BOARD OF RETIREMENT FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
April 16, 2008
Trustee Present:
Alan Cade, Jr. Michael Cardenas Ronald S. Frye, Alternate Eulalio Gomez James E. Hackett Steven J. Jolly Phil Larson
Trustees Absent:
Nick Cornacchia Vicki Crow John Souza
Others Present:
Michael Cunningham, FCERA Retiree Roger Greening, FCERA Retiree Ron Madsen, FCERA Retiree Les Jorgensen, Fresno County Retired Employees’ Association Paul Angelo, The Segal Company Andy Yeung, The Segal Company Attorney Jeffrey Rieger, Reed Smith, LLP Kevin Smith, SEIU Local 521 DeAnn VonBerg, Personnel Services Manager Robert Landen, Deputy County Counsel Roberto L. Peña, Retirement Administrator Becky Van Wyk, Assistant Retirement Administrator Elizabeth Avalos, Administrative Secretary
1. Call to Order
Chair Jolly called the meeting to order at 8:39 AM.
2. Pledge of Allegiance
Recited.
3. Public Presentations
None.
Consent Agenda/Opportunity for Public Comment
A motion was made by Trustee Larson, seconded by Trustee Frye, to Approve Consent Agenda Items 4-11. VOTE: Unanimous (Absent – Cornacchia, Crow)
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*4. Approve the April 2, 2008 Retirement Board Regular Meeting Minutes
RECEIVED AND FILED; APPROVED
*5. Request to Purchase General Service as Safety Time
RECEIVED AND FILED; APPROVED
o Leandro Cano o Janet E. Davis o Eddie Dingler o Ronald G. Jackson o Brien F. Melkonian o Michael Munneke o Jimmy L. Robnett o Frances C. Ruiz
*6. Request to Rescind Deferred Retirement
RECEIVED AND FILED; APPROVED
Name Department Years of Service Gloria Jaramillo Sheriff 7.41
*7. Summary of monthly statistics from the Retirement Association Office on buybacks, retirement benefit estimates, public service, age adjustments, final compensation calculations, and disability retirement applications for March 2008
RECEIVED AND FILED
*8. Public Records Requests and/or Retirement Related Information Requests from Marc Sorondo, Investment Management Weekly; Sandra Brock, FCERA Member; and Joy Crane, FCERA Member
RECEIVED AND FILED
*9. Update of Board of Retirement directives to FCERA Administration
RECEIVED AND FILED
*10. Quarterly Trustee Travel and Anticipated Trustee Travel Report
RECEIVED AND FILED
*11. Budget Status for the period ended March 31, 2008
RECEIVED AND FILED 04/16/08 Regular Meeting Minutes 3
12. Discussion and appropriate action on Undistributed Earnings Policy presented by Paul Angelo, Senior Vice President and Actuary and Andy Yeung, Vice President and Associate Actuary, of The Segal Company
13. Discussion and appropriate action on Interest Crediting Policy presented by Paul Angelo, Senior Vice President and Actuary and Andy Yeung, Vice President and Associate Actuary, of The Segal
Items 12 and 13 were presented and discussed as one item due to the high correlation between them.
Roberto L. Peña, Retirement Administrator, opened discussions by stating that these topics have been very challenging for the Board over the last few years, especially as they relate to the Settlement Agreement. It was noted that today’s presentation is merely educational and is intended to bring the Board up-to-date on past discussions and decisions by the Board, as well as to share common practices of other public retirement systems in California and to ensure that the Board, FCERA members, and stakeholders are educated and informed about these issues.
Mr. Peña clarified that, although FCERA has an Interest Crediting Policy, an Undistributed Earnings Policy has not yet been developed.
Paul Angelo, The Segal Company (Segal), began the presentation by briefly explaining the actuarial cost method fundamentals in determining the cost of the Plan and the mechanics of the reserves, interest crediting, and undistributed earnings.
Mr. Angelo reviewed the 1937 Act Reserve structure and how it relates to the valuation reserves and non-valuation reserves.
In response to a question from Chair Jolly regarding how a Plan may have excess earnings and only be 80% funded, Mr. Angelo stated that excess earnings are measured on a year-by-year basis, whereas the percentage of funded status is measured on an accumulative measure of assets to liabilities. The Plan may have earnings greater than the assumed rate of return in a particular year even though, on an accumulative basis, the overall assets are less than the liabilities. Mr. Angelo noted that a surplus/over-funded status is created when the assets are greater than the liabilities.
For historical purposes, Attorney Jeffrey Rieger, Reed Smith, noted that at the time the Settlement Agreement was negotiated the Plan was overfunded which probably impacted what the parties expected from the Settlement Agreement. It was noted that, as a result of the Settlement Agreement, an enhanced benefit
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was created for the employees and retirees without actually having enough assets to cover the liabilities.
