SDCERS BOARD MEETINGS
March 19-20, 2009
Submitted by Patricia Karnes

PATTI'S NOTES


(I attended the Business & Governance Committee on March 19th, and the Board meeting on March 20th. Notes are by subject. They are my understanding of what happened.
WEB- Board meetings are archived and are available for viewing on line at any time (after the meeting) via the SDCERS web site.
TELEVISION- If you live in the City limits, Board meetings are on Channel 24 around 5 or 6pm, usually the third Friday of the month, and usually repeat on Sundays at 1pm
Official CDs of SDCERS' committees and Board meetings are available through the Board Secretary; visual recordings are available through City Channel 24. Motions and votes are in SDCERS monthly summaries of Board meetings.

FINANCIAL STATEMENTS
For updates, watch for City Chief Operating Officer Jay Goldstone's news releases. SDCERS only supplies information about the Fund's current market value of assets and then Jay uses that number to calculate his figures in his report.

Executive Summary of Staff Reports:
Unaudited Net invested assets, as of February 28, 2009, were $3.289 billion.

Liza Crisafi's Status Report of March 8, 2009
1) $17.8 million for February benefits and operating expenses.

2) Unaudited realized gains
for the first six months FY 2009 was minus -$212.9 million.

3) Unaudited unrealized losses
for the first six months FY 2009 was minus - $739.7 million.


NEW TRUSTEES TO BE AT APRIL'S BOARD MEETING:
Election results for Fire and General employee Trustees will be announced.

Saying good-byes: SDCERS Board President Tom Hebrank and Firemen Trustee John Thomson at the beginning of the April Board meeting.
Wescoe thanked John, in advance, for his "quick" questions that went to the nub of the item and required more than a quick answer. (Patti's note: Several times over the years, John told the Board about the effect of decisions on his grandmother before he voted, meaning he saw the effect on current employees, as well as, long retired members.)

ANNUAL EDUCATION OF SDCERS TRUSTEES
Each Trustee will sit down with SDCERS General Council, Elaine Reagan, annually to tailor which educational opportunities will broaden or deepen their expertise in fiduciary responsibilities.

MEMBERSHIP SERVICES will be sending out the popular version of  SDCERS June 30, 2008 comprehensive annual financial statement to members.

FIVE TO TEN YEAR FINANCIAL EXPECTATIONS
Liza Crisafi, SDCERS Chief Investment Officer, reviewed Callan Associates' sweeping view of market history in "2009 Asset Allocation Review, Part 1: Capital Market Projections" for SDCERS. She noted that the last few months have been driven by fear and panic. She added that the economy would still be deteriorating, when the stock market recovery starts.

In contrast to emotion, the Board requires rationale for investment decisions.

Jamie reported that SDCERS is actively reviewing assumptions behind real estate investment strategic plans in this economy.

Corey Buuhoan covered private equity and the new cash overlay being put into place that will mirror SDCERS investment allocations.

Final note: While the market was unusually bad, there are more years when the market goes up.

BOARD REVIEW OF IMPACTS OF THE FINANCIAL DECLINE
David Wescoe, SDCERS Administrator announced that SDCERS actuary, Gene from Cheiron would report on how other pension systems are dealing with the financial decline, at the May or June Board meeting, in preparation for the June 30, 2009 valuation.

This report will cover other pension system's amortization policies, asset smoothing and valuation of assets. Trustee Wayne Kennedy requested a 4-5 page primer from the actuary in advance of the presentation for the Board's reference.

Note: Chief Financial Officer Mark Hovey pointed out the negative amortization, which SDCERS attaches to the City's annual required contribution (ARC), tended to shrink after 4 or 5 years on the 20 year amortization.

(Patti's Commentary: These are my questions that I see the Board dealing with in the next few months:
· What are the long-term assumptions that SDCERS needs to make about the economy?
· Should investment allocations be changed? Time to review annual asset allocations is coming up in the next few months.
· How temporary is the blip of lower earnings?
· Should the assumed rate of return be reduced? The Board will be discussing how to balance current returns of less than 7.75% vs. the guestimate of Callan Associates that the market expects north of 9% in 5 to 10 years, etc.
· Are funding ratios a concern? Is there such a thing as a line in the sand for SDCERS ability to meet pensions?
· Is the City bluffing? Will the City come up with money it "finds", like Jack McGory did as City Manager, when all other options are eliminated? For many members, the City has bluffed too many times about lack of funds, so they feel there is no crisis.
· What does it mean for the Board to be responsible to the City? A Trustee's first priority is keeping the pension plan whole. The plan sponsor, is a secondary priority, but not without major significance.
· A large increase, in the annual required contribution from the City (due to the market decline and/or reduction in the assumed rate of return) is a Board concern. Is the Board between rocks and hard places? Is it a choice between handing the City a bill it cannot pay, increasing the pension's unfunded liability, and/or abandoning responsibility to members (and tax payers) by playing with the reality of the bottom line? What are the real options on this moving target? What is the reality?
· Should the Board take a more proactive stand by publicizing Trustee fiduciary standards and members' bill of rights in California Proposition 162, passed by voters in 1992? Trustees need our support, more than they need our opinions on how to vote.
  End of Patti's comments.)

