san joaquin county employees retirement association · 2017-06-29 · san joaquin county employees...

San Joaquin County EmployeesRetirement Association

A G E N D AREGULAR MEETING

SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATIONBOARD OF RETIREMENT

FRIDAY, DECEMBER 16, 2016AT 8:00 AM

Location: SJCERA Board Room6 S. El Dorado Street, Suite 400, Stockton, California

1.0 ROLL CALL2.0 PLEDGE OF ALLEGIANCE3.0 APPROVAL OF MINUTES

3.01 Approval of the Minutes for the Regular Meeting of November 18, 2016 43.02 Approval of the Minutes for the Administrative Committee Meeting of November

29, 20168

3.03 Board to approve minutes4.0 CONSENT ITEMS

4.01 Service Retirement (20) 94.02 Deferred Members (10) 124.03 Purchase of Service (28) 144.04 Domestic Relations Order (2) 174.05 Deceased Members Report 184.06 General (3)

01 Interest Crediting 19a Proposed Resolution 2016-12-01 titled “Interest Crediting” 21b Board to adopt proposed Resolution 2016-12-01

02 Proposed 2017 Administrative Budget 22a Proposed 2017 Budget Summary 26b Proposed 2017 Administrative Budget Detail 30c Proposed Resolution 2016-12-02 titled “Annual Administrative Budget for

2017”57

d Board to adopt proposed Resolution 2016-12-0203 Statement of Reserve Policy 58

a Proposed Revisions to SJCERA Reserve Policy - Mark-up 60b Proposed Revisions to SJCERA Reserve Policy - Clean 73c Proposed Resolution 2016-12-03 titled “Statement of Reserve Policy

Revisions”85

6 South El Dorado Street, Suite 400 • Stockton, CA 95202(209) 468-2163 • (209) 468-0480 • www.sjcera.org

SJCERA Regular Meeting • 12/16/2016 •

d Board to adopt proposed Resolution 2016-12-035.0 ORGANIZATIONAL CONSULTANT’S RECOMMENDATIONS

5.01 Member Services01 Popular Annual Financial Report (PAFR) 8602 Customer Satisfaction Survey 90

a Sample Survey 925.02 Information Technology Systems 93

01 Proposed RFP for Information Technology Consultant 945.03 Robert Palmer will present recommendations for Board discussion and direction

6.0 STAFF REPORTS6.01 Trustee and Executive Staff Travel

01 Conferences and Events Summary for 2017 12602 Summary of Pending Trustee and Executive Staff Travel - None03 Summary of Completed Trustee and Executive Staff Travel and Travel Report

(1)127

a 2016 Public Pension Financial Forum Annual Conference 12904 Board to accept and file reports.

6.02 Scrum Master Report01 SJCERA Consultant to provide updates to the Board

7.0 CORRESPONDENCE7.01 Letters Received7.02 Letters Sent7.03 Reports7.04 Newsletters / Bulletins / Articles

01 NCPERS PERSist Fall 2016 13202 NCPERS The Monitor November 2016 151

8.0 COMMENTS8.01 Comments From the Board of Retirement8.02 Comments From the Public

9.0 CLOSED SESSION9.01 PERSONNEL MATTERS

CALIFORNIA GOVERNMENT CODE SECTION 54957EMPLOYEE DISABILITY RETIREMENT APPLICATIONS (7)

9.02 PUBLIC EMPLOYEE APPOINTMENTCALIFORNIA GOVERNMENT CODE SECTION 54957

10.0 CALENDAR10.01 Board Meeting, January 13, 2017 at 9:30 AM


11.0 ADJOURNMENT


M I N U T E SREGULAR MEETING


FRIDAY, NOVEMBER 18, 2016AT 9:03 AM

Location: SJCERA Board Room6 S. El Dorado Street, Suite 400, Stockton, California


1.0 ROLL CALL1.01 MEMBERS PRESENT: Shabbir Khan, J.C. Weydert, Katherine Miller, Adrian Van

Houten, Margo Praus, Raymond McCray, and Cindy Garman presidingMEMBERS ABSENT: Michael Duffy, Chanda Bassett, Michael RestucciaSTAFF PRESENT: Chief Executive Officer Annette St. Urbain, Chief InvestmentOffice Nancy Calkins, Information Systems Manager Tallie Claypool, ManagementAnalyst III Greg Frank, Department Information Systems Specialist II Jordan Regevig,Retirement Services Technician Beatriz Garcia, Office Secretary Andrea IrelandOTHERS PRESENT: Deputy County Counsel Andrew Eshoo, SJCERA ConsultantRobert Palmer, John Linder of PCA, and Senior Deputy County Administrator ChrisRose

2.0 PLEDGE OF ALLEGIANCE2.01 Led by Shabbir Khan

3.0 APPROVAL OF MINUTES3.01 Approval of the Minutes for the Regular Meeting of October 14, 20163.02 Approval of the Minutes for the Administrative Committee Meeting of October 27,

20163.03 Board unanimously approved the Minutes of the Regular Meeting of October

14, 2016 and the Administrative Committee Meeting of October 27, 2016.4.0 CONSENT ITEMS

4.01 Service Retirement (14)4.02 Deferred Members (6)4.03 Purchase of Service (9)4.04 Domestic Relations Orders (0)4.05 Deceased Members Report4.06 General (2)

01 Proposed Amendments to SJCERA Bylawsa SJCERA Bylaws Section 4 - Administration (Mark-up)b Board to approve and submit amended Bylaws to Board of Supervisors for

approval02 Actuarial Reports and 2017 Retirement Contribution Rates


SJCERA Regular Meeting • 11/18/2016 • Page 1

a Proposed Resolution 2016-11-01 titled “Actuarial Reports and 2017Retirement Contribution Rates”

b Annual Actuarial Valuation Report as of January 1, 2016 prepared by Cheironc Actuarial Experience Study Report - January 1, 2013 through December 31,

2015 prepared by Cheiron4.07 Board unanimously approved the consent items, accepted the actuarial

reports, approved the retirement contribution rates for 2017 and adoptedResolution 2016-11-01.

5.0 PROPOSED CHANGE TO BOARD MEETING START TIME5.01 Board accepted staff’s recommendation to change the time at which Board

Meetings convene to 9:30 a.m. beginning in 2017.6.0 STAFF REPORTS

6.01 Trustee and Executive Staff Travel01 Conferences and Events Summary for 2016-2017

a 2017 World Investment Forum02 Summary of Pending Trustee and Executive Staff Travel - None03 Summary of Completed Trustee and Executive Staff Travel04 Board accepted and filed reports.

6.02 CEO Report01 SEIU Bargaining Concluded - A tentative agreement was reached that includes

a 5% raise beginning on December 30, 2016, none in 2017 and 1% in July of2018. There will also be an $800 per employee ratification bonus on December16, 2016. Floating Holidays will become Flex-Holidays for persons hired afterDecember 7, 2011 and will begin in July 2017. This agreement will expireSeptember 5, 2019 and the ratification vote will be on November 22nd.

02 Classification Study - Human Resources will begin the study for the proposednew position classification for SJCERA in early 2017.

03 CEO Recruitment - On December 7th, the Board will interview finalists in closedsession. CEO St. Urbain asked Trustees to coordinate with Andrea to receive theirhard-copy packets that Alliance Resource Consulting is sending to SJCERA onDecember 1st.

04 Post ‘82 Analysis - CEO St. Urbain will forward the final memorandum fromNossaman once received later today. She advised that unless and until the Boardwaives the attorney-client privilege, the communication from fiduciary counsel maynot be shared by her or any trustee with any other party.


05 SACRS Fall Conference - CEO St. Urbain gave a debrief of the conference andstated how the speakers were excellent and timely. She reported that TrusteeMcCray received the SACRS Lifetime Achievement Award and that hisrecognition was well-deserved. She was also the SJCERA voting delegate for theBusiness Meeting on November 11th and reported that there were no significantitems for action. She reported the following summary from the various committeesand breakout sessions:

Counsels, investment officers, fiscal, and legal staff across the systems plan tointegrate their efforts to work on a uniform approach for all member systems toimplement the new requirements enacted by AB 2833 for disclosing and reportingprivate fund investments fees and expenses. She would encourage SJCERA tostay attuned to what is going on with the SACRS effort. No specifics about whichsystem(s) are leading the effort was provided, but it would be worth finding outand staying connected.

SACRS President Dan McAllister noted the board is concerned about the lowerattendance by trustees and SACRS plan to survey trustees about theirparticipation to understand how to encourage greater trustee involvement.

SACRS Strategic Consultant Jim Lites noted that the CERL Indexing Projectshould be completed next year.

06 Board and Staff Holiday Gathering - An invitation was distributed to the trusteesand staff; RSVP’s are due to Andrea by November 30th.

7.0 CORRESPONDENCE7.01 Letters Received7.02 Letters Sent

01 October 26, 2016 SJC Administrator Additional County Contribution02 November 1, 2016 SJCERA Retirees Suspension of Post 1982

Supplemental Benefit7.03 Reports7.04 Newsletters / Bulletins / Articles

01 NCPERS The Monitor October 20168.0 COMMENTS

8.01 Comments From the Board of Retirement01 Trustee Van Houten invited trustees to attend the RPESJC Holiday Luncheon on

December 14th at the Waterloo Gun & Bocci Club.8.02 Comments From the Public - None

9.0 CLOSED SESSION

PERSONNEL MATTERS CALIFORNIA GOVERNMENT CODE SECTION 54957EMPLOYEE DISABILITY RETIREMENT APPLICATIONS (5)


9.01 Disability Retirement (5)

The Chair convened a Closed Session at 9:22 a.m. The Chair adjourned the ClosedSession and reconvened the Open Session at 9:24 a.m.

Counsel reported that in Closed Session the Board approved on consent anextension of time for one pending disability application, and took the following actionson personnel matters:01 Correctional Officer

Service and Nonservice-Connected Disability

The Board unanimously granted the applicant a Service-ConnectedDisability Retirement and referred to Human Resources pursuant toGovernment Code Section 31725.65.

02 Hospital AttendantNonservice-Connected Disability

The Board unanimously granted the applicant a nonservice-connecteddisability retirement posthumously.

03 Deputy Sheriff IIService-Connected Disability


04 Patient Registration ClerkService-Connected Disability


10.0 CALENDAR10.01 Regular Meeting, December 16, 2016 at 9:00 AM10.02 Financial Meeting, December 16, 2016 upon adjournment of the Regular Meeting

11.0 ADJOURNMENT11.01 There being no further business the meeting was adjourned at 9:26 a.m.

Respectfully Submitted:

________________________Michael Restuccia, Chair

Attest:

________________________Raymond McCray, Secretary


M I N U T E SADMINISTRATIVE COMMITTEE MEETING


TUESDAY, NOVEMBER 29, 2016AT 9:00 AM

Location: SJCERA Conference Room6 S. El Dorado Street, Suite 400, Stockton, California


1.0 ROLL CALL1.01 MEMBERS PRESENT: Chanda Bassett, Michael Duffy, Adrian Van Houten, and

Raymond McCray presidingMEMBERS ABSENT: NoneSTAFF PRESENT: Chief Investment Officer Nancy Calkins, Financial Officer LilyCherng, Information Systems Manager Tallie Claypool, Management Analyst III GregFrank, and Office Secretary Andrea IrelandOTHERS PRESENT: Deputy County Counsel Andrew Eshoo and SJCERAConsultant Robert Palmer

2.0 2017 ADMINISTRATIVE BUDGET2.01 Proposed 2017 Budget Summary2.02 Proposed 2017 Administrative Budget Detail2.03 Committee unanimously recommended that the Board of Retirement approve

the proposed 2017 Administrative Budget as revised by the Committee.

Liability and Fiduciary Insurance - Chair McCray directed staff to explore otheroptions and costs for Liability and Fiduciary insurance policies.

3.0 COMMENTS - NONE4.0 ADJOURNMENT

4.01 There being no further business, the meeting was adjourned at 9:52 a.m.

Respectfully Submitted:

_______________________________________Raymond McCray, Committee Chairperson


SJCERA Administrative Committee Meeting • 11/29/2016 • Page 1

San Joaquin County Employees RetirementAssociationDecember 2016

PUBLIC

4.01 Service Retirement ConsentGAIL A AMADO Social Worker IV

HSA - Services StaffMember Type: GeneralYears of Service: 32y 04m 23dRetirement Date: 10/31/2016

01

MARIAN L ANDERBERG RadiologTechIII-SpecProcedureHosp CT Scanner

Member Type: GeneralYears of Service: 13y 10m 11dRetirement Date: 11/14/2016

02

DANA K DRENKOWSKI Deputy District Attorney IVDistrict Attorney


03

LYNN J DUBOIS Deferred MemberN/A

Member Type: GeneralYears of Service: 05y 07m 29dRetirement Date: 10/26/2016Comments: Deferred from SJCERA since November 2014.

04

ROSA M GAXIOLA Probation Officer IIIPretrial Services


05


Member Type: SafetyYears of Service: 25y 10m 18dRetirement Date: 10/31/2016

06

DOUGLAS R GRAY Information Systems Analyst VInformation Systems Division


07

JULIUS L GUZMAN Sheriff Matl Specialist IISheriff - Cust - Admin Support


08

DEOMIA M HAYNES Clinical LAB Technologist IIIHosp Laboratory Clinic


09

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PUBLIC

TYLENE M MARTIN Senior Office AssistantAssessor


10

JANINE MOLGAARD ChildProtectiveSvsCounsel IVHSA - Admin Support


11

KUMUD B PATEL Deferred MemberN/A

Member Type: GeneralYears of Service: 07y 07m 05dRetirement Date: 12/5/2016Comments: Deferred from SJCERA since December 2014.

12

PAMELA M REYNOLDS Deferred MemberN/A

Member Type: GeneralYears of Service: 03y 03m 18dRetirement Date: 12/1/2016Comments: Incoming and outgoing reciprocity and concurrent retirement with CalPERS. Deferred from SJCERAsince March 2002.

13

RICKY R SCHATZ Evidence Technician IISheriff - Detectives Tech Svcs


14

TODD A SILVA Correctional SergeantSheriff-Custody-Regular Staff


15

NANCY P SYSLO Senior Office AssistantSheriff - Records - Criminal


16

KATHLEEN D VAN NOSTERN Elections TechnicianRegistrar of Voters


17

DAVID D VILLA Juvenile Detention OfficerJuvenile Detention


18

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PUBLIC

MERRI R WAGNER Senior Office AssistantTreasurer-Tax Collector


19

CHARLES J WOOD Mental Health Clinician IIIMental Health Services


20

1/4/2017 1:56:30 PM Page: 3


PUBLIC

4.02 Deferred Members ConsentJUDITH G ARROYO DeputyAgriculturalCommissioner

Agricultural CommissionerMember Type: GeneralDeferredDeferral Date: 7/26/2016Years of Service: 1y 7m 24d

01

LUPE M CRUZ TISCARENO Management Analyst IIIHosp Medical Information Svcs

Member Type: GeneralDeferredDeferral Date: 9/19/2016Years of Service: 0y 4m 2dComments: Established membership with CalSTRS.

02

ASAAD A GABER Office Assistant SpecialistSheriff - Records - Custody

Member Type: GeneralDeferredDeferral Date: 7/18/2016Years of Service: 3y 2m 12dComments: Established membership with SCERS.

03

KELLY R MICKELSEN Patient Services RepHosp Admitting


04

BRANDIE M MOORE Senior Office AssistantAgricultural Commissioner

Member Type: GeneralDeferred - CalPERSDeferral Date: 10/19/2016Years of Service: 1y 11m 17d

05

JYOTI SHARMA Office AssistantHSA - Clerical Support

Member Type: GeneralDeferredDeferral Date: 8/8/2016Years of Service: 0y 3m 14dComments: Established membership with CalSTRS.

06

DAVID J SMITH Special District Class CodeSJ Co Mosquito Abatement


07

SOPHAN SUY Social Worker IVHSA - Services Staff

Member Type: GeneralDeferred - CalPERSDeferral Date: 9/9/2016Years of Service: 9y 7m 15d

08

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PUBLIC

CARMEN VILLEGAS Senior Office AssistantMary Graham Childrens Shelter

Member Type: GeneralDeferredDeferral Date: 10/3/2016Years of Service: 9y 0m 22d

09

CHAU K VO Reg Environmental Health SpecEnvironmental Health

Member Type: GeneralDeferredDeferral Date: 4/18/2016Years of Service: 1y 6m 12dComments: Established membership with CCCERA.

10

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PUBLIC

4.03 Purchase of Service ConsentANGELA J ALMANZA Staff NurseV-AsstNDptMg-Inpat

Hosp Labor-Del-Rcvry-Post PartMember Type: GeneralYears of Service: 01y 08m 20d Prior County Service

01

MARIAN L ANDERBERG RadiologTechIII-SpecProcedureHosp CT Scanner

Member Type: GeneralYears of Service: 00y 03m 09d Medical Leave of Absence

02

DEBI J BANEZ Senior Office AssistantBehavioral Health Admin


03

CINDY A BORGES Chief Mental Health ClinicianCorrectional Health Services

Member Type: GeneralYears of Service: 02y 10m 08d Redeposit-Previously Withdrawn Contributions

04

ANNA M CANEZ Housekeeping Service WorkerBehavioral Health Admin


05

ANA M CHAVEZ Auditor-Appraiser IIIAssessor


06

ANA I FARNSWORTH Eligibility Worker IIHSA - Eligibility Staff

Member Type: GeneralYears of Service: 01y 05m 28d Prior County Service

07



08

BARBARA A GRECH Transfer Technician SupervisorAssessor


09

DUNCAN L JONES Parks AdministratorParks - Recreation


10

TIMOTHY J KOENIG Administrative Assistant IPublic Works - Engnr Bridge


11



12


Member Type: GeneralYears of Service: 00y 00m 14d Missed Deduction for PPE 12/03/1989

13

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PUBLIC

ROBERT F MARIANO Public Def Investigator IIPublic Defender


14

RACHELLE C MILLS Mental Health Clinician IIIMental Health-Adult Outpatient


15

JUANITA RIVERA Employment Training Spec IIHSA - Gain


16



17



18

HORTENCIA SALCEDO NEWSON Probation Officer IProbation - Juvenile


19

EDNA SATAKE Senior Office AssistantHSA - Clerical Support


20

RICKY R SCHATZ Evidence Technician IISheriff - Detectives Tech Svcs


21

ANTHONY F SILVA Deferred MemberN/A

Member Type: SafetyYears of Service: 01y 10m 16d Redeposit - G.C. 31831.3

22

CHRISTINE A SULLIVAN Nurse MidwifeHosp Labor-Del-Rcvry-Post Part


23

NANCY P SYSLO Senior Office AssistantSheriff - Records - Criminal


24

JESSICA R VASQUEZ Staff Nurse IV - InpatientHosp Med-Surg Intensive Care


25

KEVIN A WALLACE FD 112 HrEmplRate 1 SM FICALathrop Manteca Fire District

Member Type: SafetyYears of Service: 00y 11m 28d Prior County Service

26

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PUBLIC

SARITA WATI Accounting Technician ISheriff - Cust - Admin Support


27

SHELLY P WILLIAMS Staff Nurse IV - InpatientHosp Emergency Room


28

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PUBLIC

4.04 Domestic Relations Order ConsentTHOMAS E HENNIG Sheriff Administrative Analys

Sheriff-Admin-Support ServicesMember Type: GeneralDivision of retirement plan benefits prior to retirement; establish non-member account for Coleen Henning.

01

ANDREW M JOHNSON Correctional OfficerSheriff-Custody-Regular Staff

Member Type: SafetyDivision of retirement plan benefits for both general and safety membership prior to retirement; establish non-member account for Janae Johnson.

02

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PUBLIC

San Joaquin County Employees' Retirement Association

December 2016

01 DECEASED ACTIVE / DEFERRED MEMBERS DATE OF DEATH DEPARTMENT

RICHARD HALLIGAN 11/07/2016 S.J.G.H.

02 DECEASED RETIRED MEMBERS

NANCY DOS REIS 11/03/2016 District Attorney

NORMAN GILLIS 11/30/2015 E.E.D.D.

RONALD VALINOTI 11/07/2016 Public Health

JAMES SEELEY 11/08/2016 Superior Court

NICK CROCI 11/10/2016 Marshal - Stockton Judicial District

STANLEY WILLIAMS 11/15/2016 Central Telephone

JORETTA HAYDE 11/18/2016 Clerk of the Board

BAK HONG 11/22/2016 Public Works

OSCAR LITZ 11/25/2016 S.J.G.H.

VIRGINIA WICK 11/26/2016 Public Health

BETTY CLOUD 11/28/2016 Health Care Services

03 DECEASED BENEFICIARIES

ROBERT BLAIR 11/05/2016

RUTH STIEHR 11/26/2016

12/2/16 9:43 AM

4.05 Deceased Members Report Consent

Board of Retirement Regular Meeting San Joaquin County Employees’ Retirement Association

Agenda Item 4.06-01 December 16, 2016 SUBJECT: Interest Crediting For December 31, 2016 SUBMITTED FOR: __X_ CONSENT l_ l ACTION ___ INFORMATION RECOMMENDATION Staff recommends that the Board approve proposed Resolution No. 2016-12-01 to grant a 3.6822% semiannual interest credit effective December 31, 2016 on established active and deferred member accounts as of June 30, 2016, and defer interest crediting on all other reserve accounts until the close of calendar year 2016 when the full impact of investment earnings during 2016 is known. PURPOSE To comply with Government Code Section 31591 which requires the Board of Retirement to credit interest semiannually on June 30th and December 31st to all contributions in the Retirement Fund that have been on deposit for six months immediately prior to such date. The December 31, 2016 semiannual crediting rate is 3.6822%, consistent with the Board’s 7.50% annual nominal rate of return assumption. The Board of Retirement will defer the crediting of all other accounts for 2016 until after the accounting records for 2016 are closed in 2017 and the full impact of investment earnings are known. DISCUSSION The Board adopted Resolution 2016-06-01 to credit semi-annual interest to member reserves as of June 30, 2016, and defer the crediting of all other accounts for 2016 until after the accounting records for 2016 were closed in 2017 and the full impact of investment earnings are known. As of September 30, 2016, the Fund’s total gross return is 7.56%. Until the close of 2016, actual returns will not be known. All other reserves excluding member reserves are allocated a pro-rata share of the annual actuarially smoothed gain/loss consistent with SJCERA’s Reserve Policy.

December 16, 2016 Page 2 of 2 Agenda Item 4.06-01

ATTACHMENT Proposed Resolution 2016-12-01

______________________________ ______________________________ NANCY CALKINS LILY CHERNG Chief Investment Officer Retirement Financial Officer

San Joaquin County Employees' Board of Retirement Retirement Association Resolution

RESOLUTION TITLE: INTEREST CREDITING RESOLUTION NO. 2016-12-01

WHEREAS, Government Code Section 31591 requires the Board of Retirement to credit regular interest semiannually on June 30th and December 31st to all contributions in the Retirement Fund which have been on deposit for six months immediately prior to such date; and WHEREAS, interest crediting at the rate of 3.6822% has been apportioned to all member accounts for the six-month period through June 30, 2016; and WHEREAS, the Board of Retirement’s assumed earnings rate through the end of calendar year 2016 is 7.50% per annum; NOW THEREFORE BE IT RESOLVED, that as of December 31, 2016, the remaining interest credit at the rate of 3.6822% will be apportioned for the six-month period through December 31, 2016, on all member accounts; and BE IT FURTHER RESOLVED, that interest crediting for employer, retired, and other reserves will be deferred until the close of 2016 when the full impact of investment earnings is known.

PASSED AND APPROVED by the Board of Retirement of the San Joaquin County

Employees' Retirement Association on the 16th day of December, 2016.

AYES:

NOES: ABSENT: ABSTAIN: ____________________________ MICHAEL RESTUCCIA, Chair Attest:

____________________________ RAYMOND McCRAY, Secretary

Board of Retirement Regular Meeting San Joaquin County Employees’ Retirement Association

Agenda Item 4.06-02 December 16, 2016 SUBJECT: SJCERA 2017 Proposed Administrative Budget January 1 through December 31, 2017 SUBMITTED FOR: ___ CONSENT l_X_l ACTION __ INFORMATION RECOMMENDATION The Administrative Committee recommends the Board of Retirement approve the proposed 2017 Administrative Budget. PURPOSE To establish an administrative budget for calendar year 2017 that maintains current operations and funds anticipated 2017 expenses. DISCUSSION Considering actual expenses through September 2016 and projected expenses through year-end, annual administrative expenses for 2016 are estimated to total $3,673,934. This is 19% less than the $4,531,426 budgeted for 2016. The majority of the difference in salary savings is from vacancies in the Asst. CEO, Dept. Information Systems Specialist II, and Retirement Services Technician positions. The 2017 budget has an increase of $17,500, or 0.4% over the 2016 approved budget and 24% over projected actual expenses for 2016. While the new SEIU contract has increased the Salaries and Benefits budget, both Services & Supplies and Fixed Assets are less than the 2016 budget. Salaries and benefits comprise 61% of the total administrative budget. The five-year trend shows an increase of approximately $610,100, or 15.5%, from the 2013 budget. The primary increase is salaries and benefits totaling $343,430, or 57% of the total increase.


Summary of Significant Changes The significant overall changes reflected in the proposed budget for 2017 as compared to 2016 are:

Salaries and Benefits:

Salaries and Benefits increase by $77,300 (approximately 2.9%) compared to the 2016 budget and the primary differences are as follows:

• Additional $49,700 for employer contributions to retirement

• Decrease of $18,700 for employer contributions to health benefits

• Estimated salary adjustments of $43,400 as follows: o $58,400 to reflect the increase in the new SEIU contract (5% COLA) o ($16,000) for reversing 2016 proposed/potential salary adjustments

for two Retirement Service Officer positions (to MA II salary scale) and related adjustment to Retirement Services Associate position to maintain salary at 75% of RSO salary, while raised but not granted in collective bargaining

o $1,000 annual step increases

Services and Supplies: Services and Supplies decreased by $28,635 compared to the 2016 budget and the primary differences are as follows:

• Software & Related Licenses decreased $33,000 due primarily to not having the Mindwrap/Optix upgrade of $25,000 and a decrease in Other Software Support.

• Rent increase of $6,370 in 2017 per lease agreement.

Fixed Assets:

PC Equipment & Upgrades decreased by $31,635 compared to the 2016 budget as follows:

• Increase Workstations budget by $45,000.

• Decrease Disaster Recovery budget by $25,000.

• Eliminate video recording/streaming budget and a net decrease of other fixed asset items by $51,000.


Statutory Administrative Expense Limit Government Code section 31580.2 limits the administrative budget to 0.21% of the Actuarial Accrued Liability. It also excludes from the administrative expense limit expenditures for “computer software, computer hardware and computer technology consulting services in support of these computer products.” The proposed 2017 administrative budget totaling $4,545,873 is 0.114% of the $4,006,390,050 Actuarial Accrued Liability (AAL) determined by the actuary as of January 1, 2016, and well under the statutory limit of 0.21% of the Actuarial Accrued Liability (AAL).

The 2016 administrative budget was 0.117% of the $3,731,634,372 AAL determined by the actuary as of January 1, 2015. Actual expenses for 2016 will be measured against the AAL as of January 1, 2016, which will be reported by the actuary in Fall 2017. Capital Project Initiative – Pension Administration System (PAS) Staff recommends the Committee and Board keep the 2016 budgeted item to approve a capital project to select and implement a pension administration system for SJCERA. SJCERA management believes that SJCERA’s needs will best be served for the long term by a comprehensive PAS developed and maintained by a well-established organization with significant history and expertise in designing and developing PAS, deep internal resources, and a demonstrated commitment to support and upgrade its PAS for its users across a substantial client base.

Staff also recommends that SJCERA engage an IT project consultant with expertise in PAS procurement and implementation. The project consultant will assist SJCERA is defining the requirements, soliciting proposals, evaluating and selecting a PAS/vendor, and managing the project development and implementation and keep the vendor accountable for deliverables and project timelines.

Staff anticipates this project will require up to three years to complete, with estimated total costs in the range of $3 - $5 million. First year costs are estimated at $150,000 for IT project consultant services from project initiation through selection of PAS vendor. As the Administrative Committee recently confirmed, staff will prepare, in early 2017, a draft RFP to be used to obtain proposals from IT consultants for PAS projects.

