PATTI'S NOTES SDCERS Web Access - Board meetings, with subject access, are available for viewing at www.sdcers.org 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 the following Sunday 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. Directions to on-line pension numbers: Go to City web site, on the upper left hand corner click on "Investor Information", at the bottom you must click on "read terms of use now". This takes you to the Investor page. Go down about 9 sentences/paragraphs, and click on the blue "OK" at the bottom. Click on "pension up-date". Click on pension by month. It is approximately four pages long. (Note: Before SDCERS releases their latest numbers, Jay Goldstone has SDCERS' numbers on-line (pdf) at the City's bond investors web site. These numbers are no longer telephoned to CSDREA President Nancy Acevedo before CSDREA's monthly meeting and not always printed in monthly SDCERS materials for Board Meetings.) UPGRADING SDCERS' WEB FOR SUBJECT SEARCHES Director, Information Technology, David Bond announced, "June marked the first meeting where the Board of Administration meeting video, agenda and supporting materials were published to the Internet by our new SIRE system. Video, agendas and supporting documentation are accessible via the Board Meeting section on SDCERS' Home Page. (Double click) Meetings are broken into Pre-June 2009 and Post June 2009 selections because of the added functionality available from June 2009 forward. Supporting materials can be accessed in pdf format by clicking on an agenda item." You can select by topics now and not watch the whole meeting. Contact SDCERS membership services for more information. Board will have new SIRE voting technology with touch screens in September. UPDATE ON COLA Mark Hovey's July 16th report, under Actuarial Activity: "At the City's request, Cheiron quantified the savings associated with a one-year and a permanent freeze of the annual Cost of Living Adjustment (COLA)." AND WINNING: Talented, SDCERS Chief Financial Officer Mark Hovey will be in the news for winning best CFO in the government category this year from SAN DIEGO BUSINESS JOURNAL. SDCERS Board President Mark Sullivan read the press release from SDCERS. Hovey has built a great team and brought delayed past annual reports up to date. He builds a pleasant spirit by recognizing staff doing things right. GOING OUT- $20.256 MILLION FOR JUNE "$20.256 million was needed for June benefit payments. These funds were used to pay monthly benefit payments as well as operating expenses."- July 16, 2009 EXECUTIVE SUMMARY OF STAFF REPORTS. Hovey noted in his presentation of May's 2009 Financial Statement noted that benefit payments were up 9% because more members were retiring. Last year, 2008's total for 11 months was $233,255,784. This year, 2009's total for 11 months is $254,284,877. COMING IN- CONTRIBUTIONS FOR JULY 2009 " All plan sponsor advance contributions were received by July 1st. The total amount received was $164.4 million." - July 16, 2009 EXECUTIVE SUMMARY OF STAFF REPORTS. ASSETS STATUS REPORT The Executive Summary did not have the June 30th asset value reported from State Street Bank, so I am using CHEIRON'S July 17, 2009 report titled: ACTUARIAL IMPLICATIONS OF FY2009 INVESTMENT RESULTS. Note the difference between actuarial and market value of assets. SDCERS Board approves long-term averaging formulas that are used to make the Actuarial Value of Assets (AVA). The AVA is used to figure the City's annual required contribution (ARC). SDCERS market value of assets (MVA) is what assets are worth currently if sold. Page 13-14 of Cheiron's (SDCERS' actuary) report: Actuarial value of assets: June 30, 2009 actuarial value of assets was $4.52 billion compared with June 30, 2008 actuarial value of assets of $4.96 billion. Market value of assets: June 30, 2009 market value of assets was $3.77 billion compared with June 30, 2008 market value of assets of $4.70 billion. FUNDED RATIOS Cheiron's report noted that across the nation, the median for public plans' funding ratios have declined by 20% or more, from a median funded ratio of 86%, prior to Fiscal Year 2009, see pages 6-7. -ACTUARIAL VALUE RATIO: Goldstone's Investors' web site lists SDCERS' June 30, 2009 actuarial assets/liabilities funded ratio as 70%, compared with the June 30, 2008 funded ratio of 78%. MARKET VALUE RATIO: Some retirees have used the numbers in Goldstone's report to figure June 30, 2009's market value of