10
BOARD OF RETIREMENT
FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
July 16, 2008
Trustees Present:
Alan Cade, Jr. Nick Cornacchia Vicki Crow
Eulalio Gomez James E. Hackett Steven J. Jolly
Phil Larson John Souza
Trustees Absent:
Michael Cardenas
Others Present:
Ronald S. Frye, Alternate Trustee
Scott Whalen, Wurts & Associates
Jeffrey Rieger, Reed Smith – via tele-conference
Michael Cunningham, FCERA Member
Kevin Smith, SEIU Local 521
Susan Coberly, Senior Deputy County Counsel
Roberto L. Peña, Retirement Administrator
Becky Van Wyk, Assistant Retirement Administrator
Elizabeth Avalos, Administrative Secretary
1. Call to Order
Chair Jolly called the meeting to order at 8:36 AM.
2. Pledge of Allegiance
Recited.
3. Public Presentations
None.
Consent Agenda/Opportunity for Public Comment:
A motion was made by Trustee Larson, seconded by Trustee Crow, to Approve Consent Agenda Items 4-13. VOTE: Unanimous (Absent – Cardenas)
*4. Approve the June 18, 2008 Retirement Board Regular Meeting Minutes
RECEIVED AND FILED; APPROVED
*5. Retirements
RECEIVED AND FILED; APPROVED
Alice L. Canales / Children & Family Services / 21.35Linda L. Cusick / Children & Family Services / 10.77
Clifton Kimbrough / General Services / 35.02
Penelope G. Liles / Children & Family Svs, Deferred / 23.74
Charles Morales / Valley Medical Center, Deferred / 11.83
Larry D. Potts / Sheriff, Deferred / 11.09
Bonnie Jean Raef / ACTTC / 21.69
Helaine Reich-Lopez / E&TA / 33.16
John A. Retherford / Sheriff / 28.53
Keith A. Ringgenberg / General Services / 28.75
Carmen Sanchez / E&TA / 20.16
Glenda Schiavone / Behavioral Health / 19.20
Loretta A. Stevens / Behavioral Health / 22.69
Emmitt Watkins / Sheriff / 28.94
*6. Summary of monthly statistics from the Retirement Association Office on buybacks, retirement benefit estimates, public service, age adjustments, final compensation calculations, and disability retirement applications for June 2008
RECEIVED AND FILED
*7. Most recent investment returns, performance summaries and general investment information from investment managers
RECEIVED AND FILED
*8. Public Records Requests and/or Retirement Related Information Requests from Jody O’Neil, FCERA Member; Leticia Magana, FCERA Member; Susan Rutkowski, FCERA Member; David H. Prince, Imperial County Employees’ Retirement System (ICERS); Steven Oshiro, Renne Sloan Holtzman & Sakai, LLP
RECEIVED AND FILED
*9. Update of Board of Retirement directives to FCERA Administration
RECEIVED AND FILED
*10. Correspondence included with the June 30, 2008 retirement benefit payments regarding Annual Notice of Right to Elect or Revoke Federal Withholding
RECEIVED AND FILED
*11. Correspondence from Harvey Leiderman, Reed Smith, LLP, regarding the MetLife v. Glenn Supreme Court Decision which provides some guidance on potential claims of “conflicts of Interest” when the Board of Retirement has the dual role of plan administrator and payor of the disability benefits
RECEIVED AND FILED
*12. Memorandum from Steve Center, Wurts & Associates, regarding BlackRock Personnel Changes
RECEIVED AND FILED
*13 Approve Appointment of Administrator to act as Agency Head under new FPPC Regulation 18944.2 and Approve related procedures
RECEIVED AND FILED; APPROVED
14. Presentation and discussion on Socially Responsible Investing presented by Scott Whalen, Wurts & Associates
Roberto L. Peña, Retirement Administrator, opened discussions by stating that the presentation is intended to educate the Board and public on socially responsible investing (SRI) and the potential positive effects it may have on community development.
Mr. Peña noted that Fresno County had recently begun a SRI pilot program which was spearheaded by the Chairman of the Board of Supervisors and facilitated by the Fresno County Treasurer’s office to place deposits into two local banks to increase the availability of lendable capital for local businesses.
Scott Whalen, Wurts & Associates, began the presentation with a brief overview of the three primary approaches to SRI which include:
· Exclusionary Screening
o example: excluding producers of alcohol, tobacco or weapons
· Shareholder Activism through Proxy Voting
o examples: influencing clothing manufacturers on labor practices; labor construction policies; executive compensation; and environmental issues
· Community Development
o examples: providing low-income housing loans, labor content in construction, and community reinvestment
Trustee Crow commented on the County’s pilot program as it relates to risks and returns. It was noted that the program is very secure with low risk and slightly below-market rates of return.