As stated above, expenditures for computer software, hardware, and technology consulting services are excluded from the statutory administrative expense limit. Administrative Budget Adjustments


Some expenses are included in the administrative budget to allocate funds for payment, but at year-end are either counted as a direct charge to the fund, rather than an administrative expense, or are excluded from expenditures counted toward the statutory expense limit. These include investment management fees, investment consulting services, master custody fees, actuarial services, legal services, information technology software, hardware, and related consulting services. Another type of budget adjustment offsets direct costs for SJCERA’s administration of retiree health plan eligibility, enrollment, and premium collection and remittance. This offset will impact a portion of salary expense. This cost is reimbursed through the administrative fee incorporated into the premium renewal rates for retiree health, dental, and vision plans for each plan year. These adjustments to the gross budget for 2017 are shown on the Proposed 2017 Administrative Budget Summary (Attachment 1). Detail for these adjustments is presented on the last page of the Administrative Budget Detail (Appendix). These adjustments total $612,385, resulting in an adjusted 2017 Budget of $3,936,487, which is 0.098% of the AAL as of January 1, 2016. ATTACHMENTS Attachment 1 – Proposed 2017 Administrative Budget Summary APPENDIX – 2017 Administrative Budget Detail

__________________________ ________________________ ROBERT PALMER GREG FRANK Board Consultant Management Analyst III

ATTACHMENT 1

SJCERA

Proposed Administrative Budget Summary

2017

As presented to Board of Retirement on December 16, 2016

SJCERA ADMINISTRATIVE BUDGET SUMMARY January - December 2017

2016 2016 2017 2017I. Allocated Positions: Approved Est / Actual Proposed 2017 Proposed (Net of

Budget (Gross) (Gross) Adjustments Adjustments)

Chief Executive Officer 1 1 1Asst. Chief Executive Officer 1 1 1Chief Investment Officer 1 1 1Retirement Financial Officer 1 1 1Management Analyst III 1 1 1Accountant III 1 1 1Retirement Services Officer 2 2 2Retirement Services Associate 1 1 1Retirement Services Technician 2 1 2Retirement Payroll Technician 2 2 2Departmental Info System Mngr 1 1 1Information Systems Specialist II 2 1 2Accounting Technician I/II 1 1 1Office Secretary 1 1 1Senior / Office Assistant 2 2 2

Total Allocated Positions: 20 18 20

II. Budget AllocationSalaries and Benefits:

6001000000 Salaries & Wages - Regular 1,548,142$ 1,400,075$ 1,591,571$ 6001100000 Salaries - Cafeteria 126,882 112,421 127,7986001200000 Salaries - Car Allowance 7,020 7,020 7,0206001210000 Admin Benefits (Vacation sell back) 18,922 10,717 19,9626010100000 Unemployment Comp Insurance 8,275 4,242 6,8546020000000 Retirement - Employer Share 597,924 534,936 647,6556020600000 Health Insurance for Retirees - SLB 17,000 14,863 17,0006030000000 Social Security-OASDI 89,619 80,893 93,5096030100000 Social Security-Medicare 23,997 20,978 24,8456040000000 Life Insurance 1,835 1,010 1,2006050000000 Health Insurance 260,584 175,921 241,8906070000000 Dental Insurance 9,940 6,939 8,2506080000000 Vision Care 1,213 896 1,0806003000001 Overtime 0 0 0

Subtotal: 2,711,353$ 2,370,912$ 2,788,634$ (69,035)$ 2,719,599$

Services & Supplies:6201000000 Office Expense 52,800$ 27,418$ 48,800$ 48,800$ 6202000000 Office Expense – Postage 28,500 30,724 28,500 28,5006203000000 Office Exp–Subscriptns & Periodicals 6,500 941 4,000 4,0006206000000 Communications 19,000 15,204 19,000 19,0006209000000 Memberships 8,750 7,187 8,500 8,5006211000000 Maintenance – Equipment 12,000 2,133 12,000 12,0006214000100 Rents & Leases – Copy Machine 25,000 15,008 20,000 20,0006217000000 Due Diligence / Training 127,300 72,410 127,650 -43,300 84,3506220000000 Professional and Specialized Services 776,755 541,927 780,150 -330,000 450,1506223000000 Publications and Legal Notices 1,000 0 1,000 1,0006226016000 Software and Related Licenses 153,050 102,260 120,050 -120,050 06243000000 Food 13,250 13,060 14,250 14,2506264000000 Rent – Structure & Grounds 258,969 257,615 265,338 265,3386269000000 Small Tools & Instruments 500 0 500 5006295220700 Information Syst Div–Indirect Chrgs 500 0 500 5006295232000 Insurance – Workers Compensation 9,000 7,138 8,500 8,5006295236000 Insurance – Liability & Fudiciary 135,500 135,392 141,000 141,0006295999900 County Wide – Indirect Cost Chrgs 57,500 49,982 57,500 57,500

Subtotal: 1,685,874$ 1,278,400$ 1,657,238$ (493,350)$ 1,163,888$

Fixed Assets:6451000000 Equipment & Furniture 3,000$ $0 3,000$ 3,000$ 6453310100 P.C. Equipment & Upgrades 131,200 24,622 100,000 (50,000)$ 50,000

Subtotal: 134,200$ 24,622$ 103,000$ (50,000)$ 53,000$

Administrative Budget Sub-Total: 4,531,426$ 3,673,934$ 4,548,873$ (612,385)$ 3,936,487$

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SJCERA ADMINISTRATIVE BUDGET SUMMARY January - December 2017

2016 2016 2017 2017Approved Est / Actual Proposed 2017 Proposed (Net ofBudget (Gross) (Gross) Adjustments Adjustments)

Administrative Budget Sub-Total: 4,531,426$ 3,673,934$ 4,548,873$ (612,385)$ 3,936,487$

8,413,419$ 8,413,419$ 8,413,419$ 8,413,419$ (as of 1/1/16) 0.113% 0.092% 0.114% 0.098%

Provision for Contingencies6701000000 Board Policy to Hold Contingencies to: $ 3,000,000 $ 3,000,000 $ 3,000,000

Total Administrative Budget $ 7,531,426 $ 7,548,873 $ 6,936,487

Total Admin Limit is 0.21% of Actuarial Accrued Liability (AAL): $4,006,390,050 x 0.21% = $8,413,419

SJCERA ADMINISTRATIVE BUDGET 5 Year Trend Analysis

% % % % %2013 Inc 2014 Inc 2015 Inc 2016 Inc 2017 Inc

Salaries - Regular 1,460,786 1,492,630 1,510,048 1,548,142 1,591,571Salaries - Cafeteria 125,324 126,527 126,701 126,882 127,798Salaries - Car Allow 7,020 7,020 7,020 7,020 7,020Vacation Buyback 18,177 18,558 18,740 18,922 19,962Unemployment Ins 8,241 9,435 9,538 8,275 6,854Retirement 448,451 508,269 556,638 597,924 647,655Health Ins(Retirees) 17,000 17,000 17,000 17,000 17,000SS OASDI 83,193 85,705 87,275 89,619 93,509SS Medicare 22,545 23,187 23,442 23,997 24,845Life Insurance 2,275 2,275 2,275 1,835 1,200Health Insurance 241,500 243,075 245,939 260,584 241,890Dental Insurance 9,623 9,623 9,165 9,940 8,250Vision Care 1,065 1,065 1,020 1,213 1,080 Salaries & Benefits 2,445,201 7% 2,544,370 4% 2,614,801 3% 2,711,353 4% 2,788,634 3%

Office Expense 51,050 48,700 53,700 52,800 48,800Postage 22,500 27,000 27,750 28,500 28,500Office Exp–Subs 9,000 6,500 6,500 6,500 4,000Communications 15,000 16,250 19,000 19,000 19,000Memberships 9,200 8,750 8,750 8,750 8,500Maint – Equip 9,000 10,000 12,000 12,000 12,000Rents–Copy Mach 17,000 17,000 20,000 25,000 20,000Due Diligence 127,400 128,550 127,800 127,300 127,650Prof Serv 553,555 600,105 596,855 776,755 780,150Public & Notices 1,000 1,000 1,000 1,000 1,000Fees & Applications 0 0 0 0 0Software & Lic 140,000 139,400 136,250 153,050 120,050Food 10,000 11,750 11,250 13,250 14,250Rent 238,860 245,230 252,599 258,969 265,338Tools & Instru 500 500 500 500 500ISD–Indirect Chrgs 500 500 500 500 500Insurance – WC 5,000 5,500 6,000 9,000 8,500Insurance – Liab/Fid 85,500 90,500 95,500 135,500 141,000County – Ind Costs 52,500 67,500 67,500 57,500 57,500 Service & Supplies 1,347,565 5% 1,424,735 6% 1,443,454 1% 1,685,874 17% 1,657,238 -2%

Equip & Furn 6,000 3,000 3,000 3,000 3,000P.C. Equip 140,000 115,000 128,000 131,200 100,000 Fixed Assets 146,000 -12% 118,000 -19% 131,000 11% 134,200 2% 103,000 -23%

Total Budget 3,938,766 5% 4,087,105 4% 4,189,255 2% 4,531,426 8% 4,548,873 0%

Allocated Positions 20 20 20 20 20

APPENDIX

SJCERA

Administrative Budget Detail

2017

As presented to the Board of Retirement on December 16, 2016

POSITION TITLE SALARY CAR ALLOW/

Parking CAFETERIADEFERRED

COMPVAC CASH

OUT

UN-EMPLOY-

MENT RETIREMENTSLB

(ACTIVES) OASDI MEDICARE LIFE INS HEALTH DENTAL VISION EARNINGS BENEFITS TAX

TOTAL POSITION

COSTChief Executive Officer 195,053.04 7,020.00 24,022.96 10,103.65 11,253.06 949.40 94,304.23 N/A 7,886.40 3,441.56 60.00 247,452.71 94,364.23 12,277.36 354,094.30 Asst Chief Executive Officer 152,886.83 24,022.96 3,057.74 4,704.21 726.46 70,378.40 N/A 7,886.40 2,633.40 60.00 184,671.73 70,438.40 11,246.26 266,356.39 Chief Investment Officer 130,166.40 24,022.96 2,603.33 4,005.12 632.78 61,280.04 N/A 7,886.40 2,293.82 60.00 160,797.81 61,340.04 10,813.00 232,950.85 Retirement Financial Officer 97,102.20 18,402.28 971.02 462.02 44,388.81 N/A 7,221.48 1,674.81 60.00 116,475.50 44,448.81 9,358.31 170,282.63 Dept Info Systems Manager 120,415.36 18,402.28 1,204.15 555.27 53,362.31 N/A 7,886.40 2,012.86 60.00 140,021.79 53,422.31 10,454.53 203,898.63 Mgmt Analyst III 98,541.46 985.41 394.17 37,929.69 N/A 6,170.67 1,428.85 60.00 16,126.00 550.00 72.00 99,526.87 54,737.69 7,993.68 162,258.24 Accountant III 79,104.48 316.42 30,146.72 N/A 4,904.48 1,147.01 60.00 16,126.00 550.00 72.00 79,104.48 46,954.72 6,367.91 132,427.11 Retirement Services Officer 74,234.16 296.94 28,290.64 N/A 4,602.52 1,076.40 60.00 16,126.00 550.00 72.00 74,234.16 45,098.64 5,975.85 125,308.65 Retirement Services Officer 74,234.16 296.94 28,290.64 N/A 4,602.52 1,076.40 60.00 16,126.00 550.00 72.00 74,234.16 45,098.64 5,975.85 125,308.65 Dept Info Sys Spec II 65,083.20 260.33 24,803.21 N/A 4,035.16 943.71 60.00 16,126.00 550.00 72.00 65,083.20 41,611.21 5,239.20 111,933.61 Dept Info Sys Spec II (Step A) 52,481.52 209.93 16,951.53 N/A 3,253.85 760.98 60.00 16,126.00 550.00 72.00 52,481.52 33,759.53 4,224.76 90,465.81 Retirement Services Assoc 61,086.48 244.35 23,280.06 N/A 3,787.36 885.75 60.00 16,126.00 550.00 72.00 61,086.48 40,088.06 4,917.46 106,092.00 Retirement Services Tech 51,476.88 205.91 19,617.84 N/A 3,191.57 746.41 60.00 16,126.00 550.00 72.00 51,476.88 36,425.84 4,143.89 92,046.61 Retirement Services Tech 51,001.86 204.01 16,473.60 N/A 3,162.12 739.53 60.00 16,126.00 550.00 72.00 51,001.86 33,281.60 4,105.65 88,389.11 Retirement Payroll Tech 51,476.88 205.91 19,617.84 N/A 3,191.57 746.41 60.00 16,126.00 550.00 72.00 51,476.88 36,425.84 4,143.89 92,046.61 Retirement Payroll Tech 51,476.88 205.91 19,617.84 N/A 3,191.57 746.41 60.00 16,126.00 550.00 72.00 51,476.88 36,425.84 4,143.89 92,046.61 Accounting Tech II 59,317.44 237.27 22,605.88 N/A 3,677.68 860.10 60.00 16,126.00 550.00 72.00 59,317.44 39,413.88 4,775.05 103,506.37 Office Secretary 41,270.67 165.08 13,330.43 N/A 2,558.78 598.42 60.00 16,126.00 550.00 72.00 41,270.67 30,138.43 3,322.29 74,731.39 Office Assistant/Sr. OA 35,080.92 140.32 11,331.14 N/A 2,175.02 508.67 60.00 16,126.00 550.00 72.00 35,080.92 28,139.14 2,824.01 66,044.07 Sr. Office Assistant 36,080.35 144.32 11,653.95 N/A 2,236.98 523.17 60.00 16,126.00 550.00 72.00 36,080.35 28,461.95 2,904.47 67,446.77 Retirement Board - Pd Memb - PerMtg 14,000.00 - - 14,000.00

1,591,571.00 7,020.00 108,873.44 18,925.00 19,962.00 6,854.00 647,655.00 17,000.00 93,509.00 24,845.00 1,200.00 241,890.00 8,250.00 1,080.00 1,732,352.00 900,075.00 125,207.00 2,771,634.00

Temp Help - - - -

SALARIES & WAGES-REGULAR 1,591,571.00 SALARIES-CAFETERIA 127,798.44 SALARIES-CAR ALLOWANCE 7,020.00 ADMINISTRATION BENEFITS 19,962.00 SALARIES-LEAVE TIME PAYOFFUNEMPLOYMENT COMP INSURANCE 6,854.00 RETIREMENT-EMPLOYER SHARE 647,655.00 HLTH INSUR FOR RETIREES-SLB (ACTIVE 'EES)17,000.00 SALARIES/BENES - EXTRA HELP - SOCIAL SECURITY-OASDI 93,509.00 SOCIAL SECURITY-MEDICARE 24,845.00 LIFE INSURANCE 1,200.00 HEALTH INSURANCE 241,890.00 DENTAL INSURANCE 8,250.00 VISION CARE 1,080.00 OVERTIME -

2,788,634.44 Page 1

SJCERA2017 BUDGETServices & Supplies

Office Expense – General 6201000000

Item Comments2016

Budget 2016

Estimated/Actual2017

ProposedOffice Supplies Office Max, Bus Cards, ID Badges, etc. 34,000.00 17,561.24 30,000.00

Boise orders; Co Purchasing; etc.Death Certificates, People Finders,Retiree HP materialsRetiree Giveaways

Printing Services 1099R & envelope printing; Newsletter 17,500.00 8,655.85 17,500.00& CAFR Printing; Annual StatementPrinting; etc

Document Destruction Shred It 1,300.00 1,201.21 1,300.00

TOTAL: $ 52,800.00 $ 27,418.31 $ 48,800.00


Office Expense - Postage 6202000000

Item Comments2016

Budget 2016


Proposed

Postage Member mass mailings $ 28,500.00 $ 30,724.48 $ 28,500.00 Office, Health Plan, SpecialMailings, returned mail, etc.Federal ExpressCounty Support (Mailroom)

TOTAL: $ 28,500.00 $ 30,724.48 $ 28,500.00


Office Expense - Subscriptions & Periodicals 6203000000

Item Comments2016

Budget 2016


ProposedVarious Subscriptions & Periodicals $ 6,500.00 $ 941.27 $ 4,000.00

Wall Street Journal Pensions & Investments Mercer Guide to SS The Record MacWorld/iLife Public Retirement Journal '37 Act Updates Ready or Not books

TOTAL: $ 6,500.00 $ 941.27 $ 4,000.00


Communications 6206000000

Item Comments2016

Budget 2016


ProposedCommunications, $ 19,000.00 $ 15,204.12 $ 19,000.00 ie: County; Telecomm; AT& T

TOTAL: $ 19,000.00 $ 15,204.12 $ 19,000.00


Memberships 6209000000

Item Comments2016

Budget 2016


ProposedSACRS Dues Annual Dues $ 4,500.00 $ 4,000.00 $ 4,500.00 CALAPRS Annual Dues 1,750.00 1,500.00 1,750.00

Miscellaneous Membership Dues Includes: 2,500.00 1,686.91 2,250.00NCPERSGFOAIFEBPPensions WestPub Pensions Fin ForumIMCAAmerican Express Ann FeeFileMaker TechNet

TOTAL: $ 8,750.00 $ 7,186.91 $ 8,500.00


Maintenance - Equipment * 6211000000

Item Comments2016

Budget 2016


ProposedComfort Air Air Cond - Computer Rm $ 5,000.00 $ 1,260.09 $ 5,000.00 Sound Equipment Board/Conf mics, controls, etc 5,000.00 165.00 5,000.00

Misc Equipment Maintenance Including: 2,000.00 708.20 2,000.00Door Locks (Digital)Scanner Maint / WarrantyAlarm System MaintTime Stamp MachineKeypadsPanic Button Replacement

TOTAL: $ 12,000.00 $ 2,133.29 $ 12,000.00

*This category not entirely based on estimated-actual as repair/maintenance of equipment cannot always be anticipated


Rents & Leases - Copy Machines 6214000100

Item Comments2016

Budget 2016


ProposedCopy Machines Lease agreement - $ 25,000.00 $ 15,007.83 $ 20,000.00

includes maintenance agreement, service, & repairs

TOTAL: $ 25,000.00 $ 15,007.83 $ 20,000.00


Due Diligence / Training 6217000000

Item Comments2016

Budget 2016


ProposedBoard Training & Conferences NCPERS, Pub Ret Journal, etc. 2,000.00 0.00 2,000.00

SACRSSpring/Fall Conf & Registration Fee 40,000.00 21,690.63 40,000.00

Disability Mileage 1,000.00 962.33 1,100.00

CALAPRSGeneral Assembly & RegistrationFee; Trustee Tuition 15,000.00 9,693.46 15,000.00

Mileage Reimbursement Trustee mileage 2,500.00 2,441.35 2,750.00RFO Training includes GFOA; P2F2; etc. 5,500.00 5,500.00 5,500.00Staff Training & Conferences non-investment related; $ 6,000.00 $ 3,711.31 $ 6,000.00

roundtables, etc.IF Online-Self Study 2,000.00 0.00 2,000.00

IT TrainingFM DevCon, Mac World, ServerTraining 10,000.00 3,460.47 10,000.00

Non-Investment Subtotal $84,350.00

Trustee Training Wharton School / SACRS 17,000.00 2,500.00 17,000.00UC Berkeley, etc.

Invest Conf & Due Diligence Includes IREI VIP, Alt Inv, LDI, etc 26,300.00 19,950.63 26,300.00CALAPRS Inv 2,500.00

*Investment Subtotal $43,300.00

TOTAL: $ 127,300.00 $ 72,410.18 $ 127,650.00

* See "ADJUSTMENTS" worksheet (page 22)- these are directly charged to Fund


Professional & Specialized Services 6220000000

Item Comments2016

Budget 2016


ProposedDisability Processing $ 260,000.00 $ 204,742.89 $ 250,000.00

Hearing Officer FeesMedical ExaminationsApplicant Med Mileage ReimbCourt ReporterCopy Services

Pension Administration Project Consultant (IT) 150,000.00 0.00 150,000.00

Brown Armstrong Annual Financial Audit 60,705.00 60,705.00 67,500.00 Note: Fixed, 3 yr contract thru FYE 2016

Registrar of Voters Member Elections-$11k ea 11,000.00 0.00 11,000.00ISD/AT&T VOIP 15,000.00 0.00 15,000.00NT Retiree Payroll 82,500.00 77,487.46 82,500.00IRON Mountain Escrow Account 1,600.00 1,600.00 2,000.00

Verizon & Mobile Service Internet Service & iPads 25,800.00 17,751.43 19,800.00

Computer Link Mac hardware 5,000.00 757.68 5,000.00IG, Inc. IT Contractor/Consultants 100,000.00 89,075.00 100,000.00

Gary Sugiyama/Direct DefenseNetwork Consultant/IT SecurityAudit 17,000.00 10,000.00 25,000.00

Technology Review 0.00 25,000.00V.2 Mac OS Consultant 10,000.00 0.00 0.00Web Hosting In Motion Web Hosting 150.00 131.88 150.00DropBox 2,000.00 1,420.00 2,000.00Web Redesign 20,000.00 0.00 10,000.00

Organizational Mgmt Consult Team bldg; strategic planning 2,000.00 0.00 0.00Publication Design CAFR/PAFR/Newletter/Pubs 10,000.00 7,140.00 10,000.00Alliance Consulting Services 0.00 36,000.00 0.00Robert Palmer Consulting Ends January 12, 2017 0.00 32,000.00 1,200.00

Misc. Professional Svcs Facility Rental 4,000.00 3,116.00 4,000.00Alamo Burglar Alarm Notary ServicesRetirement Seminar SpeakersSound System RentalIRS Cycle

TOTAL: $ 776,755.00 $ 541,927.34 $ 780,150.00


Publications & Legal Notices 6223000000

Item Comments2016

Budget 2016


ProposedLegal Notices want-ads; newspaper legal notices $ 1,000.00 $0.00 $ 1,000.00

TOTAL: $ 1,000.00 $ - $ 1,000.00


Software and Related Licenses 6226016000

Item Comments2016

Budget 2016


Proposed

Mindwrap Optix Maintenance $ 20,000.00 $ 16,200.00 $ 20,000.00 Mindwrap/Optix Upgrade 25,000.00 -$ 0.00IGI/Filemaker Filemaker Srvr/Client Lic Renewals 70,000.00 70,000.00 70,000.00CDWG Palo Alto Firewall 10,000.00 6,558.00 10,000.00Other Software Support/License 28,050.00 9,501.80 20,050.00

VicomsoftIT Solutions/Kerio LicenseSymantic Anti-Virus Renewals (30)CDWGSoftware Support: MS Office 2012 Adobe Creative Suite Adobe AcrobatOther Software Licenses

TOTAL: $ 153,050.00 $ 102,259.80 $ 120,050.00


Food 6243000000

Item Comments2016

Budget 2016


ProposedMid-Career Lunch & Refreshments $ 4,500.00 $ 5,628.63 $ 6,000.00 Annual Manager's Roundtable Breakfast/Lunch 7,000.00 6,576.11 7,000.00Board/Committee Meetings coffee; occasional lunches 1,750.00 855.30 1,250.00

TOTAL: $ 13,250.00 $ 13,060.04 $ 14,250.00


Rent - Structures & Grounds 6264000000

Item Comments2016

Budget 2016


ProposedSPE FO Holdings, LLC Lease - 4th Floor 258,968.80 257,614.93 265,338.40

(Per Lease Agreement)

TOTAL: $ 258,968.80 $ 257,614.93 $ 265,338.40

* Actual expenses includes additional HVAC costs per lease agreement when staff is onsite outside normal building hours (Saturday afternoon or Sunday)


Small Tools and Instruments 6269000000

Item Comments2016

Budget 2016


ProposedMisc Small Office Equip $ 500.00 $ - $ 500.00 *

TOTAL: $ 500.00 $ - $ 500.00

*note: replacement equip. (calculators, typewriter, etc) cannot be anticipated and budget is not based on current year actual expenditure


Information System Division Direct Charge 6295220700

Item Comments2016

Budget 2016


ProposedISD Services Interface connections, maint. $500.00 $ - $500.00

TOTAL: $ 500.00 $0.00 $500.00


Insurance - Worker's Compensation 6295232000

Item Comments2016

Budget 2016


ProposedCounty Worker's Comp $ 9,000.00 $ 7,138.00 $ 8,500.00

TOTAL: $ 9,000.00 $ 7,138.00 $ 8,500.00


Insurance - Liability & Fiduciary 6295236000

Item Comments2016

Budget 2016


ProposedGeneral Liability Insurance October renewal $ 5,500.00 $ 5,250.00 $5,500.00Fiduciary Liability Insurance August renewal 95,000.00 95,883.00 98,000.00Cyber Liability $ 35,000.00 $ 34,259.00 $ 37,500.00

TOTAL: $ 135,500.00 $ 135,392.00 $ 141,000.00


County Wide - Indirect Cost Charges 6295999900

Item Comments2016

Budget 2016


ProposedAuditor-ControllerHuman ResourcesTreasurer-Tax CollectorPurchasing/Support SrvsFacilities ManagementLabor Relations Total all - billed together by Auditor-Controller $ 57,500.00 $ 49,982.00 $ 57,500.00 Billed Quarterly

TOTAL: $ 57,500.00 $ 49,982.00 $57,500.00

SJCERA2017 BUDGETFixed Assets

Equipment & Furniture 6451000000

Item Comments2016

Budget 2016


ProposedOffice furniture $3,000.00 $0.00 $3,000.00

*note: fixed assets are defined as furniture/equipment with a unit cost of $1,000 or more.

TOTAL: $3,000.00 $0.00 $3,000.00

SJCERA2017 BUDGETFixed Assets

PC Equipment & Upgrades 6453310100

Item Comments2016

Budget 2016


Proposed

Workstations New Staff Computers $ 5,000.00 $ - $ 50,000.00

iPad Board Project Replacement iPads $ 1,200.00 -$ $ - Disaster Recovery 50,000.00 0.00 25,000.00Video Recording/Streaming of Board Mtgs 25,000.00 0.00 0.00Uninterrupted Power Supply 5,000.00 0.00 0.00Printers Replace existing printers 15,000.00 0.00 0.00Scanner Replace existing scanner 20,000.00 0.00 0.00Other 10,000.00 5,622.46 25,000.00

TOTAL: $131,200.00 $5,622.46 $100,000.00

ADJUSTMENTS

Comments2016

Budget 2016


ProposedSALARIES & BENEFITS:Adjustment for Retiree Health, 3/4 of one FTE for Payroll Tech 69,034.96 $69,034.96

Investment Related - DUE DILIGENCE / TRAINING:Trustee Training Wharton/SACRS, etc. 17,000.00$ 2,500.00$ 17,000.00$

Other Investment Conf.Includes IREI VIP, Alt Inv, LDI,etc 26,300.00 19,950.63 26,300.00

Information Technology Related (various budget items):IG, Inc. IT Contractor/Consultants 100,000.00$ 89,075.00$ 100,000.00$ Pension Admin System (PAS) Project Consultant PAS IT Consultant 150,000.00$ -$ 150,000.00$ Web Redesign 20,000.00 - 10,000.00 Computer Link Mac hardware 5,000.00 757.68 5,000.00 AT & T/ISD VOIP 15,000.00 - 15,000.00 CDWG Firewall 10,000.00 6,558.00 10,000.00 Gary Sugiyama IT Security Audit 17,000.00 10,000.00 25,000.00Technology Review 0.00 0.00 25,000.00Mindwrap Optix Maintenance 20,000.00 16,200.00 20,000.00IGI Core 37 yearly maintenance 70,000.00 70,000.00 70,000.00Other Software Support/License 28,050.00 9,501.80 20,050.00 493,350.00FIXED ASSETS:Information Technology Related:Workstations New Staff Computers $ 5,000.00 $ - $ 50,000.00

50,000.00

$612,384.96FUND EXPENSES

Fund's Attorney Disability Applications $ 160,000.00 $ 130,000.00 160,000.00County Counsel Counsel to the Board 100,000.00 92,000.00 100,000.00Morrison & Foerster Investment Counsel 110,000.00 100,000.00 110,000.00Hanson Bridgett Tax Counsel 50,000.00 7,500.00 50,000.00Cheiron Actuarial Services 200,000.00 191,181.34 200,000.00GRS Actuarial Audit & Parallel Study 50,000.00 45,000.00 0.00Northern Trust Custodial Fees 250,000.00 262,145.00 275,000.00PCA Consultant-General 225,000.00 219,166.67 250,000.00Courtland Partners Consultant-Real Estate 100,000.00 90,000.00 95,000.00Investment Management Fees*

TOTAL: $ 1,728,350.00 $ 1,361,536.12 $ 1,852,384.96

*Investment Management fees - some are deducted from SJCERA account balances, some are paid by SJCERA pursuant to invoices. All are direct charged to the fund and are not part of the Administrative Budget.

TOTAL ADJUSTMENTS (Need to be allocated in administrative budget to be paid by Auditor-Controller)

SJCERA2017 BUDGET

Total Actuarial Acrrued Liability 4,006,390,050$

Total Administrative Expense Limit @ 0.21% 8,413,419$ 0.210% 8,413,419.11 0.210%

Total 2017 Proposed Budget: 4,548,873$ 0.114% 3,936,487.88 0.098%

Difference (hold to contingencies): 3,864,546$ 0.096% 4,476,931.22 0.112%

Proposed Budget compared to Current Year Budget / Actual

2017 Proposed Budget 4,548,873$

2016 Approved Budget 4,531,426$ 3,673,934$

Increase/(Decrease): 17,446$ 0.39% (857,492)$

Total Actuarial Accrued Liability

4,006,390,050$

Total Administrative Expense Limit @ 0.21% 8,413,419$ 0.210%Total Annualized Expenses for 2016 3,673,934$ 0.092% Difference 4,739,485$ 0.118%

As of 1/1/2016:

2017 ADMINISTRATIVE EXPENSE LIMIT WORKSHEET

As of 1/1/2016:

Gross Net of Adjustments

Estimated/Actual

2016 ADMINISTRATIVE EXPENSE LIMIT WORKSHEET

Gross

SALARIES & BENEFITS $2,788,634

Adjustment for Retiree Health Administration 3/4 of one FTE for Retirement Payroll Tech -69,035

Adjusted Salaries and Benefits $2,719,599

SERVICE & SUPPLIES $1,657,238

Investment-related due diligence & training* -43,300 IT related expenses* -450,050

Adjusted Services and Supplies 1,163,888

FIXED ASSETS $103,000

IT related expenses* -50,000

Fixed Assets 53,000

Sub-Total Allocation 3,936,488 0.098%

Contingency 3,000,000

Total Allocation $6,936,488

* From "Expenses Excluded from Statutory Limit" Must be included in total allocation to be paid, but will not be included at year end in determination of administrative expenses as compared to statutory expense limit.

Charge Back for Retiree Health Administration Overhead:

3/4 of one FTE for Ret Payroll Tech $69,035

2016 Direct Overhead: $69,035

ADJUSTMENTS2017 ADMINISTRATIVE BUDGET - TOTAL ALLOCATION

of 1/01/16 AAL

(Does not include indirect costs for other staff/ functions)

SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION

Printed 11/29/16 11:20 AM

HISTORY OF SJCERA ADMINISTRATIVE EXPENSE "CONTINGENCY"

Fund Year for Budget Limit Calculation

(1)

MV of total assets

(2)

Fiscal Year (3)

Budget Limit (0.18% of MV of

assets) (4)

Budget Amount

(5)

Admin % per

Budget (6)

Contingency per Budget (7)

Less Contin- gency Used

(8)

Contingency (9)

December 31, 2000 1,574,581,879$ 2001-2002 2,834,247$ 1,992,683$ 0.127% 841,564$ 841,564$ December 31, 2001 1,575,476,252$ 2002-2003 2,835,857$ 2,089,240$ 0.133% 746,617$ 746,617$ December 31, 2002 1,429,022,070$ 2003-2004 2,572,240$ 2,315,326$ 0.162% 256,914$ 256,914$ December 31, 2003 1,778,093,319$ 2004-2005 3,200,568$ 2,493,716$ 0.140% 706,852$ 706,852$ December 31, 2004 2,012,009,379$ 2005-2006 3,621,617$ 2,640,320$ 0.131% 981,297$ 981,297$ December 31, 2005 2,157,058,859$ 2006-2007 3,882,706$ 3,113,017$ 0.144% 769,689$ 769,689$ December 31, 2006 2,372,166,264$ 2007-2008 4,269,899$ 4,000,310$ 0.169% 269,589$ 269,589$ December 31, 2007 2,432,070,285$ 2008 (final 6 mos) 2,188,863$ 1,853,629$ 0.152% 335,234$ 335,234$ March 31, 2008* 2,091,155,757$ 2009 (adopted Jun 08) 3,764,080$ 3,119,636$ 0.149% 644,444$ -March 31, 2009* 1,425,279,931$ 2009 - April Revise 2,565,504$ 3,404,997$ 0.239% (839,493)$ (750,000)$ (1,589,493)$ June 30, 2009* 1,598,534,165$ 2010 2,877,361$ 3,531,459$ 0.221% (654,098)$ (654,098)$

Note 2: Column (7) is the difference between the state mandated budget limit and SJCERA's approved budget, column (4) less column (5).