assets/liabilities funded ratio at roughly 58%.) WHY THE "CORRIDOR" IS AN ISSUE? Gene from Cheiron was concerned on July 17th, regarding the growing distance between SDCERS' actuarial value of assets (AVA) and SDCERS' market value of assets (MVA). I'll describe the 'corridor" as the percent of difference between AVA and MVA. Without a corridor, SDCERS' FY 2009 ratio of (AVA) to (MVA) would show at 131% of market value. (By comparison, CalPERS was expected to be 144% and LA City was expected to be 151%.) However, "SDCERS adopted 'corridor', limits the actuarial value of assets to be no greater than 120% of market value", see pages 24. Gene's chart on page 26 of his report: At 120%: 1/6 of AVA (actuarial value of assets) is not there At 130%: 1/5 of AVA is not there At 133%: ¼ of AVA is not there At 150%: 1/3 of AVA is not there. Gene reported "…131% ratio may not be 'sufficiently close' to…" the market value of assets, on page 26. On page 11, he added that there would be a "Significant effect on (City's) contributions rates if 120% corridor is applied". Being OK at over 131% of market value depends on how fast SDCERS can get back to 120% of market value. (PATTI'S EDITORIAL NOTE: "BUDDY, CAN YOU SPARE ANOTHER DOLLAR?" Over the past few months, you may have seen recent articles/editorials in the media about Goldstone asking to widen the corridor, in order to lower the City's 2010 annual required contribution, due July 1, 2010, and the general presumption in the media that the SDCERS Board would rubber stamp Goldstone's request. Was it yet another chapter in the City saga of asking SDCERS to pay expenses? -I remember when former Chief Financial Officer Doug McCalla said that the City negotiated with SDCERS to build the City parking structure, then the City paid SDCERS a $1.00 for it.- The two dozen of us who had attended approximately 45 meetings of the Pension Reform Committee (PRC), seeking solutions for the impact from the City's MPI & MPII, watched as politics again seemed to risk to all that the PRC and the reformed SDCERS Boards worked with great dedication to achieve. Mental pain was sharp, for those of us who had invested years in reform, at the idea of the City asking to explode the size of the UAL. There were other perspectives, a retired union member came to the SDCERS Board, for the first time, to find out if the Mayor was bluffing that the City had no money for raises next year. For him this was a test of the transparency of the Mayor. The Board appeared focused on analyzing the numbers. The bottom line, for many of us, was future competency of SDCERS funding, and to some extent the Board evaluated the City's ability to delay current contributions and make bigger pension payments in the future. I thank the SDCERS Board for asking questions to those points.) CONCLUSIONS OF ACTUARIAL IMPLICATIONS OF FY 2009 INVESTMENT RETURNS- Gene from Cheiron, SDCERS' actuary, reminded everyone that he had recommended this discussion about the impact of the market fall, at last winter's June 2008 valuation presentation. Conclusion: Consider newly appointed trustee Richard Tartre comments: "Not a good time to be Mayor," said Tartre. Tartre had started out asking what was the most aggressive action that would make the lowest payment from the City? He concluded that no matter what SDCERS does, the City's ability to pay future ARCs would not be sustainable. Another newly appointed trustee, Herb Morgan wondered if the pension system has any good outcomes? Gene suggested holding the City to a higher ARC early, so the City would benefit down the road. Trustee Mark Oemcke used the term "cash-burn". WHAT HAPPENS NEXT? If Board makes changes, Cheiron has asked to be notified by October in order to prepare the 2010 ARC for the City. Gene has also asked SDCERS Chief Investment Officer Liz Crisafi, for a projection of investment returns and for financial 'standard deviations". Trustee Susan Gonick asked for Cheiron to return in August or September to answer more questions. President Mark Sullivan found the presentation an eye-opener and noted the Board's many questions. He wants the Board to be informed. He said future agenda are set by SDCERS' Executive Committee ( Chair- Mark Sullivan, Ray Ellis, Dave Hall, and Steve Meyer). He added that "no action" by October, would also be seen as a decision in some people's eyes. Cheiron did not make recommendations to the Board. The Board is legally required to hear their actuary's recommendations