San Joaquin County Employees Retirement Association a G E N D A

San Joaquin County Employees Retirement Association A G E N D A

FINANCIAL MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT FRIDAY, SEPTEMBER 25, 2015 AT 9:00 AM Location: SJCERA Board Room 6 S. El Dorado Street, Suite 400, Stockton, California.

1.0 ROLL CALL 2.0 PLEDGE OF ALLEGIANCE 3.0 APPROVAL OF MINUTES 3.01 Approval of the minutes for the Financial Meeting of August 19, 2015 4 3.02 Approval of the minutes for the Special Meeting of August 19-20, 2015 7 3.03 Board to approve minutes 4.0 CONSENT ITEMS 4.01 Report of Closed Sessions 01 On July 10th, 2015, the Board unanimously approved Resolution 2015-07-01 titled "Raven Asset-Based Opportunity Fund III" and authorized the Chair to sign the necessary documents to invest $50 million in the Fund. 5.0 2015 ASSET-LIABILITY STUDY 5.01 2015 Asset-Liability Study Results - Strategic Allocation Discussion 9 5.02 Discussion with David Sancewich and John Linder, Principals of PCA and Robert McCrory, Principal Consulting Actuary of Cheiron on preliminary results of the 2015 Asset Liability Study 5.03 Board to discuss and give direction to staff and consultant as necessary 6.0 RESPONSE TO INQUIRY ON BANK LOAN PORTFOLIO 6.01 Bank Loan Portfolio Review from PCA 38 6.02 Board to discuss and give direction to staff and consultant as necssary 7.0 POLICY IMPLEMENTATION OVERLAY SERVICE (PIOS) 7.01 Parametric PIOS - Variation Margin Recommendation 46 7.02 Board to act on recommendation 8.0 2015 ANNUAL INVESTMENT MANAGER ROUNDTABLE EVALUATION 8.01 PCA Summary of Key Points from the Roundtable 49 8.02 Summary of Roundtable Evaluations 54

6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Financial Meeting • 9/25/2015 • Page 1 (209) 468-2163 • (209) 468-0480 • www.sjcera.org 8.03 Discussion by Board, staff and consultants on results, outcomes, conclusions and takeaways and Board to direct consultants and staff as appropriate for future roundtable sessions 9.0 PORTFOLIO UPDATE - PIMCO (APPROXIMATELY 10:00 A.M.) 9.01 Strategy Review of SJCERA’s PIMCO / RAE Funds 59 9.02 Presentation by Rob Arnott, Founder and Chairman of Research Afﬁliates and Matt Clark, Sr. Vice President and Sasha Talcott, Vice President of PIMCO 9.03 Board to discuss and give direction to staff and consultant as necessary 10.0 ACTUARIAL VALUATION REPORT AND GASB 67/68 REPORT 10.01 Annual Actuarial Valuation Report as of January 1, 2015 prepared by Cheiron 129 10.02 Annual GASB 67/68 Report as of December 31, 2014 prepared by Cheiron 210 10.03 Robert McCrory and Graham Schmidt, Principal Consulting Actuaries of Cheiron, will present the reports 10.04 Board to accept and ﬁle the Actuarial Valuation and GASB 67/68 reports 11.0 CYBER LIABILITY INSURANCE 234 11.01 Summary of Coverage offered by Travelers 237 11.02 Cyber Risk News Article and FBI Alerts 240 11.03 Board to discuss and give direction to staff as necessary 12.0 REPORTS 12.01 Monthly Investment Performance Updates 01 Manager Performance Flash Report a For Periods Ending August 31, 2015 (To be provided at the meeting) b For Periods Ending July 31, 2015 248 02 PCA Investment Market Risk Metrics September 2015 252 12.02 PCA Manager Compliance Report - Second Quarter 2015 270 12.03 PCA Manager Due Diligence Meetings and Reports 01 Manager Due Diligence Schedule 278 12.04 SJCERA Expected Cash Flows and Rebalancing 01 Memo from CIO summarizing recent actions to meet near-term cash needs 279 02 SJCERA Projected Cash Flows through calendar year end 281 03 Rebalancing Recommendation Summary from PCA 283 12.05 CIO Report 01 Proposed Financial Agenda Topics 284 02 Memo from PCA regarding actions and notices as Raven LPAC Member 286 12.06 Trustee and Executive Staff Travel 01 Conferences and Events Summary for 2015-2016 289

SJCERA Financial Meeting • 9/25/2015 • Page 2 a Risk & Liquidity Forum 2016 290 02 Summary of Pending Trustee and Executive Staff Travel 292 03 Summary of Completed Trustee and Executive Staff Travel 293 12.07 Board to accept and ﬁle reports 13.0 CORRESPONDENCE 13.01 Letters Received 01 9/18/15 PCA Crisis Risk Offset 295 13.02 Letters Sent 13.03 Market Commentary/Newsletters 14.0 COMMENTS 14.01 Comments from the Board of Retirement 14.02 Comments from the Chief Executive Ofﬁcer 14.03 Comments from the Public 15.0 CALENDAR 15.01 Regular Meeting, October 9, 2015 at 9:00 AM 15.02 Financial Meeting, October 23, 2015 at 9:00 AM 16.0 ADJOURNMENT

SJCERA Financial Meeting • 9/25/2015 • Page 3 San Joaquin County Employees Retirement Association M I N U T E S

FINANCIAL QUARTERLY MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT WEDNESDAY, AUGUST 19, 2015 AT 10:00 AM Location: SJCERA Board Room 6 S. El Dorado Street, Suite 400, Stockton, California.

1.0 ROLL CALL 1.01 MEMBERS PRESENT: Shabbir Khan, J.C. Weydert, Cindy Garman, Michael Duffy, Michael Restuccia, David Souza, Adrian Van Houten, Margo Praus and Raymond McCray presiding MEMBERS ABSENT: Steve Bestolarides STAFF PRESENT: Chief Executive Officer Annette St. Urbain, Assistant Chief Executive Officer Patricia Pabst, Chief Investment Officer Nancy Calkins, Retirement Financial Officer Lily Cherng, Information Systems Manager Tallie Claypool, Management Analyst III Greg Frank, Retirement Investment Accountant Fe Maliwat, Department Information Systems Specialist II Jordan Regevig and Senior Office Assistant Dana Duley OTHERS PRESENT: Deputy County Counsel Andrew Eshoo, David Sancewich of Pension Consulting Alliance and Paul Harte of Mount Lucas Management 2.0 PLEDGE OF ALLEGIANCE 2.01 Led by Margo Praus 3.0 APPROVAL OF MINUTES 3.01 Approval of the Minutes for the Financial Meeting of July 24, 2015 3.02 Board unanimously approved the minutes of the Financial Meeting of July 24, 2015. 4.0 CONSENT ITEMS 4.01 Northern Trust Custody Fee Schedule Extension through December 31, 2015 4.02 Asset Liability Study Summary 01 Memo from PCA Regarding Documentation of Voting - Suggested Allocation per Modeling 4.03 Board unanimously approved the consent items. 5.0 POTENTIAL INVESTMENT OPPORTUNITIES 5.01 Memo from PCA on Follow-on Funds 5.02 Board directed staff and consultants to schedule the fund sponsors to present these investment opportunities to the Board at a future meeting. 6.0 2015 INTEREST RATE DISCUSSION 6.01 Educational session presented by PCA on anticipated changes in interest rates and the potential impact on the SJCERA portfolio 6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Financial Quarterly Meeting • 8/19/2015 • Page 1 (209) 468-2163 • (209) 468-0480 • www.sjcera.org 6.02 Informational item in preparation for discussion at 10th Annual Investment Manager Roundtable August 19-20, 2015 7.0 QUARTERLY REPORTS FROM INVESTMENT CONSULTANT FOR PERIOD ENDING JUNE 30, 2015 7.01 PCA Quarterly Investment Performance Analysis 7.02 Mr. David Sancewich, Consultant with Pension Consulting Alliance, reviewed and discussed the reports in relation to the Board’s investment policies.

Staff noted that the quarterly manager compliance monitoring report would be submitted to the Board at the September Financial Meeting. 7.03 Board accepted and filed the report 8.0 REPORTS 8.01 Monthly Investment Performance Updates 01 Manager Performance Flash Report (As of July 2015 month end deferred to September Financial Meeting) 02 PCA Investment Market Risk Metrics - August 2015 03 PCA Economic Overview Supplement - August 2015 8.02 CIO Report 01 Proposed Financial Agenda Topics 8.03 Report from Real Estate Committee 01 SJCERA Committee Chair and staff provided a brief summary of the outcome of the Real Estate Committee meeting and investments 8.04 Board accepted and filed reports 9.0 CORRESPONDENCE 9.01 Letters Received 01 Summer 2015 Ocean Avenue Capital Update 02 August 6, 2015 Legato Capital Management 9.02 Letters Sent 9.03 Market Commentary/Newsletters/Articles 01 RAFI Fundamentals July 2015 10.0 COMMENTS 10.01 Comments from the Board of Retirement - None 10.02 Comments from the Chief Executive Officer - None 10.03 Comments from the Public - None 11.0 CALENDAR 11.01 Regular Meeting, September 11, 2015 at 9:00 AM 11.02 Financial Meeting, September 25, 2015 at 9:00 AM

SJCERA Financial Quarterly Meeting • 8/19/2015 • Page 2 12.0 ADJOURNMENT 12.01 There being no further business the meeting was adjourned at 11:26 a.m.