Valuation Date for Budget Limit

Calculation (1)

Actuarial Accrued

Liability (AAL) (2)

Budget for Calendar Year

(3)

Budget Limit (0.21% of AAL)

(4)

Budget Amount (Gross)

(5)

Admin % per

Budget (6)

Contingency per Budget (7)


(8)

Contingency (9)

January 1, 2010 2,769,611,544$ 2011 5,816,184$ 3,645,689 0.132% 2,170,495$ 2,170,495$ January 1, 2011 2,917,688,000$ 2012 6,127,145$ 3,738,610 0.128% 2,388,535$ 2,388,535$ January 1, 2012 3,048,321,000$ 2013 6,401,474$ 3,938,766 0.129% 2,462,708$ 2,462,708$ January 1, 2013 3,353,294,212$ 2014 7,041,918$ 4,087,104 0.122% 2,954,814$ 2,954,814$ January 1, 2014 3,561,859,056$ 2015 7,479,904$ 4,265,151 0.120% 3,214,753$ 3,214,753$ January 1, 2015 3,731,634,372$ 2016 7,836,432$ 4,537,796 0.122% 3,298,636$ 3,298,636$ January 1, 2016 4,006,390,050$ 2017 8,413,419$ 4,548,873 0.114% 3,864,546$ 3,864,546$

28,010,104$ (1,338,700)$ 26,032,527$

AS BUDGETED

STATUTORY ADMINISTRATIVE EXPENSE LIMIT CHANGED EFFECTIVE JANUARY 1, 2011

Note 1: Begininng with period ending December 31, 2008, SJCERA presents budget/expense limit calculations based on MV of total fund, which is more conservative than using total assets (gross of liabilities). Data presented prior to December 31, 2008 is MV of total assets.

Printed 11/29/16 11:20 AM

HISTORY OF SJCERA ADMINISTRATIVE EXPENSE "CONTINGENCY"

ACTUAL (1)

MV of total assets/fund

(2)

Fund Year (3)

Expense Limit (0.18% of MV

of assets/fund) (4)

Calendar Year Actual

Expenditures (5)

Admin % per Actual

(6)

Contingency per Actual

Expenditures (7)


(8)

Contingency (9)

1,574,581,879$ December 31, 2000 2,834,247$ 1,590,485$ 0.101% 1,243,762$ 1,243,762$ 1,575,476,252$ December 31, 2001 2,835,857$ 1,721,140$ 0.109% 1,114,717$ 1,114,717$ 1,429,022,070$ December 31, 2002 2,572,240$ 1,796,639$ 0.126% 775,601$ 775,601$ 1,778,093,319$ December 31, 2003 3,200,568$ 1,995,462$ 0.112% 1,205,106$ 1,205,106$ 2,012,009,379$ December 31, 2004 3,621,617$ 2,320,303$ 0.115% 1,301,314$ 1,301,314$ 3,016,621,502$ December 31, 2005 5,429,919$ 2,348,718$ 0.078% 3,081,201$ 3,081,201$ 2,372,166,264$ December 31, 2006 4,269,899$ 3,012,257$ 0.127% 1,257,642$ 1,257,642$ 2,432,070,285$ December 31, 2007 4,377,727$ 3,272,595$ 0.135% 1,105,132$ 1,105,132$ 1,560,168,266$ December 31, 2008* 2,808,303$ 3,077,729$ 0.197% (269,426)$ (269,426)$ 1,731,314,174$ December 31, 2009* 3,116,366$ 3,239,765$ 0.187% (123,399)$ (737,845)$ (861,244)$ 1,946,859,513$ December 31, 2010* 3,504,347$ 3,195,005$ 0.164% 309,342$ -$ 309,342$

Note 2: Column (7) is the difference between the state mandated budget limit and SJCERA's approved budget, column (4) less column (5).

Valuation Date for Actual

Expense Limit Calculation (1)

Actuarial Accrued

Liability (AAL) (2)

Calendar Year Ending (3)

Expense Limit (0.21% of AAL)

(4)

Calendar Year Actual

Expenditures (5)

Admin % per Actual

(6)

Contingency per Actual

Expenditures (7)


(8)

Contingency (9)

January 1, 2012 3,048,321,000$ December 31, 2011 6,401,474$ 3,292,734$ 0.108% 3,108,740$ 3,108,740$ January 1, 2013 3,353,294,212$ December 31, 2012 7,041,918$ 3,403,139$ 0.101% 3,638,779$ 3,638,779$ January 1, 2014 3,561,859,056$ December 31, 2013 7,479,904$ 3,607,565$ 0.101% 3,872,339$ 3,872,339$ January 1, 2015 3,731,634,372$ December 31, 2014 7,836,432$ 3,636,863$ 0.097% 4,199,569$ 4,199,569$ January 1, 2016 4,006,390,050$ December 31, 2015 8,413,419$ 3,710,047$ 0.093% 4,703,372$ 4,703,372$

35,945,529$ (1,326,545)$ 34,624,552$

STATUTORY ADMINISTRATIVE EXPENSE LIMIT CHANGED EFFECTIVE JANUARY 1, 2011

Note 1: Begininng with period ending December 31, 2008, SJCERA presents budget/expense limit calculations based on MV of total fund, which is more conservative than using total assets (gross of liabilities). Data presented prior to December 31, 2008 is MV of total assets.


RESOLUTION TITLE: ANNUAL ADMINISTRATIVE BUDGET FOR 2017

RESOLUTION NO.: 2016-12-02

WHEREAS, the Board of Retirement has the authority pursuant to Government Code Section 31580.2 to establish a budget to meet the administrative needs of the retirement system; and

WHEREAS, effective January 1, 2011, California Government Code section 31580.2 limits the funding for administrative budgets to 0.21% of actuarial accrued liability of the retirement system; and

WHEREAS, the 2017 Administrative Budget totals $4,548,873 and maintains a Contingency Reserve in the amount of $3,000,000; and

WHEREAS, this proposed budget for 2017 is 0.114% of the actuarial accrued liability of $4,006,390,050 as reported by the Board’s retained actuary in the annual actuarial valuation as of January 1, 2016;

NOW, THEREFORE, BE IT RESOLVED that the Board approves the proposed 2017 Administrative Budget, shown as “Attachment A” and made a part of this resolution and directs the Chief Executive Officer to work with the County Auditor-Controller and other county officials to implement this budget.

PASSED AND APPROVED by the Board of Retirement of the San Joaquin County Employees’ Retirement Association on the 16th day of December, 2016.

AYES:

NOES: ____________________________ MICHAEL RESTUCCIA, Chair ABSENT: Attest: ABSTAIN: ____________________________ RAYMOND McCRAY, Secretary

Board of Retirement Financial Meeting San Joaquin County Employees’ Retirement Association

Agenda Item 4.06-03 December 16, 2016 SUBJECT: Proposed Reserve Policy Revisions SUBMITTED FOR: __X__ CONSENT ___ ACTION ___ INFORMATION RECOMMENDATION The staff and consultant recommend that the Board approve the proposed Reserve Policy revisions. PURPOSE The purpose of the agenda item is to revise and update the Statement of Reserve Policy to include the County Additional UAL Contribution Reserve as a special reserve for SJCERA’s reserve structure. DISCUSSION On March 29, 2016, the Board of Supervisors approved an additional annual county contribution ranging from 0% to 5% of payroll for the next 10 years effective January 1, 2017 for the purpose to pay down San Joaquin County’s share of the unfunded actuarial liability (UAL). For the calendar year 2017, the County will begin to remit the additional UAL contribution of 5% of covered payroll for County employees. BACKGROUND These additional UAL contributions are not to be taken into consideration in the annual retirement contribution rate setting process, unless and until the County advises when it wants the plan actuary to credit this new reserve against the County’s share of UAL as valuation assets. This reserve is credited with actual annual rate of return (including negative returns) on the market value of assets for the plan as a whole, rather than the “smoothed” rate of return credited to other reserves included in the valuation assets.


ATTACHMENTS Statement of Reserve Policy

__________________________ __________________________ NANCY CALKINS LILY CHERNG Chief Investment Officer Retirement Financial Officer


6 South El Dorado Street, Suite 400 • Stockton, CA 95202 (209) 468-2163 • Fax (209) 468-0480 • www.sjcera.org

Statement of Reserve Policy

November December 2012 2016

I. Purpose and Overview

The purpose of this Statement of Reserve Policy is to summarize the structure and operation of the reserves created and maintained by the San Joaquin County Employees’ Retirement Association (SJCERA, the Plan, the Fund). This Statement is drafted to achieve the following goals:

• Document the existing reserve structure and the accounting policies currently in place; and

• Establish a base for considering future changes in reserve policies.

This Statement describes the SJCERA reserve structure and the mechanisms used to accumulate assets and disburse payments from each reserve. It is organized as follows:

• Description – The various reserves are categorized and their purposes and related liabilities are described.

• Cash Flows – The inflows and outflows, excluding interest, are enumerated for each reserve.

• Interest Credits – The computation and timing of the interest credited to each reserve are described.

• Reserve Transfers – The circumstances under which the Retirement Board (the Board) may elect to move balances from one reserve account to another are described.

• Reconciliation – The method and frequency by which the reserve accounts should be reconciled with the underlying liability is specified.

This Statement is a working document that will be modified as the Board deems necessary.

SJCERA / Statement of Reserve Policy - November December 2012 2016/ Page 2 of 13

II. Market Value and Actuarial Value

All reserves are held at market value. However, in computing the smoothed or actuarial value of assets required to compute the Plan’s funded status and the employer contribution rates, a conversion to actuarial value is sometimes required. This will be noted in each case.

III. Reserve Descriptions

Fund reserves fall into one of two categories: Valuation Reserves and Special Reserves.

A. Valuation Reserves

Valuation Reserves include Member Reserves, Retired Member Reserves (excluding certain death benefit reserves), Employer Advance Reserves, the Market Stabilization Designation, and the Unappropriated Earnings Reserve. The total of the Valuation Reserves equals the market value of Fund assets, excluding amounts held in the Special Reserves, also at market value.

The total of the Valuation Reserves, excluding the Market Stabilization Designation and excluding the Special Reserves (adjusted to actuarial value), is the Actuarial Value of Fund Assets used to determine the funded ratio and the employer contributions to the Fund as part of the annual actuarial valuation performed each year.

Any policy that affects the amount of funds assigned to Valuation Reserves has the potential to affect Plan costs.

1. Member Reserves

The Member Reserves contain the cumulative employee contributions with interest for active and deferred members. Active member contributions are held in separate reserves for General and Safety, while cumulative member contributions for terminated deferred members are also held in General and Safety reserves. Member contributions for COLAs are combined with all other member contributions in the Member Reserves.

The Plan liability matching this reserve is the sum of member contributions with interest for active and terminated deferred members.

2. Retired Member Reserves

The Retired Member Reserves contain the assets necessary to fund the benefits and COLAs in pay status for retired and disabled members and their beneficiaries.


The Plan liability matching this reserve is the actuarial present value of benefits for members in pay status – retired and disabled members and their beneficiaries. When reserves are reconciled with liabilities, the sum of the Retired Member Reserves should equal the liability held for retired and disabled members and their beneficiaries. Consequently, the Plan’s liability for members in pay status would be 100% funded.

In actuarial valuations through January 1, 2012, Special Reserves were held for the $5,000 lump sum death benefit, the Purchasing Power Protection benefit, and the Pre-April 1, 1982 Settlement. Beginning with the January 1, 2013 valuation, these benefits will be included in the actuarial valuation performed for the Plan. Since these benefits are primarily payable on behalf of retired members, the reserve balances on December 31, 2012 will be included in Valuation Reserves (Retired Member Reserves).

3. Employer Advance Reserves

The Employer Advance Reserves contain the assets allocated to the employer portion of the liabilities for active and deferred members. The amount in this reserve is the actuarial value of total Fund assets, minus the Member Reserves, Retired Member Reserves, Unappropriated Earnings Reserve, and Special Reserves, all at actuarial value.

The Plan liability matching this reserve is the actuarial accrued liability for active and deferred members.

4. Market Stabilization Designation

The Market Stabilization Designation consists of the difference between the market value of Plan assets and their actuarial value. It contains the total of unrecognized investment gains and losses from the current and prior three Plan (calendar) years.

If the smoothed actuarial value of assets exceeds market value, the Market Stabilization Designation is negative; otherwise, it is zero or positive. The liability matching the Market Stabilization Designation is the sum of unrecognized investment gains and losses, as noted above.

Since the actuarial and market values of Plan assets are determined for all assets in total, regardless of allocation to reserves, the calculation of the Market Stabilization Designation is independent of and must precede the apportionment of assets into reserves.

The Market Stabilization Designation is the amount that must be added to the Actuarial Value of Fund assets to agree with the Market Value of Fund assets. It represents deferred gains (losses) if positive (negative). It therefore represents a


reserve for those unrealized gains or losses that is excluded from the calculation of Plan funding status and employer contribution rates.

5. Unappropriated Earnings Reserve

The Unappropriated Earnings Reserve is reestablished yearly after all other requirements are met, in the following order: Full actuarial interest on Valuation Reserves and all other reserves, an amount necessary to bring the overall actuarial funded ratio of the Fund to 90% in accordance with the Board’s Statement of Funding Policy, and an amount necessary to bring the Contingency Reserve to at least the 1% minimum but not more than 3%.

The amount in the Unappropriated Earnings Reserve can then be transferred to other reserves, subject to the limitations contained in the Board’s Statement of Funding Policy and in other applicable legal obligations and settlements.

The liability associated with this reserve is the excess of the Plan’s actuarial accrued liability over the total of the Member, Retired Member, and Employer Advance Reserves.

B. Special Reserves

Special Reserves consist of funds excluded from the annual actuarial valuation and therefore not used in the calculation of the Plan’s funded ratio and employer contribution. The amounts set aside can be for designated purposes or for market fluctuation.

1. Post-Retirement Death Benefit Reserve

Effective January 1, 2013, the liability for the $5,000 lump sum death benefit for retirees (Government Code Section 31789.3) was included in the actuarial valuation and in Valuation Reserves.

2. Health Insurance Reserve Post Employment Healthcare Agency Fund

In 2011, following the IRS’ approval of SJCERA VCP application it was determined that the proper presentation of what was formerly known as the Health Insurance Reserve should instead be the Post-Employment Healthcare Agency Fund. The fund is used for cash flows in from employers to fund sick leave bank benefits for their eligible retired employees on a pay as you go basis, and for cash flows out for payment of sick leave bank benefits.

The Health Insurance Reserve was initially established to pre-fund benefits for County employees related to accumulated sick leave at time of retirement. For eligible employees, sick leave hours may be converted to a dollar value known as a “Sick Leave Bank” that retirees may draw upon to pay post-employment health


insurance premiums, OR, sick leave hours may be converted to additional retirement service credit. Between March 1989 and September 2001, various transfers were made from the Unappropriated Earnings Reserve to the Health Insurance Reserve. The group of eligible County employees was expanded in August 2001 as a result of the settlement agreement in DSA v. Board of Retirement (DSA Settlement) and by subsequent formal action by participating special districts, to include all members of SCERA employed prior to August 27, 2001. Subsequently, the Superior Court in San Joaquin County took formal action to extend sick leave bank benefits to all of its employees hired through June 30, 2012.

From 2006 through 2010, San Joaquin County and the Courts began making regular contributions to the Health Insurance Reserve to pre-fund termination benefits for accumulated sick leave.

Pending determination on SJCERA’s VCP application submitted to the IRS in January 2011, the Health Insurance Reserve was frozen effective February 1, 2011. Employers now fund sick leave bank benefits and present value of additional retirement service credit on a pay-as-you-go basis.

The liability matching this reserve is the actuarial present value of accumulated sick leave hours at retirement for eligible employees converted to sick leave bank balance or converted to additional retirement service credit.

3. Purchasing Power Cost of Living Reserve After January 1, 2013, the liability for the Purchasing Power Protection benefit for retirees (Government Code Section 31874.3) is included in the actuarial valuation and in Valuation Reserves, and is part of Retired Member Reserves. It is no longer be separately accounted for.

4. Pre-April 1, 1982 Settlement Reserve

After January 1, 2013, the liability for the Pre-April 1, 1982 Settlement benefit for retirees established as part of the 2001 DSA Settlement is included in the actuarial valuation and in Valuation Reserves, and is part of the Retired Member Reserves. It is no longer be separately accounted for.

5. Post-April 1, 1982 Settlement Reserve

The Post-April 1, 1982 Settlement Reserve was established in 2001 as part of the DSA Settlement for members who retired after April 1, 1982 and before January 1, 2001. The benefit payable from the reserve is $10 per month per year of service, with a maximum monthly benefit of $300, prorated for beneficiaries receiving less than 100% of the member’s benefit. An initial amount of $19.1


million was transferred from the Special Litigation Reserve; at the time of the Settlement, the Fund actuaries estimated that it would take $36.9 million to fully fund this benefit.

Under the Settlement Agreement, benefits are paid from the Reserve until the Reserve is exhausted. At that time, benefits are stopped until additional funds are added to the Reserve. The Settlement stipulates that full funding of post-1982 benefits is a requirement after transfers required by law to make up for prior years’ interest crediting shortfalls and after any true-up costs occurring in the three years following the establishment of this Reserve.

Benefits stopped in May, 2006, when this reserve was depleted. In October 2007, the Board of Retirement elected to make a one-time transfer from funds in excess of 1% in the Contingency Reserve. After the transfer of $2.5 million from the Contingency Reserve, benefits recommenced December 1, 2007. In August 2008, the Board of Retirement approved a transfer of approximately $4.6 million from the Unappropriated Earnings Reserve to continue funding of this benefit. In October 2008, the Board of Retirement approved a transfer of $18.4 million from the Unappropriated Earnings Reserve to continue the Post-1982 Settlement Benefit as long as sufficient funds remain.

The liability matching this reserve is the actuarial present value of the benefits provided under this part of the DSA Settlement.

6. Contingency Reserve

The Contingency Reserve (formerly the Interest Fluctuation Reserve) is required by law to have a balance of at least 1% of all Fund assets before the Board is allowed to make any discretionary reserve allocations. Retirement Board policy is to maintain the Reserve at 3%, but the Board may exercise its discretion in setting the exact level.

Assigning funds to the Contingency Reserve keeps them outside of the valuation assets, thus increasing employer contributions to the Plan in a given year. Using the Contingency Reserve during years when full interest cannot otherwise be credited serves to decrease Plan costs in those years.

No liability is associated with this reserve.

7. County Additional UAL Contribution Reserve

The County Additional UAL Contribution Reserve receives additional contributions paid by San Joaquin County toward its share of the unfunded actuarial liability (UAL) beginning in calendar year 2017. On March 29, 2016, the Board of Supervisors approved an additional annual County contribution ranging


from 0% to 5% of payroll for the next 10 years effective January 1, 2017 for this purpose.

These additional UAL contributions are not to be taken into consideration in the annual retirement contribution rate setting process, unless and until the County advises when it wants the plan actuary to credit this new reserve against the County’s share of UAL as valuation assets.

For the annual GASB 67/68 report, the County’s additional UAL contributions are included in the Plan Net Position (and thus will reduce the total Net Pension Liability). However, these assets directly offset only the County’s portion of the Net Pension Liability (NPL).

IV. Relationship of Reserve Balances

Table 1 below shows the relationships among the reserve balances at the end of each Plan fiscal year, both at actuarial value and at market value. The numbers below show the order in which the various reserves are computed.


Table 1: Relationships Among Reserve Balances

Reserve Actuarial Value Market Stabilization Designation

Market Value

Total Fund 2. Total Fund balance at Actuarial Value as computed by the actuary at the end of the Fund fiscal year

3. Market Value of the Fund minus Actuarial Value at the end of the Fund fiscal year

1. Total Fund balance at Market Value as contained in the Financial Statements of the Fund at the end of the Fund fiscal year

Special Reserves 6. The Actuarial Value of the Special Reserves, obtained by subtracting the Market Stabilization Designation for Special Reserves from the Market Value of Special Reserves

5. The portion of the Market Stabilization Designation attributable to Special Reserves, derived by applying the ratio of the Market Value of Special Reserves to the total Fund Market Value

4. Market Value of the Fund Special Reserves, as reported in the Fund Financial Statements at the end of the Fund fiscal year

Unappropriated Earnings Reserve

2. The Board sets aside a portion of assets in the Unappropriated Earnings Reserve, based on Board Funding Policy.

9. Market Value of the Unappropriated Earnings Reserve minus Actuarial Value of the Unappropriated Earnings Reserve at the end of the Fund fiscal year.

8. The Market Value of the Unappropriated Earnings Reserve, computed by applying the ratio of the Market Value of the total Fund to the Total Fund balance at Actuarial Value and applying that to the Unappropriated Earnings Reserve at Actuarial Value.

Valuation Assets 10. The Actuarial Value of Assets for use in computing Employer Contributions in the annual Actuarial Valuation, obtained by subtracting the Actuarial Value of the Special Reserves from the Actuarial Value of all Fund Assets.

Valuation Assets includes all Valuation Reserves: The Member Reserves, Retired Member Reserves, Employer Advance Reserve, and the Unappropriated Earnings Reserve.

11. The portion of the Market Stabilization Designation attributable to Valuation Assets, computed by subtracting the Market Stabilization Designations for the Special Reserves and the Unappropriated Earnings Reserve from the Market Stabilization Designation of all Fund Assets.

12. The Market Value of Valuation Assets, computed by subtracting the Market Value of the Special Reserves from the Market Value of all Fund Assets. Note this can also be obtained by adding the Actuarial Value of Valuation Assets to the Market Stabilization Designation for Valuation Assets.


V. Reserve Cash Flows

Shown below are the additions and subtractions to each reserve, excluding interest credits. Interest credits are described in Section VI.


1. Member Reserves

For active members, employee contributions are added to the reserves, while the entire accumulated balance for members who take a contribution refund or enter pay status through retirement, disability, or death is subtracted.

For deferred members, there are no employee contributions to add, but the entire accumulated balance for members who take a contribution refund or enter pay status through retirement, disability, or death is subtracted.

Addition and subtraction of member contributions occurs on a biweekly and monthly basis.


The Retired Member Reserve increases with reserves transferred from the Member Reserve and the Employer Advance Reserve when members retire, become disabled, or die leaving beneficiaries; it decreases as members or their beneficiaries receive benefit payments.


The Employer Advance Reserves is increased by employer contributions each year, and is decreased by the liability for members who enter benefit status each year through retirement, disability, or death.


The Market Stabilization Designation is recomputed in each annual actuarial valuation as the total of unrecognized investment gains and losses from the current and prior three Plan (calendar) years. Therefore, any increases or decreases to this reserve do not result from additions or deletions. See Table 1 above.


The Unappropriated Earnings Reserve is reestablished yearly in accordance with the Board’s Statement of Funding Policy and other applicable legal obligations and settlements. This process is described in Section III, A.5 above.


B. Special Reserves


After January 1, 2013, since this Reserve is part of the Retired Member Reserves it is no longer be separately accounted for.

2. Post-Employment Healthcare Agency Fund

The Health Insurance Reserve Post-Employment Healthcare Agency Fund is increased with employer contributions and decreased when retirees’ health premiums are paid from their sick leave banks or accumulated sick leave at retirement is converted to additional retirement service credit. Pending determination on SJCERA’s VCP application submitted to the IRS in January 2011, the Health Insurance Reserve was frozen effective February 1, 2011. Employers now fund sick leave bank benefits and present value of additional retirement service credit on a pay-as-you-go basis.

3. Purchasing Power Cost of Living Reserve

Prior to January 1, 2013, the Purchasing Power Cost of Living Reserve is increased with interest credits only; there are no further allocations from employer contributions. The Reserve is decreased with payments of the cost of living benefit.

After January 1, 2013, this Reserve is combined with the Retired Member Reserve and is no longer separately maintained or accounted for.


Prior to January 1, 2013, the Pre-April 1, 1982 Settlement Reserve is decreased with payments.



The Post-April 1, 1982 Settlement Reserve is decreased with payments made and is increased with interest credits and any amounts transferred by the Board from other reserves.



The annual additions to and withdrawals from the Contingency Reserve are determined by the Board and sufficiency of earnings on assets to credit full interest to all accounts.


The County Additional UAL Contribution Reserve is increased with additional contributions paid by the County.

VI. Reserve Interest Credits

At the end of each year, each reserve account is adjusted based on contributions and disbursements during the year, as described above. Reserves are then credited interest using the following priority order:

1. Member Reserves: The first priority is to credit all Member Reserves at the actuarial assumed rate, regardless of Fund performance. For both active and deferred vested Member Reserves, interest is credited semiannually at a rate which, when compounded, produces the annual actuarial assumed rate of investment return.

2. Determination of Market Stabilization Designation (MSD): Before any other reserve accounts are allocated, the amount of the market stabilization reserve needs to be determined by the Plan’s actuary. This amount can be positive or negative, and serves as an offset to the market value of assets in determining available interest credits. This means that the amount of available earnings at the end of each year is roughly equal to the return on the actuarial value of assets from the prior valuation date.

3. Employer, Retiree, and certain special reserves: After the Member Reserves and MSD are allocated, a target total interest credit is calculated for all other reserve accounts, excluding the Contingency Reserve. This target amount is based on interest credits at the full actuarial rate to the end-of-year reserve balances. To the extent that the remaining available assets cover the target interest credits, all accounts are credited in full.

Currently all of these additional reserves receive equal priority, so if the available interest credits only cover a portion of the full target amount at the actuarial rate, these accounts will all receive the same percentage interest credit. For example, if the total end-of-year balance for all of these reserves equals $1 billion, and $70 million is available to allocate at this point, then all accounts will receive 7.0% interest credits.


4. County Additional UAL Contributions:

This reserve is credited with the actual annual rate of return (including negative returns) on the market value of assets for the plan as a whole, rather than the “smoothed” rate of return credited to other reserves included in valuation assets. This will ensure that no other reserves will be affected by the performance of the assets in this separate reserve. Also, the plan contribution rate will not be impacted by this separate reserve until the County instructs this reserve to be included in valuation assets for the determination of the County’s retirement contribution rates.

5. Contingency Reserve: If full interest crediting as described in Step 3 above is not possible, then the Contingency Reserve will be set to $0. If full interest crediting is possible, then any remaining available earnings are allocated to the Contingency Reserve up to the policy level (currently 3% of the Total Fund).

6. Other Special Reserves: Following the year-end close and subsequent valuation, the Board of Retirement makes determinations of crediting any remaining available funds to special accounts in accordance with any applicable legal obligations and settlements.

7. Unappropriated Earnings Reserve (UER): If all accounts have been fully credited as described in Steps 1 through 4 above, and additional funds still remain, they are allocated to the UER.

8. Consistency with Statement of Funding Policy: The Board’s Statement of Funding Policy will govern any reserve transfers; in particular, amounts will be transferred from the UER to other reserves only if the Plan Funded Ratio as defined in the Funding Policy is 90% or above.

VII. Periodic Reconciliation of Valuation Reserve Accounts

Over time, reserve balances and the related Fund liabilities will tend to drift apart. This occurs because the reserve accounting procedure discussed above does not allow for actuarial gains or losses in Plan assets and liabilities. As a result, the reserves may not always represent an accurate estimate of the amount needed to pay for the intended benefits. Consequently, the amounts in each Valuation Reserve should be reconciled periodically with the actuarial valuation to account for Plan experience or changes in benefits and assumptions.

Reconciliation of the Valuation Reserve Accounts will result in transferring amounts from one Valuation Reserve to another. Any adjustment(s) must be authorized by the Board. It should take place when the actuarial assumptions are reviewed as a result of an actuarial experience study but no less often than every three years. For consistency with the actuarial valuation, the actuarial value of Fund assets should first be allocated to Member Reserves, then to Retired Member Reserves, then to


the Employer Advance Reserves, with any remainder allocated to the Unappropriated Earnings Reserve.

To the extent that it is only a rearrangement of assets within the Valuation Reserves, this reconciliation of the reserve accounts will not impact the Plan’s overall contribution rate, but it could affect the calculated contribution rates for Safety and General members since funds could be transferred from one to the other. If assets are transferred from or to Special Reserves, such as the Contingency Reserve or the Post April 1, 1982 Settlement Reserve, employer contributions will be affected.

Revised: 2012-2-01

2016-12-16



Statement of Reserve Policy

December 2016

I. Purpose and Overview

The purpose of this Statement of Reserve Policy is to summarize the structure and operation of the reserves created and maintained by the San Joaquin County Employees’ Retirement Association (SJCERA, the Plan, the Fund). This Statement is drafted to achieve the following goals:

• Document the existing reserve structure and the accounting policies currently in place; and

• Establish a base for considering future changes in reserve policies.

This Statement describes the SJCERA reserve structure and the mechanisms used to accumulate assets and disburse payments from each reserve. It is organized as follows:

• Description – The various reserves are categorized and their purposes and related liabilities are described.

• Cash Flows – The inflows and outflows, excluding interest, are enumerated for each reserve.

• Interest Credits – The computation and timing of the interest credited to each reserve are described.

• Reserve Transfers – The circumstances under which the Retirement Board (the Board) may elect to move balances from one reserve account to another are described.