Les Jorgensen, Fresno County Retired Employees’ Association (FCREA), noted that prior to the Settlement Agreement Retirees were not benefiting from the excess earnings the time the employer and employees were. Mr. Jorgensen opined that Section 9 of the Settlement Agreement establishes, as first priority, that excess earnings are to be “shared” with the Retirees.
Discussions ensued regarding how gains are shared between the employer and employee versus the losses being the responsibility of the employer.
Mr. Peña noted that Section 8 of the Settlement Agreement provided an enhanced benefit of $15.00 per year of service, up to 30 years of service, to those retirees that retired prior to January 1, 2001.
At the request of Mr. Peña, Mr. Angelo briefly explained the market stabilization process and noted that the market stabilization reserve is the difference between the market value of assets and actuarial value of assets [smoothed value of assets] and is used to stabilize the volatility of employer and employee contribution rates.
Mr. Angelo reviewed the mechanics of the non-valuation reserves as they relate to the basic interest crediting process and distribution of excess earnings. It was noted that as part of the non-valuation reserves, the 1937 Act Statute requires a minimum of a 1% Contingency Reserve. FCERA’s current Interest Crediting Policy states that “… the Contingency Reserve will be allocated earnings until the value of the Contingency Reserves is equal to 3% of the Market Value of Assets, or until all Allocable Earnings have been exhausted.” Questions were raised for the Board’s consideration as to how the funds should be allocated in a given period.
Mr. Jorgensen noted that at the time that Settlement Agreement was approved, the Board’s policy for the Contingency reserve was at 1%. Mr. Jorgensen raised questions as to the impact the Settlement Agreement may have on the Board’s decision to raise the Contingency Reserve from 1% to 3% and the priority of allocating undistributed earnings to the non-valuation reserves.
Mr. Angelo reviewed the mechanics of the Undistributed Earnings Reserve and noted that the excess earnings are excluded from the valuation assets thereby preventing a sudden impact on the contribution rate.
Discussions ensued regarding the cost impact, if any, when undistributed excess earnings are used to fund a new benefit as opposed to funding existing statutory benefits.
The Interest Crediting Policy was reviewed and it was noted that, although the policy states that the Contingency Reserve will be allocated earnings until it is
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equal to 3% of the Market Value of Assets, the Board has previously indicated a desire to revisit the percentage issue. Mr. Angelo stated that, when developed, FCERA’s Undistributed Earnings Policy would be a combination of the Settlement Agreement and Board discretion and address the order of application of undistributed earnings as they relate to Sections 6, 8, and 9 of the Settlement Agreement. It was noted that Section 6 enhanced the retirement benefits for active members retiring on or after January 1, 2001, Section 8 enhanced retirement benefits for retired members who retired before January 1, 2001, and Section 9 created a health benefit of $3 per month per year of service with future increases tied to undistributed (excess) earnings.
Discussions, questions, and comments followed regarding the application of Undistributed Earnings in the June 30, 2002 valuation and noted that the undistributed earnings were used for employer and employee contributions and to reduce the unfunded liabilities of Sections 6, 8, and 9 which exhausted the undistributed earnings.
Discussions, questions, and comments followed regarding methods of tracking interest crediting shortfalls such as the “Contra Account” method that allows the use undistributed earnings to fund prior years’ interest crediting shortfalls.
Kevin Smith, SEIU Local 521, addressed the Board regarding the use of undistributed earnings as they relate to the Settlement Agreement. Mr. Smith opined that is the opinion of SEIU Local 521 that undistributed earnings are to be used to pay for the settlement benefits prior to any discretion of the Board.
Ron Madsen, FCERA Retiree, requested that the Board reconsider its decision to increase the Contingency Reserve from 1% to 3%. Mr. Madsen opined that increasing the amount of the reserve will decrease the amount of undistributed earnings available to fund the benefits as stated in the Settlement Agreement.
Discussions, questions, and comments followed regarding the issues related to the Interest Crediting Policy and Undistributed Earnings and how they may be affected by the Settlement Agreement, law, and Board discretion.
The Board directed Administration to work with the Actuaries and Counsel in developing a list of discussions items and return to the Regular Meeting on May 7, 2008. It was noted that the Actuaries and Counsel are available to attend the June 18, 2008 Regular Board Meeting to continue discussing these topics.
