion. These were originally developed at the Board's Retreat. Definitions of "Tier 1" and "Tier 2" and "Objectives" are being prepared so the Goals can be measured.

The word "program" was changed to the word "process" for Goal 4- "To improve the disability benefit process".

Particularly note that Goal 15 is about the independence of SDCERS. Someone joked the Independence Goal would be tattooed on Board Trustees. Wescoe explained the importance of independence from plan sponsors, as well as, SDCERS' responsibilities to retirees, beneficaries and members to follow relevant legal statutes.

MISSION STATEMENT
The mission of the San Diego City Employee's Retirement System is to deliver accurate and timely benefits to its members, retirees and beneficiaries and ensure the Trust Fund's safety, integrity and growth.

VISION STATEMENT
The vision of the San Diego City Employees' Retirement System is to be an independent, leading edge, actuarially sound and transparent pension plan;
to be an organization that is responsive to its members, beneficiaries and retirees; with excellence in governance, management, leadership and service; and to be a positively perceived and vital contributor to the community.

GOALS
Tier One: Core goals.
Goal 1- To maintain an actuarially sound plan.

Goal 2- To invest Trust Fund assets in a manner that will equal or exceed our investment benchmark.

Goal 3 - To deliver accurate and timely benefits.

Goal 4 - To improve the disability benefit process.

Goal 5 - To ensure that the Board operates with effective governance.

Goal 6 - To maintain respectful relationships with all plan sponsors.

Goal 7 - To develop and implement a system, of personnel recruitment, training, retention, reward and succession planning.

Goal 8 - To communicate proactively with key audiences in order to enhance the organization's reputation and public perception.

Goal 9 - To ensure with excellence the integrity, safety and security of member data.

Tier Two: One step from the core goals.

Goal 10 - To develop and implement a system of Board recruitment, training, retention, and succession planning.

Goal 11 - To add additional plan sponsors.

Goal 12 - To create a 'best place to work' environment for staff.

Goal 13 - To sustain and enhance the trust of the members, beneficiaries and retirees.

Goal 14 - To continue and enhance value-add services with excellence to the members, beneficiaries and retirees.

Goal 15 - To become a stand-alone, functionally and operationally independent organization consistent with relevant law and regulation.

AUDIT COMMITTEE- Next meeting is Sept. 17, 2008 at 10:00a.m.

FINANCIAL STATEMENTS
The new group trust financial statements are expected in September.

SDCERS is awaiting the outcome of the Waterfall to finalize some financial statements.

BOARD RULES
Board approved the Chief Compliance Officer Charter after adding "General Council or the Board" after "to coordinate".

At the Business and Governance's recommendation regarding the Board Meeting Policy, a Trustee must now give a reason for abstaining and cannot back off of unpopular votes.

The word "procedures" replaced the word "policy", when the Board adopted the Procedures on Benefit Elections. This is only how to do elections for benefits. (Elaine Reagan added that if the City eliminated benefits, members would do a lawsuit and not rely on SDCERS.)

The Board continued their discussion of the Policy on Trustee Elections for a clarification regarding other plan sponsors.

PRE-RETIREMENT SEMINARS
Pre-retirement seminars are being re-formatted to be more cost effective. The plan will be presented in September by Cynthia Queen.

EMPLOYEE RECOGNITION PROGRAM
Each month three employees are recognized for their going above and beyond job requirements, big and small, that make for a positive work environment. Three of those 36 are recognized at the annual employee recognition luncheon. Wescoe said he wishes more people were able to witness this event.
I was lucky to be invited by Mark Hovey, CFO, where he presented me with the first Annual Staff Appreciation Award. It was wonderful to see staff's relaxed and open communication with Mark Hovey and the high positive spirit of employees. SDCERS has already achieved Goal #12, to be a great place to work.

NOT YET RETIRED AND PLANNING TO DIVORCE AFTER RETIREMENT? (Continued to September)
I hope I understood this, check with SDCERS.

Issue: SDCERS' administrative staff argues that "ex-spouses are excluded from the definition of "surviving spouse", and this would apply to active members who have not yet retired. There is no indication in the Ordinance that plan sponsors wish to pay ex-spouses.

What Would Change:
This policy change would affect only those who retire and divorce after the Board approves the staff recommended "Surviving Spouse Continuance". The change would eliminate benefit payments to surviving ex-spouses after the member dies. This change would not apply to those locked into their retirements and are receiving the benefit as they are relying on their retirement agreement.

The selection of a continuance, for spouses at retirement, would apply only to those married at the time of retirement and married at the member's death. By definition, an ex-spouse is not a surviving spouse at time of death. (If a member remarries, the new wife is not covered.)

Ask SDCERS for details if you have concerns.

Is This a Change of Benefits?
This will only change the understanding of the Ordinance, and not the Ordinance.

Consistency In Ex-Spouse Continuances:
Those retiring between 1971 and 1995 had no continuance, according to Wescoe. In 1995 previous staff had re- interpreted the continuance policy, without going to the Board for approval, and started to give ex-spouses continuances.
To be consistent, the Board must either approve staff's recommendation to correct the current policy of giving ex-spouses continuances, or give pre-1995 ex-spouses continuances.

Members Alternate Solutions
General Counsel Elaine Reagan mentioned that members of other pension systems work out alternate divorce settlements to replace the pension component, such as purchasing annuities. SDCERS would not recognize Domestic Relations Orders to give ex-spouses 50% of pensions after death. Reagan sited the Kramer Case (not the movie) and argued that it is not the plan sponsor's responsibility for ex-spouses, unless the City Council expresses another intention.

Costs
It was believed the actuary did not know the difference between ex-spouses of deceased members and surviving sponsors when he calculated expected liabilities so the cost is unknown. It is nearly impossible to determine who will be married or divorced when they retire.

What Is Next?
Discussion has been continued to Sept. 18, 2008, at the Business and Governance Committee, with possible recommendation to the full Board on Sept. 19th, after Trustees have had time to reflect in depth on the complexity and background materials.
Wescoe rated the Board's careful discussion, as public policy thinking and discussion at its best.

If you are concerned: check SDCERS' web site, contact SDCERS for pension counseling, and/or comment at the Sept. 18, 2008 Business and Governance meeting, and/or Sept. 19, 2008 Board meeting. Meetings are at 8:30am and parking is validated for members.

CLOSED SESSION-
(Reported on Sunday's re-broad cast of the SDCERS meeting.)
Tom Hebrank recused himself from the annual evaluation of  David Wescoe as CEO.
August 2008