Respectfully Submitted:

______Raymond McCray, Chair

Attest:

______Michael Restuccia, Secretary

SJCERA Financial Quarterly Meeting • 8/19/2015 • Page 3 San Joaquin County Employees Retirement Association M I N U T E S

SPECIAL MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT WEDNESDAY, AUGUST 19, 2015 AT 2:00 PM CONTINUING THURSDAY, AUGUST 20, 2015 AT 8:00 AM Location: 2505 West Turner Road, Lodi, CA 95242

1.0 ROLL CALL 1.01 MEMBERS PRESENT: Shabbir Khan, J.C. Weydert, Cindy Garman, Michael Duffy, Michael Restuccia, Dave Souza, Adrian Van Houten, Margo Praus and Raymond McCray presiding MEMBERS ABSENT: None STAFF PRESENT: Chief Executive Officer Annette St. Urbain, Assistant Chief Executive Officer Patricia Pabst, Chief Investment Officer Nancy Calkins, Information Systems Manager Tallie Claypool, Fiinancial Officer Lily Cherng, Retirement Investment Accountant Felipa Maliwat, Management Analyst III Greg Frank and Office Assistant Andrea Ireland OTHERS PRESENT: Deputy County Counsel Andrew Eshoo; David Sancewich of PCA; Robert McCrory of Cheiron; and Michael Humphrey and Michael Murphy of Courtland Partners 2.0 OPENING REMARKS AND INTRODUCTION 2.01 Roundtable Agenda with Time Schedule 2.02 The Chair welcomed guests attending the roundtable. Board members, staff, consultants, and manager representatives introduced themselves and the strategies they manage for SJCERA. David Sancewich and Allan Emkin of Pension Consulting Alliance moderated the discussion. 3.0 SJCERA SUMMARY STATISTICS AND ASSET ALLOCATION 3.01 The moderator reviewed the proposed goals for the discussion with the Board, including: Summarized SJCERA Portfolio and Plan Characteristics Outlined the challenges (funding and investments) facing SJCERA Discussed potential enhancements and solutions 4.0 OUTLOOK AND REVIEW OF THE CAPITAL MARKETS 4.01 The participants discussed the current environment and outlook for U.S Markets International Markets Interest Rate Expectations and Impact 5.0 BREAKOUT SESSION I - RISK AND LEVERAGE 5.01 Board members and investment manager representatives formed smaller discussion groups to address the topics of risk and leverage. 6.0 RECESS AND RECONVENING

6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Special Meeting • 8/19/2015 • Page 1 (209) 468-2163 • (209) 468-0480 • www.sjcera.org 6.01 The Special Meeting recessed at 5:00 p.m., on Wednesday, August 19, 2015, and reconvened at 8:00 a.m. on Thursday, August 20 2015, with all Board Members present 7.0 SUMMARY OF BREAKOUT SESSION I 7.01 The entire roundtable group reassembled and the moderator reviewed some of the key discussion points of Breakout Session I. 8.0 BREAKOUT SESSION II - SJCERA ASSET ALLOCATION AND ENHANCEMENTS 8.01 Board members and investment manager representatives formed smaller discussion groups to address the topics of SJCERA’s current asset allocation and potential enhancements. 9.0 SUMMARY OF BREAKOUT SESSION II 9.01 The entire roundtable group reassembled and the moderator reviewed some of the key discussion points of Breakout Session II. 10.0 SJCERA SUMMARY AND WRAP-UP 10.01 The moderator reviewed some of the key discussion points of the roundtable, and asked each manager representative to offer a key takeaway from the discussion at the roundtable. 10.02 The moderator thanked SJCERA staff for organizing the event, and thanked the managers for their attendance and participation. 11.0 ADJOURNMENT 11.01 There being no further business the meeting was adjourned at 11:45 a.m.

Respectfully Submitted:

______Raymond McCray, Chair

Attest:

______Michael Restuccia, Secretary

SJCERA Special Meeting • 8/19/2015 • Page 2

2015 ASSET-LIABILITY STUDY RESULTS - PRESENTATION 6 SJCERA Strategic Allocation Discussion

September 2015 Agenda Items

Section Page

Asset Liability Study Calendar 2

Review of Strategic Classes 4

Review of Asset Liability Analysis Findings 11

Appendix: Strategic Class Modeling Assumptions and Detail 18

San Joaquin CERA ││ Asset-Liability Study Presentation VI 1 Asset Liability Study Calendar

March 2015 Session Introductory Session - PCA Process / Schedule

April 2015 Session Discuss Class Framework / Potential New Strategic Class(es) - PCA Does the class framework provide meaningful insight? Are classes distinct?

May 2015 Session Model Expected Return and Behavior of All Classes – PCA Education concerning class modeling process

June 2015 Session Initial Presentation of Asset/Liability Model – PCA / Cheiron Interactive discussion concerning decision factors (return driven / risk driven)

July 2015 Session Model and Consider of Various Portfolio Options - PCA / Cheiron Iterative Voting process, tradeoff analysis

Sept 2015 Session Discussion of New Strategic Asset Allocation – PCA / Cheiron

San Joaquin CERA ││ Asset-Liability Study Presentation VI 2 Introduction

Points to remember as we discuss the strategic asset allocation:

. The proposed new asset class structure is a change from the current policy

o It is designed to identify the role/risks of assets within the portfolio

. This new structure does not limit investment opportunities in the portfolio

. This new structure does not change the process for evaluating and discussing existing classes such as Real Estate

. This is an interactive process – we need input from the SJCERA board/staff

. This final target portfolio is a balance between “Art (knowledge and Experience) and Science (the modeled portfolio)”!

The Goal: Increase efficiency and simplify the overall portfolio structure

San Joaquin CERA ││ Asset-Liability Study Presentation VI 3 Review - Strategic Classes

San Joaquin CERA ││ Asset-Liability Study Presentation VI 4 Review - Strategic Class Framework

1) Purpose (Role)

2) Risk exposure(s)

3) Publicly traded and daily priced, deep liquid markets or is it in private markets?

4) Investible at your scale?

San Joaquin CERA ││ Asset-Liability Study Presentation VI 5 Review - Strategic Investment Classes

SJCERA Current Strategic Classes - 8 Classes Existing Class Name Purpose Main Risk Public / Policy Exposures Private? % US Public Equity Return Growth Publicly-traded 16.25%

Non-US Public Equity Return Growth, Currency Publicly-traded 16.25% Global Equity Return Growth, Currency Publicly-traded 1.50% U.S. Fixed Income Income/Stability Rates, Growth Public / Private 24.00% Risk Parity Balanced Return Growth, Rates, Inf Public 10.00% Global Opportunistic Return Growth Public / Private 15.00% Real Estate Income / Return Rates, growth Public / Private 10.00%

Real Assets Inflation adj. inc. Real rates Public 7.00% Questions: 1. Is the purpose of the class accurately described? 2. Is it meaningful? 3. Is it redundant? 4. Can we simplify?

San Joaquin CERA ││ Asset-Liability Study Presentation VI 6 Review - Strategic Investment Classes

SJCERA Current Strategic Classes – Reorganization Existing Class Name Purpose Main Risk Public / % => potential reorg Exposures Private? US Public Equity Return Growth Publicly-traded 16.25%

Non-US Public Equity Return Growth, Currency Publicly-traded 16.25% Global Equity Return Growth, Currency Publicly-traded 1.50% U.S. FI => Stable FI Stability/Liquidity Rates Publicly-traded 15.00% U.S. FI => Credit Return / Income Rates, Growth Public / Private 9.00% Risk Parity Balanced Return Growth, Rates, Inf Publicly-Traded 10.00% Global Ops => Credit Return / Income Growth Public / Private 9.00%

Global Ops => PE Return Growth Private 1.00% Real Estate => PE Return Rates, growth Private 7.50% Real Estate => REITS Return Growth Publicly-Traded 2.50% Real As. => Risk Parity Inflation Adj. Inc. Real Rates Publicly-Traded 7.00% Global Ops => Alpha Uncorr. Returns Variable Publicly-Traded 5.00%

San Joaquin CERA ││ Asset-Liability Study Presentation VI 7 Review - Strategic Investment Classes

SJCERA Current Strategic Classes – Reorganization Existing Class Name Purpose Main Risk Public / % => potential reorg Exposures Private? US Public Equity Return Growth Publicly-traded 16.25%

Non-US Public Equity Return Growth, Currency Publicly-traded 16.25% Global Equity Return Growth, Currency Publicly-traded 1.50% Real Estate => REITS Return Growth Publicly-Traded 2.50% Risk Parity Balanced Return Growth, Rates, Inf Publicly-Traded 10.00% Real As. => Risk Parity Inflation Adj. Inc. Real Rates Publicly-Traded 7.00% U.S. FI => Stable FI Stability/Liquidity Rates Publicly-traded 15.00%

U.S. FI => Credit Return / Income Rates, Growth Public / Private 9.00% Global Ops => Credit Return / Income Growth Public / Private 9.00% Global Ops => PE Return Growth Private 1.00% Real Estate => PE Return Rates, growth Private 7.50% Global Ops => Alpha Uncorr. Returns Variable Publicly-Traded 5.00% • The Goal: Simplify to 6 classes

San Joaquin CERA ││ Asset-Liability Study Presentation VI 8

Review - Strategic Investment Classes

SJCERA Current Strategic Classes – Reorganization Recommended Purpose Main Risk Public / % class reorganization Exposures Private? Global Equity Return Growth Publicly-traded 36.5% Risk Parity Balanced Return Growth, Rates, Inf Publicly-Traded 17.0% Stable Fixed Income Stability/Liquidity Rates Publicly-traded 15.0% Credit Return / Income Growth, rates Public / Private 18.0% Private Equity / RE Return Growth, illiquidity Private 8.5% Alpha / Alt Premia Uncorr. Returns Variable Publicly-Traded 5.0% • More risk aligned strategic classes provide modeling insights • However, the portfolio remains growth risk dominated – 65% on a capital weighted basis, 85%+ on a risk weighted basis • Any new class should address this growth heavy reality • New class structure was modeled to help meet the goals of SJCERA • Reorganizing the classes does not limit our investment opportunity set

San Joaquin CERA ││ Asset-Liability Study Presentation VI 9

Mapping of SJCERA Managers to more Risk Consistent Groupings Current Manager Mix Current Policy %s into New

BlackRock - Large Cap Core Classes

Capital Prospects - Small Cap Value US Equity Legato - Small Cap Growth

BlackRock - World EX-US REITS Research Affiliates - Enhanced Int'l Global Public Equities Research Affiliates - Emerging Markets 36.5% Intl Equity KBI - Water/Ag

INVESCO - Equity REIT Global Equity BlackRock - Developed ex-US REIT

Dodge & Cox - Core Doubleline Capital - MBS PRIMA - Mortgage Inv. Trust

Stone Harbor - Absolute Return Stable Fixed Income 15.0% Stone Harbor - Bank Loans Mesa West - RE Income II Mesa West - RE Income III Crestline - Opportunity Fund II Credit 18.0% Marinus Capital - Opportunity Master Fund Raven Capital - Fund II Medley Capital - Opportunity Fund II All Private Real Estate Private Appreciation 8.5% Ocean Avenue Morgan Creek Bridgewater - All Weather (AW) TAA/Risk Parity PIMCO - All Asset All Authority Risk Parity 17.0% Parametric Clifton - Contraction Fund Real Assets Bridgewater - Real Asset

Bridgewater - Pure Alpha & PAMM Alpha / Trend / Mount Lucas - Managed Futures CRO 5.0% Alt. Premia / Duration • The New class structure assigns a role/risk to assets within the portfolio.