NO ACTION TAKEN
14. Discussion and appropriate action on which pay items are included in “compensation earnable” and potential amendments to FCERA’s existing Pensionable Earn Codes Resolution presented by Jeffrey Rieger, Reed Smith, LLP
Attorney Jeffrey Rieger, Reed Smith LLP, noted that the presentation is merely educational and is intended to bring the Board up-to-date on past discussions and decisions by the Board. 04/16/08 Regular Meeting Minutes 6
Mr. Rieger began the presentation by disclosing that at least one Board member’s retirement benefits could potentially be impacted by the Board’s decisions with respect to whether certain Earn Codes (standby, on call, certain types of overtime and MTO [Mandatory Overtime Cancellation]) should be included in “compensation earnable” for some or all members. Additionally, since the Board may be amending and restating the Earn Code Resolution as a whole, the Board’s decisions arguably could potentially impact every Board member who is an active employee (and therefore may receive compensation covered by the Earn Code Resolution).
It is Reed Smith’s opinion that, at this time, there is no material risk of a conflict of interest violation. The Board is not entering into any contract, so Government Code Section 1090 et. Seq. should not apply. As for the Political Reform Act, it is Reed Smith’s opinion that the Board members qualify under a safe harbor established by 2 C.C.R. 18705.5(b) which deals with the “materiality” of a public official’s financial interest (only “material” interests may cause a violation). It provides that for a financial interest that arises out of an official’s governmental “salary” (which includes retirement benefits), that interest is considered “material” only if the decision at issue impacts “a salary for [the official]…which is different from salaries paid to other employees of the government agency in the same job classification or position.”
Trustee Gomez disclosed that the potential decisions of the Board may directly or indirectly affect him in that he is employed by the Sheriff’s Department. It was noted that Trustee Gomez will not be impacted by the Board’s decisions any differently than those in his department.
Attorney Rieger defined compensation earnable as the average compensation determined by the Board [of Retirement] for the period under consideration upon the basis of the average number of days ordinarily worked by the persons in the same grade or classification during the period and at the same rate of pay. It was noted that the Supreme Court defined compensation earnable as pay items received for working the time ordinarily required of other employees in the same grade or classification which are earned and payable in cash during the final compensation period.
Discussions, questions, and comments followed regarding the impact of the Ventura Court on compensation earnable and the parameters for determining when a specific earn code should be included in compensation earnable. Specifically, stand by, on call, mandatory overtime cancellation (MTO), and mandatory overtime earn codes were addressed.
Attorney Rieger noted that there is not a clear understanding at the department level as to what constitutes pensionable pay items or how to record time worked in the payroll system in order to have retirement contributions properly calculated.
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In response to a question from Trustee Gomez regarding the practices of other 1937 Act Counties as they relate to MTO, Becky Van Wyk, Assistant Retirement Administrator, stated that a survey of several 1937 Act Counties was conducted by the FCERA Administration in 2006 which revealed that, of the five systems that responded, none consider MTO pensionable.
In response to a question from Trustee Hackett regarding the determination of pensionable earn codes, Attorney Rieger noted that, under Government Code Section 31461, the Retirement Board is responsible for determining which earn codes are pensionable.
Attorney Rieger briefly reviewed the history of the Settlement Agreement and how it impacts the pensionable earn codes. Discussions ensued regarding new earn codes not addressed in the Settlement Agreement such as “briefing time” used by correctional officers.
Attorney Rieger raised questions as to who is bound by the Settlement Agreement and the affect earn code determination has on the different retirement tiers. It was noted that, based on the Board’s decisions thus far, all FCERA members are bound by the Settlement Agreement.
Discussions ensued regarding discussions between FCERA Administration and the County’s Personnel Services Department in which it was determined that not all departments are using pay codes in the manner in which they intended during negotiations.
DeAnn VonBerg, Personnel Services Department, addressed the Board regarding the misuse of pay codes and noted that it is the County’s policy to correct errors through payroll adjustments when errors are discovered.
A brief discussion ensued regarding the labor negotiation process and it was noted that FCERA Administration works with the Personnel Department when dealing with retirement issues, but does not get involved with negotiating any contract terms.
Mr. Peña noted that Administration will continue to work with County Personnel, Counsel, and the members on this issue and will return to the Board for further discussion when more information is available.
NO ACTION TAKEN
15. Discussion and appropriate action on potential amendments to Policies and Procedures Governing the Overpayment or Underpayment of Retirement Benefits presented by Jeffrey Rieger, Reed Smith, LLP
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board that, while the policy provides guidance for individual overpayment/underpayment corrections, it also provides the Board flexibility in 04/16/08 Regular Meeting Minutes 8
determining system-wide corrections such as the Final Compensation and COLA UAAL issues.
Attorney Jeffrey Rieger, Reed Smith LLP, stated that the draft policy addresses individual benefit overpayment/underpayment issues on a go forward basis and in most cases the overpayment/underpayment is non-controversial. Controversial questioned calculations will be discussed on an individual basis.
