October 12, 2006
Page 1 of 3
October 12, 2006
Honorable Edward Sarkisian, Jr.
Presiding Judge
FresnoCounty Superior Court
1100 Van Ness Avenue
Fresno, California93724-0002
Re:Response to Grand Jury Report
Dear Judge Sarkisian:
In Compliance with Penal Code sections 933 and 933.05, the Board of Retirement of the Fresno County Employees' Retirement Association ("Retirement Board") hereby responds to the 2005-2006 Grand Jury Final Report ("Report").
The Report seeks responses from the Retirement Board with respect to four recommendations --R1 and R2 in the "Fresno County Employees' Retirement Association" section and R8 and R9 in the "FresnoCounty's Pension Plan" section. In addition, Penal Code section 933(c) provides, that the Retirement Board "shall comment ... on the findings and recommendations pertaining to matters under the control of the governing body." Accordingly, the Retirement Board responds below to the findings and recommendations that may pertain to matters that are at least partially under the Retirement Board's control.
As background, the Retirement Board exists pursuant to, and is governed by, article XVI, §17, of the California Constitution, the County Employees Retirement Law of 1937 (Government Code sections 31450 et seq.(the "1937 Act")), and other applicable laws. The California Constitution vests the Retirement Board -an entity independent from the County -with "plenary authority and fiduciary responsibility" for administering the retirement system and "sole and exclusive fiduciary responsibility" over the system's assets. Cal. Const. Art. XVI, §17. The composition of the Retirement Board is specifically governed by the California Constitution and the 1937 Act.
Vested retirement benefits may be granted only by the employers (i.e, the County and participating employer districts). The Retirement Board has some limited authority to grant non-vested benefits when the system has "excess earnings" (a term of art that is defined by the 1937 Act). The retirement system is funded through contributions by the active (i.e., currently employed) members and by the employers. The employers are ultimately responsible for making up for any shortfalls to the system's funding. The County is solely responsible for determining whether and when to issue pension obligation bonds to finance its pension funding obligations. The Retirement Board has no role in that decision-making process.
Response to the Findings and Recommendations "Pertaining to Matters Under theControl" of the Retirement Board in the "FresnoCounty Employees' Retirement
Association" Section of the Report
F1 to F11: The Retirement Board agrees with these findings.
F12: The Retirement Board agrees with this finding, except for the third bullet point,which is incorrect. As of July 19,2002, the agreement was not "final" because it had not beenaccepted and executed by the seller of the property. Accordingly, the Brown Act did not requirethat the substance of the agreement be reported at that time.
F13: The Retirement Board agrees with this finding, in that the quoted language was all that was reported with respect to the transaction at the July 19,2002 meeting.
F14: The article referenced in this finding was neither presented to, nor considered by,the Retirement Board in connection with the acquisition of the property. Having never seen thearticle, the Retirement Board cannot comment as to its content or relevance.
F15: The Retirement Board believes that its 2002 meeting minutes complied with the requirements of the Brown Act.
F16 to F19: The Retirement Board agrees with these findings.
F20: The Retirement Board agrees this finding, in the sense that the Attorney General did issue the referenced opinion, but the Retirement Board does not express any view as to whether the opinion is correct. Attorney General opinions may be persuasive, but are not binding legal precedent.
F21: The Retirement Board cannot agree or disagree with this finding, because it is unaware of any binding legal authority that addresses the question of whether a person is "connected to the county government" solely because he or she receives a retirement allowance from the county retirement system. Under law, the Retirement Board is the governing body of a public agency independent of the county government. Similarly, Conclusion Nos. 4 and 5 are legal conclusions to which the Retirement Board cannot agree or disagree, absent binding legal authority.
R1: The Retirement Board has implemented Recommendation No. 1 by adopting a Due Diligence Policy, effective August 3,2005 (as amended) and an Investment Policy, effective December 15,2004.
R2: The Retirement Board has implemented Recommendation No. 2 by complying with the requirements of the Brown Act.
Response to Findings and Recommendations "Pertaining to Matters Under the Control" of the Retirement Board in the "FresnoCounty’s Pension Plan" Section of the Report
F3: The Retirement Board partially agrees with this finding and makes the following clarification: the valuation report of June 30, 1998 was the basis of a special report that included projected costs for both past and future service of then currently active members.
F7: The Retirement Board agrees with this finding's description of composition of the Retirement Board, as provided by the California Constitution and the 1937 Act. The Retirement Board is unaware, however, of any binding legal authority that supports the finding that the Retirement Board's past and current composition "appears to be in violation of the 1937 Act."
F9: The Retirement Board cannot adequately respond to this finding, because the finding does not specify the individuals or decisions referred to, or the statements that the Report considers to be "excuses."
C2: The composition of the Retirement Board is established by the California Constitution and by statute. By law, many of the Retirement Board members also must be members of the retirement system, and from time to time are required to vote on members' contributions and benefits,including their own. Under the Constitution, the Retirement Board's composition may not be changed, except by a vote of the electors of FresnoCounty. See Cal. Const., Art. XVI, §17(f).
C3: The Retirement Board does not believe that there are any members of the retirement system who are "not members of the class defined in the Ventura Settlement."
C6: The issues in this Report seem to focus primarily on the benefits granted and the cost of those benefits. Under the current, ever-changing and dynamic retirement environment, the Retirement Board seeks to effectively administer the plan established by the County under applicable law.
R8: On August 3,2005, the Retirement Board adopted an Education Policy that is designed to develop the skills necessary to administer the retirement system including areas such as pension law, pension finance, institutional investment, investment performance measurement, actuarial evaluation, benefits structure, disability retirement, organizational structure and governance, and organizational budget and audit procedures. The Retirement Board believes that its adoption of and adherence to the Education Policy constitutes a full implementation of Recommendation No. 8.
R9: The Retirement Board does not have the authority to grant vested benefits. The Retirement Board has some limited authority under the 1937 Act to grant non-vested benefits, when the system has "excess earnings" (a term of art that is defined in the 1937 Act). Such benefits are normally approved on a year by year basis, with clear notice to the recipients that the benefit is non-vested and subject to annual approval, and as such can be eliminated by the Retirement Board at any time. The Retirement Board believes it has exercised its statutory and constitutional discretion within the bounds of the law in granting non-vested benefits. The Retirement Board will continue to exercise its discretion in a lawful manner and will give due consideration to the implementation of Recommendation No. 9 if it is within the Retirement Board's authority to do so.
Please contact me at 559.457.0350 if you have any questions.
Sincerely,
Roberto L. Peña
Retirement Administrator
RLP:ea
1111 H Street, Fresno, CA93721, Tel 559.457.0681 Fax 559.457.0318