• Reconciliation – The method and frequency by which the reserve accounts should be reconciled with the underlying liability is specified.

This Statement is a working document that will be modified as the Board deems necessary.

SJCERA / Statement of Reserve Policy - December 2016/ Page 2 of 12

II. Market Value and Actuarial Value

All reserves are held at market value. However, in computing the smoothed or actuarial value of assets required to compute the Plan’s funded status and the employer contribution rates, a conversion to actuarial value is sometimes required. This will be noted in each case.

III. Reserve Descriptions

Fund reserves fall into one of two categories: Valuation Reserves and Special Reserves.


Valuation Reserves include Member Reserves, Retired Member Reserves (excluding certain death benefit reserves), Employer Advance Reserves, the Market Stabilization Designation, and the Unappropriated Earnings Reserve. The total of the Valuation Reserves equals the market value of Fund assets, excluding amounts held in the Special Reserves, also at market value.

The total of the Valuation Reserves, excluding the Market Stabilization Designation and excluding the Special Reserves (adjusted to actuarial value), is the Actuarial Value of Fund Assets used to determine the funded ratio and the employer contributions to the Fund as part of the annual actuarial valuation performed each year.

Any policy that affects the amount of funds assigned to Valuation Reserves has the potential to affect Plan costs.

1. Member Reserves

The Member Reserves contain the cumulative employee contributions with interest for active and deferred members. Active member contributions are held in separate reserves for General and Safety, while cumulative member contributions for terminated deferred members are also held in General and Safety reserves. Member contributions for COLAs are combined with all other member contributions in the Member Reserves.

The Plan liability matching this reserve is the sum of member contributions with interest for active and terminated deferred members.


The Retired Member Reserves contain the assets necessary to fund the benefits and COLAs in pay status for retired and disabled members and their beneficiaries.


The Plan liability matching this reserve is the actuarial present value of benefits for members in pay status – retired and disabled members and their beneficiaries. When reserves are reconciled with liabilities, the sum of the Retired Member Reserves should equal the liability held for retired and disabled members and their beneficiaries. Consequently, the Plan’s liability for members in pay status would be 100% funded.

In actuarial valuations through January 1, 2012, Special Reserves were held for the $5,000 lump sum death benefit, the Purchasing Power Protection benefit, and the Pre-April 1, 1982 Settlement. Beginning with the January 1, 2013 valuation, these benefits will be included in the actuarial valuation performed for the Plan. Since these benefits are primarily payable on behalf of retired members, the reserve balances on December 31, 2012 will be included in Valuation Reserves (Retired Member Reserves).


The Employer Advance Reserves contain the assets allocated to the employer portion of the liabilities for active and deferred members. The amount in this reserve is the actuarial value of total Fund assets, minus the Member Reserves, Retired Member Reserves, Unappropriated Earnings Reserve, and Special Reserves, all at actuarial value.

The Plan liability matching this reserve is the actuarial accrued liability for active and deferred members.


The Market Stabilization Designation consists of the difference between the market value of Plan assets and their actuarial value. It contains the total of unrecognized investment gains and losses from the current and prior three Plan (calendar) years.

If the smoothed actuarial value of assets exceeds market value, the Market Stabilization Designation is negative; otherwise, it is zero or positive. The liability matching the Market Stabilization Designation is the sum of unrecognized investment gains and losses, as noted above.

Since the actuarial and market values of Plan assets are determined for all assets in total, regardless of allocation to reserves, the calculation of the Market Stabilization Designation is independent of and must precede the apportionment of assets into reserves.

The Market Stabilization Designation is the amount that must be added to the Actuarial Value of Fund assets to agree with the Market Value of Fund assets. It represents deferred gains (losses) if positive (negative). It therefore represents a


reserve for those unrealized gains or losses that is excluded from the calculation of Plan funding status and employer contribution rates.


The Unappropriated Earnings Reserve is reestablished yearly after all other requirements are met, in the following order: Full actuarial interest on Valuation Reserves and all other reserves, an amount necessary to bring the overall actuarial funded ratio of the Fund to 90% in accordance with the Board’s Statement of Funding Policy, and an amount necessary to bring the Contingency Reserve to at least the 1% minimum but not more than 3%.

The amount in the Unappropriated Earnings Reserve can then be transferred to other reserves, subject to the limitations contained in the Board’s Statement of Funding Policy and in other applicable legal obligations and settlements.

The liability associated with this reserve is the excess of the Plan’s actuarial accrued liability over the total of the Member, Retired Member, and Employer Advance Reserves.

B. Special Reserves

Special Reserves consist of funds excluded from the annual actuarial valuation and therefore not used in the calculation of the Plan’s funded ratio and employer contribution. The amounts set aside can be for designated purposes or for market fluctuation.


Effective January 1, 2013, the liability for the $5,000 lump sum death benefit for retirees (Government Code Section 31789.3) was included in the actuarial valuation and in Valuation Reserves.

2. Employment Healthcare Agency Fund

In 2011, following the IRS’ approval of SJCERA VCP application it was determined that the proper presentation of what was formerly known as the Health Insurance Reserve should instead be the Post-Employment Healthcare Agency. The fund is used for cash flows in from employers to fund sick leave bank benefits for their eligible retired employees on a pay as you go basis, and for cash flows out for payment of sick leave bank benefits.

3. Purchasing Power Cost of Living Reserve After January 1, 2013, the liability for the Purchasing Power Protection benefit for retirees (Government Code Section 31874.3) is included in the actuarial valuation


and in Valuation Reserves, and is part of Retired Member Reserves. It is no longer be separately accounted for.


After January 1, 2013, the liability for the Pre-April 1, 1982 Settlement benefit for retirees established as part of the 2001 DSA Settlement is included in the actuarial valuation and in Valuation Reserves, and is part of the Retired Member Reserves. It is no longer be separately accounted for.


The Post-April 1, 1982 Settlement Reserve was established in 2001 as part of the DSA Settlement for members who retired after April 1, 1982 and before January 1, 2001. The benefit payable from the reserve is $10 per month per year of service, with a maximum monthly benefit of $300, prorated for beneficiaries receiving less than 100% of the member’s benefit. An initial amount of $19.1 million was transferred from the Special Litigation Reserve; at the time of the Settlement, the Fund actuaries estimated that it would take $36.9 million to fully fund this benefit.

Under the Settlement Agreement, benefits are paid from the Reserve until the Reserve is exhausted. At that time, benefits are stopped until additional funds are added to the Reserve. The Settlement stipulates that full funding of post-1982 benefits is a requirement after transfers required by law to make up for prior years’ interest crediting shortfalls and after any true-up costs occurring in the three years following the establishment of this Reserve.

Benefits stopped in May, 2006, when this reserve was depleted. In October 2007, the Board of Retirement elected to make a one-time transfer from funds in excess of 1% in the Contingency Reserve. After the transfer of $2.5 million from the Contingency Reserve, benefits recommenced December 1, 2007. In August 2008, the Board of Retirement approved a transfer of approximately $4.6 million from the Unappropriated Earnings Reserve to continue funding of this benefit. In October 2008, the Board of Retirement approved a transfer of $18.4 million from the Unappropriated Earnings Reserve to continue the Post-1982 Settlement Benefit as long as sufficient funds remain.

The liability matching this reserve is the actuarial present value of the benefits provided under this part of the DSA Settlement.


The Contingency Reserve (formerly the Interest Fluctuation Reserve) is required by law to have a balance of at least 1% of all Fund assets before the Board is allowed to make any discretionary reserve allocations. Retirement Board policy


is to maintain the Reserve at 3%, but the Board may exercise its discretion in setting the exact level.

Assigning funds to the Contingency Reserve keeps them outside of the valuation assets, thus increasing employer contributions to the Plan in a given year. Using the Contingency Reserve during years when full interest cannot otherwise be credited serves to decrease Plan costs in those years.

No liability is associated with this reserve.


The County Additional UAL Contribution Reserve receives additional contributions paid by San Joaquin County toward its share of the unfunded actuarial liability (UAL) beginning in calendar year 2017. On March 29, 2016, the Board of Supervisors approved an additional annual County contribution ranging from 0% to 5% of payroll for the next 10 years effective January 1, 2017 for this purpose.

These additional UAL contributions are not to be taken into consideration in the annual retirement contribution rate setting process, unless and until the County advises when it wants the plan actuary to credit this new reserve against the County’s share of UAL as valuation assets.

For the annual GASB 67/68 report, the County’s additional UAL contributions are included in the Plan Net Position (and thus will reduce the total Net Pension Liability). However, these assets directly offset only the County’s portion of the Net Pension Liability (NPL).

IV. Relationship of Reserve Balances

Table 1 below shows the relationships among the reserve balances at the end of each Plan fiscal year, both at actuarial value and at market value. The numbers below show the order in which the various reserves are computed.


Table 1: Relationships Among Reserve Balances

Reserve Actuarial Value Market Stabilization Designation

Market Value

Total Fund 2. Total Fund balance at Actuarial Value as computed by the actuary at the end of the Fund fiscal year

3. Market Value of the Fund minus Actuarial Value at the end of the Fund fiscal year

1. Total Fund balance at Market Value as contained in the Financial Statements of the Fund at the end of the Fund fiscal year

Special Reserves 6. The Actuarial Value of the Special Reserves, obtained by subtracting the Market Stabilization Designation for Special Reserves from the Market Value of Special Reserves

5. The portion of the Market Stabilization Designation attributable to Special Reserves, derived by applying the ratio of the Market Value of Special Reserves to the total Fund Market Value

4. Market Value of the Fund Special Reserves, as reported in the Fund Financial Statements at the end of the Fund fiscal year

Unappropriated Earnings Reserve

2. The Board sets aside a portion of assets in the Unappropriated Earnings Reserve, based on Board Funding Policy.

9. Market Value of the Unappropriated Earnings Reserve minus Actuarial Value of the Unappropriated Earnings Reserve at the end of the Fund fiscal year.

8. The Market Value of the Unappropriated Earnings Reserve, computed by applying the ratio of the Market Value of the total Fund to the Total Fund balance at Actuarial Value and applying that to the Unappropriated Earnings Reserve at Actuarial Value.

Valuation Assets 10. The Actuarial Value of Assets for use in computing Employer Contributions in the annual Actuarial Valuation, obtained by subtracting the Actuarial Value of the Special Reserves from the Actuarial Value of all Fund Assets.

Valuation Assets includes all Valuation Reserves: The Member Reserves, Retired Member Reserves, Employer Advance Reserve, and the Unappropriated Earnings Reserve.

11. The portion of the Market Stabilization Designation attributable to Valuation Assets, computed by subtracting the Market Stabilization Designations for the Special Reserves and the Unappropriated Earnings Reserve from the Market Stabilization Designation of all Fund Assets.

12. The Market Value of Valuation Assets, computed by subtracting the Market Value of the Special Reserves from the Market Value of all Fund Assets. Note this can also be obtained by adding the Actuarial Value of Valuation Assets to the Market Stabilization Designation for Valuation Assets.


V. Reserve Cash Flows

Shown below are the additions and subtractions to each reserve, excluding interest credits. Interest credits are described in Section VI.


1. Member Reserves

For active members, employee contributions are added to the reserves, while the entire accumulated balance for members who take a contribution refund or enter pay status through retirement, disability, or death is subtracted.

For deferred members, there are no employee contributions to add, but the entire accumulated balance for members who take a contribution refund or enter pay status through retirement, disability, or death is subtracted.

Addition and subtraction of member contributions occurs on a biweekly and monthly basis.


The Retired Member Reserve increases with reserves transferred from the Member Reserve and the Employer Advance Reserve when members retire, become disabled, or die leaving beneficiaries; it decreases as members or their beneficiaries receive benefit payments.


The Employer Advance Reserves is increased by employer contributions each year, and is decreased by the liability for members who enter benefit status each year through retirement, disability, or death.


The Market Stabilization Designation is recomputed in each annual actuarial valuation as the total of unrecognized investment gains and losses from the current and prior three Plan (calendar) years. Therefore, any increases or decreases to this reserve do not result from additions or deletions. See Table 1 above.


The Unappropriated Earnings Reserve is reestablished yearly in accordance with the Board’s Statement of Funding Policy and other applicable legal obligations and settlements. This process is described in Section III, A.5 above.


B. Special Reserves


After January 1, 2013, since this Reserve is part of the Retired Member Reserves it is no longer be separately accounted for.

2. Post-Employment Healthcare Agency Fund

The Post-Employment Healthcare Agency Fund is increased with employer contributions and decreased when retirees’ health premiums are paid from their sick leave banks or accumulated sick leave at retirement is converted to additional retirement service credit.

3. Purchasing Power Cost of Living Reserve

Prior to January 1, 2013, the Purchasing Power Cost of Living Reserve is increased with interest credits only; there are no further allocations from employer contributions. The Reserve is decreased with payments of the cost of living benefit.



Prior to January 1, 2013, the Pre-April 1, 1982 Settlement Reserve is decreased with payments.



The Post-April 1, 1982 Settlement Reserve is decreased with payments made and is increased with interest credits and any amounts transferred by the Board from other reserves.


The annual additions to and withdrawals from the Contingency Reserve are determined by the Board and sufficiency of earnings on assets to credit full interest to all accounts.



The County Additional UAL Contribution Reserve is increased with additional contributions paid by the County.

VI. Reserve Interest Credits

At the end of each year, each reserve account is adjusted based on contributions and disbursements during the year, as described above. Reserves are then credited interest using the following priority order:

1. Member Reserves: The first priority is to credit all Member Reserves at the actuarial assumed rate, regardless of Fund performance. For both active and deferred vested Member Reserves, interest is credited semiannually at a rate which, when compounded, produces the annual actuarial assumed rate of investment return.

2. Determination of Market Stabilization Designation (MSD): Before any other reserve accounts are allocated, the amount of the market stabilization reserve needs to be determined by the Plan’s actuary. This amount can be positive or negative, and serves as an offset to the market value of assets in determining available interest credits. This means that the amount of available earnings at the end of each year is roughly equal to the return on the actuarial value of assets from the prior valuation date.

3. Employer, Retiree, and certain special reserves: After the Member Reserves and MSD are allocated, a target total interest credit is calculated for all other reserve accounts, excluding the Contingency Reserve. This target amount is based on interest credits at the full actuarial rate to the end-of-year reserve balances. To the extent that the remaining available assets cover the target interest credits, all accounts are credited in full.

Currently all of these additional reserves receive equal priority, so if the available interest credits only cover a portion of the full target amount at the actuarial rate, these accounts will all receive the same percentage interest credit. For example, if the total end-of-year balance for all of these reserves equals $1 billion, and $70 million is available to allocate at this point, then all accounts will receive 7.0% interest credits.

4. County Additional UAL Contributions:

This reserve is credited with the actual annual rate of return (including negative returns) on the market value of assets for the plan as a whole, rather than the “smoothed” rate of return credited to other reserves included in valuation assets. This will ensure that no other reserves will be affected by the performance of the assets in this separate reserve. Also, the plan contribution rate will not be


impacted by this separate reserve until the County instructs this reserve to be included in valuation assets for the determination of the County’s retirement contribution rates.

5. Contingency Reserve: If full interest crediting as described in Step 3 above is not possible, then the Contingency Reserve will be set to $0. If full interest crediting is possible, then any remaining available earnings are allocated to the Contingency Reserve up to the policy level (currently 3% of the Total Fund).

6. Other Special Reserves: Following the year-end close and subsequent valuation, the Board of Retirement makes determinations of crediting any remaining available funds to special accounts in accordance with any applicable legal obligations and settlements.

7. Unappropriated Earnings Reserve (UER): If all accounts have been fully credited as described in Steps 1 through 4 above, and additional funds still remain, they are allocated to the UER.

8. Consistency with Statement of Funding Policy: The Board’s Statement of Funding Policy will govern any reserve transfers; in particular, amounts will be transferred from the UER to other reserves only if the Plan Funded Ratio as defined in the Funding Policy is 90% or above.

VII. Periodic Reconciliation of Valuation Reserve Accounts

Over time, reserve balances and the related Fund liabilities will tend to drift apart. This occurs because the reserve accounting procedure discussed above does not allow for actuarial gains or losses in Plan assets and liabilities. As a result, the reserves may not always represent an accurate estimate of the amount needed to pay for the intended benefits. Consequently, the amounts in each Valuation Reserve should be reconciled periodically with the actuarial valuation to account for Plan experience or changes in benefits and assumptions.

Reconciliation of the Valuation Reserve Accounts will result in transferring amounts from one Valuation Reserve to another. Any adjustment(s) must be authorized by the Board. It should take place when the actuarial assumptions are reviewed as a result of an actuarial experience study but no less often than every three years. For consistency with the actuarial valuation, the actuarial value of Fund assets should first be allocated to Member Reserves, then to Retired Member Reserves, then to the Employer Advance Reserves, with any remainder allocated to the Unappropriated Earnings Reserve.


To the extent that it is only a rearrangement of assets within the Valuation Reserves, this reconciliation of the reserve accounts will not impact the Plan’s overall contribution rate, but it could affect the calculated contribution rates for Safety and General members since funds could be transferred from one to the other. If assets are transferred from or to Special Reserves, such as the Contingency Reserve or the Post April 1, 1982 Settlement Reserve, employer contributions will be affected.

Revised: 2012-2-01

2016-12-16


RESOLUTION TITLE: STATEMENT OF RESERVE POLICY REVISIONS

RESOLUTION NO.: 2016-12-03

WHEREAS, the Board of Retirement adopted a Statement of Reserve Policy on Februaryl10, 2012; and

WHEREAS, on March 29, 2016, the Board of Supervisors approved an additional

annual County contribution ranging from 0% to 5% of payroll for the next 10 years effective January 1, 2017 to pay down County’s share of the unfunded actuarial liability (UAL); and

WHEREAS, as a result of this County additional UAL contribution, staff recommends

revising the Reserve Policy to include the County Additional UAL Contribution Reserve in the special reserve; and

WHEREAS, the Board of Retirement’s retained actuary, Cheiron, Inc., has reviewed

the proposed revisions to the Reserve Policy; NOW, THEREFORE, BE IT RESOLVED that the Board hereby approves the proposed

revisions to its Statement of Reserve Policy. PASSED AND APPROVED by the Board of Retirement of the San Joaquin County

Employees' Retirement Association on the 16th day of December, 2016. AYES:

_________________________________

NOES: MICHAEL RESTUCCIA, Chair

ABSENT: Attest:

ABSTAIN: _______________________________ RAYMOND McCRAY, Secretary

Robert R. Palmer 7178 Schooner Court

Stockton, California 95219 Date: December 16, 2016 To: The Board of Retirement From Robert Palmer, Consultant to the Board Re: Proposed Popular Annual Financial Report (PAFR) Background: On October 27, 2016, the Consultant presented a proposal to the Administrative Committee regarding the establishment of a Popular Annual Financial Report to be provided to the members of the San Joaquin County Employees’ Association. The following direction was given:

After discussion, the committee supports the idea of publishing a PAFR for SJCERA, and directed the consultant to incorporate cost information into the recommendation, and include specifics about the form of publication (electronic and/or hardcopy) and dissemination (direct mail or email) to SJCERA’s members.

Research: To create the PAFR, which is a direct byproduct of the SJCERA Comprehensive Annual Financial Report (CAFR), it is suggested that the staff initially use the various narratives found in the Contra Costa County Employees’ Retirement Association’s PAFR. However, the timing of production and release is critical. The CAFR must be completed within six months of the financial close of the Association, which is June 30th following the December 31st close. If SJCERA were to implement the PAFR, it should be scheduled for a release date of September/October of that year. The data to populate the PAFR is available. Staff has contacted the graphic artist, who had previously worked on the SJCERA CAFR, of her interest in creating the graphics for the PAFR. She has indicated an interest and provided a quote for her services. Delivery: After discussion with staff, it appears that the most effective and least costly approach to the delivery this product is to use two separate approaches to communicate. Working through the County I.S.D., staff would send a PDF version to all departments for appropriate distribution to active members. This approach has been used a number of times by the county in communication with its employees. To provide the PAFR to retirees will require printing and mailing. After contacting

three different printing companies, we have been able to locate a company that can print, fold, sort and mail the eight-‐page document to the 5,600 retirees for a reasonable price, at $0.64 per unit; including postage. Costs:

1) Staff time in collecting and positioning of data similar to the CCCERA can be reasonably handled, given the longer timeframe to produce the PAFR in September/October.

2) Layout of information with graphics artist to be photo-‐ready for production… $1000.00

3) Providing the PAFR to all employees would be through the ISD inter-‐office network

4) Printing, folding, sorting and using US mail to reach retirees…. $3,590.00

Reasons for Recommendation: The “popular” CAFR is a means of communicating selected information that would be of interest to the membership without the major costs of printing and mailing the full CAFR. All pension systems are placing their full CAFR on their website. However, not many people actually go to the site to learn about their pension system. This document can be overwhelming to the typical member. This is a missed opportunity for SJCERA to raise awareness of the value of having a lifetime, guaranteed, monthly benefit for all members and their beneficiaries. Steps Following Board Approval:

1) The Retirement Financial Officer will extract information and data from the CAFR to be placed into the PAFR.

2) A working draft of the of the PAFR will be presented to the Board’s Newsletter Committee for review and concurrence

3) Agreements will be obtained from the graphics designer and the printing company for the publication.

4) Formal contact will be made with County ISD on their assistance to transmit the completed PDF to county employees.

Attachments: 1) Quote from “design forge” for graphics 2) Quote from ABS Direct, Inc. for printing services

Proposal

Bob Palmer – Pension Consultant SAN JOAQUIN COUNTY RETIRMENT Proposal 83863. 7178 Schooner Ct, Suite 200

Stockton, CA Date November 2, 2016

Ph: 209-483-0404 Fax: Project ANNUAL REPORT

Quantity of 5,600 Services Quantity Setup Rate per Price NCOA 18 DATA PREP PACKAGE 1 $70.00 LAYOUT \ EDIT HOURLY 1 $80.00 INKJETTING 5,600 $201.60 PRINT SERVICES

Booklet - 8 pages 1000# gloss book 4/4 + AQ Fold, Stitch,Trim to 8.5x5.5"

5,600 $1,514.10

SORT, TRAY, TAG, POSTAL PREP 5,600 $164.92 TABBING 5,600 $251.55 TRANSPORTATION 1 $15.00 Total Cost for Services $2,297.17 Estimated Postage Pieces Rate Postage Std-Reg/3-Digit – Postage may vary

depending on address qualification. 5,600 0.2300 $1,288.00

Total Estimated Postage $1,288.00 Total Estimated Project Cost 5,600 Unit Price: $0.640 $3,585.17

Thank you for the opportunity to quote on this project. All pricing is based on a 3% cash discount. Your project WILL NOT MAIL until payment for estimated postage has been received.

Leslie Titsworth Sr. Project Coordinator/Office Manager

1


Stockton, California 95219

Date: December 16, 2016 To: The Board of Retirement From Robert Palmer, Consultant to the Board Re: Proposed SJCERA Customer Satisfaction Survey Background: On October 27, 2016, the Consultant presented a proposal to the Administrative Committee about creating a customer satisfaction survey of the activities of the SJCERA staff. The following directions was given:

After discussion, the Committee supports the idea in concept, but directed the consultant to look at further steps in how a customer survey would be implemented, including method of distribution and collection (electronic, email, direct mail, web-‐based survey tool), whether to outsource or manage internally, means of obtaining SJCERA staff buy-‐in, and related costs.

Research: The draft survey form was circulated among the staff members having the most customer contact. A few suggestions were provided and were incorporated into the document. There was clear indication that staff would be willing to try this approach in gaining feedback. SJCERA has the ability to place the survey on the “Survey Monkey” website. The ability to go to the site and leave feedback will greatly ease the administration of this survey. Various SJCERA forms and information materials can be modified to make SJCERA customers aware of the site. The customer satisfaction survey could also be announced on the SJCERA website. There still will be a need to have a paper survey form available for individuals who make such a request. The Management Analyst III that oversees reception and the soon the be created position of Retirement Benefits Services Supervisor will be responsible for the collection, tabulation of the surveys, and meeting with staff on the results of the survey.

2

Costs: The annual costs for the Survey Monkey site is approximately $200.00. The printing of the form and the revision of other SJCERA form to include the Survey Monkey site would be minimal. Recommendation: It is the recommendation of the Consultant that the Board approve the survey process on a year trial basis. At the end of the 12-‐month period, a report would be provided to the Board with a recommendation on the future use of this survey approach. To that end, and agreement for one year of service with “Survey Monkey” should be approved.



SJCERA CUSTOMER SURVEY

We are conducting a survey of recent customers who were assisted by our staff to ensure the quality of service and to help with staff training. Your comments will help us better understand the needs of our customers. Date of Contact: Staff member who assisted you:

What was the reason for contacting the SJCERA staff: [ ] Service Retirement – counseling, inquiry, estimates [ ] Purchase of Service [ ] Disability Retirement – counseling, application, information [ ] Retiree Payroll Changes – insurance, forms, deductions, information [ ] General Information – Booklets, forms, general information [ ] Other:

About the session: 1= low to 5= outstanding Overall, how satisfied were you with our services? 1-2-3-4-5 Do you feel that we were well prepared for you? 1-2-3-4-5 Do you feel that we were knowledgeable on the subject matter? 1-2-3-4-5 If follow-up was required, were we timely and responsive? 1-2-3-4-5 If the staff member was especially helpful, please let us know so that we may let that person know of your appreciation. ______________________________________ __________________________________________________________________ Were there areas that we might improve? ________________________________ __________________________________________________________________ Would you like a manager to call you? [ ] Yes [ ] No Name: Phone Number: _________________________ THANK YOU FOR PARTICIPATING IN THIS CUSTOMER SURVEY! Chief Executive Officer SJCERA


Stockton, California 95219 Date: December 16, 2016 To: The Board of Retirement From: Robert Palmer, Consultant to the Board Re: Proposed RFP for Information Technology Consultant Background: On October 27, 2016, the Consultant presented a proposal to the Administrative Committee regarding the addition of a General Ledger accounting system to the existing FileMaker system. However, the committee gave direction:

After discussion, the Committee directed that staff proceed with the effort approved by the Board in the 2016 Administrative Budget to obtain the services of a qualified consultant to assess SJCERA’s current systems, identify and analyze alternatives and make recommendations regarding pension administration and general ledger accounting systems. Staff will submit a proposed request for consultant services for the Board’s review and approval.

Research: A rough draft for the Request for Proposal (RFP) was located in the system’s database. It has been revised to meet the direction of the Administrative Committee’s request. Overview of the Request for Proposal: The RFP focuses on five strategic issues with regard to the current system:

1. Fully understanding the current environment – systems and business practices of SJCERA.

2. Evaluation of current operational systems. 3. Provide list and detail of current system deficiencies. Rank each deficiency

and provide affect the deficiency has on current business processes. 4. Provide specific recommendations that will improve the operations of

SJCERA. 5. Provide a cost analysis of perfecting current deficiencies verses a total

replacement of existing systems.

Recommendation: It is the recommendation of the Consultant that the proposed RFP be held until after the new Chief Executive Officer is brought onboard and has an opportunity to review and comment on the direction of this RFP.

DRAFT

REQUEST FOR PROPOSAL

San Joaquin County Employees' Retirement Association 6 South El Dorado St., Suite 400

Stockton, California 95202 Phone: (209) 468-2163 FAX: (209) 468-0480

www.sjcera.org

Request for Proposal No. 2017-XX

Information Technology Consulting Services

_____ 2017

DRAFT

San Joaquin County Employees’ Retirement Association Request for Proposal 2016-01Information Technology Consultant

May 29, 2015 2

TABLE OF CONTENTS SECTION 1: PURPOSE ............................................................................................................... 3

SECTION 2: BACKGROUND ..................................................................................................... 3

SECTION 3: PROJECT SUMMARY ............................................................................................. 3 3.1 Current Organizational Status/Situation/Structure 3.2 Technology Currently in Use

SECTION 4: PROJECT REQUIREMENTS ................................................................................... 4 4.1 Scope of Services 4.2 Timeline 4.3 Project Cost

SECTION 5: RFP PROCESS ........................................................................................................ 6 5.1 Communications 5.2 Estimated Timetable

SECTION 6: PROPOSAL PREPARATION ................................................................................... 8

SECTION 7: EVALUATION CRITERIA ....................................................................................... 10 7.1 Minimum Criteria 7.2 Scored Selection Criteria

SECTION 8: AWARD OF CONTRACT ....................................................................................... 11

SECTION 9: PROPOSAL CONDITIONS .................................................................................... 12 9.1 Signed Proposals 9.2 Changes to the Proposal Wording and Content 9.3 Proponent Expenses 9.4 Proposal Pricing 9.5 Acceptance of Proposals

ATTACHMENT A: SCORING CRITERIA ................................................................................... 13

ATTACHMENT B: SAMPLE AGREEMENT .............................................................................. 14

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1. PURPOSE

The San Joaquin County Employees' Retirement Association (SJCERA) is seeking proposals from qualified firms or individuals with in-depth knowledge and expertise in public pension plan administration and information systems technology to assist in a review of existing operations, and make recommendations for improving business, financial and technical operations that will lead to more efficient operations of the entire association. This work will entail information systems analysis to determine the strengths and weaknesses of the current association; whether additional system modifications are appropriate and feasible; or should the association move to create an RFP to seek a replacement system. It should be understood that if the recommendation is to seek a replacement system, the consultant's firm would be precluded from participation of the RFP process. This will be required to preclude the possibility of a conflict of interest in this proposal request. The systems and operational processes utilized by SJCERA must be considered as proprietary. The information obtained by the selected Consultant while conducting this project must be considered protected information. That is, the Consultant will be precluded from utilizing the methodologies and system techniques utilized by SJCERA from future marketing, utilize for other systems or publishing the operations without prior written authorization of SJCERA. 2. BACKGROUND The San Joaquin County Employees' Retirement Association (SJCERA) is a public, defined benefit pension plan, located in Stockton, California, established and governed under the provisions of the County Employees’ Retirement Law of 1937 (California Government Code, Title 3, Division 4, Part 3, Chapter 3, Section 31450 et seq.). SJCERA is a cost-sharing multiple-employer, defined benefit pension plan covering the employees of the County of San Joaquin and other participating agencies. Participating agencies include the County of San Joaquin, San Joaquin County Superior Court, Local Agency Formation Commission, Lathrop-Manteca Rural Fire Protection District, Waterloo-Morada Rural Fire Protection District, Tracy Public Cemetery District, San Joaquin County Mosquito & Vector Control District, San Joaquin County Historical Society & Museum, Mountain House Community Services District, and San Joaquin County Law Library. The system was established on April 29, 1946, to provide retirement, disability, death and survivor benefits for covered employees. SJCERA operates as an independent governmental entity separate and distinct from the County of San Joaquin and is a component unit of the County of San Joaquin. SJCERA’s basic financial statements are included in San Joaquin County’s basic financial reports as a pension trust fund. The SJCERA Board of Retirement consists of nine regular members and one alternate member. The County Treasurer serves as an ex-officio member. Four members are appointed by the San Joaquin County Board of Supervisors, one of which is a County Supervisor. Four members and the alternate member are participants in the plan and are elected by SJCERA members. As of August 2016, SJCERA’s membership included approximately 7,380 active and deferred members and approximately 5,435 retired members. Net assets totaled approximately $2.51 billion as of December 31, 2015. 3. PROJECT SUMMARY

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3.1 Current Organizational Status/Situation/Structure SJCERA employs 18 full time employees, with 2 full time Information Technology (IT)

employees in-house. SJCERA systems are run in a Macintosh environment.

