PATTI'S NOTES
SDCERS BOARD MEETINGS September 17, 18, 2009
Submitted by Patricia Karnes
(These notes are from the Business and Governance Committee on Thursday and the Board meeting on Friday. Notes are by subject. They are my understanding of what happened.)
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:
Jay Goldstone has SDCERS' numbers on-line (pdf) at the City's bond investors web site. 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.
*SDCERS ANNUAL MEETING:
Tuesday, SEPTEMBER 22nd at 11:00a.m.
Balboa Park Club
Wescoe announced the highlights and special presentations from this meeting will be available on SDCERS web site.
NEW MEMBER PORTAL ADMINISTRATIVE TOOL- David Bond
Member Services Division staff have a new tool to better assist members over the phone. Staff can now quickly reset forgotten passwords and locked-out accounts after members verify identity. Staff can also read data along with member to better understand questions.
SDCERS FUNDING LEVEL
Audited for July 31, 2009 was $3,587,682,000 (Sara Jimenez' SDCERS Group Trust Financial statements now reports in thousands of dollars).
Unaudited for August 31, 2009 was $4,178,351,595 (Executive Summary).
DECEASED MEMBER ACCOUNTS
Internal Auditor Bob Wilson is reviewing SDCERS process of closing the accounts of deceased members, identifying deaths, final death benefits, pro-rating of benefits, success at locating beneficiaries on file for the deceased member, etc.
(NOTE: Our City retired employees association (CSDREA), NOT TO BE CONFUSED WITH SDCERS, is currently forming "HELPING HANDS" to assist widow and widowers who are City retirees, or their beneficiaries, know what to do next.
It is based on the Fire and Police's "Hand in Hand" group.
If you are a retired employee interested in helping others contact Helping Hands Chair Ruth Ann at (858) 272-0494.)
JUNE 30, 2009 COMPREHENSIVE ANNUAL FINANCIAL REPORT-
SDCERS outside auditors MGO expect to have a summary letter on the CAFR available by the December 16, 2009 SDCERS Audit Committee meeting at 9:00a.m.
BOARD KEEPS 120% CORRIDOR
(See SDCERS Web site for play back of item IV. Business Operations, A. Old Business, Action requested, 1. Actuarial Implications of FY 2009, 2., 3.)
Today the SDCERS Board did not deny, delay, wishful think, remain in ignorance, avoid, take on guilt, seek to please others, or put off until tomorrow unpleasant payments. The Board has publicly demonstrated that it has grown into the independent entity it was expected to be under State law. The Board focused on continuing to recover from previous City underfunding.
Trust and confidence in SDCERS grew. While we are not there to witness their many achievements in Closed Sessions, today the Board demonstrated maturity and expertise in a highly visible public test.
Staff report:
Mark Hovey, SDCERS CFO, wrote in his September 8th written report, "Actuarial Implications of FY 2009 Investment Results, Part II", on page 1, that "…the Board may choose …in the overall best interest of the members/beneficiaries of that plan."
Cash Burn Report:
In Hovey's second September 8th report "Operational Oversight of Funding Methodology Alternatives", he presents an analysis of 30-year net cash flow, with, and without investment earnings that was requested by Trustee Mark Oemcke.
Hovey noted: "As expected, with investment earnings in addition to annual plan sponsor and membership contributions, the cash flow of the system is positive and would improve the funded status each year. However, if investment earnings were assumed to be zero each year for 30 years, all of the plan sponsors would have sufficient cash reserves on hand to fund benefit payments as follows: 22 years for the City of San Diego, 26 years for the Port of San Diego, and over 30 years for the Airport Authority…with only annual plan sponsor and member contributions."
SDCERS Actuary's Recommendations:
Gene Kalwarski of Cheiron narrowed Board choices to two:
1) If the Board voted for "no change" actuarial standards would be met and SDCERS would have better funding.
2) As an alternative, he offered a one time corridor change that would not apply to future years and also did not have actuarially significant differences, but would result in future higher Annual Required Contributions for the City and a somewhat reduced temporary funding ratio.
Discussion:
A letter from Trustee Wayne Kennedy, unable to attend the meeting, referred to the Board's constitutional duty "…to put the interests of SDCERS' members, beneficiaries and retirees ahead of all others, including the plan sponsor's."