San Joaquin CERA ││ Asset-Liability Study Presentation VI 10 Review of Asset Liability Analysis Findings

San Joaquin CERA ││ Asset-Liability Study Presentation VI 11 Decision Factor Review (June / July 2015)

. Determine a risk philosophy that best represents the Board’s consensus view by determining a consensus weighting of decision factors . Used asset-liability portfolio modeling analysis to help decision-makers conduct a tradeoff analysis and zero in on an strategic policy

San Joaquin CERA ││ Asset-Liability Study Presentation VI 12 Decision Factor Voting Review (July 2015)

Decision Factor Voting Results

Ballot 1 Ballot 2 Decision Factor Weighting Weighting

Seek >85% Funding 36.6% 40.8%

Avoid <65% Funding 15.2% 14.7%

Seek Lower Avg Cost 23.8% 25.1%

Avoid Cost >50% of pay 18.0% 15.0% Avoid 2-year Asset Drawdown <0% 6.4% 4.4%

. Decision factor results were similar in both rounds of voting . Greatest emphasis on 85% or greater funded ratio

San Joaquin CERA ││ Asset-Liability Study Presentation VI 13 Indicated Policy Portfolio Allocation per Modeling

Current Policy Model Output 100% 5.8% 90% 9.3% 20.0% 80% 13.5% Crisis Risk Offset 70% 14.0% Private Appreciation 60% 14.7% 24.0% Risk Parity 50% 15.0% Credit 40% 14.0% Stable Fixed Income 30% 4.0% 20% 39.4% Global Public Equity 10% 24.0% 0% Return (Geo) 7.0% 7.7% Standard Deviation 11.7% 10.1%

• The modeled policy portfolio allocation is a result of the decision factor weightings, which resulted in:

• Lower risk than current policy targets • Less growth exposure than current policy targets • Higher return-to-volatility than current policy targets

San Joaquin CERA ││ Asset-Liability Study Presentation VI 14 Additional Portfolio Considerations

• The model should be used as a strategic decision making tool and not the be-all and end-all solution

• Qualitative decision factors must also be considered

• How comfortable are we with the new classes?

• Should stable fixed income continue to have a meaningful weight in the portfolio?

• Will the implementation to the selected allocation be practical?

• Are there other options that improve our portfolio while taking these questions into account?

San Joaquin CERA ││ Asset-Liability Study Presentation VI 15 Modeled and Additional Portfolio Considerations

Current Policy Model Output Adjusted Output 100% 5.8% 15.0% 90% 9.3% 20.0% 80% 13.5% 12.0% Crisis Risk Offset 70% 14.0% 15.0% Private Appreciation 60% 14.7% 24.0% Risk Parity 50% 14.0% 15.0% Credit 40% 10.0% 14.0% Stable Fixed Income 30% 4.0% 20% 39.4% Global Public Equity 34.0% 10% 24.0% 0% Return (Geo) 7.0% 7.7% 7.4% Standard Deviation 11.7% 10.1% 11.0%

. Smaller allocation to “newer” strategic classes . Maintains meaningful weight to stable fixed income . Improves on risk / return versus current policy

San Joaquin CERA ││ Asset-Liability Study Presentation VI 16 Model Output Observations

Both the modeled and adjusted portfolios:

• Better reflect the Board’s preferences for downside risk protection

• Offer meaningful risk/return improvements • Assumptions assume passive management and active management can add value in some classes

• Offer meaningful improvements of the “decision factor” outcomes

San Joaquin CERA ││ Asset-Liability Study Presentation VI 17

Example - How Will Benchmarking Change?

. Managers/strategies will still be evaluated against their individual benchmarks

. More efficient strategic classes = a more efficient and intuitive policy benchmark

. Currently there are 8 strategic classes, 4 of which have complicated custom benchmarks = 15 total benchmarks:

Current Policy Current Current Policy Benchmark Benchmark Weight Strategic Class 16.25% US Equity = Russell 3000 16.25% Intl Equity = MSCI ACWI ex US 1.50% Global Equity = MSCI World 24.00% Fixed Income = 60.8% BC Agg, 16.7% 3-month LIBOR, 12.5% 9% Annual, 10% S&P/LSTA Leveraged Loan 10.00% Real Estate = 75% NCREIF ODCE Net + 1%, 15% FTSE NAREIT Equity REIT, and 10% FTSE NAREIT Developed ex-US 7.00% Real Assets = 58% Bridgewater RA Custom Benchmark, 42% Schroder RA Custom Benchmark 15.00% Global Opportunistic = 9% Annual 10.00% Risk Parity = 70% 91-Day T-Bill + 6%, 30% Contraction Custom Benchmark . The new structure would have 6 strategic classes, 4 of which have simplified custom benchmarks  9 total benchmarks:

Example Policy Potential New Example Policy Benchmark Weights Strategic Classes 34.0% Global Public Equities = MSCI ACWI 10.0% Stable Fixed Income = BC Aggregate Bond 14.0% Credit = 50% BC High Yield, 50% S&P/LSTA Leveraged Loans 12.0% Private Appreciation = MSCI ACWI + 200bps 15.0% Risk Parity = Tbills + 4% 15.0% Crisis Risk Offset = 3 Part Custom Benchmark (i.e. 33% BTOP 50, 33% BC Long Duration Treasuries, 33% at 5% Annual)

San Joaquin CERA ││ Asset-Liability Study Presentation VI 18 Discussion and Next Steps

• PCA looks forward to discussion with the Board on the model output and potential changes to the strategic asset allocation

• We welcome Board direction on other adjustments, if any, to model output for further consideration and analysis

• Once a new strategic asset allocation is selected, PCA will develop an implementation plan

San Joaquin CERA ││ Asset-Liability Study Presentation VI 19

Appendix: Strategic Class Modeling Assumptions and Detail

San Joaquin CERA ││ Asset-Liability Study Presentation VI 20 Appendix: SJCERA Strategic Class Assumptions

Arith. Geom. Strategic Class StDev. Historical Series Notes* Return* Return* 1973-1987 MSCI World Global Public Equity 9.35 19.00 7.55 PCA Global Equity assumption plus 50 basis points* 1988-2014 MSCI ACWI 1973-1977 BC US Govt./Credit PCA Core Fixed Income assumption plus 50 basis Stable Fixed Income 3.35 4.50 3.25 1978-1990 BC Aggregate points* 1991-2014 BC Universal Return assumption is based on historical Sharpe 1973-05/1996 Bridgewater AW Mix Simulation (10% Vol) Risk Parity 8.00 10.00 7.50 ratio adjusted downward and 10% volatility target 06/1996-2014 Bridgewater AW(10% Vol) over a 2.5% cash assumption Bank Loans: 1973-1986 Modeled 1987-2005 Citigroup HY Loan Index 2006-2008 Lehman US HY Loan Index 2009-2014 BC US HY Loan Index Return assumption is based on estimates of default High Yield: adjusted current yield, a 2.5% cash assumption, and 1973-1983 Modeled Credit 6.00 14.40 4.96 historical volatility of underlying series 1984-2014 BC US Corp High Yield

Fixed Income Relative Value: Allocation is based upon current policy mix 1973-1989 Modeled 1990-2014 HFRI RV: Corporate Fixed Income CMBS: 1973-1997 Modeled 1997-2014 BC US CMBS Corporate Inv. Grade

Private Appreciation 12.35 26.00 8.97 1973-2014 Venture Capital Journal PVCI PCA Private Equity assumption plus 50 basis points*

Treasury Rate Duration Existing CRO is based upon the percentage Trend Following CRO – Existing 8.63 13.28 7.82 allocations to MLM and Bridgewater PA Liquid Alternative Premia

Global Macro Proposed CRO is based upon PCA proposed class

CRO – Proposed 7.68 11.83 7.03 build, and modeled as 50% Trend, 25% alt premia, See series description on following pages in Appendix and 25% Treasury Duration Each return series is built over a cash assumption of 2.5%

Cash 2.50 1.00 2.50 1973-2014 Citigroup 3-Month T-Bills PCA Cash assumption plus 50 basis points* For consistency in asset and liability assumptions, Inflation 3.00 1.25 3.00 1973-2014 CPI PCA has adopted Cheiron’s inflation assumption *PCA’s generic asset class assumptions assume inflation of 2.5%. Because PCA has adopted Cheiron’s inflation assumption of 3% for this analysis, PCA has adjusted our generic asset class assumptions up by 50 basis points to reflect this inflation assumption difference.

San Joaquin CERA ││ Asset-Liability Study Presentation VI 21 Appendix: Generic PCA Assumptions

San Joaquin CERA ││ Asset-Liability Study Presentation VI 22 Appendix: Generic PCA Assumptions

San Joaquin CERA ││ Asset-Liability Study Presentation VI 23 A Proposed New Strategic Investment Class Crisis Risk Offset (CRO): A class with a clear purpose Proposed New Class Purpose Risk Exposures Public / Private? Policy %

Crisis Risk Offset Return and - Interest rates always - 100% Public markets > 10% (CRO) liquidity during - Variable based on trends - Deep & liquid only a growth crisis - Alternative factor risks Crisis Risk Offset Class: 1. Purpose? • Offset. Provide significant return during a growth crisis. Liquid. 2. Can it be meaningful? Is the purpose valuable? • Growth risk is the portfolio’s largest risk by far (65%+ of capital with significant growth exposure, contributing 85%+ of portfolio return volatility) • Growth risk diversification is thus very valuable to the portfolio • Growth risk is embedded in equities, so the size / volatility of the class must be significant to have an impact • Our research indicates that CRO elements are available, at scale, for a reasonable cost

San Joaquin CERA ││ Asset-Liability Study Presentation VI 24 Crisis Risk Offset Class – Goals

• Must diversify the entire portfolio. Since the portfolio is growth dominated, there is very low correlation to growth risk (do no harm): – Desire negative conditional correlation to equities (when equites decline, positive returns, not symmetric) – Desire meaningful reaction to negative equity events

• Must have a positive expected standalone return to risk

• The goal of the class is not to be low volatility. It is to be diversifying and meaningful (reactive).