3.2 Technology Currently in Use

Following is a summary of applications by function: • Filemaker: Filemaker used to import and track data on all members and beneficiaries.

Filemaker has an interface option that imports data from several payroll systems for County Employees, Superior Court, and Special Districts. This application is used to track and manage employee data and is used to calculate and pay retirement benefits.

• Disaster Recovery: The disaster recovery system is tied to Stone Mountain. • SJCERA’s Web Site: SJCERA hosts and maintains the intranet site. • Network Access: All SJCERA staff log into the San Joaquin County network through

the San Joaquin County Domain. • Email: San Joaquin County provides email access and email storage to SJCERA

using GroupWise including SPAM protection. • Internet Access: Internet access for SJCERA staff is provided by Comcast. • Desktop Support: SJCERA staff and provide helpdesk and hardware/

software installation support for SJCERA. • Programming Support: CornerStone provides programming support for SJCERA. • Software licensing: SJCERA purchases Mac operating system and Mac Microsoft

office software. • Network Security: SJCERA has Network security and Virus protection. • File Server: SJCERA backs up storage of our data nightly.

SJCERA is seeking an experienced and knowledgeable consultant to evaluate and provide recommendations to align current systems and business practices more closely with best practices of a fully integrated pension administration system. 4. PROJECT REQUIREMENTS

4.1 Scope of Services The minimum project activities the Consultant must perform have been defined by SJCERA. The Consultant will assess current processes, both automated and manual for functionality, efficiency and clarity of processes utilized by staff. Additionally, the identification of other proposed deliverables the Consultant deems necessary to fulfill the objectives of the project are welcomed and encouraged. Both the required deliverables and additional proposed deliverables should be distinctly identified. The following minimal activities are essential to the success of this project and should be provided for in the final report.

4.1.1 Fully Understand the Current Environment – Systems and Business Practices

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The Consultant will facilitate an evaluation of the current environment to identify existing functionality and unique and/or critical processes. Systems to be evaluated: • Filemaker • Electronic document management system • Current benefit and payroll processes, CORE 37 • Disability case management system • Agenda/ Dropox procedures • Integration of financial system components • Workflow • SJCERA Website redesign • Web portal/member access system • Continuity of operations/disaster recovery of systems • Security

The Consultant will facilitate an evaluation of other applications and reports/interface files utilized by SJCERA’s staff in the current processes in conjunction with the systems above. The Consultant will also include an evaluation of staffing capabilities and needs to facilitate and complete such projects. Minimum Deliverables: • Evaluations and documentation • Detailed project plan

4.1.2 Evaluate Existing Systems The Consultant will assess current processes, both automated and manual for functionality, efficiency and clarity of processes utilized by staff.

Minimum Deliverables: Evaluation, findings and documentation Detail existing system reviewed 4.1.3 Alternative Solutions The Consultant will be expected to provide a range of alternative solutions that would reduce or eliminate system inefficiencies and deficiencies.

Minimum Deliverables: • Provide a range of solutions for consideration • Provide an estimate of costs, time and staffing requirements for each solution

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4.1.4 Consultant’s Recommendations The Consultant shall provide a best practice recommendation for solving each deficiency identified. Minimum Deliverables: • Provide a detailed recommendation and cost impact for SJCERA in implementing

the recommendations.

4.1.5 Cost Analysis of Perfecting Current Deficiencies Verses Total Replacement of Current Systems. The Consultant will compare and contrast time, costs and staff commitments of perfecting the current system verses a decision to move the business to another technology platform and system. Minimum Deliverables: • Identify the value, challenges as well as time and costs to re-establish the SJCERA

business platform on an alternative retirement platform.

4.2 Timeline SJCERA’s preference is to complete this project as expeditiously as possible, without sacrificing quality, to allow SJCERA to move quickly into the implementation aspects of this project. SJCERA is requesting the Consultant to provide a “best guess” approximation of a project timeline to be used as a guideline.

Event/Activities Anticipated Timeframes to Completion Evaluation and determined status of currents systems

Identify Issues with Existing Systems/ Methodolgies Develop Alternatives

Recommendations on solving deficiencies Recommendations on solving deficiencies

Cost Analysis Presentation of Final Report

•

4.3 Project Cost

Project cost will be considered relative to value and fulfillment of requirements. The proposal must be presented with individual deliverables listed as separate cost line items to allow SJCERA to properly evaluate costs.

5. PROPOSAL PREPARATION

5.1 An authorized representative of the Consultant shall prepare and submit the proposal. All information requested should be submitted. Failure to submit all information requested may result in SJCERA requiring prompt submission of missing information

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and/or giving a lowered evaluation of the proposal. Proposals which are substantially incomplete or lack key information may be rejected by SJCERA. Mandatory requirements are those required by law or regulation, or are such that they cannot be waived and are not subject to negotiation.

5.2 Proposals should be prepared simply and economically, providing a straightforward, concise description of capabilities to satisfy the requirements of the RFP. Emphasis should be placed on completeness and clarity of content.

5.3 Proposals should be organized in the order in which the requirements are presented in the RFP. It is helpful that proposal elements are traced to specific requirements of this RFP for easy cross-referencing. All pages of the proposal should be numbered. The proposal shall contain a table of contents. Elaborate brochures or voluminous examples are neither required nor desired. Proposals that are not organized in this manner risk elimination from consideration if the evaluators are unable to find where the RFP requirements are specifically addressed. The Consultant’s proposal should provide all the information which it considers pertinent to its qualifications for the project and which respond to the Scope of Services as described.

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5.3 The following format should be followed when preparing the proposal response. Cover Include the Consultant’s name, address, telephone number, facsimile number, e-mail address, and the name of the Proponent contact person.

Letter of Introduction One page, introducing the firm and the proposal, signed by the person(s) authorized to sign on behalf of and bind the firm/Consultant to statements made in the proposal.

Table of Contents

Executive Summary Summarize the proposal in no more than two pages.

Tentative Project Plan Because potential project activities rely largely on a preliminary discovery process, we do not expect a detailed project plan, as indicated in the Scope of Services, prior to the start of the project. We request, however, that Consultants include a tentative project plan that includes the following elements: § Narrative scope of the project demonstrating an understanding of SJCERA’s

expectations and objectives • A description of the project structure, organization and methodology including

specific activities, tasks, resources, and staffing § Include a set of facts, assumptions, rationales, and decisions § Indicate general timelines, milestones, products and services to be delivered § Project management strategies, including problem identification and resolution § Resource management – input and resources to be provided by both client and

contractor § Risk management strategies § Performance measurement, quality assurance, testing and certification criteria § Monitoring strategies § Reporting procedures including communication strategy and processes

Proponent Profile Indicate the company’s credentials, qualifications and capabilities for the project, including any information regarding past performance that documents successful and reliable experience applicable to the requirements of this RFP.

A description of your company’s experience and background in providing this service requirement, number of years in operation and financial information is also required. Failure to do so may be cause for rejection of proposal.

Include resumes, summarizing the qualifications of the project manager, project team members that will be assigned to SJCERA, and subcontractors. No diversion or replacements may be made without submission of a resume of the proposed replacement with final approval being granted by SJCERA.

Specify how these team members will be organized and supervised on the project.

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References Please provide the name, title, company name, address, and telephone numbers of at least three client references whom your firm has provided systems consulting services similar to this RFP. Price Proposal (total project cost and specific breakdown) Pricing must be stated in a “Not to Exceed” amount. Each deliverable should be listed with an estimate of the number of hours to prepare and an hourly rate for individuals preparing the deliverable and include a dollar value and breakdown of anticipated expenses.

Changes to the scope of the project will be managed with change orders and will be evaluated on a case-by-case basis.

Proposal Length Proposal clarity, including brevity and format, may be evaluated and awarded points accordingly. Attachments Attach any additional information such as company brochures, a list of previous projects undertaken by the firm/Consultant, personnel resumes, etc.

7. EVALUATION CRITERIA

6.1 Minimum Criteria

The minimum criteria for Consultants are the abilities to provide deliverables to satisfy the requirements identified in Project Requirements section. Consultants that can not satisfy all the requirements must clearly state the requirement that will not be satisfied. Inability to satisfy requirements will be evaluated on a case-by-case basis. Also, Consultants that do not achieve the minimum score in every category of the Scored Evaluation Criteria form (Attachment A) may not be considered for selection.

6.2 Scored Selection Criteria (Attachment A)

The following criteria will be considered by SJCERA in the selection of a consultant:

7.2.1 Project Management Comprehensiveness of project plan, quality of approach, thoroughness, experience in working with project team and proposed resource assignments, ability to meet milestones and deadlines

7.2.2 Consultant Qualifications Quality of work and pertinent experience, past performance, personnel and firm’s qualifications, in-depth knowledge of public pension plans, company stability, availability of resources, likelihood of company survival, references

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7.2.3 Cost Relationship of quality of service to price, perceived degree of accuracy in pricing for overall project

7.2.4 Presentation / Interview Demonstration of understanding and knowledge of the project, professionalism, demonstration of a clear plan to provide services

Refer to the Attachment A - Scored Evaluation Criteria for further details on how these factors will affect Consultant selection. Once each member of the Evaluation Committee has independently read and rated each proposal and completed a proposal evaluation matrix form, a composite preliminary rating will be developed which indicates the group's collective ranking of the highest rated proposals in descending order. The preliminary rating will be used to select the firms for further consideration. At this point, the Evaluation Committee may conduct interviews and have discussions with the top ranked firms (usually the top two to four depending upon the number and quality of proposals received). 8. AWARD OF CONTRACT 8.1 The Evaluation Committee may select two (2) or more Consultants deemed fully qualified and best suited among those submitting proposals, on the basis of the evaluation factors identified in the request for proposal. Such Consultants shall be encouraged to elaborate on their qualifications and performance data or staff expertise pertinent to their proposal, as well as alternate concepts. During this negotiation stage, SJCERA may discuss and/or request binding estimates of costs, fee per task, and, if desirable, binding estimates of hours and hourly costs for services to be provided. After negotiations are completed, the Consultant having made the best proposal shall be awarded the contract. 8.2 Should the Evaluation Committee determine in writing and in their sole discretion that

only one (1) Consultant is fully qualified, or that one (1) Consultant is clearly more highly qualified and suitable than the others under consideration, a contract may be negotiated and awarded to that Consultant.

8.3 Subject to changes agreed upon in negotiations, all terms of the proposal of the

Consultant selected will be binding. SJCERA may cancel this RFP or reject responses at any time and is not required to furnish a statement of the reason why a particular response was or was not deemed to be advantageous. SJCERA reserves the right to select multiple Consultants.

8.4 Proposals should be submitted initially with the most complete and favorable terms

from a technical standpoint. Should proposals require additional clarification and/or supplementary information, Consultants should be prepared to submit such additional clarification and/or supplementary information in a timely manner when so requested.

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8.2 The Evaluation Committee may make such reasonable investigations as it deems proper and necessary to determine the ability of the Consultant to perform the work.

8.3 Contract award for services specified in this RFP are non-exclusive and does not preclude SJCERA from issuing solicitations, negotiating, or awarding other contracts for similar services.

8.4 A final detailed agreement concerning services and performance expectations will be agreed upon between SJCERA and the awarded consulting firm that incorporates this RFP, the selected consulting firm’s response and other relevant contractual terms and conditions. The terms of the final contract between SJCERA and the selected consulting firm will be binding and supersede this RFP. See Attachment B

8.5 SJCERA reserves the right to revise or end the engagement at any point.

9 PROPOSAL CONDITIONS

9.2 Signed Proposals

The proposal must be signed by the person(s) authorized on behalf of the Consultant or company and binds the Consultant to the statements made in the RFP response.

9.3 Changes to the Proposal Wording and Content

The Consultant will not change the wording or content of its proposal after closing and no words will be added to the proposal, including changing the intent or content of the presentation of the proposal, unless requested by SJCERA.

9.4 Proponent Expenses

Consultants are solely responsible for their own expenses in preparing the proposal, presentations of their proposal, and travel costs incurred presenting and negotiating their proposal.

9.5 Proposal Pricing

Proposal prices must be firm for a minimum of 90 days after submission.

9.6 Acceptance of Proposals

SJCERA is not bound to accept the lowest priced or any of the submitted proposals.

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ATTACHMENT A SCORING CRITERIA

Project Management Total Points - 50 Min. Score

Illustrates an understanding of project requirements and objectives

10

7

Provides a comprehensive project plan including methodology, operational and support capabilities, implementation plan and delivery schedule that demonstrates a sound approach to meeting the Project Requirements

30

21

Creativity, clarity and brevity of proposal. Conforms to RFP terms and conditions including those outlined in Proposal Preparation.

10

7

Proponent Qualifications Total Points - 80 Min. Score

Proponent’s and any proposed subcontractor’s experience on similar projects, as well as related business capabilities and background relevant to the appropriate disciplines required to satisfy the Project Requirements. Submittal shall indicate quality of previous work, timeliness, diligence and ability to meet schedules of similar public service organizations

20

14

Technical capability, skills and qualifications of the Consultant and any proposed subcontractor

20

14

Credentials of project team showing similar services to public sector organizations

20

14

Provides a high value by economically achieving project objectives.

20

14

Presentation / Interview Total Points - 40 Min. Score

Illustrates an understanding and knowledge to deliver the project. Demonstrates familiarity with current challenges facing the organization.

20

14

Illustrates the abilities, skills and experiences of the project team

10

7

Provides beneficial suggestions for innovations and improvements to the outlined strategy for completing the project.

10

7

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Attachment B

SAMPLE

AGREEMENT FOR

INFORMATION TECHNOLOGY CONSULTING SERVICES This Agreement for Information Technology Consulting Services (the “Agreement”) is made and entered into by and between the San Joaquin County Employees’ Retirement Association (“SJCERA”) and ___’Name of Firm’______________________ ("CONSULTING FIRM") on _______, 2017 (“Agreement Date”).

Recitals WHEREAS, SJCERA was created by and operates pursuant to the County Employees Retirement Law of 1937 (the ’37 Act”), and the California Public Employees’ Pension Reform Act. SJCERA is administered by the Board of Retirement (‘Board”); and

WHEREAS, SJCERA and the Board desire to engage a CONSULTING FIRM to perform Consulting/Information Technology Services; and

WHEREAS, CONSULTING FIRM desires to perform the services, and has represented to SJCERA that

it is qualified to perform the aforesaid Consulting/Information Technology Services; and WHEREAS, SJCERA has determined CONSULTING FIRM is qualified to perform the aforesaid

services and desires to retain CONSULTING FIRM for those purposes. NOW, THEREFORE, in consideration of the mutual promises, covenants, terms and conditions hereinafter set forth, the parties hereby agree as follows:

Terms and Conditions 1. Definitions.

For purposes of this Agreement, capitalized terms have the meanings set forth in this Section 1.

"Agents" means any employees, agents, or representatives of CONSULTING FIRM acting in connection with this Agreement.

"Agreement" means this Agreement for Consulting/Information Technology Services. Services entered into by and between SJCERA and CONSULTING FIRM, including the Exhibits and Attachments attached hereto.

“Agreement Date” means the date shown in the preamble of this Agreement.

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“CONSULTING FIRM" means ‘Name of Information Technology Consulting Firm’ .

“Covered Persons” means SJCERA, its trustees, officers, and employees.

“Effective Termination Date" means the date on which all or a specified portion of the work under this Agreement will formally cease, as specified in any Notice of Termination delivered by SJCERA to CONSULTING FIRM.

"Force Majeure" means any cause, circumstance, or event beyond the control and without the fault or negligence of CONSULTING FIRM that causes CONSULTING FIRM to fail to perform its obligations hereunder. Such causes, circumstances or events may include, but are not restricted to, acts of God or of the public enemy, acts of any foreign, international, federal or state government (including all subdivisions thereof) in such government's sovereign capacity, fires, floods and earthquakes; but in every case the failure to perform must be beyond the control and without the fault or negligence of CONSULTING FIRM.

"SJCERA" means the San Joaquin County Employees’ Retirement Association, an independent public pension fund established under the authority of the County Employees’ Retirement Law of 1937 (California Government Code Sections 31450 et seq.) the California Public Employees’ Pension Reform Act.

“SJCERA’s Project Director”, means SJCERA’s Chief Executive Officer, or designee.

"Legal Requirements" means all federal, state, county and local laws, rules, regulations, and ordinances, presently existing or enacted or promulgated during the term of this Agreement, which may apply to CONSULTING FIRM in relation to its performance under this Agreement.

"Member Records" means any records relating to SJCERA's members or beneficiaries to which CONSULTING FIRM or its Agents may be exposed when performing under this Agreement.

2. Description of Services

A. Work to be performed. CONSULTING FIRM agrees to perform the services described in this Agreement and in Exhibit A (Scope of Work), attached hereto and incorporated herein by reference.

B. Standard of Care. CONSULTING FIRM agrees that it shall perform its obligations under this

Agreement with the competence, care, skill, prudence and diligence prevailing in the accounting industry. CONSULTING FIRM shall be responsible for and cause any and all of its employees, agents and representatives providing services in connection with this Agreement to exercise the same Standard of Care.

C. Quality of Services. CONSULTING FIRM’s services will meet the requirements and standards set

forth in this Agreement. CONSULTING FIRM will promptly correct any errors or omissions in the provision of such services, at no cost or expense to SJCERA and in a timely manner after the request by SJCERA’s Project Director.

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D. CONSULTING FIRM’s Work Schedule. CONSULTING FIRM and SJCERA’s Project Director will agree

in advance on CONSULTING FIRM’s work schedule. Services and work provided by CONSULTING FIRM at SJCERA's request under this Agreement and Exhibit A will be performed in a timely manner consistent with the requirements and standards established by applicable federal, state and SJCERA laws, ordinances, regulations and resolutions, and in accordance with a schedule of work set forth in Exhibit A. If there is no schedule, the hours and times for completion of said services and work are to be set by CONSULTING FIRM; provided, however, that such schedule is subject to review by and concurrence of SJCERA.

E. Cooperation with Other Professionals. CONSULTING FIRM agrees to cooperate with such

professionals as SJCERA may engage to assist SJCERA in the performance of its duties.

3. SJCERA’s Proprietary Rights.

All documents, drawings and written work product prepared or produced by CONSULTING FIRM under this Agreement and Exhibit A, including without limitation electronic data files, are the property of CONSULTING FIRM; provided, however, SJCERA shall have the right to reproduce, publish and use all such work, or any part thereof, in any manner and for any purposes whatsoever and to authorize others to do so. If any such work is copyrightable, CONSULTING FIRM may copyright the same, except that, as to any work which is copyrighted by CONSULTING FIRM, SJCERA reserves a royalty-‐free, non-‐exclusive, and irrevocable license to reproduce, publish, and use such work, or any part thereof, and to authorize others to do so.

4. Project Responsibility.

A. SJCERA’s Project Director. SJCERA's Project Director, shall, on a regular basis, interface with CONSULTING FIRM’s Project Manager.

(1) SJCERA's Project Director is responsible for:

(a) Providing overall management and coordination of this Agreement acting as liaison for

SJCERA; and

(b) Providing coordination of the provisions and objectives of this Agreement; and

(c) Approving invoices submitted prior to payment for work performed and deliverables delivered in accordance with this Agreement, which approval will not be unreasonably withheld; and

(d) Providing direction to CONSULTING FIRM in all matters relating to policy, information

requirements, and procedural requirements, and

(e) Providing or making sure data, information and materials requested by CONSULTING FIRM are provided to CONSULTING FIRM on a timely basis.

(2) SJCERA’s Project Director or any person delegated responsibility for the administration of this Agreement by SJCERA’s Project Director will not have any personal liability to CONSULTING FIRM for

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any action taken or not taken by such individual while acting or purporting to act as SJCERA’s Project Director or delegate of such Project Director.

B. CONSULTING FIRM’s Project Manager. CONSULTING FIRM’s Project Manager is

_____________________________. CONSULTING FIRM shall inform SJCERA in writing of the name of any alternate Project Manager or designee within a reasonable time of choosing the same, and the appointment of such individual(s) shall be subject to SJCERA’s approval, which may be withheld in its sole discretion. CONSULTING FIRM’s Project Manager:

(1) Is responsible for CONSULTING FIRM's day-‐to-‐day activities related to the work to be performed under this Agreement and Exhibit A; and

(2) Has full authority to act for CONSULTING FIRM on all matters relating to the daily operation of

this Agreement; and

(3) Will be reasonably available during SJCERA’s normal working hours for telephone contact and to meet with SJCERA personnel designated to discuss CONSULTING FIRM’s performance.

C. Additional Personnel.

(1) SJCERA has the absolute right, during the period of CONSULTING FIRM’s performance

under this Agreement, to approve or disapprove any of CONSULTING FIRM’s assigned personnel designated as Project Manager, its principal agent or alternate project manager or designee, engagement partners, managers, other senior supervisory staff, or specialists, or any proposed changes in these categories of CONSULTING FIRM's personnel. CONSULTING FIRM shall provide SJCERA Project Director, or his designee, with a résumé of the proposed replacement(s) and an opportunity to interview the person(s) prior to SJCERA approving or disapproving the proposed change. Approval or disapproval will be in writing, which SJCERA may withhold its approval in its sole discretion.

(2) Upon request by SJCERA’s Project Director, CONSULTING FIRM will replace any of

CONSULTING FIRM’s personnel, Agents, or subcontractors assigned to perform services under this Agreement, who are in SJCERA’s opinion, unable to effectively carry out the responsibilities of this Agreement.

5. Compensation and Payment.

A. Compensation. SJCERA shall compensate CONSULTING FIRM for services rendered under this Agreement as set forth in Exhibit B, attached hereto and incorporated herein by reference.

B. Expenses. CONSULTING FIRM is not entitled to reimbursement of out-‐of-‐pocket travel expenses

for any expenses related to meetings at SJCERA’s regular place of business. CONSULTING FIRM’s expenses are included in the compensation described in Section 5.A and therefore CONSULTING FIRM is not entitled to any separate reimbursement for any expenses incurred by it in discharging its duties under this Agreement, unless otherwise agreed by SJCERA.

C. Additional Compensation. Except as expressly provided in Exhibit A and Exhibit B of this

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Agreement, CONSULTING FIRM shall not be entitled to nor receive from SJCERA any additional consideration, compensation, salary, wages or other type of remuneration for services rendered under this Agreement. Specifically, CONSULTING FIRM shall not be entitled by virtue of this Agreement to consideration in the form of overtime, health insurance benefits, retirement benefits, disability retirement benefits, sick leave, vacation time, paid holidays or other paid leaves of absence of any type or kind whatsoever.

D. Withholding of Taxes. SJCERA will not withhold any Federal or State income taxes or Social

Security tax from any payments made by SJCERA to CONSULTING FIRM under the terms and conditions of this Agreement. Payment of all taxes and other assessments on such sums is the sole responsibility of CONSULTING FIRM. SJCERA has no responsibility or liability for payment of CONSULTING FIRM's taxes or assessments.

E. Invoices and Payment. All invoices are to be submitted to the Chief Executive Officer, SJCERA, ,6

South El Dorado Street, Suite 400, Stockton, CA 95202 or emailed to [email protected]

F. Non-‐Compensable Services. CONSULTING FIRM agrees that should work be performed outside the Scope of the Work described in Exhibit A, without the prior written consent of SJCERA in accordance with the Section 21, “Amendments” to this Agreement, such work will be deemed to be a gratuitous effort on the part of CONSULTING FIRM, and CONSULTING FIRM will have no claim against SJCERA for such work, and SJCERA will have no obligation to pay for such work.

6. Term and Termination.

A. General Term. Subject to the termination provisions in this Section, the term of this Agreement begins on the Agreement Date and based upon the agreed upon successful completion of the project. Upon mutual agreement of parties, the Agreement may be renewed on a project , by project basis. Any extensions shall be in written form as amendments to this Agreement.

B. Termination for Convenience. SJCERA may terminate this agreement upon 30 days prior written

notice to CONSULTING FIRM. Termination of this Agreement shall not affect SJCERA’s obligation to pay for all fees earned and reasonable costs necessarily incurred by CONSULTING FIRM as provided in Section 5.A herein, subject to any applicable setoffs. SJCERA's termination of this Agreement under this Section 6.B is not a waiver of SJCERA's right to make a claim against CONSULTING FIRM for damages resulting from any default by CONSULTING FIRM, which occurred prior to the Effective Termination Date.

C. Termination for Default. Should either party default in the performance of this Agreement or materially breach any of its provisions, the other party, at that party's option, may terminate this Agreement by giving written notification to the other party.

D. Automatic Termination. This Agreement shall terminate automatically on the occurrence of (a) bankruptcy or insolvency of either party, (b) sale of CONSULTING FIRM's business, (c) cancellation of insurance required under the terms of this Agreement, (d) if, for any reason, CONSULTING FIRM ceases to be licensed or otherwise authorized to do business in the State of California, and CONSULTING FIRM fails to remedy such defect or defects within thirty (30) days of receipt of written notice of such defect or defects, (e) if CONSULTING FIRM materially breaches any of the warranties, representations, agreements, and covenants made in Section 11 and in Section 19

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(Conflicts and Disqualification), (f) if CONSULTING FIRM is subject to criminal indictment or conviction, or is found civilly or criminally liable by a trial court, jury or administrative body in connection with any matter involving breach of trust, breach of fiduciary duty, fraud, or theft; and/or (g) if CONSULTING FIRM attempts or purports to assign this Agreement, or any portion hereof, or any of its rights or obligations hereunder, without obtaining SJCERA’s prior written consent.

E. Force Majeure. CONSULTING FIRM may not be terminated for default, if CONSULTING FIRM’s failure to perform under this Agreement arises solely from causes of Force Majeure.

F. Rights, Remedies and Responsibilities upon Termination. If this Agreement is terminated, all of the terms and conditions of this Agreement shall continue to apply through the Effective Termination Date. The following provisions also apply to any termination of this Agreement. (1) Recovery of Reasonable Damages Upon Default. If SJCERA terminates this Agreement in

whole or in part for default pursuant to Section 6.C or Section 6.D above, SJCERA is entitled to recover from CONSULTING FIRM all reasonable damages resulting from such default. By way of example and not limitation, SJCERA may procure, upon such terms and in such manner as SJCERA may deem appropriate, services similar to those terminated, and CONSULTING FIRM will be liable to SJCERA for any excess cost of such similar services.

(2) Payment when Terminated for Convenience. If SJCERA terminates this Agreement for

convenience, SJCERA will pay CONSULTING FIRM for work already performed but for which CONSULTING FIRM has not been compensated through the Effective Termination Date.

(3) Payment Withheld for Default. SJCERA shall not authorize and shall withhold payment for

services provided if SJCERA terminates this Agreement for default. In the event the damages caused by such default are less than the withheld payment for services, the amount withheld in excess of the damages shall be paid to CONSULTING FIRM.

(4) Good Faith Transfer. Upon any termination of this Agreement by SJCERA, and to the

extent directed by SJCERA, CONSULTING FIRM will cooperate with SJCERA in good faith to effect a smooth and orderly transfer of such services and all applicable records to a successor designated by SJCERA. CONSULTING FIRM will respond promptly to reasonable inquiries of such successor CONSULTING FIRM with respect to the Work Papers and matters of continuing accounting significance to SJCERA. Upon termination of this Agreement, CONSULTING FIRM will retain all Work Records according to the record retention provisions set forth in Section 13 below.

7. Required Licenses, Certificates and Permits.

Any licenses, certificates or permits required by the federal, state, SJCERA or municipal governments for CONSULTING FIRM to provide the services and work described in Exhibit A must be procured by CONSULTING FIRM and be valid at the time CONSULTING FIRM enters into this Agreement. Further, during the term of this Agreement, CONSULTING FIRM must maintain such licenses, certificates and permits in full force and effect. Licenses, certificates and permits may include but are not limited to driver's licenses, professional licenses or certificates and business

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licenses. Such licenses, certificates and permits will be procured and maintained in force by CONSULTING FIRM at no expense to SJCERA.

8. Office Space, Supplies, Equipment, Etc. ( My thoughts are that we will need to revise this

because the consultant will be on site and SJCERA would be providing office space, supplies reference materials and telephone service (no vehicles).

Unless otherwise provided in Exhibit A, CONSULTING FIRM shall provide such office space, supplies, equipment, vehicles, reference materials and telephone service as is necessary for Contractor to provide the services identified in Exhibit A to this Agreement. SJCERA is not obligated to reimburse or pay CONSULTING FIRM for any expense or cost incurred by CONSULTING FIRM in procuring or maintaining such items. Responsibility for the costs and expenses incurred by CONSULTING FIRM in providing and maintaining such items is the sole responsibility and obligation of CONSULTING FIRM.