before they would vote on changing actuarial decisions. INVESTMENT EXPECTATIONS and LOSSES Gene's original numbers had reflected his anticipation that SDCERS would have investment returns of 7.75% and SDCERS' market value would grow to $4.98 billion by June 30, 2009, but SDCERS is $3.77 billion, and the fund is short $1.21billion of expected assets on June 30, 2009. Actuarial value was expected to be $5.20 billion on June 30, 2009, but SDCERS is $4.52 billion, and short $0.68 billion of expected assets. CITY'S GROWING ANNUAL REQUIRED CONTRIBUTION (ARC) and UNFUNDED LIABILITY: On page 16 Gene from Cheiron reports that if there are no changes: "- ARC expected to increase nearly 50% (to $224.8 million) in FY2011, and more than 100% (to $318.1 million) by FY2015 "- UAL expected to increase more than 50% (to $2.03 billion) in FY2011, and more than 100% (to $2.62 billion) by FY2015" Many of the Trustees on SDCERS Board described the situation of the City paying 60% of payroll to the ARC, in the near future, as "UNSUSTAINABLE". OPTIONS TO CUT THE ARC Cheiron offered options to mix, match, and make changes either temporarily or long term. They included: · Extending the amortization period by stretching out delayed payments to overlap future annual required contributions that future tax-payers will face. · Eliminating negative amortization, and no longer require the City to cover annual interest on the unfunded liability and let the UAL to grow even larger. · Widen the "corridor" to lower the City's annual contribution and allow greater differences between market value of assets and averaged actuarial value of assets. · Increase length of time to average losses and gains. · Ignore ARC requirements. · Pressure to reduce COLAS and other non-pension benefits, page 15. · If the Board makes no changes, SDCERS funding level will be maximized, but may be there may be other impacts detrimental to SDCERS membership, such as job eliminations. HOW SDCERS BOARD DECIDES: LEGAL ADVICE AND GUIDANCE BETWEEN A ROCK AND A HARD PLACE Cheiron often used the phrase: Pay now or pay later. Presentation: Fiduciary Considerations Regarding Actuarial Funding Decisions with Ashley Dunning of Manatt, Phelps & Phillips, LLP. How does the Board ensure competency of retirees' and beneficiaries' assets as a primary Duty of Care and Duty of Loyalty, yet meet their secondary responsibilities to the fiscal health of the plan sponsor (and members' jobs)? Ashley stressed, on pages 2-3: · "Prudent decision making (ask questions, understand rationale, analyze advice, follow plan documents and other applicable law, not act as a 'rubber stamp'." Page 2 · "SDCERS Board must adopt actuarial fund methodologies designed to ensure that the retirement system is funded sufficiently to pay for promised retirement benefits." · "SDCERS Board has the 'sole and exclusive power to provide for actuarial services in order to assure the competency of assets of the retirement system' (Cal. Const., Art. XVI, Sec.17(b)…" · SDCERS Board must act in the overall best interest of all members and beneficiaries with respect to funding of promised retirement benefits. · "…not compromise competency of assets…." Appropriate considerations by the Board, on page 6, include- · "SDCERS cash flow requirements and ability to pay retirement benefits on time." · "SDCERS long-term funding obligations." · "SDCERS' use of actuarial methods that are consistent with Actuarial Standards of Practice (ASOP)." · "SDCERS' compliance with Governmental Accounting Standards Board (GASB) rules." · "SDCERS' actuary's recommendations and use of actuarial methods that are permitted by the Plan Document and other applicable law." · "Volatility of contribution rates." · "Plan sponsors' ability to meet future obligations to SDCERS." She added on page 7: · "Do not 'negotiate' with the City or other plan sponsors regarding actuarial funding of the system." · Education, inquiry, disclosure of reasons for action, reflecting due consideration to overall best interest of members and beneficiaries." What to analyze is on page 8: · "If there is a specific change (or changes) that the actuary would recommend, then for each such change what are the projected results of the change for each year through the end of the longest applicable amortization period compared to the baseline of the unchanged methodology….", including contributions, funding percentages under AVA and MVA, GASB solvency test each year. On page 9, she asks if