• The class must be cost effective (less dependent upon manager skill, more dependent upon market adjustment mechanisms).

• The class must be liquid.

San Joaquin CERA ││ Asset-Liability Study Presentation VI 25 Appendix: Underlying Strategies for CRO Class

Strategy Description / Definition Treasury securities (bonds) have duration, a measure of their sensitivity to interest rate changes. Since Treasury bonds are considered to be essentially default-risk free, pricing of Treasury bonds benefits from Treasury rate something called price certainty, given a level of yields across the yield curve. That is, all you need to duration price Treasury bonds is the level of interest rates. This means that Treasuries will rise, if interest rates decline, something that they have tended to do in most growth crises. Trend following (trend capture) investing involves going long markets that have been rising and going short markets that have been falling, betting that those trends continue. This strategy is particularly suited to futures markets, where establishing a position, long or short, is effective zero cost. Opening Trend futures position doesn’t cost anything, but movement of futures prices results in either gains or losses to following the position, which result in a transfer of funds (margin) to or from the position holder. This strategy is often called systematic global macro in its hedge fund form (as opposed to discretionary global macro). Liquid Alternative Risk Premia investing involves going long and short securities and markets, in a market Liquid neutral fashion, to isolate returns historically attributable to the various factors of value, carry, Alternative momentum (cross-sectional), and low-volatility. These factors have historically been rewarded. The Risk Premia reasons ascribed to these structural “excess” returns vary. Academics and practitioners provide both behavioral- and risk-based explanations, but their historical existence is not in dispute. Global macro strategies focus on investing in instruments whose prices fluctuate based on the changes in economic policies, along with the flow of capital around the globe. These strategies generally focus on financial instruments that are broad in scope and move based on systemic risk. Systemic risk or Discretionary market risk is not security specific. In general, portfolio managers who trade within the context of global Global macro strategies tend to focus on currency strategies, interest rates strategies, and stock index Macro strategies. Discretionary global macro strategies are not systematic (rules-based), but rather rely upon discretionary decisions. Uncorrelated returns produced by global macro managers can rightly be called alpha, but are difficult to model. True alpha is difficult to source and maintain, is valuable, and typically expensive.

San Joaquin CERA ││ Asset-Liability Study Presentation VI 26 Appendix: CRO Class Component Modeling Detail

• Treasury Duration excess return is the excess return on the 10 year “constant maturity” security for the year. It is calculated as the coupon [average of year end rates (e.g. (Dec 1969 rate + Dec 1970 rate)/2)], minus duration times the change in rates, minus the return on cash (T-bills) for the year. The excess return is the return of the strategy in excess of cash. Leverage can be added (subtracted) to increase (decrease) the strategy volatility and return. The Treasuries data in the GRO/CRO class is scaled to match the volatility of longer-maturity Treasuries.

• Trend Capture (or Trend Following) investing involves going long markets that have been rising and going short markets that have been falling, betting that those trends continue. The construction of the data set is an equal weighted combination of 1-month, 3-month, and 12-month time series momentum strategies for 59 markets across 4 major asset classes – 24 commodities, 11 equity indices, 15 bond markets, and 9 currency pairs. Leverage can be added (subtracted) to increase (decrease) the strategy volatility and return.

• Alternative Risk Premium investing involves going long and short securities and markets, in a market neutral fashion, to isolate returns historically attributable to the various factors of value, carry, momentum (cross- sectional), and low-volatility. The excess return is the return of the strategy in excess of cash. Leverage can be added (subtracted) to increase (decrease) the strategy volatility and return.

• Trend Capture and Alternative Risk Premium strategies might be considered active management. However, the strategies modeled here are highly systematic in nature, utilizing rules-based approaches to structuring portfolios and capturing the associated risk premiums.

San Joaquin CERA ││ Asset-Liability Study Presentation VI 27 DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of the issuers that may be described herein. Information contained herein may have been provided by third parties, including investment firms providing information on returns and assets under management, and may not have been independently verified. The past performance information contained in this report is not necessarily indicative of future results and there is no assurance that the investment in question will achieve comparable results or that the Firm will be able to implement its investment strategy or achieve its investment objectives. The actual realized value of currently unrealized investments (if any) will depend on a variety of factors, including future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which any current unrealized valuations are based.

Neither PCA nor PCA’s officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data subsequently generated herefrom, and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. PCA and PCA’s officers, employees and agents expressly disclaim any and all liability that may be based on this document and any errors therein or omissions therefrom. Neither PCA nor any of PCA’s officers, employees or agents, make any representation of warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change.

The information contained in this report may include forward-looking statements. Forward-looking statements include a number of risks, uncertainties and other factors beyond the control of the Firm, which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect PCA’s current judgment, which may change in the future.

Any tables, graphs or charts relating to past performance included in this report are intended only to illustrate investment performance for the historical periods shown. Such tables, graphs and charts are not intended to predict future performance and should not be used as the basis for an investment decision.

All trademarks or product names mentioned herein are the property of their respective owners. Indices are unmanaged and one cannot invest directly in an index. The index data provided is on an “as is” basis. In no event shall the index providers or its affiliates have any liability of any kind in connection with the index data or the portfolio described herein. Copying or redistributing the index data is strictly prohibited.

The Russell indices are either registered trademarks or trade names of Frank Russell Company in the U.S. and/or other countries.

The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.

Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc.

CBOE, not S&P, calculates and disseminates the BXM Index. The CBOE has a business relationship with Standard & Poor's on the BXM. CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and SPX, and CBOE S&P 500 BuyWrite Index BXM are servicemarks of the CBOE. The methodology of the CBOE S&P 500 BuyWrite Index is owned by CBOE and may be covered by one or more patents or pending patent applications.

The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.

The Citigroup indices are trademarks of Citicorp or its affiliates.

The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.

San Joaquin CERA ││ Asset-Liability Study Presentation VI 28

MEMORANDUM

Date: September 25, 2015

To: SJCERA Board of Retirement

From: Pension Consulting Alliance, LLC (PCA)

CC: David Sancewich – PCA John Linder – PCA Annette St. Urbain – SJCERA Nancy Calkins - SJCERA

RE: Bank Loan Portfolio Review

Summary:

Recent performance discussion with the SJCERA Board has prompted an in-depth review of the Stone Harbor Bank Loan Fund relative to its S&P/LSTA Leveraged Loan index and its peer group.

Stone Harbor utilizes an investment strategy focusing on fundamental analysis to find mis-valuations and market dislocations. To mitigate downside loss, Stone Harbor diversifies the fund across various market segments and industries. Over the last 8-year period, ending June 30, 2015, this investment strategy has historically provided capital protection in down markets as well as participation during improving economic cycles.

As a result, one should expect the Fund to experience periods of relative underperformance during sharply advancing bull markets, while providing added value during bear markets. This should result in long-term outperformance relative to the index.

Stone Harbor – Bank Loan

Performance Results as of 06/30/2015 Annualized, Ending 12/31/14

Performance 2Q 2015 1 Yr 3 Yr 5 Yr Stone Harbor – Net 0.8 1.2 4.8 5.5 S&P/ LSTA Leveraged Loan 0.7 1.8 3.7 5.5 Difference - Net 0.1 -0.6 1.1 0.0 Stone Harbor – Gross 0.9 1.5 5.1 5.8 Stone Harbor - Rank 54 79 63 74 eA Median Mgr - Gross 0.9 2.4 5.5 6.3 Source: LDZ, Manager, MPI

Performance Results as of 06/30/2014

Calendar Years, Ending 12/31

Performance 2008 2009 2010 2011 2012 2013 2014 Stone Harbor – Net -28.9 45.2 9.2 2.1 9.9 5.6 0.8 S&P/ LSTA Leveraged Loan -29.1 51.6 10.1 1.5 9.7 5.3 1.6 Difference - Net 0.2 5.8 -0.9 0.6 0.2 0.3 -0.8 Stone Harbor – Gross -28.6 45.5 9.5 2.4 10.2 5.9 1.1 Stone Harbor - Rank 74 40 73 77 39 60 83 eA Median Mgr - Gross -25.9 42.8 10.6 3.1 10.0 6.3 2.0 Source: LDZ, Manager, MPI

Background: SJCERA retained Stone Harbor as an active Bank Loan manager during March 2014. Total exposure to this account was approximately $61.6 million as of June 30, 2015.

Investment Performance

When looking at monthly excess performance relative to Stone Harbor’s benchmark, the S&P/LSTA Leveraged Loan index (see graph below), it is evident the portfolio exhibits volatility month-to-month. Over the last eight years, Stone Harbor has produced positive results relative to the S&P/LSTA Leveraged Loan Index in 47 of the last 96 months (49% of the time).

Monthly Relative Performance

Latest 8-year period – June 30, 2015

2 Stone Harbor

Excess

-1 Excess Annualized Return, % Return, Annualized Excess

-2 Jul-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Jun-15

Active managers derive returns from two sources: i.) issue selection, how well active managers select securities and over/underweight them relative to the benchmark, and ii.) style bias, the degree by which a manager biases the portfolio towards certain macroeconomic factors. Overall, it is more desirable to have a manager who is an effective issue selector who adds value from selection and has little influence from macroeconomic factors. The following exhibits analyze how Stone Harbor has produced its performance over the last five years. From the graphs and tables it is clear that all excess performance has been the result of issue selection and little from macroeconomic factors. The graphics on the left side of the exhibit demonstrate that Stone Harbor’s issue selection is random and both positive and negative. In other words, Stone Harbor’s stock selection has added an annualized 1.7% to performance. On the other hand, the graphics on the right of the exhibit show evidence of cyclicality (long periods of negative results, followed by long periods of positive/flat results), which is indicative of tilts/biases to macroeconomic factors. Style bias has subtracted an annualized 10 basis points to performance over the last five years. Since style biases can be easily replicated, they should not necessarily be considered a form of active management.