9. Insurance

A. CONSULTING FIRM shall take out, and maintain during the life of this Agreement, insurance policies with coverage at least as broad as follows:

B. General Liability. Comprehensive general liability insurance covering bodily injury,

personal injury, property damage, products and completed operations with limits of no less than One Million Dollars ($1,000,000) per incident or occurrence and an annual aggregate of Two Millions Dollars ($2,000,000)..

a. If Commercial General Liability Insurance or other form with a general aggregate

limit is used, either the general aggregate limit shall apply separately to any act or omission by CONSULTING FIRM under this Agreement or the general aggregate limit shall be twice the required occurrence limit.

b. If written on a claims form, CONSULTING FIRM will continue to name SJCERA as an

additional insured or provide an extended two year reporting period commencing upon termination or cancellation of this Agreement.

c. Automobile Liability Insurance

i. If CONSULTING FIRM or CONSULTING FIRM's officers, employees, agents,

representatives or subcontractors utilize a motor vehicle in performing any of the work or services under this Agreement, owned/non-‐owned automobile liability insurance providing combined single limits covering bodily injury, property damage and transportation related pollution liability with limits of no less than One Million Dollars ($1,000,000) per incident or occurrence.

d. Workers' Compensation Insurance

i. Workers' Compensation insurance as required by the State of California,

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with Statutory Limits and Employer’s Liability insurance with limit of no less than $1,000,000 per accident for bodily injury or disease.

e. Professional Liability.

i. Errors and omissions professional liability insurance with a limit of at least

$2,000,000 per occurrence or claim, $4,000,000 aggregate CONSULTING FIRM will notify SJCERA in writing of any change in coverage amount subsequent to the effective Agreement Date. CONSULTING FIRM warrants its professional liability insurance is applicable to CONSULTING FIRM’s actions and obligations under this Agreement.

C. Any deductibles, self-‐insured retentions or named insureds must be declared in writing and

approved by SJCERA. At the option of SJCERA, either: (a) the insurer shall reduce or eliminate such deductibles, self-‐insured retentions or named insureds, or (b) CONSULTING FIRM shall provide a bond, cash, letter of credit, guaranty or other security satisfactory to SJCERA guaranteeing payment of the self-‐insured retention or deductible and payment of any and all costs, losses, related investigations, claim administration and defense expenses. SJCERA, in its sole discretion, may waive the requirement to reduce or eliminate deductibles or self-‐insured retentions, in which case, CONSULTING FIRM agrees that it will be responsible for and pay any self-‐insured retention or deductible and will pay any and all costs, losses, related investigations, claim administration and defense expenses related to or arising out of CONSULTING FIRM’s defense and indemnification obligations as set forth in this Agreement.

D. CONSULTING FIRM shall provide a specific endorsement to all required insurance policies, except

Workers' Compensation insurance and Professional Liability insurance, if any, naming SJCERA and its officers, officials and employees as additional insureds regarding: (a) liability arising from or in connection with the performance or omission to perform any term or condition of this Agreement by or on behalf of CONSULTING FIRM, including the insured's general supervision of its subcontractors; (b) services, products and completed operations of CONSULTING FIRM; (c) premises owned, occupied or used by CONSULTING FIRM; and (d) automobiles owned, leased, hired or borrowed by CONSULTING FIRM. For Workers’ Compensation insurance, the insurance carrier shall agree to waive all rights of subrogation against SJCERA and its officers, officials and employees for losses arising from the performance of or the omission to perform any term or condition of this Agreement by CONSULTING FIRM.

E. CONSULTING FIRM's insurance coverage shall be primary insurance regarding SJCERA and SJCERA's

officers, officials and employees. Any insurance or self-‐insurance maintained by SJCERA or SJCERA's officers, officials and employees shall be excess of CONSULTING FIRM's insurance and shall not contribute with CONSULTING FIRM's insurance.

F. Any failure to comply with reporting provisions of the policies shall not affect coverage provided to

SJCERA or its officers, officials, employees or volunteers.

G. CONSULTING FIRM's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability.

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H. Each insurance policy required by this section shall be endorsed to state that coverage shall not be suspended, voided, canceled by either party except after thirty (30) days' prior written notice has been given to SJCERA. CONSULTING FIRM shall promptly notify, or cause the insurance carrier to promptly notify, SJCERA of any change in the insurance policy or policies required under this Agreement, including, without limitation, any reduction in coverage or in limits of the required policy or policies.

I. Insurance shall be placed with California admitted insurers (licensed to do business in California)

with a current rating by Best's Key Rating Guide acceptable to SJCERA; provided, however, that if no California admitted insurance company provides the required insurance, it is acceptable to provide the required insurance through a United States domiciled carrier that meets the required Best’s rating and that is listed on the current List of Eligible Surplus Line Insurers maintained by the California Department of Insurance. A Best’s rating of at least A-‐:VII shall be acceptable to SJCERA; lesser ratings must be approved in writing by SJCERA.

J. CONSULTING FIRM shall require that all of its subcontractors are subject to the insurance and

indemnity requirements stated herein, or shall include all subcontractors as additional insureds under its insurance policies.

K. At least ten (10) days prior to the date CONSULTING FIRM begins performance of its obligations

under this Agreement, CONSULTING FIRM shall furnish SJCERA with certificates of insurance, and with original endorsements, showing coverage required by this Agreement, including, without limitation, those that verify coverage for subcontractors of CONSULTING FIRM. The certificates and endorsements for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf. All certificates and endorsements shall be received and, in SJCERA's sole and absolute discretion, approved by SJCERA. SJCERA reserves the right to require complete copies of all required insurance policies and endorsements, at any time.

L. The limits of insurance described herein shall not limit the liability of CONSULTING FIRM and

CONSULTING FIRM's officers, employees, agents, representatives or subcontractors. 10. Defense and Indemnification.

To the fullest extent permitted by law, CONSULTING FIRM shall indemnify, hold harmless and defend SJCERA, its Board and its agents, officers and employees from and against all claims, damages, losses, judgments, liabilities, expenses and other costs, including litigation costs and attorneys’ fees (collectively “claims”), arising out of, resulting from, or in connection with the performance of this Agreement by CONSULTING FIRM or CONSULTING FIRM's officers, employees, agents, representatives or subcontractors and resulting in or attributable to personal injury, death, or damage or destruction to tangible or intangible property, including the loss of use. Notwithstanding the foregoing, CONSULTING FIRM’s obligation to indemnify SJCERA, its Board, and its agents, officers and employees for any judgment, decree or arbitration award shall extend only to the percentage of negligence or responsibility of CONSULTING FIRM in contributing to such claim, damage, loss and expense.

CONSULTING FIRM's obligation to defend, indemnify and hold SJCERA and its agents, officers and employees harmless under the provisions of this paragraph is not limited to or restricted by any

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requirement in this Agreement for CONSULTING FIRM to procure and maintain a policy of insurance.

11. CONSULTING FIRM’s Representations, Warranties and Covenants.

CONSULTING FIRM makes the following representations, warranties, covenants and agreements, acknowledging they constitute a material inducement to SJCERA to enter into this Agreement.

A. Authorization. This Agreement has been duly authorized, executed and delivered by

CONSULTING FIRM and constitutes the legal, valid and binding agreements and obligations of CONSULTING FIRM, enforceable against CONSULTING FIRM in accordance with its terms, except insofar as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar limitations on creditors' rights generally and general principles of equity. CONSULTING FIRM is not subject to or obligated under any law, rule or regulation of any governmental authority, or any order, injunction or decree, or any contract or agreement, that would be breached or violated by CONSULTING FIRM's execution, delivery or performance of this Agreement.

B. Gratuities. No gratuities in the form of gifts, entertainment or otherwise, were offered or

given by CONSULTING FIRM or its Agents to any officer, fiduciary, or employee of SJCERA or the County of San Joaquin, California with a view toward securing this Agreement or securing any favorable determination made concerning the award of this Agreement. CONSULTING FIRM covenants that no such gratuities will be offered or given to any such person with a view toward securing any favorable determination concerning the performance, continuation, and/or amendment of this Agreement. If it is found that such gratuities have been offered or given by CONSULTING FIRM or its Agents, SJCERA may terminate this Agreement upon one (1) calendar day's written notice; however, the facts upon which SJCERA bases such findings will be at issue and may be reviewed in any competent court. In the event of such termination, SJCERA may pursue the same remedies against CONSULTING FIRM as it could pursue in the event of default by CONSULTING FIRM.

C. Conflicts of Interest With Persons Related to SJCERA. No SJCERA employee or fiduciary,

whose position with SJCERA enables such person to influence the award of this Agreement or any competing agreement, and no spouse or economic dependent of such person, is or will be employed in any capacity by CONSULTING FIRM, or does or will have any direct or indirect financial interest in this Agreement.

D. Recruiting. During the term of this Agreement and for one (1) calendar year thereafter,

CONSULTING FIRM, and any employee of CONSULTING FIRM providing services to SJCERA, will not intentionally induce or persuade any employee of SJCERA to join CONSULTING FIRM.

E. Changes. CONSULTING FIRM will notify SJCERA in writing within ten (10) business days of any

of the following changes: (i) CONSULTING FIRM becomes aware that any of its representations, warranties, covenants, or agreements set forth herein has been breached or ceases to be true at any time during the term of this Agreement; (ii) there is a change in CONSULTING FIRM’s personnel assigned to perform services under this Agreement, (iii) there is any change in control of CONSULTING FIRM, (iv) CONSULTING FIRM becomes aware of any other material

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change in its business organization, including without limitation the filing for bankruptcy relief, or (v) CONSULTING FIRM becomes aware of an actual conflict arising out of work it performs on behalf of SJCERA.

F. CONSULTING FIRM and its Agents. CONSULTING FIRM’s Agents who will be responsible for

performing under this Agreement are individuals experienced in the performance of the various functions contemplated by this Agreement and have not been convicted of any crime or found liable in a civil or administrative proceeding or pleaded no contest, or agreed to any consent decree with respect to any matter involving infringement of intellectual property rights, breach of fiduciary duty, or fraud.

12. Independent Contractor Status.

A. All acts of CONSULTING FIRM and its officers, employees, agents, representatives, subcontractors and all others acting on behalf of CONSULTING FIRM relating to the performance of this Agreement, shall be performed as independent contractors and not as agents, officers or employees of SJCERA. CONSULTING FIRM, by virtue of this Agreement, has no authority to bind or incur any obligation on behalf of SJCERA. Except as expressly provided in Exhibit A, CONSULTING FIRM has no authority or responsibility to exercise any rights or power vested in SJCERA. No agent, officer or employee of SJCERA is to be considered an employee of CONSULTING FIRM. It is understood by both CONSULTING FIRM and SJCERA that this Agreement shall not be construed or considered under any circumstances to create an employer-‐employee relationship, partnership, servant or a joint venture, or association.

B. At all times during the term of this Agreement, CONSULTING FIRM and its officers, employees,

agents, representatives or subcontractors are, and shall represent and conduct themselves as, independent contractors and not employees of SJCERA.

C. CONSULTING FIRM shall determine the method, details and means of performing the work and

services to be provided by CONSULTING FIRM under this Agreement. CONSULTING FIRM shall be responsible to SJCERA only for the requirements and results specified in this Agreement and, except as expressly provided in this Agreement, shall not be subjected to SJCERA's control with respect to the physical action or activities of CONSULTING FIRM in fulfillment of this Agreement. CONSULTING FIRM has control over the manner and means of performing the services under this Agreement. CONSULTING FIRM is permitted to provide services to others during the same period service is provided to SJCERA under this Agreement. If necessary, CONSULTING FIRM has the responsibility for employing other persons or firms to assist CONSULTING FIRM in fulfilling the terms and obligations under this Agreement.

D. If in the performance of this Agreement any third persons are employed by CONSULTING FIRM,

such persons shall be entirely and exclusively under the direction, supervision and control of CONSULTING FIRM. All terms of employment including hours, wages, working conditions, discipline, hiring and discharging or any other term of employment or requirements of law shall be determined by CONSULTING FIRM.

E. It is understood and agreed that as an independent and not an employee of SJCERA, CONSULTING

FIRM and CONSULTING FIRM's officers, employees, agents, representatives or subcontractors do

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not have any entitlement as a SJCERA employee, and do not have the right to act on behalf of SJCERA in any capacity whatsoever as an agent, or to bind SJCERA to any obligation whatsoever.

F. It is further understood and agreed that CONSULTING FIRM must issue W-‐2 forms or other forms

as required by law for income and employment tax purposes for all of CONSULTING FIRM's assigned personnel under the terms and conditions of this Agreement.

G. As an independent, CONSULTING FIRM hereby indemnifies and holds SJCERA harmless from any

and all claims that may be made against SJCERA based upon any contention by any third party that an employer-‐employee relationship exists by reason of this Agreement.

13. Records and Audit

A. Records Retention. CONSULTING FIRM shall prepare and maintain all writings, documents and records prepared or compiled in connection with the performance of this Agreement for a minimum of six years from the termination or completion of this Agreement. This includes but not limited to any handwriting, typewriting, printing, photo static, photographing and every other means of recording upon any tangible thing, any form of communication or representation including letters, words, pictures, sounds or symbols or any combination thereof. This includes but is not limited to any pertinent activity, dates, and time spent providing services hereunder, invoices billed to SJCERA, proprietary data and any other records created by CONSULTING FIRM or its agents in connection with this Agreement (“SJCERA Records”).

B. Records Review and Audit. Any authorized representative of SJCERA shall have access to and the

right to audit, evaluate, examine, excerpt and copy or transcribe any SJCERA Records (other than that portion of such Records that evidence the confidential/proprietary information and/or trade secrets of CONSULTING FIRM or any third party) during the period such records are to be maintained by CONSULTING FIRM. Further, SJCERA has the right at all reasonable times to audit, inspect or otherwise evaluate the work performed or being performed under this Agreement. SJCERA agrees that any such review and audit will be conducted in a manner to minimize interference with CONSULTING FIRM’s normal business activities. Upon reasonable advance notice to CONSULTING FIRM, CONSULTING FIRM will make the persons responsible for creating and maintaining SJCERA Records available to SJCERA during such review and audit for the purpose of responding to SJCERA’s reasonable inquiries. SJCERA will pay all costs associated with such audit, other than any costs incurred by CONSULTING FIRM to make personnel available as required by the preceding sentence.

14. Confidentiality; Proprietary Rights

A. SJCERA's Proprietary Rights. All reports under this Agreement become the sole property of SJCERA. Both parties hereto acknowledge that CONSULTING FIRM retains the right to use its experience, expertise and knowledge on similar projects for other clients, so long as CONSULTING FIRM protects SJCERA's interests in all of its confidential records and property.

C. Member Records. CONSULTING FIRM acknowledges that when performing under this Agreement,

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CONSULTING FIRM may be exposed to Member Records and that such Member Records are considered confidential and protected from public disclosure by law. CONSULTING FIRM will maintain the confidentiality of all Member Records according to all applicable federal, state, county and local laws, regulations, ordinances and directives relating to confidentiality.

D. SJCERA's Policies, Procedures and Strategies. CONSULTING FIRM will protect the security of and

keep confidential all materials, data, and other information received by CONSULTING FIRM regarding SJCERA’s assets and its policies, procedures and strategies for the evaluation, acquisition, development, management and disposition of same.

E. CONSULTING FIRM's Proprietary Materials. Absent CONSULTING FIRM's written consent

authorizing disclosure, SJCERA will use reasonable means to protect and maintain the confidentiality of any of CONSULTING FIRM's materials, which CONSULTING FIRM considers to be proprietary, so long as:

(1) CONSULTING FIRM clearly and prominently marks all such material

“confidential;” and

(2) Public disclosure of such material is not requested pursuant to the California Public Records Act (Cal. Gov’t. Code Section 6250 et seq., the “Act”), or by the order of any tribunal having jurisdiction.

(a) If an action is commenced against SJCERA under Act or otherwise that

challenges SJCERA's refusal to disclose CONSULTING FIRM's proprietary material, CONSULTING FIRM will defend SJCERA in the action at CONSULTING FIRM’s expense, and will pay any judgment for damages or attorneys’ fees that may be entered as a result of SJCERA’s refusal to disclose CONSULTING FIRM’s confidential material. SJCERA will provide notice to CONSULTING FIRM so CONSULTING FIRM can get a protective order or opinion of counsel to turn over confidential material.

(b) SJCERA’s obligations under subsection (1) do not apply to:

(1) Any confidential information that SJCERA can demonstrate has become public information

through no breach of this Agreement by SJCERA; and

(2) The SJCERA Records. 15. Nondiscrimination

During the performance of this Agreement, CONSULTING FIRM and its officers, employees, agents, representatives or subcontractors shall not unlawfully discriminate in violation of any federal, state or local law, rule or regulation against any employee, applicant for employment or person receiving services under this Agreement because of race, religion, color, national origin, ancestry, physical or mental handicap, medical condition (including genetic characteristics), marital status, age, political affiliation or sex. CONSULTING FIRM and its officers, employees, agents, representatives or subcontractors shall comply with all applicable Federal, State and local laws and

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regulations related to non-‐discrimination and equal opportunity, including without limitation SJCERA’s nondiscrimination policy; the Fair Employment and Housing Act (Government Code sections 12900 et seq.); California Labor Code sections 1101, 1102 and 1102.1; the Federal Civil Rights Act of 1964 (P.L. 88-‐352), as amended; and all applicable regulations promulgated in the California Code of Regulations or the Code of Federal Regulations.

16. Assignment

This is an agreement for the services of CONSULTING FIRM. SJCERA has relied upon the skills, knowledge, experience and training of CONSULTING FIRM and its associates and employees as an inducement to enter into this Agreement. CONSULTING FIRM shall not assign or subcontract this Agreement without the express written consent of SJCERA. Further, CONSULTING FIRM shall not assign any monies due or to become due under this Agreement without the prior written consent of SJCERA.

17. Waiver of Default

Waiver of any default by either party to this Agreement shall not be deemed to be waiver of any subsequent default. Waiver or breach of any provision of this Agreement shall not be deemed to be a waiver of any other or subsequent breach, and shall not be construed to be a modification of the terms of this Agreement unless this Agreement is modified as provided below.

18. Notice

Any notice, communication, amendment, addition or deletion to this Agreement, including change of address of either party during the term of this Agreement, which CONSULTING FIRM or SJCERA shall be required or may desire to make shall be in writing and may be personally served or, alternatively, sent by prepaid first class mail to the respective parties as follows:

To SJCERA: SJCERA Attention: Greg Frank, Management Analyst III 6 South El Dorado Street, Suite 400 Stockton, CA 95202

To PUBLIC ACCOUNTING FIRM: ________________________________________________ ________________________________________________ ________________________________________________

19. Conflicts and Disqualification

CONSULTING FIRM hereby affirms that there are no relevant facts or circumstances now giving rise or which could, in the future, give rise to a Conflict of Interest. A Conflict of Interest means that because of other activities or relationships with other persons, CONSULTING FIRM or its subcontractor is unable or potentially unable to render impartial assistance or advice to SJCERA, or CONSULTING FIRM’s objectivity in performing the agreement work is or might be otherwise

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impaired.

If an actual or potential Conflict of Interest arises subsequent to the date of this agreement, CONSULTING FIRM shall make a full disclosure in writing to SJCERA of all relevant facts and circumstances. This disclosure shall include a description of actions that CONSULTING FIRM has taken and proposes to take to avoid, mitigate, or neutralize the action or potential conflict of interest. CONSULTING FIRM will continue performance of work under the agreement until notified by SJCERA of any contrary action to be taken.

20. Severability

If any portion of this Agreement or application thereof to any person or circumstance shall be declared invalid by a court of competent jurisdiction or if it is found in contravention of any federal, state or SJCERA statute, ordinance or regulation the remaining provisions of this Agreement or the application thereof shall not be invalidated thereby and shall remain in full force and effect to the extent that the provisions of this Agreement are severable.

21. Amendment

This Agreement and its exhibits may be modified, amended, changed, added to or subtracted from by the mutual consent of the parties hereto if such amendment or change is in written form and executed with the same formalities as this Agreement and attached to the original Agreement to maintain continuity.

22. Entire Agreement

This Agreement supersedes any and all other agreements, either oral or in writing, between any of the parties herein with respect to the subject matter hereof and contains all the agreements between the parties with respect to such matter. Each party acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which is not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding.

23. Advice of Attorney

Each party warrants and represents that in executing this Agreement, it has received independent legal advice from its attorneys or the opportunity to seek such advice.

24. Construction

Headings or captions to the provisions of this Agreement are solely for the convenience of the parties, are not part of this Agreement, and shall not be used to interpret or determine the validity of this Agreement. Any ambiguity in this Agreement shall not be construed against the drafter, but rather the terms and provisions hereof shall be given a reasonable interpretation as if both parties had in fact drafted this Agreement.

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25. Governing Law and Venue

This Agreement shall be deemed to be made under, and shall be governed by and construed and enforced in accordance with, the laws of the State of California. A. Mediation. If a dispute arises over any matter arising out of or relating to this Agreement

(whether in contract, tort, or both) the parties agree first to try in good faith to settle the dispute voluntarily with the aid of an impartial mediator.

(1) Commencing Mediation. A dispute will be submitted to mediation by one party delivering

a written notice requesting mediation (the “Notice of Mediation”) to the other party. The Notice of Mediation must be sent as required in Section 18 (Notice).

(2) Selection of Mediator. The mediator will be selected by agreement of the parties. If the

parties cannot agree on a mediator within 30 days after the Notice of Mediation is sent, the mediator will be selected by the JAMS at the request of either party. If JAMS is no longer in business, the mediator will be selected by the American Arbitration Association (“AAA”).

(3) Location of Mediation. The mediation will be held in San Joaquin County, California, at a

time and place selected by the mediator. (4) Conduct of Mediation. At least five days before the date of the mediation, each party will

provide the mediator with a statement of its position and copies of all supporting documentation. Each party shall send to the mediation a person who has authority to bind the party. Each party has the right to be represented at the mediation by legal counsel of its choice.

(5) Confidentiality of Mediation. The mediation will be treated as a settlement discussion and

therefore will be confidential, and except as required by law and the next two sentences, neither party may disclose the content or results of any mediation hereunder without the prior written consent of the other party. Each party may disclose the content and results of any mediation to its employees who need to know such information, and to its directors, trustees, auditors and legal counsel. Each party may also disclose the content and result of any mediation to the extent necessary to comply with applicable accounting standards with respect to its annual financial reports, and to allow its auditors to issue an unqualified opinion that the party’s financial statements present fairly, in all material respects, the net assets of the party in conformity with accounting principles generally accepted in the United States.

(6) Termination of Mediation. If the mediation does not result in a settlement within six

months after the Notice of Mediation is sent, either party may terminate the mediation process by delivering a written notice of termination (the “Notice of Mediation Termination”) in writing to the other party. The Notice of Mediation Termination must be sent by facsimile, with confirmation of receipt, addressed and faxed as required in Section 18 (Notice).

(7) Costs of Mediation. Each party will bear its own costs in the mediation. The fees

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and expenses of the mediator will be shared equally by the parties.

(8) Tolling of Statutes of Limitation during Mediation. All applicable statutes of limitation (and laches or any other time-‐bar defenses) will be tolled for the period commencing on the date the Notice of Mediation is sent, and ending sixty days after the date on which the Notice of Mediation Termination is sent.

B. Arbitration. If the parties are unable to resolve the dispute through mediation under section

25.A, the parties agree to submit to binding arbitration in San Joaquin County, California under the Commercial Arbitration Rules of the American Arbitration Association then existing. The arbitration shall take place before a panel of three arbitrators. Within 30 days of the commencement of the arbitration, each party shall designate in writing a single neutral and independent arbitrator. The two arbitrators designated by the parties shall then select a third arbitrator. Each arbitrator must be a licensed attorney, or an actuary familiar with the defined benefit plan industry, and have at least 10 years experience in his or her field. The arbitrators shall have the authority to permit limited discovery, including depositions, prior to the arbitration hearing, and such discovery shall be conducted consistent with the Federal Rules of Civil Procedure. The arbitrators shall have no power or authority to award punitive or exemplary damages. Any award made may be confirmed in any court having jurisdiction. Any arbitration shall be confidential, and except as required by law, neither party may disclose the content or results of any arbitration hereunder without the prior written consent of the other parties, except that disclosure is permitted to a party’s auditors and legal advisors

26. Time of the Essence

Time is of the essence in respect to all provisions of this Agreement that specify a time for performance.

27. Execution in Counterparts

This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which constitute one and the same instrument.

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28. Authority to Execute

The persons signing this Agreement are duly authorized to execute the document on behalf of and to bind their respective parties.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. SAN JOQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

By:

Chief Executive Officer "SJCERA"

[CONSULTING FIRM] By:

“CONSULTING FIRM”

APPROVED AS TO FORM: By:

Andy Eschoo Deputy County Counsel

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EXHIBIT A SCOPE OF WORK CONSULTING

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EXHIBIT B COMPENSATION CONSULTING

Printed 12/1/16 8:48 AM

REG. WEBLINKBEGIN END FEE FOR MORE INFO

Jan 25 Jan 27 2017 Visions, Insights & Perspectives Institutional Real Estate Inc. Carlsbad, CA N/A irei.com

Mar 4 Mar 7 CALAPRS General Assembly CALAPRS Monterey, CA $100 calaprs.org

Mar 29 Mar 31 Advanced Principles of Pension Management for Trustees at UCLA CALAPRS Los Angeles, CA $3,100 calaprs.org

Jun 4 Jun 7 2017 World Investment Forum FTSE Russell Newport Coast, CA N/A ftserussell.com

Jun 5 Jun 6 Annual Investor Meeting Walton Street Capital Chicago, IL N/A waltonst.com

EVENT DATES 2017 EVENT TITLE EVENT SPONSOR LOCATION

2017 CONFERENCES AND EVENTS SCHEDULE 2017

Printed 12/8/16 2:35 PM

Event Estimated Actual Event ReportDates Sponsor / Event Description Location Traveler(s) Cost Cost Filed2016

Jan 18 - 21 New and existing manager due diligence meetings

Boston, MA; New York, NY

St. Urbain (Sancewich, PCA) $2,620 $1,840

2/26/2016 (PCA Reports on 3

DD Mtgs - Item 7.03)

Jan 27 - 29 2016 VIP Conference Carlsbad, CA St. Urbain, Calkins $5,500 $2,901 2/29/16

Mar 5 - 8 CALAPRS General Assembly Indian Wells, CA

Garman, Miller, Van Houten, Weydert,

Eshoo, Pabst, Calkins

$12,000 $8,796 N/A

Apr 5 - 6 Pension Bridge Annual Conference San Francisco, CA McCray, Calkins $2,000 $1,080 4/15/16

Apr 5 - 6 Miller Global Annual Investor Meeting San Antonio, TX Weydert, St. Urbain $3,800 $2,358 Submitted for 6/9/2016 RE Comm Meeting

Apr 12 - 14 IREI Editorial Board Meeting Ojai, CA Garman $1,750 $395 4/18/16

May 10 - 13 SACRS Spring Conference Costa Mesa, CA Garman, Eshoo, Calkins $8,735 $4,550 N/A

May 16 - 18 CALAPRS Management Academy: Module 2 Pasadena, CA St. Urbain $1,500 $411 N/A

May 22 - 25 GFOA Annual Conference Toronto, Ontario Cherng $2,500 $1,890 6/28/16

Jul 17 - 20 SACRS Public Pension Investment Management Program

Berkeley, CA Bassett $4,125 $3,881 N/A

Jul 18 - 21 FileMaker Developer Conference Las Vegas, NV Claypool $4,025 $3,460 9/15/16

Aug 9 - 12 CALAPRS Principles of Pension Management for Trustees at Pepperdine Malibu, CA

Miller, St. Urbain

(as Program Faculty)$5,065 $3,223 N/A

Sep 6 - 8 IREI Editorial Advisory Board Meeting Carlsbad, CA Garman $800 $478 9/23/16

Sep 21 - 23 CALAPRS Administrators' Institute Loews Coronado Island, CA

St. Urbain $1,900 $1,433 N/A

Sep 26 - 28 Morgan Creek Capital Napa Investment Retreat

Napa, CA Calkins $400 $153 10/12/16


SUMMARY OF COMPLETED TRUSTEE AND EXECUTIVE STAFF TRAVEL

Printed 12/8/16 2:35 PM

Event Estimated Actual Event ReportDates Sponsor / Event Description Location Traveler(s) Cost Cost Filed2016


SUMMARY OF COMPLETED TRUSTEE AND EXECUTIVE STAFF TRAVEL

Oct 20 Markets Group Private Equity Pacific Forum

Los Angeles, CA St. Urbain (Panel Moderator) $350 Reimbursed by

Conf. organizer N/A

Oct 23 - 26 Public Pension Financial Forum 2016 Annual Conference

Charleston, SC Cherng $3,000 $1,910 12/16/16

Nov 8 - 11 SACRS Fall Conference Indian Wells, CA

Bassett, Garman, McCray, Miller, Van Houten,

Weydert, Eshoo, St. Urbain, Calkins

$16,600 TBD N/A



M E M O R A N D U M TO: Nancy Calkins Chief Investment Officer FROM: Lily Cherng Financial Officer DATE: December 16, 2016 SUBJECT: Report on Public Pension Financial Forum October 23-26, 2016, Charleston, SC The 13th Annual Conference organized by Public Pension Financial Forum (P2F2), which is an organization for public pension finance professionals, was held on October 23-26, 2016 in Charleston, SC. This conference is designed to offer an educational focus for General Accounting, Employer Reporting, Investment Accounting and Compliance for public pensions in North American. GASB No. 72 – Fair Value Measurement and Application On March 2, 2015, the Governmental Accounting Standards Board (GASB) released Statement No. 72, Fair Value Measurement and application, which would generally require state and local governments to measure investments at fair value. GASB’s goal is to enhance comparability of governmental financial statements by requiring fair value measurement for certain assets and liabilities using a consistent definition and accepted valuation techniques. This standard expands fair value disclosures to provide comprehensive information for financial statement users about the impact of fair value measurement on a government’s financial position. The requirements are effective for financial statements for reporting periods beginning after June 15, 2015. For SJCERA, the GASB No. 72 will be implemented for the financial statement as 12/31/2016. Fair Value Hierarchy Valuation inputs are assumptions that market participants use in pricing an asset or liability. The standard establishes a hierarchy of inputs used to measure fair value that prioritized the inputs into three categories- Level 1, Level 2, and Level 3 inputs – considering the relative reliability of the inputs. GASB chose to leverage the input hierarchy in FASB Statement 157, Fair Value Measurement, which is used by most

SJCERA / Report on P2F2 2016 Conference / Page 2 of 3

custody banks and pricing services. The level is determined based on the lowest level of input significant to the measurement in its entirety. Level 1 Inputs: Level 1 Inputs are quoted (unadjusted) prices in active markets for identical assets or liabilities that the government can access at the measurement date. Observable markets include exchange markets, dealer markets, brokered markets and principal-principal markets. Level 2 Inputs: These are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs are derived from or corroborated by observable market data through correlation or by other means, e.g., “Market-corroborated” inputs. Level 2 inputs include:

- Quoted prices for similar assets or liabilities in active markets - Quotes prices for identical or similar assets or liabilities in inactive markets - Inputs other than quoted prices that are observable for the asset or liability

such as interest rates and yield curves observable at commonly quoted intervals, implied volatilities and Credit spreads.