Discussions ensued regarding the different approaches to SRI. It was noted that with approximately $2.3 trillion in assets in the United States, SRI is becoming popular with many individual and institutional investors who seek to:
· Align their investment portfolio with their personal values by avoiding companies that do not meet certain standards.
· Encourage improved corporate social and environmental performance through an active investment strategy.
· Identify companies with better long-term financial performance through the analysis of social and environmental factors.
Mr. Whalen stated that the primary fiduciary responsibility of the Board is to invest FCERA’s assets to maximize the risk adjusted return of the portfolio and noted that it is difficult for a Board to balance this objective against social issues.
Discussions ensued regarding the importance of developing a social activism policy and establishing guidelines and criteria for social investing prior to making decisions on whether to move forward with a SRI program.
The Board directed Administration to draft a SRI policy and agendize the issue for further discussion at a later date.
RECEIVED AND FILED
15. Presentation of the results of the RV Kuhn’s survey for the period ending December 31, 2007 presented by Scott Whalen, Wurts & Associates
Roberto L. Peña, Retirement Administrator, noted that the RV Kuhn’s report is a comprehensive analysis of public pension funds that is produced annually. The analysis provides a comparison of asset allocation, performance, fees, and actuarial comparative data from over 75% of the U.S. public pension funds.
Scott Whalen, Wurts & Associates, began the presentation with a brief overview of the universe characteristics and reviewed FCERA’s asset allocation versus weighted averages of similar size funds. Mr. Whalen noted that FCERA has a higher allocation to emerging markets and is somewhat underweight in real estate.
Mr. Whalen reviewed the 1, 3, and 5 year U.S. and International returns, the U.S. Fixed Income, and total fund returns. It was noted that the overall strategy has outperformed the benchmark.
RECEIVED AND FILED
16. Discussion on Bradford & Marzec’s correspondence regarding the financial condition of Security Capital Assurance (SCA) presented by Scott Whalen, Wurts & Associates
Scott Whalen, Wurts, & Associates, opened discussions by referencing a memo from Zelda Marzec of Bradford & Marzec (Bradford), which explains that the financial condition of Security Capital Assurance (SCA) has deteriorated quickly and unexpectedly. The security was marked at 4 cents on the dollar and represented only 0.02% of the retire portfolio.
It is anticipated that a short-term positive event may give Bradford an opportunity to exit the position. One such event would be if SCA can successfully negotiate a settlement with XL Capital to terminate its exposure to some of SCA’s insured obligations. Additionally, SCA is attempting to negotiate the termination of some of its riskiest insured obligations, which would improve SCA’s capital position.
Mr. Whalen noted that deterioration of SCA is an isolated incident and, overall, Bradford has performed well.
RECEIVED AND FILED
17. Discussion and appropriate action on Overpayment/Underpayment of Retirement Benefits
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board of its request to reconsider the repayment agreements FCERA had reached with some overpaid members who were not included in the June 18th compromise decision.
Trustee Souza expressed his concern that the Board’s action authorizing compromise agreements with overpaid members excluded those members who have or are in the process of repaying the amounts overpaid.
A motion was made by Trustee Souza, seconded by Trustee Gomez, to include those members excluded from the Board’s prior decision under which the members would be required to repay only the amounts they received during the last three years of overpayments, with interest at 3%.
Attorney Jeffrey Rieger, Reed Smith, stated that the Board may, but is not obligated to, renegotiate those agreements and offer the members the same terms that it now has authorized for members who have not yet reached any agreement with FCERA. Attorney Rieger advised the Board to not refund any amounts that members have already repaid to FCERA.
Detailed discussion ensued regarding the $807,086.43 in total overpayments. Mr. Peña stated that there are 50 overpayments not related to the “Fresno Method” and noted the following:
· 16 members have repaid $41,637.53 in full
· 12 members are in the process of repaying $300,000 [$299,696.02, corrected after meeting] with a remaining balance of $77,660.16 [$224,579.23, corrected after meeting]
· 22 members have not yet entered into an agreement to repay $465,230
· $437,298.73 has been paid to the members who were underpaid
Mr. Peña reminded the Board of its fiduciary responsibility to make reasonable efforts to recover overpayments to members and strongly encouraged the Board to not refund any amounts that members have already repaid to FCERA.
Attorney Rieger stated that to the extent overpaid funds have been repaid to FCERA, the funds should remain in the system to pay benefits and administrative costs.