Attorney Rieger noted some of the changes to the policy such as the issue of collecting appropriate interest on overpayments which is based on recent guidance from the IRS.
Detailed discussions ensued regarding the Board’s responsibility in collecting overpayments made to the members. It was noted that the Board will make every reasonable effort to recover the amount of any overpayment of benefits and to remit the amount of any underpayment of benefits consistent with the policy and procedures established by the Board and within the parameters of the law.
Mr. Peña noted that that the draft policy is on a go forward basis and will not affect those members with overpayments arising from the Final Compensation project.
Discussions, questions, and comments followed regarding the Board’s authority to compromise claims due to hardship, collectability and the cost of collection. It was noted that only the Board may compromise claims in which the total amount of overpayment is greater that $5,000.00.
The Board directed Administration to work with Counsel in developing a written analysis on the following issues:
o A “statute of limitations” of recovery of overpayments o Guidelines for determining the collectability of an overpayment
NO ACTION TAKEN
Trustee Larson departed at 2:36 PM.
16. Discussion and appropriate action on SACRS 2008-09 Candidates (final slate) for President, Vice President, Treasurer, and Secretary
Roberto L. Peña, Retirement Administrator, opened discussions by stating that the State Association of County Retirement Systems (SACRS) submitted a list of Nominees/Candidates for the 2008-2009 SACRS Officer elections for the Board’s consideration. The list includes nominees/candidates submitted by the SACRS Nominating Committee, San Joaquin County Employees’ Retirement 04/16/08 Regular Meeting Minutes 9
Association, San Diego County Employees’ Retirement Association, and Los Angeles County Employees’ Retirement Association.
A motion was made by Chair Jolly, seconded by Trustee Cardenas, to Approve the Nominees/Candidates submitted by the SACRS Nominating Committee. The Nominees/Candidates are as follows:
o President – Richard White, Orange County o Vice President – Tim Barrett, San Bernardino County o Treasurer – Vicki Crow, Fresno County o Secretary – Darryl Walker, Alameda County
VOTE: Unanimous (Absent – Cornacchia, Crow, Larson)
RECEIVED AND FILED; APPROVED
17. Discussion and appropriate action on revised SACRS Travel Policy and Committee Appointment amendments
Roberto L. Peña, Retirement Administrator, opened discussions by stating that the State Association of County Retirement Systems (SACRS) has submitted the final versions of the SACRS Bylaws Amendments and Travel Policy for the Board’s consideration. The final versions of the SACRS Bylaws and Travel Policy will be included on the SACRS Business Meeting agenda as a voting item at the upcoming SACRS Spring Conference 2008 on May 16, 2008.
Mr. Peña recommended that the Board direct Vicki Crow, Voting Delegate, to support the final versions of the SACRS Bylaws and Travel Policy as presented.
A motion was made by Chair Jolly, seconded by Trustee Gomez, to direct Trustee Crow, Voting Delegate, to support the final versions of the SACRS Bylaws and Travel Policy as presented. VOTE: Unanimous (Absent – Cornacchia, Crow, Larson)
RECEIVED AND FILED; APPROVED
18. Closed Session:
A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a)
1. Stillman v. Fresno County Retirement Board (Fresno County Superior Court No. 08CECG010119 AMS
19. Report from Closed Session
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18.A.1. The Board instructed Counsel to defend the litigation. Motion – Chair Jolly. Second – Trustee Frye. VOTE: Unanimous (Absent – Cornacchia, Crow, Larson)
20. Report from FCERA Administration
Roberto L. Peña, Retirement Administrator, reported on the following item:
1. The Budget Committee will meet on May 9, 2008 to begin budget discussions.
21. Report from County Counsel
Robert Landen, Deputy County Counsel, had nothing to report.
22. Board Member Announcements or Reports
Trustee Gomez requested clarification on the repayment extensions given to Ms. Falls and Ms. Hoy. Roberto L. Peña, Retirement Administrator, clarified that the extensions will continue until the individual issues are addressed by the Board.
Chair Jolly noted that, because he will be attending an educational seminar, he will be absent from the May 7, 2008 Regular Board Meeting.
Attorney Rieger, Reed Smith, LLC, requested that the Board return to Closed Session in order to clarify an issue. The Board agreed and returned to Closed Session at this time.
It was noted that the Board failed to report the vote of Closed Session Agenda Item 18.A.1. as “unanimous” with Cornacchia, Crow, and Larson absent.
There being no further business, the meeting adjourned at 2:44 PM.
Roberto L. Peña Secretary to the Board
04/16/08 Regular Meeting Minutes