- Market-corroborated inputs The examples for Level 2 Inputs: * For a bond valued by a pricing service using matrix pricing - price or yield of a similar bond, * For a three-year option on exchange-traded shares – A Level 2 inputs would be the extrapolated implied volatility for the shares - For a valuation multiple, a multiple of earnings or revenue from observable market data involving similar business, taking into account operational, market, financial and nonfinancial factors. Level 3 Inputs: These are unobservable inputs for the asset or liability; they should be used only when relevant Level 1 and Level 2 inputs are unavailable. Governments may use their own data to develop unobservable inputs if there is no information available without undue cost and effort. The example for Level 3 Inputs: * For a three-year option on exchange-traded shares - the volatility for the shares derived from historical prices would be level 3 input since the data does not represent current market participants’ expectations about future volatility. *For an interest rate swap –nonbinding quote that cannot otherwise be corroborated by observable market data.

SJCERA / Report on P2F2 2016 Conference / Page 3 of 3

*For commercial real estate – a financial forecast developed using the government’s own data. Net Asset Value (NAV): As a practical expedient, a government can use the NAV per share for investments in a nongovernmental entity that does not have a readily determinable fair value, e.g., a hedge fund, commingled fund and private equity fund. The NAV is not permitted for valuation if it is probable the government will sell the investment at a different price. Investments measured a NAV would be excluded from the fair value hierarchy (level 1,2 and 3). GASB felt investments measured using NAV have increased uncertainty and subjectivity, requiring additional disclosures for financial statement users to understand the investment’s nature and risks and whether such investments are likely to be sold at an amount different from NAV per share. The disclosures include the fair value measurement, unfunded commitments, redemption frequency and redemption notice period. The investments valued at NAV are the majority holdings for SJCERA portfolio. At the meeting I got the chance to discus with the speakers and peers about the GASB 72 implementation issues for the investments valued at NAV, as well as the lessons learned from their earlier implementation as year end 6/30/2016. SJCERA has subscribed Level Determination Reporting Service from Northern Trust to help us to implement the GASB 72 for separate managed accounts holdings. In addition, we have developed the GASB 72 questionnaires for the managers to fill out the survey before year-end for the preparation of annual audit.

Iam excited to announce twonew webinars from NCPERSCenter of Online Learning com-ing up in October.

The first webinar, from our latestresearch, Pension Policy at aCrossroads, will be held on October 4,2016, at 1:00 pm to 2:00 pm ET. Thelifetime guarantee of a pension thatAmerican workers once enjoyed isbeing replaced by do-it-yourself retire-ment savings schemes such as 401 (k)s. The public policy questions onretirement and income security thatour nation will face in the comingyears will be critical. As we prepare forthe national election on TuesdayNovember 8, it is important to exam-ine how Donald Trump and HillaryClinton plan to address the retirementchallenges we all face. Join us as wediscuss the candidates’ positions on thecritical issues of public pensions, SocialSecurity, and retirement security.

INSIDE THIS ISSUE (Click on Page Link)

2 Real estate’s elevated sector statuscould be a catalyst for equity REITs

3 Former FBI Head Has Identity Stolen

4 Confessions of a Software Provider

5 Legal Report

6 Long-Term Pension Policy and theAging Population

8 Challenges to Executive CompensationFinally Gain Traction

9 Diversification’s Diminishing Ability toManage Risk

10 Pay to Play Ban Trumps PenceFundraising: Application of the SECRule to the 2016 Presidential Election

11 Commercial real estate and farmlandare compatible diversifiers

12 Riding a new wave: Emerging marketsin the 'new normal'

13 DOL Finalizes State Auto IRA Safe Harborand Proposes Rule to Extend to Cities

19 Calendar of Events 2016

Fall 2016 • Volume 29 • Number 4

For information on how to sponsor an issue please contact Amanda Rok [email protected]

Daniel FortunaNCPERS President

The second webinar, will beheld on Wednesday, October19, 2016, at 1:00 pm to 2:00pm ET. David Morse from K &L Gates will be presenting onthe DOL final rules on statesponsored retirement savingsprograms. In November 2015,DOL issued proposed regula-tions to amend ERISA to pro-vide a safe harbor for statesponsored retirement schemes.After a 60 day comment periodand review of comments, DOLissued its final rules in Augustof this year with the effectivedate in October. This webinarwill provide an overview of thenew final rules and their impli-cation for states interested inestablishing a retirement planfor its citizens.

You can register for the webinar onPension Policy at a Crossroads here.

You can register for the webinar onDOL final rules here. We look for-ward to ‘seeing you’ in our Centerfor Online Learning events! ❖

http://www.ncpers.org/files/NCPERS%20Research%20Series_2016%20Pension%20Policy%20at%20a%20Crossroads_M.pdf

https://attendee.gotowebinar.com/register/7068889275163332353


NCPERS PERSIST Fall 2016 • Return to front page2

2016 figures to be amomentous year for thereal estate investmenttrust (REIT) industry,

which will soon become a classunto itself. Literally. But first, alittle background.

In 1999, MSCI Inc. and S&PDow Jones Indices establishedthe Global IndustryClassification Standard (GICS)— a hierarchical industry clas-sification system consisting of10 sectors, 67 industries and156 sub-industries. Currently,REITs are classified as a sub-industry of the real estateindustry, which, in turn, fallsunder the financials sector.

That is about to change.

REAL ESTATE WILL SOON BE A

GICS SECTOR

Beginning after market close on Aug.31, 2016, real estate will get a much-anticipated promotion to global sec-tor status — the first such additionsince the establishment of GICS. Aspart of this move, REITs will bedivided into two categories:

m Mortgage REITs, which purchaseor originate mortgages and tendto be sensitive to interest rates,will remain a sub-industry of thefinancials sector.

m All other REITs will be classifiedas equity REITs, which will forma separate industry under the realestate sector. Equity REITs arecompanies that own and invest inproperties that produce cashflow streams from rents.

Global Industry Classification Standard (GICS)to add real estate as 11th global sector

CLASSIFICATION CHANGE

UNDERSCORES REAL ESTATE’S UNIQUE

CHARACTERISTICS

While it is impossible to know theultimate effects of this landmarkchange, there could be many poten-tial benefits. We at Invesco RealEstate believe the new, dedicated realestate sector will showcase funda-mental differences between realestate and other businesses, andmake it easier to see how investmentmanagers are allocated to this area.

Segregating real estate into a class byitself highlights the sector’s potentialdiversification benefits, yield potentialand historical total returns. Thischange may also shine a light on diver-sified managers who have been under-weight real estate stocks for years.

GICS CHANGE COULD HAVE RAMIFICA-TIONS FOR PORTFOLIO MANAGERS

Index providers have suggested thatdifferentiating real estate into itsown sector “reflects the position ofreal estate as a distinct asset classand a foundational building block ofa modern portfolio” and may serveto increase the visibility of the sectorto generalist investors.1

We believe there is also potential fora reduction in long-term volatility, asthe independent classification mayhelp to decouple real estate fromother financials, like banks andinsurance companies, and increasereal estate’s investor base. This isbecause GICS is accepted as the pri-mary framework for investmentresearch, portfolio management andasset allocation. As such, it hashelped to drive product development— including the rapidly growingexchange-traded-fund market.

US Equity REITs Market Cap ($MM)

Source: NAREIT, as of May 31, 2016

REAL ESTATE’S ELEVATED SECTOR STATUS COULD BE A CATALYST FOR EQUITY REITS

By Joe Rodriguez

continued on page 14

Return to front page • NCPERS PERSIST Fall 2016 3

If there’s one thing that hasbecome clear in this era ofincreasing identity theft, it’s thatanyone can be targeted at any

time. Yes, even the top governmentofficial tasked with tracking andapprehending criminals can find him-self on the receiving end of a sophisti-cated hack.

NJ.com reports that Peter Locsin, a35-year-old man from Palisay City,Philippines, is charged with attempt-ing to steal personal information froma number of high-profile targets. Oneof those individuals was former FBIDirector Robert Mueller, who servedunder both Presidents George W. Bushand Barack Obama.

Locsin reportedly acquired dates ofbirth, addresses, social security num-bers and information about his vic-tims’ work histories. He then allegedlygained access to their bank accounts,successfully making wire transfers,ordering additional cards, adding newcardholders and buying various goodswith the money.

In one instance, NJ.com reported thatLocsin allegedly stole $11,000 from asingle bank account, after resetting thepassword so the owner could notaccess it. Reports also suggest that heattempted to steal $15,000 fromMueller in 2013.

UNPREPARED FOR IDENTITY THEFT

Far too many people are completelyunprepared for the possibility of iden-tity theft. For instance, in most casesthe only things preventing a thief fromaccessing your email, social mediaaccounts and financial informationare simple passwords. A significantamount of research has shown, time

Former FBI Head Has Identity Stolen

and time again, that most internetusers are still relying on passwordsthat are fairly easy to guess – such as“password,” or “123456.” One studyby SplashData found that most popu-lar passwords, even longer ones, arestill based on simple patterns that sig-nificantly undermine security.

At the greatest risk are those whodon’t know to prepare themselves foridentity theft in the first place.Children are frequently targeted bythieves because of their clean creditreports – and because few parentsthink to check before their childrenturn 18. This can lead to situationswhere children are unknowingly tar-geted for theft for years, and are leftwith damaged credit just when theyreach the age where their credit scorebecomes important.

Even those who take basic precautionscan still suddenly become victims. Thefact is that even the best protectionsystems are not perfect, as the Locsinso successfully demonstrated. Butwe’ve seen similar problems on aneven larger scale. The fact that a for-mer FBI Director had his identity com-promised is not an outlier in the gov-ernment. Entire departments have alsobeen hacked, such as the Office forPersonnel Management in 2014.

BE PROACTIVE, BE PREPARED

You may not be able to stop everyattempt at identity theft that comesyour way, but you can take steps toensure that you are aware of the stateof your credit and your personalinformation.

An identity theft protection service likeIdentity Guard, available to NCPERSmembers, can help by monitoring yourcredit files, social security number andpublic records. Quality programs suchas Identity Guard monitor a wide vari-ety of sources, and then alert you tocertain activity that could be indicativeof fraud, allowing you to take action.Further, once the identity theft hasoccurred, such well-designed pro-grams also provide support andresources to mitigate any adverse con-sequences and reimburse you both forexpenses you incur, as well as cashlosses resulting from unauthorizedelectronic funds transfer from yourbanking or retirement accounts. ❖

For additional information on theIdentity Guard program, please con-tact Kathy Vance at Identity Guard ([email protected]) or DonHeilman, Gallagher Benefit Services,Inc. ([email protected]).

Photo Illustration ©2016 istock.com


Confession from a Software Provider

By John R. Reidy

There is often a need to hireconsultants to assistRetirement Boards andStaff with the administra-

tion of their fiduciary duties andresponsibilities. However, as con-sultants may provide a valuable rolewithin a pension fund, giving onetoo much responsibility may lead toa situation that is not in the bestinterest of the pension fund.

Today, rules surrounding the invest-ment of pension fund assets is high-ly regulated in order to eliminatepotential conflict of interests.Consequently, policies and proce-dures are in place to limit the rolesof investment consultants in orderto protect the fiduciary obligationsof the pension fund. For example, itcould be considered a conflict ofinterest if a consultant were to rec-ommend a change in asset alloca-tions if they were to realize a finan-cial benefit from this recommenda-tion. This scenario would call intoquestion whether the consultant isusing a position of influence toserve the needs of the pension fundor to appease their own financialgoals. Over the years, there havebeen many safeguards put in placeto prohibit this type of practicefrom occurring within the invest-ment community.

Unfortunately, these type of checksand balances do not exist within thepublic pension software industry.Currently, a technology consultant

ability for administration softwareprojects has fallen somewherebetween the Staff and the Trustees.Since these projects end up in this“no man’s land”, too much respon-sibility is given to the consultant. Ifthe consultant did not have so manyoverlapping duties during theseprojects, the costs would decrease –significantly. It is not too late tochange the “old way” of doingthings within this industry. ❖

1“The Impact of Corporate Sustainability onOrganizational Processes and Performance,National Bureau of Economic Research,working paper 17950, April 2014.http://www.nber.org/papers/w17950

John R. Reidy is one of thePrinciple Founders of the PensionTechnology Group (PTG).Founded in 2006, PTG is a tech-nology company that providesweb based pension administra-tion software solutions to publicemployee pension funds. Johnhas direct involvement and helpoversee nearly 150 pensionadministration software projectsat public employee pension fundsthroughout the United States.John lives with his family inSouth Boston, MA and is veryactive within the community.

can assume a number of overlap-ping roles during an engagementwith a pension fund. Quite often,the same technology consultant ishired to evaluate and make processimprovement recommendations,draft pension software RFPs, setproject duration and cost expecta-tions, participate in the evaluationand vendor selection process, andthen become the oversight ProjectManager throughout the durationof the software project. When all ofthese tasks are managed by one con-sultant company, softwareproviders find it difficult to knowwho is really the potential client.

As a software provider trying tosecure business through thisprocess, I confess that we are oftencompelled to tailor our RFPresponses in order to meet theexpectations of the consultantinstead of focusing on the best inter-est of the pension fund. We under-stand that the consultant financiallybenefits from a longer, more com-plex project and therefore, we willoften artificially extend our pro-posed project schedules and associ-ated fees in order to better align ourresponse to the consultant’s busi-ness objectives. In all honesty, ourresponses should be drafted in away that delivers the greatest valuefor the pension fund.

Why the confession? Because thistopic needs to be brought to theforefront. Historically, the account-


blurred. This could lead employers toarbitrarily determine what is “rea-sonable,” potentially opening thedoor to a surge of litigation.

NCPERS FILES AMICUS BRIEFS IN

IMPORTANT INVESTOR RIGHTS CASES

In its continuing role as The Voice ofPublic Pensions, NCPERS has beenactive in providing friend of the court(amicus curiae) briefs in a investorrights cases of interest to its member-ship. In Waggoner v. Barclays PLC,Case Number 16-1912-CV, NCPERShas asked the U.S. Second CircuitCourt of Appeals to uphold the con-tinued use of the inflation -mainte-nance theory in securities fraudcases. Under this theory, investorsmay apply the fraud-on- the- marketpresumption when corporationsmaintain stock prices at artificially

In an effort to respond to the riseof “pension spiking,” theCalifornia Legislature enactedthe California Public

Employees’ PensionReform Act of 2013.The act made criticalchanges to how pen-sion benefits wouldbe calculated.Three weeks afterthe act was passed,five labor unionstogether with anumber of individualscurrently employed byMarin County institutedan action against the MarinCounty Employees’ RetirementAssociation (MCERA). On August17, 2016, a state appellate court inSan Francisco unanimously ruled inMarin Association of PublicEmployees v. Marin CountyEmployees’ Retirement Association,___Cal. Rptr. ___, 2106 WL 4379316(Cal. App. 1 Dist. 8/17/2016) that thePension Reform Act was not uncon-stitutional as it applied to the plain-tiffs’ rights. While the main issue ofthe case was to prevent employeesfrom boosting their benefits, the courtwent beyond the issue of spiking andaddressed the broad constitutionalprotection provided by the CaliforniaRule, which prohibits virtually anychanges from being made to pensionbenefits once they are given.

The appeals court’s decision had theeffect of upholding the Legislature’sauthority in passing of the ReformAct as applied to the facts of the case,but the scope of the decision in the

Marin County case went beyondthose facts and may ultimately beused as justification for benefit

changes that weren’t previ-ously allowed.

In 1983, TheSupreme Court ofCalifornia stated,in Allen v. Boardof Administration,“Any modifica-tion of vested pen-

sion rights must bereasonable, must

bear a material relationto the theory and success-

ful operation of a pension sys-tem, and when resulting in disadvan-tages to employees, must be accom-panied by comparable new advan-tages.” In addressing this case, theappellate court determined that thecourt’s meaning of “must” in Allenwas not the literal meaning butrather that the court intended it beread as merely a “recommendation.”

According to the Marin court, priorto retirement, the legislature mayalter the calculation formula therebyreducing the anticipated benefits aslong as the modifications don’tdeprive an individual of a “reason-able pension.” This is substantiallydifferent from the Allen decision’srequirement that any disadvantagescreated by legislation must be offsetby “comparable new advantages.”

As a result of the Marin decision, thelines determining what are the con-stitutional parameters for pensionlegislation in California have been

Recent California decision may cast doubt on protection of constitutional rightsin California pensionsBy Robert D. Klausner, NCPERS General Counsel


This article is a regular feature ofPERSIST. Robert D. Klausner, a well-known lawyer specializing in publicpension law throughout the UnitedStates, is General Counsel of NCPERSas well as a lecturer and law professor.While all efforts have been made toinsure the accuracy of this section, thematerials presented here are for theeducation of NCPERS members andare not intended as specific legaladvice. For more information go towww.robertdklausner.com.


Living longer has been a boonto all recent generations andthe expectation remains thatsucceeding generations will

continue to outlive the previous ones.As shown in the following table, lifeexpectancy has improved remarkablyover the last half century.

SUSTAINABLE YET NOT ADEQUATE IS AS

UNAPPEALING AS ADEQUATE YET NOT

SUSTAINABLE

Looking forward, over a 20-30 yearperiod, pension policies may need tochange to respond to the future eco-nomic and demographic environ-ment. While no one can forecast thefuture with 100% certainty, the timeis now to begin making changes thatwill ease the strain associated withthese changing conditions. Thechanges will be a true optimizationchallenge that balances potentialincreasing costs and the related budg-et pressures, while helping employeesaccrue retirement income that main-tains a standard of living and is sus-tainable to last a lifetime.

ADDRESSING THE RETIREMENT NEEDS

OF THE PUBLIC SECTOR WORKFORCE

The following suggestions representlong-term strategies for the protec-tion of the economic needs for both

Long-Term Pension Policy and the AgingPopulationBy Leslie L. Thompson

retirement system members andemployers:

m Use the appropriate plan structurefor the appropriate need• Defined benefit (DB) plans pro-

vide a secure lifetime income,protecting retirees from invest-

ment and longevity risk; and• Defined contribution (DC) plans

provide a savings vehicle andprovide variable income through-out the course of a member’sretirement.

m Create a clear focus on the protec-tion of the base annuity benefit anduse DC plans for variable income• DC plans can fund for variable

cost-of-living adjustment(COLA) income, retiree medicalsubsidies and/or early retirement;and

• May also be available to fundretirees’ economic shocks inretirement.

m Keep the mortality tables updatedand include the liabilities associatedwith future improvements in mor-tality• Use fully generational mortality

tables; and• Ensure that margin exists for

mortality improvements so that

future generations will not haveto suddenly pay for improve-ments in life expectancy.

m Link the period of a member’s con-tribution to the period of retirementby lengthening the time until anunreduced retirement benefit isearned• For example, to offset increases

in life expectancy, increase theretirement age by three years; and


Leslie L. Thompson, FSA, FCA, EA,MAAA is a Senior Consultant forGRS. She has nearly 40 years of actu-arial and benefits consulting experi-ence, including 25 years of public sec-tor consulting experience. She is oneof the leading public sector actuaries inthe country and serves as the lead actu-ary for several statewide and municipalretirement systems and OPEB plans.

Leslie recently co-authored AComprehensive Study Comparing theCost and Effectiveness to AlternativePlan Designs[…] for the Colorado StateAuditor. She also led a workshop atBerkeley’s Haas School of Business andspoke at Missouri MAPERS on thetopic. In 2015, Leslie presented at theNational Association of State AuditorsComptrollers and Treasurers (NAS-ACT) Conference on setting a rate ofreturn assumption for pension fundingand participated as an instructor forNIRS on defined benefit plan efficien-cies. She has also authored articles ona variety of public pension issues.

Source: GAI SOA Longevity Webcast Richard Jackson, President, February 3, 2016; UN Population Division (2013).

1950-1955 68.6 Years 1980-1985 74.3 Years 2005-2010 78.1 Years

People Born in the Period Life Expectancy at Birth

https://www.ajg.com


In recent years the issue of insiderdirector and executive compen-sation has become the target ofcourts, governmental agencies

and stockholders. Following thefinancial crisis of 2008, director andofficer compensation at the S&P 500companies soared. From 2009 to2013, the 300 CEOs who were atS&P 500 companies for the entirefive-year period earned about $22billion, an average of $73 millioneach. Often the companies that paidtheir executives the most performedbelow their industry competitors.For example, according to CNN, in2014, the CEO of DiscoveryCommunications was awarded $156million (up from $33 million the yearbefore) in total compensation despitethe fact the company’s stock wasdown 24% for the same year.Similarly, The Wall Street Journalreported the CEO of Viacom made$44.3 million in 2014, an almost20% increase from the year before,although Viacom’s stock was down6.6% for the year. Indeed, a studyreported on by Forbes and The WallStreet Journal demonstrated themore CEOs get paid, the worse theircompanies do over the next threeyears.

The Securities and ExchangeCommission has taken note of thesedramatic increases in compensation,bringing numerous actions challeng-ing director compensation arrange-ments, including clawbacks and sev-erance agreements. Shareholders arealso paying attention to skyrocketing

Challenges to Executive Compensation FinallyGain TractionBy Scott M. Tucker, Esq. and Vera G. Belger, Esq.

compensation figures and, duringthe first six-months of 2016, haverejected 36 companies’ “say onpay” shareholder votes. Notably,the Marco Consulting Group pro-vided NCPERS with a list of theKey Proxy Votes to Watch in 2016and, of the fifteen Proxy Votes iden-tified, seven relate to executive com-pensation.

With the increased focus on out-sized director and officer compensa-tion, fund fiduciaries should beaware that courts, specifically theDelaware Court of Chancery, areturning a critical eye to compensa-tion practices. In a recent string ofcases, the Delaware Court ofChancery validated shareholderchallenges to the legality of certaininsider director and officer compen-sation arrangements. For example,the Court of Chancery upheld ashareholder challenge to Citrix’somnibus equity incentive plan,despite the fact it had beenapproved by shareholders, becausethe plan lacked specific perform-ance metrics for director compensa-tion. In another case, the Court ofChancery rejected a decision by thedirectors of Facebook to raise theirown pay because the increase wasnot formally approved by the com-pany’s shareholders but was infor-mally ratified by the controllingstockholder. Similarly, the Court ofChancery expressed concerns whenYahoo!’s CEO made changes to adeparting officer’s compensationpackage without gaining the

approval of the Board’s compensa-tion committee. Finally, the Courtof Chancery has signaled challengesto compensation plans may poten-tially be brought as breach of con-tract claims, possibly lessening theburden for shareholders to success-fully challenge outsized or impropercompensation awards.

Protecting a public pension fund’sinvestment requires a trustee tomonitor and understand the com-pensation arrangements in the com-panies the fund is invested in and inconsidering fund investments gener-ally. The information above canserve as a guide for discussing theseconcerns with monitoring securitiescounsel and financial advisors. ❖

Scott M. Tucker is a partner in theWilmington, Delaware office ofChimicles & Tikellis LLP. Mr.Tucker’s practice is devoted to litiga-tion, with an emphasis on mergersand acquisitions and corporate mis-management and shareholder deriva-tive actions.

Vera G. Belger is an associate in theWilmington, Delaware office ofChimicles & Tikellis LLP. Ms.Belger’s entire practice is devoted tolitigation, with an emphasis onmergers and acquisitions and corpo-rate mismanagement shareholderactions.


By Thomas Zimmerer

PENSION PLANS NEED TO ADOPT A MORE

DYNAMIC APPROACH

In the aftermath of the globalfinancial crisis, risk, and how bestto manage it, have become criticalconcerns for pension plans. Much

of the focus has been on diversificationstrategy, which has been key to pensionplan risk management ever since the1950s, when economist HarryMarkowitz published his seminal workon Modern Portfolio Theory (MPT). MPT showed that investors couldincrease their return potential andsimultaneously lower their risk profileby investing in a diversified range ofassets. This revolutionized the way thatinvestors invest, especially pensionplans, many of which built their port-folios on the tenets of diversificationover the course of decades.

MODERN PORTFOLIO THEORY AS RELIC

OF THE PAST

Like so many other ideas that gotswept up in the financial crisis, diversi-fication hasn’t fared as well in the post-crisis world. Asset classes once thoughtto be complementary have shownremarkable correlation as bonds,stocks, emerging markets and evenmany alternatives become bunchedcloser together on the efficient frontier.As the recovery from the financial cri-sis continues apace, asset classes con-tinue to show much closer correlationsthan in the past.

For a closer look into how diversifica-tion has failed to live up to its promise,consider two particularly volatilemonths in global markets as shownbelow. October 2008 was the height ofthe financial crisis, leading to steep

Diversification’s Diminishing Ability toManage Risk

The Limits of Diversification: It fails when you need it most


Source: Bloomberg. Past performance is not a reliable indicator of future results. US EquitiesLarge Cap are represented by the S&P 500 Total Return Index, International Equities are repre-sented by MSCI Daily TR Gross World Ex US Index, US Government Bonds are represented by J.P.Morgan GBI US Unhedged LOC Index, Corporate Bonds are represented by BofA Merrill LynchCorporate US Bond Index, US Equities Small Cap are represented by the Russell 2000 Index,Emerging Market Equities are represented by MSCI Daily TR Gross EM USD Index, US High Yieldis represented by the iBoxx USD Liquid High Yield Index.

October 2008

August 2015


After presidential candidateDonald Trump announcedthe selection of IndianaGovernor Mike Pence as

his running mate, the New YorkTimes noted that Mr. Pence’s additionto the ticket could make it harder forMr. Trump to raise money from thebusiness community because of an“obscure” Securities and ExchangeCommission (“SEC”) provisionmeant to prevent pay to play effortsfor public pension plans.

It is unlikely that readers of PERSistwould call the rule “obscure”, asmost public pension plan trustees andadministrators are familiar with SECRule 206(4)-5, widely known as the“pay to play” rule. The rule pro-hibits an investment adviser fromreceiving compensation for advisoryservices to a government entity fortwo years after the adviser or its cov-ered associates makes a political con-tribution to a public official or candi-date who is or would be in a positionto influence the award of advisorybusiness. What was “obscure” now istimely – the application of the rule tothe 2016 Presidential campaign.

SEC PAY TO PLAY RULE

In adopting the rule in 2010, the SECnoted that public pension plans areparticularly vulnerable to pay to playpractice, and that “[i]nvestmentadvisers that seek to influence theaward of advisory contracts by publicpension plans, by making politicalcontributions to, or soliciting themfor, those officials who are in a posi-tion to influence the awards, compro-

Pay to Play Ban Trumps Pence Fundraising: Application of the SEC Rule to the 2016Presidential Election By Suzanne M. Dugan

mise their fiduciary obligations to thepublic pension plans they advise anddefraud prospective clients”.

The SEC pay to play rule is now wellestablished: it has survived a courtchallenge seeking to invalidate it ,and the SEC has brought both anenforcement action under the ruleand granted a waiver from the rule.

APPLICATION OF RULE TO THE

PRESIDENTIAL ELECTION

A sitting Governor who can appointmembers of a state pension board, asGovernor Pence can, is considered acovered government official underthe SEC rule. This means that director indirect contributions to theTrump-Pence ticket could trigger therule’s two year period prohibiting aninvestment adviser from collectingfees for advisory services rendered tothe Indiana systems over whichPence has authority.

In fact, the SEC specifically consid-ered the present scenario anddeclined to offer an exemption forsitting state officials running for fed-eral office, stating: “we are not per-suaded that an incumbent state orlocal official should be excludedfrom the definition solely because heor she is running for federal office”.The rationale - as long as an officialhas influence over the hiring ofinvestment advisers as a function ofhis or her current office, contribu-tions by an adviser could have thesame effect, regardless to which ofthe official’s campaigns the advisercontributes.

GOLDMAN SACHS TAKES ACTION

Effective September 1, 2016,Goldman Sachs took action designedto prevent inadvertent violation ofthe SEC pay to play rule. The firmnamed all its partners as “restrictedpersons” under the rule and institut-ed a policy prohibiting them frommaking any contribution or solicita-tion in connection with a federal can-didate who is a sitting state or localofficial, such as the Trump/Penceticket, noting that the penalties forfailing to comply with the SEC rulescan be severe and may include finesas well as a two year ban on doingbusiness with certain governmentclients.

Suzanne M. Dugan leads the Ethicsand Fiduciary Counseling practice atCohen Milstein Sellers & Toll PLLC,,a practice she helped found within theSecurities Litigation & InvestorProtection group. Ms. Dugan joinedCohen Milstein following more than20 years of government service,including as Special Counsel for Ethicsfor the Office of the New York StateComptroller and Counsel to the NewYork State Ethics Commission. Withservice in government and experienceas an in-house counsel, she offers thebroad perspective of a regulator andthe comprehensive understanding ofan in-house counsel. From this uniquevantage, Ms. Dugan counsels pensionfunds on fiduciary responsibility, ethi-cal duties, governance, complianceissues, and investigatory matters.



As alternative investments,U.S. commercial propertyand farmland are known fortheir ability to diversify tra-

ditional stock-bond portfolios.Although both are real assets, the fac-tors driving their returns are differ-ent—making them good diversifiers foreach other when combined in portfo-lios. Property is largely driven bydomestic forces while farmland is influ-enced by global commodity markets.

COMMONALITIES BETWEEN COMMERCIAL

REAL ESTATE AND FARMLAND

Commercial real estate and farmlandcan potentially improve the diversifica-tion of stock-bond portfolios. Theyhave low—or negative—correlationswith stocks and bonds (Exhibit 1).Their risk-adjusted returns — meas-ured by Sharpe ratios— are attractivecompared with stocks.