the recommended changes would impact the actuarial soundness of the retirement system. Would changes ensure the assets are competent? On page 10, she adds, "Obtain CIO's and investment consultant's recommendation regarding future investment returns and recovery from recent losses." And whether "…alternatives would have material impact on members' retirement benefit security." PUBLIC COMMENTORS ON CORRIDOR, ETC.: Not Jay Goldstone or any one from the City. Immediate past President of SDCERS Board, Tom Hebrank was proud of his Board's reforms and said some on the outside are using politics to change hard fought reforms. "The SDCERS Board should do exactly what it is doing: getting the facts, listening to experts and discussing the issue in a public and transparent way." Bill Sheffler, former SDCERS Trustee, an active member of the Mayor's Pension Reform Committee for a year, and is a fiduciary actuary. Along with Cheiron, he was concerned that actuarial value of assets was moving away from market value. He is concerned that there were conflicts of interest on the Board. He did not find Cheiron's options to be logical, considering where the City had been in the last 8 years. April Boling, Chair of the Pension Reform Committee, spent many hours analyzing what went wrong with pension funding in 1996 and 2002. She discovered the negative amortization problem that multiplied the unfunded liability. She commented that it was not up to the pension Board to fund negotiated raises and maintenance in the City. She noted that in 2004, the public voted for SDCERS Board to be comprised of a majority of outside expert appointees who don't wear two-hats and this makes for better decisions. Lani Lutar, President San Diego Tax Payers Association, asked SDCERS Board not to go backward on reforms. Patricia Karnes, at the request of Nancy Acevedo, President of City of San Diego Retired Employees' Association, asked that the corridor not be changed, following a poll of CSDREA's Board. As an individual, looked forward to the Board's questions. Council Member Carl DeMaio referred to a letter that he and Donna Frye sent to SDCERS earlier in the week, asking that SDCERS not start down a road to change reforms, and asked that this item be pulled from the agenda. He pointed out that by SDCERS changing their actuarial decisions, pressure would be removed from union negotiations next year. He asked the Board to let tax-payers know they are paying the true costs today. He saw this agenda item as an excuse for the City to cook the books, and was fearful of a momentum of actuarial changes if it was discussed at all. Responses from SDCERS Board when told not to discuss this issue: SDCERS' President Mark Sullivan noted the California Constitution protects public pension funds from political meddling and this was an educational presentation, not even an action item to be voted upon by Trustees today. Trustee Susan Gonick didn't want to remain ignorant and silenced, unable to discuss the topic when she is exposed financially and socially as an individual when she volunteers as a Trustee. Mayor's representative on the Board, Trustee Gregory Bych, noted that he had not discussed this issue with the Mayor. Mark Oemcke noted Board Trustees were professionals in this area. OTHER TOPICS LEGAL: SDCERS V. City SD Superior Court Case No. GIC 841845 & GIC851286 Hon. Judge Jeffrey Barton Hearing July 31, 2009 on City Motion for Summary Judgement and related motions. MEA, Judith Italiano v. City, SDCERS SD Superior Court Case No. 37-2008-00096145-CU-BC-CTL Hon. Judge Vargas August 21, 2009 City's demurrer to First Amended Petition/Complaint. FINANCIAL ACCOUNTING Your pension checks successfully came from Wells Fargo Bank instead of the City in June, reported Mark Hovey. INTEREST ON 1981 Plan WAITING PERIOD SDCERS is contacting members affected. General Counsel Elaine Reagan said the City is correcting time for 1981 plan people. Those notified to pay interest may appeal to Business and Governance Committee. IRS requires the pension fund be made whole and SDCERS/City cannot simply add to the unfunded liability. Trustee Steve Meyer questioned one-sided contracts with members, Reagan responded that is the risk of doing contracts with the government. ************** Dell Deals: Treat yourself to a sweet deal on popular laptops! (http://pr.atwola.com/promoclk/100126575x1223100673x1201716527/aol?redir=http:%2F%2Faltfarm.mediaplex.com%2Fad%2Fck%2F12309%2D81939%2D1629%2D7) |