Issue Selection Macroeconomic Bias

Quarterly Added Value from Selection Quarterly Added Value from Style Timing Jul-10 - Jun-15 Jul-10 - Jun-15 4

3 Annualized Return, % 1 .7 Annualized Return, % -0.1 Annualized StdDev, % 1 .8 Annualized StdDev, % 0.2 2 Information Ratio 1 .0 Information Ratio -0 .4 1 Significance Level, % 9 7 .8 Significance Level, % 79.7 0 0 Tim ing Return, %

S election Return,-1 %

-2

-3 Jul-10 Dec-11 Dec-13 Jun-15 Jul-10 Dec-11 Dec-13 Jun-15

The chart below shows Stone Harbor’s cumulative performance results versus the S&P/LSTA Leveraged Loan Index since May 2008. Over this 96-month period, Stone Harbor has underperformed its benchmark by 60 basis points, per annum, gross of fees.

Growth of $100 as of 6/30/2015

150 Stone Harbor S&P / LSTA Leveraged Loan 140

130

120

110

100 Growth of $100 of Growth 90 Stone Harbor: $139.59 80 S&P/LSTA Leveraged Loan: $143.02

60 Jun-07 Dec-09 Dec-11 Dec-13 Jun-15

In the table below, PCA also examined other risk and risk-adjusted measures of the Fund’s performance. Over the last eight years, the Fund has produced less return per unit of risk than the benchmark as measured by a Sharpe Ratio1 of 0.43 versus 0.47, gross of fees. In addition, the Fund has performed slightly better than the index in down markets with 20 basis points of outperformance relative to the index.

8-year Performance Statistics as of 06/30/2015, Gross of Fees

Risk Statistics Since Inception 3/31/2005 Annualized Down Batting Performance Standard Sharpe Up Market Market Average Deviation Ratio Return Return Stone Harbor 9.2 0.43 11.6 -6.5 0.5 S&P/LSTA Leveraged Index 9.0 0.47 12.1 -6.7 --- Difference 0.2 -0.4 -0.5 0.2 --- Source: LDZ, Manager, MPI

Other Considerations:

Organizational Overview, (Per Manager) Stone Harbor Investment Partners LP is a 100% employee-owned institutional fixed income investment manager specializing in credit and asset allocation strategies.

Headquartered in New York, with offices in London, Melbourne and Singapore, the firm manages assets in a range of investment strategies: emerging markets debt, high yield bonds, multi-sector, bank loans, and investment grade. The investment team was formed in the early 1990s as part of Salomon Brothers Asset Management and transitioned to Stone Harbor when the firm was founded in 2006. The firm combines its long-term experience through various market environments with fundamental credit analysis and the ability to strategically and tactically shift between fixed income asset classes.

Stone Harbor’s client base includes a range of governmental/sovereign wealth, public and corporate institutions, endowments/foundations and subadvisory relationships worldwide

1 (Portfolio Return – Risk Free Rate) / Standard Deviation

Investment Philosophy and Process, (Per Manager) The fundamental research upon which portfolio managers make their investment decisions is internally generated. Stone Harbor's credit analysts provide in-house expertise and a strong basis for investment decisions, ensuring continuous and thorough credit monitoring of existing portfolios. They are global industry specialists who have analyzed their respective industries over the course of different credit environments and economic cycles. Their level of experience and industry expertise allows us to recognize market peaks, thus avoiding late cycle credit mistakes. Stone Harbor's quantitative research and risk management team enhances and monitors our investment processes, developing the tools, technology and links to research that allow portfolio managers to focus on adding value.

In-depth fundamental credit analysis is the key driver of both downside risk protection and alpha generation in the investment process:

• The credit approach is driven to invest in companies that generate free cash flow over the course of the business cycle as well as to focus on industries with established and transparent enterprise or asset valuations.

• The analyst team creates financial models for portfolio holdings based on the appropriate metrics for each company within a specific industry. Their models are stressed to understand the risk involved with their assumptions. Asset valuations are also completed to determine downside exposure.

• The focus is on companies with appropriate capital structures for their type of business and the current position in the business cycle.

• The analysts conduct a review of the terms of the Credit Agreement with a focus on the provisions that are designed to provide lenders with downside protection, including financial maintenance and debt incurrence covenants, excess cash flow sweep provisions and the ability of the company to issue incremental term loan debt.

• The value of the collateral supporting the loan is evaluated, and industries with established asset and enterprise values are focused on based on public equity valuations or actual transactions.

Stone Harbor's experienced credit analyst team drives issue selection, a critical step of the process, with a clear focus on the company and the transaction structure.

Their investment strategy is to focus on the more liquid, first lien term loans and undertake investments in second lien and middle market loans on a more selective basis when expected returns are higher and commensurate with the incremental risk.

Assets Under Management As of June 30, 2015, Stone Harbor managed approximately $48 billion in assets, including approximately $654 million in the Leveraged Loan Fund in which SJCERA is invested.

DISCLOSURES: This document is provided for informational purposes only. It does not constitute an offer of securities of any of the issuers that may be described herein. Information contained herein may have been provided by third parties, including investment firms providing information on returns and assets under management, and may not have been independently verified. The past performance information contained in this report is not necessarily indicative of future results and there is no assurance that the investment in question will achieve comparable results or that the Firm will be able to implement its investment strategy or achieve its investment objectives. The actual realized value of currently unrealized investments (if any) will depend on a variety of factors, including future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which any current unrealized valuations are based.

The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.

The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.

Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc.

The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.

The Citigroup indices are trademarks of Citicorp or its affiliates.

The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.

FTSE is a trademark of the London Stock Exchange Group companies and is used by FTSE under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. No further distribution of FTSE data is permitted with FTSE’s express written consent.

MEMORANDUM

Date: September 24, 2015

To: SJCERA Board of Retirement

From: Pension Consulting Alliance, LLC (PCA)

CC: David Sancewich – PCA John Linder – PCA Annette St. Urbain – SJCERA Nancy Calkins – SJCERA Greg Frank – SJCERA

RE: Parametric (PIOS) – Variation Margin Recommendation

Summary and Recommendation

Since initial funding in March 2006, the Parametric PIOS portfolio has provided SJCERA with a cash overlay strategy through the utilization of a managed futures allocation. Currently, this portfolio requires cash to be held on margin to cover these futures positions. The SJCERA portfolio has a fairly narrow variation margin range of 1-3% of the overall futures exposure. This means that as market volatility increases and begins to fall, SJCERA would be required to apply additional cash to the PIOS portfolio to maintain required margins.

PCA recommends modifying the Parametric PIOS account from the current 1-3% variation margin to an increased 3-5% range. This would help protect SJCERA from having to raise additional cash during adverse and extreme moves in the market such as those experienced in August 2015.

Background

The Parametric PIOS portfolio was originally funded in March 2006 as a way for SJCERA to manage cash by overlaying the portfolio with futures in various asset classes. However, this overlay strategy requires that a margin account be established as collateral. SJCERA currently has a narrow range 1-3% for its variation margin, which provides additional cash in the event of adverse market moves. In the event of large downswings in the market, SJCERA would be required to come up with additional cash to maintain this required margin account. The current narrow range means that the likelihood of having to raise cash at a time of market pressure is increased.

Currently Parametric is running $275 million in futures exposures on $16 million in cash, which is used for both the required margin and the variation margin. The variation margin gives SJCERA a buffer against market fluctuations and is currently $5 million or 1.8% of the total dollar allocation. An increase in the variation range of 3-5% would give SJCERA additional breathing room as the volatility of the markets increases.

Allocation as of 9/17/2015 Current Proposed allocation allocation $(000) $(000) Total Futures Exposure $275,000 $275,000 Required Margin 10,500 10,500 Variation Margin 5,000 9,000 Variation Percent 1.8% 3.3%

Asset Class Ranges In addition to variation margin, SJCERA previously implemented wider rebalancing ranges around the overall asset classes within the Parametric portfolio. This wider tolerance for rebalancing (+/- 15% of the target) has benefited the portfolio in that SJCERA did not experience margin calls during the month of August as volatility in equities increased.

Conclusion PCA recommends modifying the Parametric PIOS account from the current 1-3% variation margin to an increased 3-5% range. Again, this would help protect SJCERA from having to raise additional cash during adverse moves in the market such as those experienced in August 2015. PCA and SJCERA staff will work with Parametric to rebalance the PIOS portfolio to these new margins.

The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.

The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.

Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc.

The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.

The Citigroup indices are trademarks of Citicorp or its affiliates.

The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.

MEMORANDUM

Date: September 24, 2015

To: SJCERA Board of Retirement

From: Pension Consulting Alliance, LLC (PCA)

CC: David Sancewich – PCA Allan Emkin – PCA Annette St. Urbain – SJCERA Nancy Calkins – SJCERA Greg Frank – SJCERA

RE: 10th Annual SJCERA Roundtable - Summary

Summary

On August 19-20, 2015, the San Joaquin County Employees’ Retirement Association (SJCERA) held its 10th annual investment manager roundtable in Lodi, CA. The event featured a broad group discussion with SJCERA trustees, staff, consultants and investment managers as well as two breakout sessions. This memo summarizes some of the issues discussed at the event facing SJCERA and key points from this two day event.

Outlook and Capital Markets:

1. Low Return Environment: One of the key takeaways from the discussion was the low return environment in equities and fixed income facing SJCERA and other pension plans. Challenges in Greece, China, Europe, and an overvalued U.S. equity market have all dampened return expectations over the next 3-5 year market cycle. The search for return has led to an increase in alternative (illiquid) investment strategies.

a. Return Expectations: Also new to the event this year, participants were asked to give their return expectations for the U.S. Equity, international Equity and fixed Income markets. The average return expectations are:

i. U.S. Equity (Russell 3000 Index): 5.5%

ii. International Equity (MSCI ACWI ex U.S. Index): 7.6%

iii. Fixed Income (BC Aggregate Index): 2.9%

2. Interest Rates: General consensus among the participants was that interest rates were going to rise in 2015, either in September or December. There was some debate about the amount of the interest rate hike and whether it would be a surprise to, or consistent with, market expectations. Estimates for 2015 interest rate hikes from participants were 25-50 basis points.

