11
BOARD OF RETIREMENT
FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
August 20, 2008
Trustees Present:
Alan Cade, Jr. Michael Cardenas
Nick Cornacchia Eulalio Gomez
James E. Hackett Steven J. Jolly
Phil Larson John Souza
Trustee Absent:
Vicki Crow
Others Present:
Ronald S. Frye, Alternate Trustee
Michael Cunningham, FCERA Retiree
Les Jorgensen, FCERA Retiree
Rafael Stone, Foster Pepper
Robert Perez, Foster Pepper
Thomas Hickey, Kirkpatrick & Lockhart Preston Gates Ellis LLP
Matt Magnum, Kirkpatrick & Lockhart Preston Gates Ellis LLP
Harvey Leiderman, Reed Smith LLP
Benton Burroughs, Reed Smith LLP
Jeffrey Rieger, Reed Smith LLP
Alan Cabral, Seyfarth Shaw
Carrie Grove, Seyfarth Shaw
Beth Bandy, Personnel Services Department
Carol Sheela, FCERA Retirement Benefits Supervisor
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 8:35 AM.
2. Pledge of Allegiance
Recited.
3. Public Presentations
None.
Consent Agenda/Opportunity for Public Comment
Roberto L. Peña, Retirement Administrator, pulled Consent Agenda Item 7 for discussion.
A motion was made by Trustee Larson, seconded by Trustee Cornacchia, to Approve Consent Agenda Items 4-6 and 8. VOTE: Unanimous (Absent – Cade, Crow)
*4. Approve the August 6, 2008 Retirement Board Regular Meeting Minutes
RECEIVED AND FILED; APPROVED
*5. 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 July 2008
RECEIVED AND FILED
*6. Update of Board of Retirement directives to FCERA Administration
RECEIVED AND FILED
*7. Recognize Carol Sheela, Retirement Benefits Manager, for successfully completing the CALAPRS Management Supervisory Academy
Roberto L. Peña, Retirement Administrator, recognized and thanked Carol Sheela, Retirement Benefits Manager, for successfully completing the CALAPRS Management Supervisory Academy.
A motion was made by Trustee Souza, seconded by Trustee Larson, to receive and file Consent Agenda Item 7. VOTE: Unanimous (Absent – Cade, Crow)
RECEIVED AND FILED
*8. Approve Administration’s request to surplus equipment no longer needed for FCERA operations
RECEIVED AND FILED; APPROVED
Because the presenters for General Investment Legal Counsel Services were not yet present, the Board heard Agenda Item 13 at this time.
13. Discussion and appropriate action on potential topics for discussion at the upcoming Joint Meeting/Workshop with the Board of Supervisors
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board of its direction to schedule a joint meeting with the Fresno County Board of Supervisors. Mr. Peña noted that the meeting is tentatively scheduled for Tuesday, September 2, 2008 at 9:00 AM in the Board of Retirement Chambers.
The Board decided on the topics for discussion as follows:
· Public Forum/Presentation
· Overview – Roles of the Boards/Fiduciary Responsibilities
· Fresno County Hiring Practices/Recruiting/Retaining/Workers Compensation and the impact on disability retirements
· Presentation of the annual actuarial valuation process including the differences of the investment market rate of return and actuarial rate of return
A motion was made by Trustee Larson, seconded by Trustee Gomez, to Approve the topics for discussion as noted above. VOTE: Unanimous (Absent – Cade, Crow)
RECEIVED AND FILED; APPROVED
9. Discussion and appropriate action selection of General Investment Legal Counsel Services
The Board heard presentations from the following General Investment Legal Counsel Services firms:
Foster Pepper LLP
Rafael Stone, Foster Pepper, began the presentation with a brief overview of the firm’s history and its public pension fund clients and noted that the process for reviewing a proposed investment is comprehensive.
Robert Perez, Foster Pepper, summarized the Investment Analysis process as follows:
· Primary and back-up attorneys review and analyze the fund documents to ensure that the drafted documents are consistent with the client’s investment objectives.
· Prepare a checklist setting forth how the fund documents address a list of investment terms along the lines of their comprehensive standard checklist for investments.
· Prepare a memo to the client describing both legal and business issues that need to be addressed and negotiated. Point out key business and legal terms and conditions to staff to determine whether to raise the issues with the General Partner.
· The issues are discussed with the client and, if appropriate, the public fund’s advisor. The memo is revised as necessary and sent to the fund’s counsel along with the client’s standard side letter provisions.
· Negotiation with the fund’s attorney follows.