Trustee Souza withdrew the motion and requested that the Board direct Administration to recalculate the overpayments of those members who have paid in full or are in the process of repaying in order to get a sense of the amount that the system would potentially “give back” to the members.
Chair Jolly stated, for the record, that he did not support the June 18th action of the Board in that the overpayments belong to the system. Mr. Jolly noted that the overpaid amounts do not belong to the members and therefore have an obligation to return it.
Attorney Rieger noted that the Board has the discretion as to renegotiate the repayments that are in process and strongly encouraged the Board to not “reopen” any agreements members have paid in full.
A motion was made by Trustee Souza, seconded by Trustee Gomez, to allow the 12 members who are in the process of repaying the overpayment to revisit the agreement based on the three years – 3% interest method and to notify the members by letter and telephone.
Mr. Peña strongly opposed the motion and stated that by renegotiating the agreements members may have to repay less than what was originally negotiated and noted that it does not meet the Board’s fiduciary responsibility to make “reasonable efforts” to recover the overpayments.
Attorney Rieger stated that it’s the duty of the Board to consider all the facts and use its discretion to consider all the facts and implement a reasonable and fair solution and assuring the actuarial soundness of the system.
It was clarified that in the event a member has repaid more than the 3 year – 3% interest method a refund of the difference would not be issued.
ROLL CALL VOTE: Yes – Crow, Gomez, Larson, Souza. No – Cade, Cardenas, Cornacchia, Hackett. Absent – Jolly. MOTION FAILED.
It was noted that the Overpayment/Underpayment policy will remain the same.
RECEIVED AND FILED; APPROVED
18. Discussion and appropriate action on recommended finalists of the Investment Counsel Services Request for Proposal presented by Roberto L. Peña, Retirement Administrator
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board that FCERA issued a Request for Proposal (RFP) for General Investment Counsel Services. FCERA received and accepted eleven proposals which were evaluated and ranked individually by a team consisting of Becky Van Wyk, Assistant Retirement Administrator; Conor Hinds, Supervising Accountant; Susan Coberly, Senior Deputy County Counsel; and Mr. Peña. The responses were evaluated using a weighted scale that provided more weight for those areas believed to be most important for the services required.
The team discussed individual scores, thoughts, perceptions, and concerns about the various firms in order to calculate the scores and identify the candidates believed by the team to be the best of the respondents.
Foster Pepper, Kirkpatrick & Lockhart/Gates, and Seyfarth Shaw were identified as the three finalists. The firms exceed the minimum qualifications stated in the RFP, possessing the requisite experience and depth of qualified personnel. Mr. Peña recommended that the Board invite the firms to make formal presentations regarding the services and experience that they would bring to FCERA.
Discussions, questions, and comments followed regarding the firms proposed fees and references. It was noted that references had not yet been checked. Mr. Peña noted that he had contacted his peers to obtain information on the firms that have 1937 Act experience and had received favorable responses.
A motion was made by Trustee Crow, seconded by Trustee Souza, to invite the three finalists to make formal presentations to the Board as recommended.
In response to a question from Trustee Larson regarding the exclusion of Reed Smith from the finalists, Mr. Peña noted that, although FCERA is very pleased with their General and Fiduciary Counsel services, their overall score did not place them in the finalist recommendation. It was noted that, if the Board desired, Administration would invite Reed Smith to present along with the three finalists.
Trustee Crow amended the motion as follows:
A motion was made by Trustee Crow, seconded by Trustee Souza, to invite the three finalists as well as Reed Smith to make formal presentations to the Board. VOTE: Unanimous (Absent – Cardenas)
RECEIVED AND FILED; APPROVED
19. Presentation on the Roles and Responsibilities of the Trustees at a Disability Hearing presented by Susan Coberly, Deputy County Counsel
In anticipation of an upcoming Disability Hearing, Susan Coberly, Senior Deputy County Counsel, gave a brief presentation to re-acquaint the Board with the disability hearings process.
Roberto L. Peña, Retirement Administrator, reminded the Board that the Disability Hearing is scheduled for July 28-29, 2008.
RECEIVED AND FILED
20. Discussion and appropriate action on FCERA Policy regarding situations that call for an official spokesperson to communicate on behalf of FCERA
Roberto L. Peña, Retirement Administrator, opened discussions by noting recent retirement related issues published in The Fresno Bee. Copies of the Chair and Retirement Administrator Charters and the FCERA Code of Conduct policy were distributed as a reminder that in situations that call for an official spokesperson to communicate on behalf of the FCERA, the Chair will determine jointly with the Retirement Administrator who will act in such capacity on a case-by-case basis.