Trustee Mark Oemcke noted that the Board had already evaluated and established SDCERS' current conservative actuarial methods. Why should the Board waive those decisions in the circumstances in which they were the most needed? Would the Board be setting a precedent for waiving strong decisions at any future financial crisis?
Other Board views:
Trustee Gregory Bych, the Mayor's representative from Risk Management, asked SDCERS' actuary Gene Kalwarski of Cheiron, if the market's recovering wasn't easing the problem. Gene replied that only 25% of the loss had been recovered, there was still a 75% loss.
Bych argued that it came down to the degree that SDCERS wanted to be conservative in actuarial methods.
Bych and Trustee Steve Meyer, both voted "no" to keeping the funding methods as they were. They would have preferred the City be given a chance to opt to pay less now and then pay more in the long term, in order to gain an immediate relief for the City this coming July 1st.
Commenting:
Former retiree trustee Joe Flynn framed the issue. DeMaio's representative requested maintaining actuarial standards and not increase future payments the City would need to make. April Boling said it was logical to stay with the standards as the Board was suing the City for the previous unfunded monies. She asked the Board to give the City a reasonable schedule of repayment of what is owed to SDCERS. Council Member Faulconer recognized the Board's sacrifice and work to regain credibility and sustainability. As Chair of the City's Audit Committee, he said there would be a significant problem if the Board kicked the issue down the road.
Influence?
After the vote, Wescoe noted Boards across the country were evaluating actuarial methods in light of the financial impact, and the City had not been a motivating force.
Vote:
Board approved President Mark Sullivan's motion not to make actuarial changes for the City's plan by a vote of 10-2( Meyer and Bych) (Kennedy absent.) Only Trustee Bych voted "no" to keeping current actuarial methods for the Port and Airport plans.
SDCERS Board is a Role Model:
At the end of the public meeting, Board President Mark Sullivan passed on information, from Wescoe, that a Toronto based consultant, retained by San Jose, has recommended San Jose's two pension funds use the composition of the SDCERS Board as a role model.
(SDCERS Board has a majority of extremely talented and high caliber, independent financial experts with successful business experience appointed to the Board by the Mayor and approved by the City Council. In addition, there are four elected active employees, one elected retiree and one representative of the Mayor to provide history and operational insights and apprise the Board of impacts on members, and keep members informed. The Pension Reform Committee recommended that the SDCERS Board be comprised solely of seven outside appointees. The Mayor and Council, however, rejected that proposal and adopted the current Board makeup.)
AMOUNT OF JULY 2010 ANNUAL REQUIRED CONTRIBUTION FROM THE CITY
Gene Kalwarski from Cheiron noted that numbers were still unknown yet on the City's new pension system, new payroll, etc. so the correct City's July 2010 ARC is not available yet.
OTHER BUSINESS & GOVERNANCE ITEMS VII. Numbers 2-7.
Revised Board Rules passed as consent items.
APPEAL BY JUDITH ITALIANO OF HER LOSS OF PRESIDENTIAL BENEFIT AND RECOVERY OF OVERPAYMENTS,
(Re-play on SDCERS web site under:
ITEM VII. BUSINESS AND GOVERNANCE COMMITTEE A. 1. Hearing on Judith Italiano's Appeal of the Board's Decision to Implement (the IRS') Compliance Statement Requiring SDCERS to Eliminate Her Presidential Leave Benefit and Recover the Overpayment of her Retirement Benefit.)
Trustees recusing and abstaining:
Mark Sullivan (Police representative and POA has similar suit), Steve Meyer (did not feel he could be unbiased), Gregory Bych (City has same lawsuit), Alan Arrollado ( Fire Representative, same as Sullivan). Edward Kitrosser (MEA is a client of Kitrosser's office).
Future vote requires seven votes as a majority of the Board.
Problem for Italiano:
Italiano's lifetime monthly pension benefit was reduced from $6,496.36 effective 8/4/04, to $473.46 based on a 6/30/09 service retirement date. Re-payment absorbs it. SDCERS' actuary predicts Italiano will be 86 years old before she re-pays the overpayment of $272, 322.02.
Decision Tabled for 30 days:
Chair of Business and Governance, Ray Ellis reported his September 17th committee tabled their decision 30 days to allow Trustees to ask questions from SDCERS legal counsel in Closed Session about comments from Italiano's counsel, Rob Butterfield and Ann Smith. Italiano's hearing rights would be violated if the full Board were to act without noticing Italiano so the decision was referred back to the B & G Committee.