Breakout Session #1: The first breakout session focused on Risk and Leverage. Each of the individual groups was asked to define these terms. Differing responses to each of the questions are summarized below.

Risk:

1. How should SJCERA define Risk?

a. A drawdown where SJCERA is unable to pay benefits and keep promises to employees, or put plan sponsors at risk for additional capital.

b. Risk should be defined by asset class, segregating public and private markets. Traditional measures of risk, like Std. Dev, are not really applicable to private markets. For private markets, risk of capital loss and liquidity crunch.

c. Failure to meet SJCERA obligation long-term because of a low mortality rate or short term capital loss.

d. Any taxpayer initiative promoting the closing of pension plans.

2. Can risk be effectively managed in volatile markets without a loss of return?

a. No it can’t.

b. Yes – through call and put options, cash overlays, managed futures.

c. Yes – but not without a significant loss of return. Adding strategies with liquidity risk can be beneficial long-term but can pose risk in systematic events.

Leverage:

1. How should SJCERA view and define leverage?

a. More liabilities than assets.

b. Cost of financial distress.

c. Use of borrowing financial instruments to get a better return,

d. Liquidity is more important than leverage as a risk.

e. Just a tool that has proper and improper uses,

f. Investments need to be designed to not lose more than you have in it.

Breakout Session #2: The second breakout session focused on Asset allocation and any enhancements/opportunities for SJCERA. Differing responses to each of the questions are summarized below.

1. Over the next market cycle, how would you recommend SJCERA invest an incremental $100 million?

a. SJCERA does not have $100 million. Must take $100 million from existing assets. Specifically, take from large cap U.S. Equity and traditional, short duration, fixed income.

b. Opportunistic investments are at the higher end of the risk spectrum, such as infrastructure, energy, China, and emerging Asia. Identify asset classes with secular growth trends.

c. Do not performance chase, but try to seek greater diversification.

d. In the context of rigid framework, SJCERA can be more nimble and take advantage of private opportunistic investments.

e. Look to what has underperformed and constantly rebalance to your policy mix.

f. Opportunities in Agriculture, Timber and Infrastructure.

g. Seek a return with moderate risk tolerance. Private Markets are a reasonable place for incremental assets.

2. Where should SJCERA invest over the next three years to reach a 7.5% return?

a. Tilt towards value. Credit oriented liquidity premium. Add some leverage to the plan (long-term debt is cheap).

b. Move back into equities.

c. If dollar continues to strengthen, look more outside the U.S.

d. Consider a 4% discount rate like a corporate or insurance plan. Do scenario analysis with consultant to build the most effective portfolio that gets close without risks of shortfall.

e. Privates – Can invest in both sides of the trade; can take the short (distressed) side when the opportunity arises in the cycle.

f. Opinion differed whether 7.5% is an appropriate target. Some of the contributors felt it was too low.

Conclusion:

SJCERA, like many other pension plans, faces challenges in meeting an actuarial rate of return while managing risk and balancing diversification. In addition to the current 7.5% discount rate, SJCERA has focused some of the investments on protecting principal in down markets. To that end, the new asset liability study currently underway calls for an allocation to new risk mitigation strategies. In addition, SJCERA has a meaningful allocation to private investments through real estate, private investments, and a broad global opportunistic portfolio.

The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.

The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.

Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc.

The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.

The Citigroup indices are trademarks of Citicorp or its affiliates.

The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.

SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION ALL ASSETS MANAGER ROUNDTABLE

SUMMARY OF EVALUATIONS

RATING SCALE: Excellent Satisfactory Poor (5) (4) (3) (2) (1)

WEDNESDAY ROUNDTABLE SESSIONS: TRUSTEES MANAGERS STAFF/CNSLT/Guest ALL # Avg # Avg # Avg # Avg 1. New Roundtable Format 5 4.20 28 4.68 8 4.75 41 4.54 COMMENTS: I preferred it over the prior formats. (2) More workable. (2) Better every year. Need to encourage more Trustee interaction. Well organized. Engaging format. (2) Breakouts were a great addition. (5) This was my first all asset round table, so I cannot compare. Breakout format was very effecitve in the interchange among managers and Trustee. (3) Moderator to get more "voices" involved. (3) A handful of managers dominated the conversation-after awhile they became less effective and appeared as if they just wanted to hear themselves speak. The moderator should be more proactive in engaging all the managers. Need to tell some managers they are beating a dead horse. (2) Liked having two sessions. (2) Great collaborative format! Recommend calling on managers across sectors for each question. This year was focused and the participation level was higher. What a tremendous source of ideas and education. Love the plan info sent out ahead of time. Productive to have small group discussions. Brings more focus. (2) Might be a tad too long in time.

2. Wednesday Discussions: Summary Statistics & Asset Allocation 6 4.33 27 4.04 6 4.33 39 4.233 Capital Markets Outlook 6 4.33 27 4.38 5 4.40 38 4.37 COMMENTS: It seemed we had broader participation than in the past. More workable. Better every year. Difficult to understand asset allocation issues if you are focused on asset class. China bull discussion was over the top. Probably could have spent more time on risk/leverage. Trustee involvement was informative in conveying the systems issues. The pointed question on Day 2 was more helpful in getting sense of capital markets. Wanted little more overview of great work that PCA did on moves. Interesting to hear wide variety of views/outlook. Sets the context well. Good to see who takes a position in public. Too generalized. Could use more framing comments at beginning. Little or no discussion on asset allocation in roundtable format. (2) Good China discussion.

Very good. I liked the format of US, Int'l, Rates. Good macro discussion. Page 1 of 5 3. Wednesday Break-Out Session I: How should SJCERA define risk? 6 4.33 26 4.62 3 4.67 35 4.54 How should SJCERA view leverage? 6 3.50 26 3.85 2 4.50 34 3.95

COMMENTS: We needed more time. (3) I think the breakout sessions were a good opportunity to discuss in a smaller group what our Fund's status is and moving forward. Too unstructured for managers; talked about everything. Some Trustees' position on risk were different from the positions expressed by Managers. A discussion of the thinking behind the curent asset allocation would have been useful. We ran over somewhat on the first question. Liked that the Trustees joined the discussion. (2) Ran out of time to discuss leverage. (3) Very divergent views depending on whether manager was public/private/RE. GreatIt would to have beena smaller nice groupto have interaction. groups report I wasn't back quite summary sure whatpoints leverage at end. we were considering. Fund level vs other. Need to include this annually. Interesting from Trustee. SJCERA Trustees actually define risk differently. Both sessions were interesting. Maybe a bit more guidance on risk. Risks in portfolio? Risks to beneficiaries? Political risks? Headline risks?

WEDNESDAY DINNER TRUSTEES MANAGERS STAFF/CNSLT/Guest ALL # Avg # Avg # Avg # Avg 4. Organization of Event 5 4.80 29 4.93 5 5.00 39 4.91

5. Hotel Reservations & Reception 1 5.00 27 4.81 4 4.75 32 4.85 (if applicable) 6. Networking with SJCERA Trustees & Staff 6 4.83 29 5.00 5 4.60 40 4.81

7. Event Facilities 6 4.67 28 4.89 5 4.80 39 4.79

8. New Format for Reception and Dinner 5 4.40 28 4.75 5 4.20 38 4.45

9. Quality of food and beverage 5 3.60 29 4.76 5 4.60 39 4.32

10. Quality of food and beverage service 4 4.00 29 4.79 5 4.40 38 4.40

11. Should the new format be repeated next year? Yes 4 28 5 37 No 0 0 0 0

12. At the same location? Yes 5 28 5 38 No 0 0 0 0

Suggestions for improving next year's dinner event: Have meal served. Possibility of a no host bar for those who don't drink beer or wine. Best ever. Would have liked more time to network. The vegetables at the dinner were terrible. So much nicer than the old venue! Force the movement between courses so people sit at different tables. (2) Block off rooms so everyone can stay at W&R. Check-in available before event starts would be helpful. Need to cutoff the bar earlier to save money. I miss Paul. Add structured networking with staff and trustees. Page 2 of 5 It was perfect. Looking forward to next year. Loved sitting outside. Lobster..Okay just kidding. Informal station style is great.

RATING SCALE: Excellent Satisfactory Poor (5) (4) (3) (2) (1) THURSDAY ROUNDTABLE TRUSTEES MANAGERS STAFF/CNSLT/GUEST ALL # Avg # Avg # Avg # Avg 13. Thursday Discussions: Summary of Day One Break-out Session 5 4.60 27 4.26 6 4.67 38 4.51 Break-out Session II 5 4.00 25 4.56 5 4.80 35 4.45 Group Discussion & Day Two Summary 5 4.00 24 4.46 6 4.67 35 4.38

14. Moderators' facilitation of discussion 4 4.75 21 4.67 7 4.86 32 4.76 Comments: If comments from the breakout session were sent around in advance, it would improve discussion. Loved the "so what." Facilitating discussion without over constraining it. Good job! (2) Only the ones who consistently participated were called upon. It may be a good idea to call on those who are not participating in the discussion. After all, they are our fund managers and we expect them to have some participation in the discussion. The open dialogue and thoughts from other managers. David did an excellent job of moderating the discussion. (7) Trustees at our table had views that differed from managers. Where to place $100 mm would have been interesting to ask them to discuss views with managers. Allan needs to speak louder and should have been at the back wall. Really liked table/seating arrangement. Seemed to wander on too many topics and issues that were either too minor in nature or did not pertain to Fund's asset allocation issues. Allan Emkin and Michael Humphrey were great at jumping in with perspective and thoughts. Good. Didn’t let individuals run the show. Handled well. Moderators were great. Would like to hear more from PCA with their views and framing discussion. Good job keeping discussion moving and letting good conversation run. Needs to engage everyone better and control the egos. Make more cohesive for Trustees. Managers are specialized and just know their space. Moderator needs to pull it all together and present big picture for Trustees. May be good to point out good and bad performances and discuss at Roundtable. Better group interaction. Like the polling of managers and idea that it would be tracked and showed next year. A little more detail and direction could have been given for discussion.