However, the 0.40 correlation betweencommercial real estate and farmlandmakes some wonder if they differenough to justify including both in aportfolio. After all, both depend partlyon the cash flows that land and loca-tion can produce. Hence, our researchexamined whether real estate andfarmland respond to the same driversof investment performance.

Commercial real estate and farmland are compatible diversifiersBy Heather Davis & Bruce J. Sherrick

DRIVERS OF COMMERCIAL REAL ESTATE

RETURNS

The strongest drivers of commercialreal estate returns are employmentgrowth and commercial mortgageavailability. Together, these two indi-cators explain 41% of the variationin NCREIF total return with a four-quarter lead, as they support demandfor properties. The strength ofinvestor appetite for commercial real

estate, which reflects a higher appetitefor risk, is next in importance. Theremaining variation in total return isdue to differences across sectors(apartment, industrial, office, hoteland retail) and locations.

Does farmland respond to any of thesefactors? Yes and no. Employmentgrowth and changes in commercialmortgage debt availability and risk

Heather Davis is responsible for strategy,investment originations, and portfoliomanagement for TIAA’s investments inreal assets and alternatives sectors includ-ing real estate, agriculture, timber, infra-structure and energy, private equity andprivate debt. With 32 years of investmentindustry experience, Ms. Davis has beenan investor in many private asset classsectors since joining TIAA in 1995. Sheholds a B.A. in economics from CornellUniversity and an M.B.A. in financefrom Cornell University, Johnson Schoolof Management. In 2014, Ms. Davisreceived the Athena International awardfor Corporate Leadership. She serves onthe boards of Westchester GlobalInvestment Management, RadarPropriedades Agricolas, S.A., ChurchillAsset Management, the John M. BelkEndowment, and the Carolinas Chapterof Autism Speaks.

Exhibit 1. Investment performance and correlations (1991–2015)

Source: TIAA Global Asset Management.

Russell 3000® Stocks 9.26% 17.38% 0.36

Barclays US Aggregate Bonds 6.32% 4.40% 0.75

NCREIF Real Estate 8.44% 8.67% 0.63

NCREIF Farmland 12.10% 7.01% 1.30

Stocks 1.00

Bonds -0.03 1.00

Real Estate 0.23 -0.26 1.00

Farmland 0.02 -0.43 0.40 1.00

Sharpe Return Std Dev Ratio

Real Stocks Bonds Estate Farmland

Bruce Sherrick is Professor of FarmlandEconomics and Director of the TIAACenter for Farmland Research at theUniversity of Illinois. The Center’s mis-sion is to support informed policy deci-sions affecting the financing of farm andrural businesses. His academic researchis concentrated in risk analysis, asset val-uation, crop insurance evaluation, mod-eling of financial institutions, and invest-ment analysis. Sherrick earned a Ph.D.,in finance and marketing at The OhioState University. He is managing partnerof integrated Financial Analytics andResearch (iFAR), a consulting firm incredit risk assessment and modeling ofagricultural finance institutions.Sherrick is also an author/coauthor ofthe FAST (Financial Analysis andSolution Tools) suite of decision toolstargeting agricultural producers andlenders.



For the last several years,global markets have experi-enced a “New Normal” oflow economic growth and

persistently low inflation. The tepideconomic recovery from the globalfinancial crisis of 2008-2009 is onefactor driving the New Normal.Low long-term bond yields and aflat yield curve bears evidence thatthe markets believe in the NewNormal as the base case scenario.

Demographics lend further supportto the case for tepid long-termgrowth. Global working-age popu-lation growth from 1980 to 2008was around 1.75% annually, but isexpected to trend down to around0.71% annually over the next 50years, according to figures from theWorld Bank. All else being equal,this translates to a roughly 1% lossin potential gross domestic product(GDP) growth. If this outlookproves correct, investors will con-tinue to seek out investment themesthat are not overly dependent onglobal economic growth.

The UBS Emerging MarketsEquities investment team analyzeda spectrum of emerging market(EM) and developed market (DM)countries to conclude that EMcountries offer several strong equityinvestment opportunities. The teamidentified the most investable EMcountries from a macro perspective,and the most promising investmentthemes and business sectors overthe next five years.

Several EM countries seem poisedto outperform on economic growth,

Riding a new wave: Emerging markets in the'new normal'By Geoffrey Wong

but GDP growth alone often doesnot translate into improved equitymarket returns. Corporate perform-ance and secular investment themesthat are attractive in a low global-growth environment must also bepresent. The investment team hasidentified key EM growth themesfor the next five years, includingconsumer spending, healthcare, realestate, financials and informationtechnology.

Countries that possess inherentgrowth drivers will likely have anedge as profitable investments. Tohelp us identify these countries, wedrew on academic1,2,3 research intoeconomic growth drivers, appliedto the current environment.

Using these and other sources, weranked 57 developed- and emerg-ing-market countries across six keyfactors identified by the research:Working-age population growthduring 2015-2020, average educa-tion (years), ease of doing business,per capita GDP in 2014 and pur-chasing power parity (PPP) in 2011USD, investment as a percentage ofGDP and finally, government con-sumption expressed as a percentageof GDP.

Our findings show that EM coun-tries will likely produce 4.2%working-age population growth inthe next five years, while DM coun-tries may shrink by 0.2%. EMcountries also have an advantage incatch-up potential, with lower per-capita GDP to begin with, greaterinvestment as a percentage of GDP,and lower government consump-

tion. The differences between individ-ual EM countries however, are asgreat as the differences between EMand DM, hence, while investing inEM as a whole helps address thequestion of where to invest in theNew Normal, choosing the mostpromising countries can yield betterreturns. ❖

1Robert J. Barro, “Economic Growth in aCross Section of Countries,” The QuarterlyJournal of Economics, Vol. 106, No. 2, May1991, pp. 407-443.2Antonio Fatas and Ilian Mihov, “The 4 I’s ofEconomic Growth, INSEAD.3David E. Bloom, David Canning, JaypeeSevilla, “Economic Growth and theDemographic Transition,” Working Paper8685, National Bureau of Economic Research.

Geoffrey Wong, CFA, is Head ofGlobal Emerging Markets and AsiaPacific Equities at UBS AssetManagement (Americas). His priorexperience includes co-founding anAsian investment management firm,where he served as Director ofInvestment Management responsiblefor asset allocation and stock selectionfor global and regional institutionalportfolios. Geoffrey served on theboard of directors of SingaporeExchange, the combined stock andfutures exchange of Singaporebetween 2003 and 2006. He is a mem-ber of the Singapore Society ofFinancial Analysts.


The US Department ofLabor finalized its safeharbor regulation allow-ing states to create “Auto

IRA” programs for private sectoremployees. These programs wouldrequire specified employers, gener-ally those without any form ofworkplace retirement plan, toallow their employees to contributethrough payroll withholding to astate-managed Roth IRA. Witheconomies of scale, low costs andprofessional management, AutoIRAs are intended to assist workersin accumulating meaningfulamounts of retirement savings.The DOL issued the final rule onAugust 25th.

Importantly, employees will be auto-matically enrolled at a set contribu-tion rate (e.g., 3% of pay) unlessthey opt out or choose a differentrate. And, most programs areexpected to increase the automaticsavings rate annually, up to a speci-fied percentage such as 10%.Behavioral economists have shownthat auto enrollment/escalation sig-nificantly increases saving rates,especially among low-incomeemployees. Although no Auto IRAhas gone “live,” California, Oregon,Illinois, Connecticut and Marylandare in the process of establishingprograms and a number of otherstates are engaged in feasibility stud-ies. Programs that follow the DOL’ssafe harbor will be exempt fromERISA regulation which, many legalexperts believe, could otherwise pre-empt a state’s ability to requireemployer participation.

DOL Finalizes State Auto IRA Safe Harborand Proposes Rule to Extend to CitiesBy David E. Morse

The conditions for an Auto IRAProgram to qualify for the safe har-bor include:m Established by a state under state

law;m Administered by state/instru-

mentality “responsible forinvesting employee contributionsor for selecting investment alter-natives;”

m State “assumes responsibility forsecurity of payroll deductionsand employee savings;”

m Mechanism for employee, repre-sentative and state to enforceemployee’s rights;

m Voluntary for employees (autoenrolment with an opt-out isconsidered voluntary);

m Employer involvement limited toministerial acts such as payrollprocessing, keeping records anddistributing info;

m No employer contributions, noemployer kick-backs or otherincentives;

m Auto-enrolment and escalationare allowed only if:

• Required by state law;• Adequate notice is given to

employees; and• The employer is required to

join program and auto-enrol-ment/escalation only applies toemployees affected by man-date.

The safe harbor allows states a fairamount of flexibility in crafting itsprogram. We expect that states willoutsource most administrative,recordkeeping, investment andtrustee/custodial duties to private-sector vendors.

The DOL also has proposed allowingcertain cities, counties and other polit-ical subdivisions to establish Auto IRAprograms. Under the proposal, thelocality must have a population atleast equal to the least populous state(currently Wyoming with just under600,000). However, if and when astate establishes its own program,localities would be prevented fromcontinuing/establishing new pro-grams.

The DOL expects that the final regula-tions will fine tune the eligibility stan-dards, perhaps to limit the safe harborto financially sophisticated units withan established benefit administrationinfrastructure, and provide guidanceon how an existing local Auto IRAwould be affected by the adoption of asubsequent state program.

While the final regulation is a furtherimprovement of the already beneficialproposed regulations, many commen-tators would have preferred that theDOL allowed auto enrollment evenwithout an employer mandate.NCPERS was active in convincing theDOL to originally propose the safeharbor for states and issuing the finalregulation. ❖

To dive further into this topic, pleasejoin David Morse & NCPERS at theCenter for Online Learning, for ourwebinar on Wednesday, October 19th.You can register here(https://attendee.gotowebinar.com/register/8386015145043460100)


In addition to portfolio management, Mr.Rodriguez is a managing director and thehead of real estate securities for InvescoReal Estate, where he oversees all phasesof the unit, including securities researchand administration.

Mr. Rodriguez began his investment careerin 1983 and joined Invesco Real Estate, theDallas-based investment management affil-iate of Invesco Institutional (N.A.), Inc., in1990. He has served on the editorial boardfor the Financial Times Stock ExchangeNational Association of Real EstateInvestment Trusts (FTSE NAREIT), aswell as the editorial board of theInstitutional Real Estate Securities newslet-ter. He is a member of the NationalAssociation of Business Economists,


MARKET CAP OF EQUITY REITS HAS

GROWN MORE THAN SIXFOLD

REIT Magazine notes that the GICSchange is “reminiscent of the deci-sion in 2001 to include REITs in theS&P Indexes.”2 Following that deci-sion, the market capitalization of USequity REITs ballooned from $147billion to $886 billion from 2001through 2015.3 ❖

IMPORTANT INFORMATION

Real estate companies, including REITs orsimilar structures, tend to be small; mid-cap companies and their shares may bemore volatile and less liquid.

The Global Industry ClassificationStandard was developed by and is the

GICS continued from page 2 exclusive property and a service markof MSCI Inc. and Standard & Poor’s.

1MSCI Inc., Dow Jones Indices, March 8, 2016

2REIT.com, May 24, 20163National Association of Real EstateInvestment Trusts, May 31, 2016

inflated levels that would have fallenif the truth about alleged corporatemisconduct was revealed. This is con-sistent with a long standing U.S.Supreme Court decision which heldthat it is presumed investors reason-ably rely on market information inmaking their investment decisions.This theory has been supported bythree other federal appeals courts.NCPERS, also filed a friend of thecourt brief in the Second CircuitCourt of Appeals in a related case,Arkansas Teachers’ Retirement

System v. Goldman Sachs Group,Case Number 16-250. Most recently,NCPERS filed a friend of the courtbrief in Universities SuperannuationScheme Ltd. v. Petrobras, CaseNumber 16-1914 asking the SecondCircuit Court of Appeals to preservethe method of ascertaining damagesin class action cases.

All of these cases, in which manyNCPERS members are between thenamed plaintiffs and class members,represent a concerted effort to under-mine the protections afforded public

pension plan investors by federal secu-rities laws. As NCPERS ExecutiveDirector Hank Kim recently observed:“For decades investors have been ableto rely on securities class actions toprotect and preserve our members’claims for damages under federalsecurities laws.” Recognizing the vitalrole that investment income plays inthe financing of public pensions andNCPERS’ members as holders ofmore than $3 trillion in securities,NCPERS leadership has adopted apolicy of vigorous support for thepreservation of investor rights. ❖

Legal Report continued from page 5

• To offset increases in the ratio ofactives to retirees, increase byseven years.

m Reduce benefit multipliers• Use a formula that would expect

a longer career service period so asimilar lifetime benefit is earned.

m Review the funding policy to elim-inate inter-generational transfers• Annually review the principle

pay-off; and • Use multi-year projections to

monitor the effects of amend-ments and gains/losses on theanticipated date for full fund-ing.

Importantly, demographic chal-lenges place pressure on the eco-nomic system as a whole.Retirement systems are faced withthe prospect of lowering costs whileproviding meaningful and sustain-able retirement income. ❖

Pension Policy continued from page 6

American Real Estate Society and theInstitute of Certified Financial Planners. Hehas also served as adjunct professor of eco-nomics at The University of Texas at Dallas.

In addition, Mr. Rodriguez was a con-tributing author to Real Estate InvestmentTrusts: Structure Analysis and Strategy,published by McGraw-Hill. He made con-tributions as editor and author to severalindustry publications, and has been fea-tured as a real estate expert by both finan-cial industry print and television mediasuch as CNBC and Bloomberg News.

Mr. Rodriguez earned a Bachelor ofBusiness Administration degree in econom-ics and finance as well as an MBA infinance from Baylor University.

declines across most asset classes. It’sbeen estimated that 401(k) and IRAinvestors lost approximately $2.4 tril-lion in aggregate value during the finaltwo quarters of 2008. Fast forward toAugust 2015—while not as dire as thefinancial crisis, the month nonethelessfeatured pronounced fears of a Chinaeconomic slowdown and worseningGreek debt woes. And just like inOctober 2008, most asset classes fell inunison and showed the shortcomingsof diversification.

DYNAMIC RISK MITIGATION DELIVERS

In light of diversification’s diminishingpotential, plan sponsors are realizingthat a dynamic approach can exploitthe cyclicality of asset-class returns andachieve a meaningful, positive impacton a plan’s risk/return profile. The bigidea behind a dynamic approach isthat asset classes exhibit both “trend-ing” and “mean-reverting” return pat-terns, the cyclicality of which can beidentified and exploited. The resultingallocation seeks to balance as manyreturn-seeking assets as possible withas many safe assets as necessary.

At the core of dynamic risk mitigationis a rules-based, repeatable processthat can “up-risk” or “de-risk”according to changing market condi-tions. The dynamic process also drivesdecisions about when to take profitsand when to re-enter markets. If therules are effective, and a dynamic risk-mitigation strategy is successfullyimplemented, a pension plan can par-ticipate more fully in rising marketsand preserve capital to a greater degreein declining ones. In the current low-growth, low-rate environment inwhich pension plans must contend, adynamic approach could make all thedifference in better aligning assets withliabilities.❖


How Dynamic Risk Mitigation Works:Powerful combination of trend following and mean reversion components


Diversification continued from page 9


Diversification continued from page

DISCLOSURE:

The material contains the current opin-ions of the author, which are subject tochange without notice. Statements con-cerning financial market trends arebased on current market conditions,which will fluctuate. References to spe-cific securities and issuers are for illus-trative purposes only and are not intend-ed to be and should not be interpreted asrecommendations to purchase or sellsuch securities. Forecasts and estimateshave certain inherent limitations and arenot intended to be relied upon as adviceor interpreted as a recommendation.

Allianz Global Investors DistributorsLLC, 1633 Broadway, New York, NY

10019-7585, us.allianzgi.com, 1-800-926-4456 - AGI-2016-09-06-16250

CONCLUSION

While the SEC pay to play rule maybe “obscure” to some commentators,it now is front and center in this year’sPresidential campaign. Public pensionplans are undoubtedly familiar withthis rule and its fiduciary implicationsin ways that others from more“obscure” perspectives may not. ❖

1Andrew Ross Sorkin, “Trump and Pence: Onthe Same Ticket but Not the Same Page”, The New York Times, July 18, 2016.217 C.F.R. § 275.206(4)-5.3SEC Release No. IA-3043, at 17.4New York Republican State Comm. v.S.E.C., 799 F.3d 1126, (D.C. Cir., 2015). 5A private equity firm, TL Ventures, paidnearly $300,000 in disgorgement and finesfor political contributions made an associatein the amount of $2,500 to a candidate forMayor of Philadelphia and $2,000 to theGovernor of Pennsylvania.https://www.sec.gov/litigation/admin/2014/ia-3859.pdf

6The SEC granted an exemption from Rule206(4)-5 to Starwood Capital GroupManagement, LLC, after their chief operatingofficer tripped the wire when he made a$1,000 contribution to an exploratory com-mittee for an Illinois gubernatorial candidatethat was clawed back 9 days later.https://www.sec.gov/rules/ia/2015/ia-4203.pdf 7Contributions to the Clinton-Kaine campaignare not subject to the SEC rule since neithercandidate holds state or local office. 8SEC Release No. IA-3043, at 46.9SEC Release No. IA-3043, at 45.

Pay to Play continued from page 10

appetite are all significant in explain-ing farmland total returns in theNCREIF index. But, their significancepoints to more complex underlyingstructural linkages rather than anystraightforward effects. In total, thesefactors only explain 12% of the vari-ation in farmland return versus 48%for commercial real estate return.Nor are farmland returns driven bythe ten-year Treasury yield, a com-monly offered explanation of farm-land returns. Although returns forfarmland and commercial real estatemight be somewhat correlated, thereis more to the story than that metric(Exhibit 2).

Diversifiers continued from page 11DRIVERS OF FARMLAND RETURNS

So, what does drive farmlandreturns? In contrast with commer-cial real estate, which is used inlocalized domestic activities, farm-land yields products that are con-sumed and traded globally. Foreignexchange rates for the dollaraccount for 13% of farmland’s totalreturn versus an inconsequentialeffect for commercial property. Theproductivity of the land and farmoperations, combined with foreignexchange rates, accounts for over33% of farmland’s variation in totalreturn. That percentage rises to 43%with the inclusion of U.S. inflation.

Another consideration is the lowturnover and limited availability ofU.S. farmland, with a market value ofonly $6.7 billion vs. $472 billion forcommercial real estate, as measuredby NCREIF data as of Dec. 31, 2015.This limited availability offers a bufferto the value of farmland.

DIVERSIFICATION IMPLICATIONS

Commercial real estate and farmlandoffer different flavors of diversifica-tion, due to the differences in theirperformance drivers. This makesthem good diversifiers for each other,as well as for stocks and bonds.

Mr. Zimmerer is a senior product specialistand a director with Allianz GlobalInvestors, which he joined in 2014. As amember of the Multi Asset US team, he isresponsible for articulating the philosophyand process of the firm’s dynamic multi-asset strategies to clients and external audi-ences; he also provides insights to the advi-sor and consultant community on theimpact of market conditions on portfoliodecisions. Earlier with the firm, Mr.Zimmerer was a portfolio manager withAllianz in Munich and Frankfurt, where he

developed quantitative investment strate-gies and managed bond and CPPI portfo-lios. He has 18 years of investment-industryexperience. Before, Mr. Zimmerer was aprofessor of finance and investments at theUniversity of Applied Science in Ansbach,Germany, and served as senior consultantfor a German-based consulting firm, advis-ing institutional investors. He has anM.B.A. in economics and finance and aPh.D. in econometrics from the Universityof Regensburg, Germany.


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https://www.sec.gov/litigation/admin/2014/ia-3859.pdf

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DISCLOSURES

Real Asset investments may be subjectto environmental and political risksand currency volatility. Investmentswill be subject to risks generally asso-ciated with the ownership of realestate-related assets and foreigninvesting, including changes in eco-nomic conditions, currency values,environmental risks, the cost of andability to obtain insurance, and risks

related to leasing of properties.

The material is for informationalpurposes only and should not beregarded as a recommendation oran offer to buy or sell any productor service to which this informa-tion may relate. Certain productsand services may not be availableto all entities or persons. Past per-formance does not guaranteefuture results.

TIAA Global Asset Managementprovides investment advice andportfolio management servicesthrough TIAA and over a dozenaffiliated registered investmentadvisers.

©2016 Teachers Insurance andAnnuity Association of America-College Retirement Equities Fund,730 Third Avenue, New York, NY10017 ❖

Exhibit 4. Returns for farmland and commercial real estate are not highly correlated

Diversifiers continued from page 16

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N AT I O N A L C O N F E R E N C E O N P U B L I C E M P L O Y E E R E T I R E M E N T S Y S T E M S

Large U.S. cities are emergingas the new frontier forprivate-sector retirement

savings programs inspired byNCPERS’ Secure Choice Pensionproposal.

New York City Comptroller ScottStringer on October 6 unveiled theNew York Nest Egg proposal, whichwould provide three distinct city-sponsored automatic retirementsavings options to be offered toprivate businesses. Approximately3.9 million of New York Cityworkers lack access to a workplaceretirement program, according to ananalysis by NCPERS.

New York Mayor Bill DiBlasio andPublic Advocate Letitia James havepreviously endorsed similarconcepts, and the cities ofPhiladelphia and Seattle areweighing their own approaches toaddress the burgeoning private-sector retirement savings crisis.

All of these municipal initiatives arein their early stages, occurring asinterest by states is acceleratingrapidly. Governor Jerry Brown madenational headlines September 29 bysigning into law California SecureChoice, which will require private-sector companies that lack

City Initiatives Pick Up Speed asSecure Choice Pensions Gain Traction

N o v e m b e r 2 0 1 6

retirement plans and have five ormore workers to automatically deductindividual retirement accountcontributions from workers’paychecks.

California thus became the eighthstate – and the largest – to adopt whatis coming to be known as an “Auto-IRA” program. Connecticut, Illinois,Maryland, Massachusetts, NewJersey, Oregon, and Washington Statehave passed laws that require somesmall businesses to either set upretirement savings plans or createstate-run marketplaces to help smallbusinesses shop establish plans.Although none of the programs havegone live yet, some are expected tobegin operations in 2017, withOregon likely to be first, said DavidMorse, a partner in the New Yorkoffice of the law firm K&L Gates.

The Department of Labor in Augustprovided the catalyst for an uptick inAuto-IRA interest at the state andmunicipal level. At that time, thedepartment issued final rules carvingout ways states can structure andoperate Auto-IRAs to avoid runningafoul of the Employee RetirementIncome Security Act. The departmentsimultaneously issued a proposal toprovide a similar safe harbor formunicipalities.

Automatic enrollment of private-sectorworker is the cornerstone of theapproach, though all programs wouldhave to provide opt-out options foremployees who want to change theircontribution or not contribute at all. TheAmerican Association of RetirementPersons, hailing the department’s finalrules in August, noted that employeesare 15 times more likely to participatein a retirement savings plan whencontributions are automaticallydeducted.

The still-pending municipal proposalstipulates two important conditionsthat would apply to cities andcounties that choose to offer an auto-IRA, said Morse, who spoke atNCPERS’s October 19 webinar onAuto-IRAs. Morse noted thatmunicipalities can offer programsprovided there is no statewideretirement plan in that particularstate. “That language is actually a bittroubling, because it’s not clear whatit means,” Morse said. “For example,would it count if a state simply had anelectronic retirement planmarketplace?” This question is likelyto be clarified in a final rule, which isexpected to come out before the newAdministration takes office inJanuary 2017.

continued on page 2

FEDERAL news

2 • N C P E R S , T h e Vo i c e f o r P u b l i c P e n s i o n s ◆ N o v e m b e r 2 0 1 6

The other proposed requirement,Morse noted, is that programs couldbe launched only by cities or countiesthat are at least as large as the U.S.state with the lowest population.(Currently, the benchmark would beWyoming, which has fewer than600,000 residents.) The Departmentof Labor has asked for comments tomake sure cities have the necessaryheft to operate an Auto-IRA program.

Congressional Lame-DuckSession

In an atmosphere of growinguncertainty over whether Republicanswill maintain their majority in theU.S. Senate in the next Congress,

GOP Leadership there is consideringhow best to use the upcoming lame-duck session to further its policygoals. While the situation in theHouse is less tenuous with regard tomaintaining a Republican majority,Speaker Paul Ryan (R-WI) and hischief lieutenants must also consider apossible near-term future without aSenate run by their allies.

Given the enormity of the unfinishedbusiness that this Congress has piledup since January 2015, the decisionson what legislation moves and how itis processed are numerous. The onlymust-pass legislation would fundfederal agencies and programs. Astop-gap funding measure, which isknown as a continuing resolution, isin place until December 9. Thatdeadline is likely to be extended until

City Initiatives continued from page 1 Congress and President Obama cancoalesce around a package ofprogrammatic funding levels andpolicy riders that can take the federalgovernment through the end of fiscalyear 2017. Of course, there is achance that an agreement will not bereached in the constricted time periodof a lame-duck session. In that case,the continuing resolution could beextended into early 2017. The newPresident and Congress will thenhave to resolve the funding issues asone of their first priorities.

Regarding public pension plans, wehave worked throughout thisCongress to ensure that problematicprovisions aimed at state and localgovernmental pension plans are not

continued on page 4

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enacted into law. Senate FinanceCommittee Chairman Orrin Hatch(R-UT) included both the PublicEmployee Pension Transparency Act(PEPTA) and the annuityaccumulation plan in his version ofPuerto Rico assistance legislation atthe end of 2015. We’re pleased thatneither PEPTA nor the annuityaccumulation plan was included inthe legislation as it was enacted – thePuerto Rico Oversight Managementand Economic Stability Act of 2016.

Now Chairman Hatch is eyeing thelame-duck session to finalizelegislation related to the pension andretiree health benefits of coal minersand separate legislation to enhancedefined contribution plans, namelyIRAs and 401k plans. Both pieces of

legislation have been approved by theFinance Committee. It is likely thatthey will be moved as part of a largerspending-and-tax bill at the end ofthis Congress. Neither bill containsPEPTA or the annuity accumulationplan. The wild card for this end-of-yearlegislation will be the House. TheWays and Means Committee has notconsidered either the coal miners orthe defined contribution planlegislation and it is unclear whetherthey will do so. Another course ofaction would be for the top House taxwriters to agree to the Senatelegislation, perhaps with some minorchanges, but then request that someproposals of their own be included.Again, in this scenario, we will haveto ensure that legislative add-ons donot include PEPTA or the annuityaccumulation plan.

On November 8, voters will finallyput to rest this acrimonious electionseason. The lame-duck Congress andPresident Obama will then be able tomore clearly evaluate the futurepolitical dynamics and makedecisions on what can beaccomplished in the lame-ducksession.

Please be assured that NCPERS willmonitor these developments closelyand report any significant matters toits members. ■

Lame-Duck Session continued from page 2

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Tony Roda is a partner at the Washington,D.C., law and lobbying firm Williams &Jensen, where he specializes in legislativeand regulatory issues affecting state andlocal pension plans. He representsNCPERS and individual pension plans inCalifornia, Ohio, Tennessee, and Texas.

http://www.ncpers.org/membership

N C P E R S , T h e Vo i c e f o r P u b l i c P e n s i o n s ◆ N o v e m b e r 2 0 1 6 • 5

Hank H. Kim, Esq.Executive Director

& CounselExecutive Director's Corner

NCPERS marks its 75thanniversary this year, andnaturally it is a time that

inspires pride and unity. Since ourinception in 1941, our organizationhas helped to shape modern publicpension systems into a powerfulvoice for retirement security.

But anniversaries are not just a timeto celebrate. They are a time toconsider why our work is importantand how we can most effectivelycontinue to perform it. NCPERS is inthe process of mapping out its futureby developing a strategic plan. Thegoal is to ensure that we have the bestideas to serve members for decadesto come. We can’t create thisroadmap to the future without you.

Since the second week of August, wehave conducted focus groups withabout a dozen pension plans todiscuss the value of NCPERS. Wehave received thoughtful input as tohow staff can best support membersin the areas of education, research,communications and social media.We are learning how members thinkour dues structure and affinityprograms should be configured. Inshort, we are getting your feedbackon everything we do to make surethat the services we provide are of thehighest value to you, our members.

Every NCPERS memberorganization will be receiving asurvey from us in the beginning ofNovember to explore thesequestions more fully. We urgentlyneed your candid responses.

In all likelihood, you have justcompleted our annual survey ofmembers, and you may well bewondering why another survey isnecessary. The answer lies in thefact that the annual member survey,which we’ve conducted for the pastsix years, gauges the attitudes,concerns, and outlook of NCPERSmembers. It isn’t about NCPERS asan organization, but about thepension plans themselves.

The strategic-plan survey isdifferent. In it, we are askingmembers to reflect on how NCPERSdelivers value and leadership to thepublic plan community, and how wecould do it better. We want inputabout our value to planadministrators, investment staff,benefits staff, and trustees. We wantto know what education andnetworking opportunities you need,what research you value, and howyou communicate with your planparticipants.

As we look to the future, we mustalso take pains to draw lessons fromthe past. NCPERS has a proudhistory. We were there in theaftermath of the New Deal, when thegovernment upped the ante onretirement security with the creationof the Social Security system. Wecame into being because part of theresponse to Social Security was aboom in public pension plans. Ourrole, then as now, was to provideadvocacy, research, and educationopportunities for public pensionplans leadership.

For 75 years, we have consistentlyand successfully made the case thatdefined-benefit pensions are anirreplaceable feature of theemployment bargain for publicservants. During war and peace,during stable and turbulent times, ourmessage has been consistent: Westrive to promote and protectpensions by focusing on advocacy,research and education for the benefitof public sector pensionstakeholders.

What will our next 75 years looklike? The answer is up to you. ■

Survey Will Help NCPERS MapOur Future with Strategic Plan

T H E

M O N I T O R The Latest in Legislat ive NewsThe Monitor is published by the National Conference on Public Employee Retirement Systems. Website: www.NCPERS.org • E-mail: [email protected] North Capitol Street, NW, Suite 630 • Washington, DC 20001 • 1-877-202-5706 • (202) 624-1439 (fax)

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