· Prepare annotated comment memo for staff to review and trace open and resolved issues.
Trustee Cade joined the Board at 9:13 AM.
Mr. Perez briefly reviewed the checklist used for legal review of an investment.
Mr. Stone reviewed the firm’s private equity, real estate, and hedge fund transactions and noted that it is not uncommon for the firm to represent more than one Limited Partner in an investment transaction with a General Partner.
In response to a question from Chair Jolly regarding Foster Pepper’s experience with an investment “going bad”, Mr. Stone briefly explained the litigation process.
Mr. Stone noted that a reputable firm should be able to offer experience, broad representation, timely responses, and a fair fee structure.
In response to a question from Roberto L. Peña, Retirement Administrator, addressing how the investment industry has developed over the years with regard to public fund transparency, Mr. Stone noted that, in most instances, transparency has improved dramatically but is still evolving.
General discussion ensued regarding Foster Pepper’s fee structure.
Kirkpatrick & Lockhart Preston Gates Ellis LLP (K&L/Gate)
Thomas Hickey, K&L/Gates, began the presentation with a brief overview of the firm’s history and its public pension fund clients and noted that K&L/Gates comprises over 1,700 lawyers who practice law on an integrated and global basis. Mr. Hickey noted that he will be FCERA’s primary contact and relationship manager.
In response to a question from Chair Jolly regarding any potential Limited Partner/General conflicts that K&L/Gates may encounter, Mr. Hickey stated that should any conflicts arise waivers would be requested from both parties. If waivers are not granted, outside Counsel would be used.
General discussions ensued regarding the firm’s fee structure and noted that K&L/Gates goal is working for its clients in the most effective and cost-efficient manner.
Matt Magnum, K&L/Gates, noted that the firm counsels public fund clients on investments in fund of funds of hedge funds, single strategy hedge funds, infrastructure, domestic real estate, international real estate, derivatives, and private equity funds.
In response to a question from Roberto L. Peña, Retirement Administrator, addressing how the investment industry has developed over the years with regard to public fund transparency, Mr. Magnum noted that transparency has improved dramatically.
Reed Smith LLP
Harvey Leiderman, Reed Smith, began the presentation with a brief overview of the firm’s history and its public pension fund clients and noted that successful investment policies require critical due diligence and vigilant risk monitoring and constant compliance with fiduciary and regulatory standards.
Bennett Burroughs, Reed Smith, reviewed the firm’s private equity, real estate, and hedge fund transactions and noted that the firm has represented clients in more than 275 merger and acquisition transactions. General discussions ensued regarding the firm’s experience, educational offerings, and fee structure. It was noted that the firm is recognized for its knowledge ad experience across a number of industry sectors.
Mr. Leiderman addressed concerns regarding having both the investment and fiduciary counsels “in one basket”. Mr. Leiderman noted that because Reed Smith has deep knowledge of how the FCERA system works, it could offer “peripheral vision” and a perspective that a firm that is focused only on investment contracts cannot offer.
Discussions, questions, and comments followed regarding the general role of the investment counsel and its relationship to fiduciary counsel.
Seyfarth Shaw
Alan Cabral, Seyfarth Shaw, began the presentation with a brief overview of the firm’s history, current relationship with FCERA, and the role of investment counsel. General discussion ensued.
Trustee Larson departed at 11:46 AM.
Discussions, questions, and comments followed regarding the fee structure. It was noted that the proposed fees are the current fees being charged and are below the standard rate.
After completion of the firm’s presentation discussions, questions, and comments followed regarding the pros and cons of each firm and the scorecards were reviewed. It was noted that Foster Pepper received the highest overall score. Mr. Peña stated that, of the 4 firms, Foster Pepper and K&L/Gates have the most experience in this type of investment arena.
A motion was made by Trustee Souza, seconded by Trustee Gomez, to Authorize Administration to begin contract negotiations with Foster Pepper. VOTE: Unanimous (Absent – Crow, Larson)
RECEIVED AND FILED; APPROVED
Due to the Personnel Services Department’s availability, the Board decided to hear Agenda Item 12.
12. Discussion and appropriate action on restructuring the FCERA Benefits Unit including modifications to the pay scale of unrepresented employees (Retirement Coordinators) presented by Roberto L. Peña, Retirement Administrator
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board that in 2007 FCERA requested the Personnel Services Department (PSD) to perform a compensation study of the Retirement Coordinator (RC) Series. The purpose was to determine if the Retirement Coordinators were being paid market comparable salaries for their current work requirements.