15. What aspect of the roundtable session was most beneficial to you? Break-outs were more interactive. (2) The structure has been beneficial to keeping the conversation moving. Hearing the thought process the plan is going through. Spending time with the Board/Staff/Managers. (2) The opportunity to educate the Board. Exposure to other managers in other asset classes. (2) The open discussion is always beneficial to me; exchange of ideas is very interesting. (3) Like the new format; more in depth discussion at break outs. (2) Both understood total portfolio objectives and Trustee concerns. Diversity of opinion. Good topic selection. Defining risk, leverage, portfolio. The roundtable discussions. The manager to manager comments and the range of topics. Hearing manager perspectives on current markets and current events. (Greece, for example) Page 3 of 5 Gaining insight on PCA and SJCERA's mindset regarding asset allocation and recategorizing asset categories. You have a very good group of managers willing to share different insights. (2) Lengthier format allowed for much better discussion. Gaining better understanding of SJCERA as a plan. Always hearing others view points very valuable. Especially RE macro and risk to SJCERA. Discussion on risk. (2) Active vs passive allocation was very informative and the how do we get to 7.5% piece too. Debate on asset classes, networking with peers. Breakout sessions with Trustees- Trustee questions (when they asked them). Discussion of markets.

16. What aspect of the roundtable session was least valuable to you? Passive/active discussion (2) Breakfast We need more input from Trustees. Some language was over my head. Some managers tend to dominate the discussion. Hearing more voices would be more valuable. Occasional talking of own product, but overall good balance and discussion was still good. Would like to hear more from all Trustees. Defining risk discussion. Leverage discussion. Somewhat circular and more of a side issue. Throwing out macro estimates on growth. Interest rate range guess was not constructive. Global outlook discussion while interesting didn't seem constructive or focused. No complaints! (2) Asking managers to predict equities, Int'l equities and FI performance.

17. What topics would you like to see covered in the roundtable session next year? How do different asset classes react to each other. If you do 6% over 10 years, so what? Slow strangulation. Potential commentary from each sector that is specific to each manager's perspective on their asset class. Discussion of market conditions issues that Trustees are concerned with. Also, do the Trustees have concerns with asset allocation methodology. Capital assumption/expected returns non liquid assets. Scenario models for different market events. I think we may be revisiting the same topics for next year. Gain a better understanding of Board Investment beliefs. Hearing what they thought about the debate would be helpful. Systemic risks in portfolio. What in the portfolio are correlated in crisis. Deeper dive into how the fund can reasonably hit the 7.5% I liked the request for predictions of US, Int'l, and Fixed Income performance for review next year. More emphasis on asset allocation and structure as it directly relates to SJCERA. What are other public plans doing best/investing ideas. Like this year's format. Could have gone on for whole second day. Summary of best investments vs worst. Ask each manager for a "Best Idea." (2) Update from each selected sector specialist of their outlook on opportunites and risks. Deeper dive on specific markets to unearth best ideas and oppurtunities. Risks and markets, liquidity and GEO-Politics. Economic forecast for US, Int'l and Europe. Allocations in terms of risk profiles as well as returns.

Page 4 of 5 RATING SCALE: Excellent Satisfactory Poor (5) (4) (3) (2) (1) GENERAL: TRUSTEES MANAGERS STAFF/CNSLT/GUEST ALL # Avg # Avg # Avg # Avg 18. Communications prior to meeting date 5 4.80 27 4.81 7 5.00 39 4.87 19. Meeting Facilities 5 4.80 27 4.85 8 4.88 40 4.843 20. Organization of Event 5 4.80 27 4.93 8 5.00 40 4.91 21. Meeting Materials 4 4.50 26 4.85 8 4.63 38 4.66 22. Food and Beverage 5 4.60 27 4.48 10 # 4.60 42 4.56 Comments: Best ever, in all aspects. Some issues with the microphones. (4) Please consider moving date to avoid conflict with end of summer/beginning of school!! Staff did a great job. Excellent event. (2) Consider shortening session XII- 90 mins enable too much "me too" comments. End at 11:30. Always a great venue. Need flavored yogurt and not all plain. Fantastic location! What a beautiful facility for this gathering. Thank you! This is one of my favorite days of the year. More snacks-like nuts and M&M's. It'll help to keep energy levels high! Appreciated the efforts made to get us materials and background for discussions and the meeting. SJCERA organization was excellent! Other remarks: Look forward to next year. Improvement in format is remarkable. Managers with more than one representative should choose the speaker. The breakout sessions are very important. I am sure we will get informative ideas from each group. I think we should continue doing this. Most of the discussions are relative to SJCERA which makes them more important and helpful to us. Have a table setup for staff so they do not have to move during break out sessions. Have moderators on side of table where they can look out over the room. Excellent event! High quality event. Keep up the good work. Thank you. Liked breakout sessions. Great opportunity to hear ideas from other managers in quiet forum. Thanks for having us! Diversified speakers and time on mic-moderating is most effective and helpful for Trustees if targeted speakers and representatives are chosen for answering each question. Suggestion to format: Have managers seated within their respective asset group.

Page 5 of 5 Your Global Investment Authority

Strategy review San Joaquin County Employees’ Retirement Association

25 September 2015

For professional use only. Client-specific update – not for public distribution. Disclosures

Past performance is not a guarantee or a reliable indicator of future results. Shares distributed by PIMCO Investments LLC.

PIMCO and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world.

The Morningstar Fixed-Income Fund Manager of the Year award (PIMCO Income, 2013) is based on the strength of the manager, performance, strategy and firm’s stewardship. Morningstar Awards 2013©. Morningstar, Inc. All Rights Reserved. Awarded to Dan Ivascyn and Alfred Murata for U.S. Fixed Income Fund Manager of the Year.

Your Global Investment Authority pg 1 Biographical information

Robert Arnott Mr. Arnott is the founder and chairman of Research Affiliates, a subadvisor to PIMCO. In 2002, he established Research Affiliates as a research-intensive asset management firm that focuses on innovative asset allocation and alternative indexation products. He previously served as chairman of First Quadrant, as president of TSA Capital Management (now part of Analytic Investors), and as vice president at The Boston Company. He also was global equity strategist at Salomon Brothers. He has published more than 100 articles in journals such as the Journal of Portfolio Management, the Harvard Business Review and the Financial Analysts Journal, where he also served as editor in chief from 2002 through 2006. He graduated summa cum laude from the University of California, Santa Barbara, in 1977 in economics, applied mathematics and computer science.

R. Matthew Clark, CFA Mr. Clark is a senior vice president and account manager in the Newport Beach office with a focus on institutional client servicing. Prior to joining PIMCO in 2002, he served as an officer in the U.S. Army for eight years, achieving the rank of captain. He has 14 years of investment experience and holds an MBA from Harvard Business School. He received an undergraduate degree from Trinity University, San Antonio.

Sasha Talcott, CFA Ms. Talcott is a vice president and account manager in the Newport Beach office, focusing on institutional client servicing. Prior to joining PIMCO in 2012, she was director of communications and outreach for Harvard Kennedy School’s Belfer Center for Science and International Affairs, a research center that focuses on topics ranging from international security to energy policy. Previously, she was a business reporter for the Boston Globe, where she covered the banking and insurance sectors. She holds an MBA from MIT Sloan School of Management and received an undergraduate degree from Northwestern University.

Your Global Investment Authority pg 2 Table of contents

1. RAE Fundamental review

2. All Asset All Authority review

3. Additional information

Your Global Investment Authority pg 3 1. RAE Fundamental review

Your Global Investment Authority !cs_Dividend_Sep_body pg 4 Strategy overview

Your Global Investment Authority 2cs_rae_fundamental_divider_01 pg 5 What is RAE Fundamental?

RAE Fundamental: capitalizes on market inefficiencies by selecting and weighting companies based on fundamentals and well-research portfolio construction insights

° Select and weight stocks by a variety of non-price measures of firm size – 4 core weighting measures:

1 2

Sales Cash flow

3 4 Dividends Book Value

– Apply quantitative enhancements designed to emphasize financial health, avoid trading against momentum and diversify active risk exposure

° Pursue excess returns over cap weighted indices

° Preserve the advantages of passive investing – Diversification, broad economic representation, liquidity

Your Global Investment Authority 2cs_rae_fundamental_review_01 pg 6 RAE Fundamental portfolio construction process

Begin with RAFI Fundamental Index

Select and weight stocks based on sales, book value, cash flow and dividends

Avoid Unhealthy Companies*

Reduce or eliminate weights to companies that may be under distress, employing aggressive accounting measures, or lack growth prospects

Be Mindful of Momentum*

Avoid trading against short-term momentum by taking into account recent price momentum into the rebalancing process (to avoid catching proverbial falling knife)

Diversify Active Bets Across Style*

Shift active weights from relatively expensive value companies to cheap growth companies to emphasize names with the greatest potential for appreciation

Diversify Active Bets Across Size*

To avoid concentration of over/under-weight positions in the largest names, shift a portion of this exposure from larger names to smaller names where mispricing is often greatest

* Unique to RAE Fundamental strategies, not incorporated in RAFI

Your Global Investment Authority 2cs_rae_fundamental_review_02 pg 7 RAE Fundamental designed to provide superior results vs. cap-weighted market index and RAFI

Annualized return from 1962 to 2015 Return over cap-weighted index 16% 3.42% 14% 1.93%

12%

10%

0% S&P 500 Total Return "Passive" FTSE RAFI US 1000 Index RAE Fundamental US Large Model

Total return 10.19% 12.11% 13.60%

Hypothetical example for illustrative purposes only SOURCE: Research Affiliates from CRSP/Compustat. FTSE RAFI US 1000 reflects back-tested performance prior to the launch of the FTSE RAFI Index. The index incepted June 30 2005. RAE Fundamental US Large Model Portfolio performance is based on a simulated rules-based portfolio of stocks of large U.S.-listed companies weighted by the Fundamental Index® methodology with additional screening factors (e.g., quality of earnings , economic profitability, momentum, value and size). The RAE Fundamental US Large Model Portfolio incepted on 30 June 2005. Results shown are those of a hypothetical backtest for a period prior to the actual inception of the model. Back-tested model returns are calculated using historical data retroactively applied to the model portfolio with the current rules of the model at inception held static throughout the calculation period. Simulated performance results do not reflect actual trading and do not include the effect of expenses and fees.