Italiano's Counsel Request:
Smith recommends SDCERS collect the overpayment from the City. Butterfield discussed Compensatory Damages in lieu of the amount lost to the IRS ruling that disallowed her Union President pension and required recovery of amounts previously distributed to her.
Materials available in the September Board's public meeting binder include:
1) Six page report to Board from SDCERS General Counsel Elaine Reagan, SDCERS Compliance Officer and Associate General Counsel-Tax Roxanne Story Parks. Focus on IRS requirement to eliminate the Presidential benefit, or SDCERS would find itself endangered of being disqualified as a plan and members would be subject to immediate taxation of vested benefits, their contributions, as well as, SDCERS trust fund earnings.
2) Fourteen page print out of Rob Butterfield's March 18, 2005 powerpoint presentation recommending SDCERS apply for IRS assistance, on behalf of the MEA.
3) January 10, 2008, IRS' eleven page Compliance Statement for SDCERS.
4) Ann M. Smith's thirty-four page September 8, 2009 letter to the Business and Governance Committee on the Hearing on Appeal regarding SDCERS' unilateral termination of Italiano's presidential benefit pension on December 7, 2007 and SDCERS demand for repayment of benefits SDCERS Board awarded on May 20, 2006. In which Ann Smith protests that Italiano is the victim of SDCERS' multiple breaches of fiduciary duty under state law. Smith does not see affirmative actions to protect Italiano. She gives examples of SDCERS misleading advice to Italiano.
5) Available at the meeting on September 18th was a follow-up dated September 16th from Ann Smith noting Italiano's rights under state law "… the IRS expressly acknowledged would not be affected by the Compliance Statement." (page 11 of the IRS Compliance Statement). Smith said: "It is not true that I or MEA is asking the SDCERS Board to take action which would jeopardize the pension plan's tax qualified status." And later she adds, ""The point of this appeal hearing…is to urge the Board to be accountable for its violations of state law…."
Selected LEGAL REPORTS from SDCERS General Counsel Elaine Reagan:
(Italiano's action)
San Diego Municipal Employees Association; Judith Italiano v. City of San Diego; SDCERS
SD Superior Court
Case No.: 37-2008-00096145-CU-BC-CTL
Judge: Vargas
"Action by SDMEA on behalf of former president Judy Italiano to enforce right to pension on now-discontinued "Presidential Leave" retirement contribution program. City's demurrer overruled. City answered the First Amended Complaint and cross-complained for declaratory relief and indemnity against SDCERS." Status conference October 9, 2009.)
(Action by former POA Union Presidents and the POA relating to loss of Presidential Leave Benefit.)
Gary Collins, Harry Eastus, William Farrar, SD Police Officers Association vs. City of San Diego and its City Council; SDCERS and its Board of Administration Case No. 37-2009-00088422-CU-BC-CT
Judge unknown. First Amended Complaint Filed September 4, 2009.
Their causes of action:
Unconstitutional Impairment of Contract
Violation of Public Policy
Breach of Contract
Negligence
Breach of Fiduciary Duty
Intentional Infliction of Emotional Distress
Negligent Infliction of Emotional Distress
Declaratory Relief
Writ of Mandate
Promissory Estoppel
Equitable Estoppel and Quasi-Contract
Specific Performance relating to Presidential Leave.)
OTHER CASES OF INTEREST-Elaine Reagan
People v. Lexin
San Diego Superior Court, Case No. SCD 190930
Judge: Hon, Frederick Link
Summary:
Felony conflict of interest charges against six former SDCERS Board Members based on a violation of Gov. Code Sec. 1090
Current Status:
Defendants' Motion to Dismiss denied and upheld on appeal. Supreme Court has accepted review.
Upcoming Hearings:
Oral argument set for October 6, 2009.
IRS APPROVES GROUP TRUST - Compliance Officer Roxanne Story Parks
While IRS has approved the GROUP TRUST. The separate plans in the Group Trust are still under review.
INVESTMENTS
Board approved 12-0 the new investment policy for public equity and fixed income monitoring and retention that includes daily monitoring and eliminates the watch list.
Staff continues SDCERS tradition of arm-twisting portfolio managers
for the lowest investment fees.
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