DROP IMPACT?
Cynthia Queen noted 30 firefighters and 45 police, who have been in DROP, are leaving before July 1st. David Wescoe, SDCERS Administrator pointed out DROP is already retired actuarially. Mark Hovey, Chief Financial Officer, expects a long-term cost reduction with earlier retirements. He noted that SDCERS actuary, Gene from Cheiron is following this.

Benefit counseling positions have been filled, but financial positions remain frozen to save money.

MEET AND CONFER
Wescoe noted that SDCERS is only supplying information to both sides of the table.

PURCHASE OF SERVICE is not showing an increase or decrease.

LEGAL
Confidentiality and Fraud policies continue to make progress and will return to the Board in the near future. Wescoe added that the confidentiality policy needs to balance transparency and privacy.

Elaine Reagan's March Legal Services Report of March 6, 2009:
Page 2, III. Litigation
"…Notice of Appeal in the PSC Litigation was filed on March 3, 2009.  In the MOU Effective Date case, the City's motion for certification of a defendant class is scheduled for March 13, 2009.  In the MEA/Italiano case, SDCERS' demurrer to the causes of action for infliction of emotional distress and breach of fiduciary is set to be heard on April 2, 2009.  The City's Motion for Summary Judgement in the Barton litigation is now set to be heard on April 1, 2009 at 9:00 a.m. in Department 69.  The City's Motion to stay and sever the cross-complaint, amend its answer and re-open discovery is set to be heard on April 10, 2009 at 9:00 a.m."

From Reagan's chart:
Supreme Court accepted for review People v. Lexin, San Diego Superior Court Case No. SCD 190930
San Diego Superior Court, Case No. SDC190930
Judge Frederick Link

MEA/Italiano
SD Superior Court Case No.: 37-2008-00096145-CU-BC-CTL
Judge Vargas

Barton litigation
SDCERS Complaint: Declaratory Relief on Right to Employ Counsel
City's Cross-Complaint: Validity of MPI and MPII and certain retirement benefits.
SDCERS' Cross-complaint: Recovery of monies owed by City to SDCERS but not paid because of MPII
…April 1, 2009: Hearing on City Motion for summary Judgement.
April 10, 2009: Hearing on City Motions to sever/stay compulsory cross complaint, amend answer to state new affirmative defenses, and re-open discovery
SDCERS v. City Attorney, Michael Aguirre
SD Superior Court Case No. GIC 841845
Consolidated with:
SDCERS v. City of San Diego, GIC 851286
Judge: Hon Jeffery Barton

Vallejo's bankruptcy ruling affects employees, not retirees.
Elaine Reagan, SDCERS General Counsel, announced the Vallejo ruling and said it only applied to active employees. Nothing was said about retirees according to Reagan. She noted the judge ruled that executory contracts can be rejected.
The City of Vallejo is the debtor in Section F of the ruling below.

Page 9 of the ruling:
"As established by the Supreme Court in Bildisco, a debtor may utilize section 365 to reject an unexpired collective bargaining agreement if the debtor shows that (1) the collective bargaining agreement burdens the estate; (footnote: In a chapter 9 case there is not "estate." Thus, a municipal debtor must demonstrate that the collective bargaining agreement burdens its ability to reorganize by proposing and implementing a viable plan of adjustment. Bildisco, 456 U.S. at 525-26.) (2) after careful scrutiny, the equities balance in favor of contract rejection; and (3) "reasonable efforts to negotiate a voluntary modification have been made, and are not likely to produce a prompt and satisfactory solution." Bildisco, 456 U.S. at 526. The debtor has the burden of establishing that these factors have been satisfied. Id."

INDUSTRIAL DISABILITY APPROVALS
SDCERS is not the City's Human Resource or Risk Management office. When filling out an Industrial Disability application, it is essential that employees be clear as to the medical reason and cause that necessitates an industrial retirement. If you wish to be heard, attend your Disability Committee hearing. Your next chance to speak is your appeal in the courts, not the SDCERS Board. Ask to re-schedule your Disability Committee hearing if it is not possible to attend on that date. It is your responsibility to prove your case clearly to SDCERS.
How the City handles Work Comp, is not how SDCERS handles your Industrial Disability application. (Patti's note: If you think you do not need an attorney because the City is your friend, you are naïve.)