Over the last couple of months, Administration has maintained dialogue about the PSD analysis of the RC series. The analysis was completed with the recommendation to reclassify the RC I/II/III services to Retirement Benefits Technician I/II/III classification series and to establish a Retirement Benefits Analyst I/II/III classification series.
The recommendations require restructuring the Benefits Unit to include both technical and professional staff while utilizing the same number of positions. They also include adding a Retirement Benefits Supervisor as was requested in the current Administrative budget.
Mr. Peña stated that Administration supports these recommendations and believe that they will position FCERA to better serve its members through a more expedient, accurate and efficient process, while at the same time, provide a better career path for the FCERA employees, and presumably, a more talented pool of candidates in future employment searches.
Mr. Peña recommended that the Board approve the PSD’s recommendations and noted that the recommended changes are supported by the current Administrative budget.
Chair Jolly and Trustees Souza and Hackett addressed the Board in support of the recommendation.
Trustee Cade stated that, although he agrees with the recommendation, as a General Member representative he cannot support the recommendation in that all County employees are not being considered for this type of adjustment due to County-wide budget cuts.
Discussions ensued regarding the PSD’s recommendation and it was noted that the restructuring is not based on “giving” a salary increase but rather it is the right structure for FCERA.
Beth Bandy, PSD, stated that the proposed salaries and qualifications are consistent with the County’s technical and analyst series.
A motion was made by Chair Jolly, seconded by Trustee Souza, to restructure the FCERA Benefits Unit as recommended. VOTE: Yes – Cardenas, Cornacchia, Gomez, Hackett, Jolly, Souza. No – Cade. Absent – Crow, Larson)
RECEIVED AND FILED; APPROVED
10. Discussion and appropriate action on recommended finalists for the General Investment Consulting Services Request for Proposal presented by Roberto L. Peña, Retirement Administrator
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board that Administration issued a Request for Proposal (RFP) for General Investment Consultant Services on May 26, 2008. Six proposals were received and accepted.
The proposals were evaluated and ranked by Mr. Peña and Becky Van Wyk, Assistant Retirement Administrator. Cortex Applied Research assisted in preparing and summarizing the proposals. The responses were evaluated using a weighted scale that assigned grater weight to those areas believed to be most important for the services required.
In accordance with the process set out in the RFP approved by the Board at the May 7, 2008 Board meeting, Administration recommended that Mercer, NEPC, and Wurts & Associates as the finalists for the Board’s review and consideration.
Detailed discussions ensued regarding the fee structures of each firm.
A motion was made by Trustee Souza, seconded by Trustee Cade, to Approve Administration’s recommendation as presented and directed Administration to invite the finalist to present to the Board at the September 17, 2008 Regular Board Meeting. VOTE: Unanimous (Absent – Crow, Larson)
11. Discussion and appropriate action on revised FCERA Retirement Handbook presented by Becky Van Wyk, Assistant Retirement Administrator
Les Jorgensen, Fresno County Retired Employees’ Association, expressed concern that Section 26.1 of the revised FCERA Handbook changed from “you will receive a non-vested health benefit” to “you may receive a non-vested health benefit”.
Mr. Jorgensen recalled that when the Health Benefit was allocated in the late 1990’s they were fully funded with an expectation that the benefit would be continued to be funded even though it is a non-vested benefit.
Mr. Jorgensen also expressed concern over the language “The benefit is expected to be discontinued when the funding reserve is depleted” and requested that the language be deleted from the revised handbook. Mr. Jorgensen stated that he does not recall a decision by the Board to discontinue the benefit rather it would be funded as long as excess earnings are available.
Attorney Jeffrey Rieger, Reed Smith, and Roberto L. Peña, Retirement Administrator, agreed that the language that states “This non-vested benefit is subject to adoption and funding the Board of Retirement and may be modified or eliminated by the Board of Retirement at any time” in Section 26.1 could be deleted.
Detailed discussions ensued regarding the language “eliminate” as it pertains to the non-vested health benefit. It was noted that, although there have been no decisions to eliminate this non-vested benefit, the Board as the right to modify or eliminate non-vested benefits as outlined in the law.
The Board directed Administration to delete the language “The benefit is expected to be discontinued when the funding reserve is depleted” from Section 26.1 of the revised FCERA Handbook.
Mr. Jorgensen suggested adding language to Section 26.2 (Settlement Health Benefit) to reflect the Settlement Health Benefit increases that are tied to the system’s future undistributed earnings. The Board declined the suggestion based on the recommendation of Administration and Counsel.