Your Global Investment Authority 2cs_rae_fundamental_phil_01 pg 8 Copy of rae_fundamental_phil_12 RAE Fundamental PM team: Leaders in market research and Smart Beta

Rob Arnott, Chairman ° Industry pioneer in Global Tactical Asset Allocation ° Highly regarded researcher with more than 100 published articles ° Previous editor of Financial Analysts Journal (FAJ)

Jason Hsu, Ph.D., Vice Chairman ° Industry leader in Smart Beta solutions ° Highly regarded researcher with more than 20 academic and practitioner articles ° Adjunct Professor of Finance, Anderson School of Business at UCLA

Chris Brightman, CFA, Chief Investment Officer ° Experienced equity strategist and asset allocator ° Managed a top University Endowment ° Former Vice Chair, Investment Advisory Committee, Virginia Retirement System

Smart beta refers to a benchmark designed to deliver a better risk and return trade-off than conventional market cap weighted indices. Management risk is the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results, and that certain policies or developments may affect the investment techniques available to PIMCO in connection with managing the strategy.

rae_fundamental_orga_01 Your Global Investment Authority pg 9 PIMCO - Research Affiliates historical relationship and RAE transition

Historical relationship Research Affiliates is PIMCO’s first sub advisor Partnership began in 2002 with the launch of the All Asset Strategy PIMCO was the first to adopt Fundamental Index methodology in 2005 with launch of RAE Fundamental PLUS Two firms currently collaborate on $27 billion in RAE and RAE PLUS equity strategies

Research Affiliates What will remain the same (for investors in RAE Fundamental common stock portfolios): • Research Affiliates continues to design portfolio construction as sub-advisor Equity (RAE) transition • Research Affiliates portfolio manager and product specialists remain available to join PIMCO personnel to meet with clients • Parametric Portfolio Associates remains the portfolio implementer

What is new (for investors in RAE Fundamental common stock portfolios): • PIMCO = Advisor, RALLC = sub-advisor • PIMCO’s client management professionals will service client accounts • As a complement to PIMCO’s existing enhanced equity strategies, RAE provides an additional investment option for clients who prefer physical stock based approaches

As of 30 June 2015

Your Global Investment Authority 2cs_rae_fundamental_review_04 pg 10 Market review, performance and attribution

Your Global Investment Authority 2cs_rae_fundmanetal_divider_02 pg 11 Global equity markets produced modest gains in Q2

Q2 ‘15 returns 20%

15% 14.1%

10%

5.4% 5% 3.8%

Returns Returns (%) 1.7% 0.6% 0.1% 0% -0.2% -0.2% -0.9% -1.9% -5% -3.7%

-7.4% -10% MSCI MSCI EAFE MSCI S&P 500 DJIA Russell FTSE Euro Nikkei Bovespa Micex Shanghai EAFE (USD - EM 2000 100 Stoxx Composite Hedged)

GLOBAL US INTERNATIONAL EMERGING MARKETS

° Moderate returns across global ° Large-cap underperformed as ° European stocks were broadly ° Brazil led the index higher on equity markets with DM stocks multinational earnings were lower as concerns about Greece central bank credibility modestly outperforming EM downgraded on dollar strength weighed on the market ° Rally in China as “mom and pop” and economic data was mixed ° Currency hedged indexes trailed ° Japanese equities continued to investors shifted from property unhedged indexes as the US dollar ° Small-cap outperformed due to climb as first quarter economic and trusts to equities. weakened relative to the euro and lower foreign exposure growth was revised upward to an other developed market currencies annualized rate of 3.9%.

As of 30 June 2015 SOURCE: Bloomberg

Your Global Investment Authority 2cs_SPAR_review_01 pg 12 SJCERA – PIMCO RAE Fundamental International Fund LLC performance review

San Joaquin County Employees' Retirement Association Market value as of Aug '15 $ 162,705,556 Performance Fund (before fees) Benchmark Secondary Benchmark 15

0 Returns Returns (%) -5

-10

-15 S.I. 5 yr 3 yr 1 yr 6 mos 3 mos YTD San Joaquin County Employees' Retirement Association Since # Inception # YTD 31 Mar '06 5 yr 3 yr 1 yr 6 mos 3 mos # 31 Aug '15 Before fees (%) 3.4 7.5 9.0 -11.9 -8.4 -9.2 # -3.6 After fees (%) 3.1 7.2 8.8 -12.1 -8.5 -9.3 # -3.8 MSCI EAFE Index (%) 1.8 7.1 8.5 -7.5 -6.3 -8.1 # -0.2 MSCI EAFE Value Index (%) 1.0 6.2 8.1 -10.6 -7.6 -8.8 # -2.0 Before fees alpha vs. core index (bps) 16 40 44 -439 -208 -111 # -342 Before fees alpha vs. value index (bps) 245 125 84 -122 -82 -40 # -159 As of 31 August 2015 All periods longer than one year are annualized Primary Benchmark: MSCI EAFE Net Div Index in USD Past performance is not a guarantee or a reliable indicator of future results. The performance figures presented reflect the return for the specific client (after fees) and reflect changes in share prices and reinvestment of dividend sand capital gains. All periods longer than one year are annualized. PIMCO serves as the investment adviser for the Fund. Research Affiliates, LLC, serves as the Fund's sub-adviser. The PIMCO RAE Fundamental International LLC Fund commenced operations on May 29 2015. Prior to that, the client was invested in a privately offered fund managed by the Fund’s Sub-Adviser. For periods prior to the commencement of Fund operations, the client's performance represents that of the Research Affiliates, LLC privately offered fund. Prior to the launch of the PIMCO RAE Fundamental International LLC, the predcessor privately offered fund had an investment objective and investment strategies that were, in all material respects, the same as those of the Fund, and was managed in a manner that, in all material respects, complied with the investment guidelines and restrictions of the Fund.

Your Global Investment Authority 5069_perf_15683 pg 13 SJCERA – PIMCO RAE Fundamental Emerging Markets Fund LLC performance review

San Joaquin County Employees' Retirement Association Market value as of Aug '15 $ 71,476,902 Performance Fund Benchmark Secondary Benchmark 5

-5

-10

-15 Returns Returns (%)

-20

-25

-30 S.I. 5 yr 3 yr 1 yr 6 mos 3 mos YTD San Joaquin County Employees' Retirement Association Since Inception YTD 31 Mar '07 5 yr 3 yr 1 yr 6 mos 3 mos 31 Aug '15 Before fees (%) 2.2 -1.5 -3.8 -27.3 -18.6 -18.6 -16.4 After fees (%) 1.7 -1.8 -4.1 -27.6 -18.8 -18.7 -16.6 MSCI EM Index (%) 0.4 -0.9 -2.4 -23.0 -16.0 -17.6 -12.9 MSCI EM Value Index (%) 0.5 -2.5 -4.6 -26.5 -16.6 -18.4 -14.4 Before fees alpha vs. core index (bps) 184 -53 -143 -432 -234 -106 -355 Before fees alpha vs. value index (bps) 174 100 78 -82 -197 -25 -204 As of 31 August 2015 All periods longer than one year are annualized. Benchmark: MSCI Emerging Markets Index Past performance is not a guarantee or a reliable indicator of future results. The performance figures presented reflect the return for the specific client (after fees) and reflect changes in share prices and reinvestment of dividend sand capital gains. All periods longer than one year are annualized. PIMCO serves as the investment adviser for the Fund. Research Affiliates, LLC, serves as the Fund's sub-adviser. The PIMCO RAE Fundamental Emerging Markets LLC Fund commenced operations on May 29 2015. Prior to that, the client was invested in a privately offered fund managed by the Fund’s Sub-Adviser. For periods prior to the commencement of Fund operations, the client's performance represents that of the Research Affiliates, LLC privately offered fund. Prior to the launch of the PIMCO RAE Fundamental Emerging Markets LLC, the predcessor privately offered fund had an investment objective and investment strategies that were, in all material respects, the same as those of the Fund, and was managed in a manner that, in all material respects, complied with the investment guidelines and restrictions of the Fund

Your Global Investment Authority 2cs_rae_perf_15662 pg 14 RAE Fundamental’s contrarian approach has led to short term underperformance

Value minus Growth Rolling 12-months returns RAE excess returns vs. MSCI EAFE Strong Growth-Led Markets Have Led 15% to Recent RAE Underperformance 10% Value outperforms

° Moderate short term underperformance is not 5% unusual and often corresponds with strong growth- led markets 0%

° Over last 12 months value minus growth was -5.8% -5%

-10% Value underperforms -15% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 When RAE underperforms, it tends to Alpha of RAE International vs MSCI EAFE during various market be in a strong growth led market environments (31 Dec '85 - 30 Jun '15) rolling 12 month returns 12.0% ° RAE is more than a value versus growth story 10.0% 8.0% 6.0% ° However, value-led markets are a tailwind and 4.0% growth led markets are a headwind 2.0% 0.0% ° Underperformance is largely constrained to periods -2.0% Growth Growth Style neutral Value Value of significant growth outperformance significantly moderately moderately significantly outperforms outperforms outperforms outperforms Value vs. Growth <-5.5% -5.5% to -2.5% -2.5% to 2.5% 2.5% to 5.5% >5.5% returns # of occurrence 33 43 102 65 112

As of 30 June 2015

Your Global Investment Authority 2cs_rae_fundamental_review_05_15663 pg 15 Underperformance tends to quickly be followed by outperformance

RAE Fundamental International Model vs. MSCI EAFE Rolling 1-year excess returns Short term underperformance followed 30% by strong rebounds 25% RAE outperforms 20% ° Positive excess return in 75% of rolling 1 year 15% periods 10% 5% 0% -5% RAE underperforms -10% -15% 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

RAE Fundamental International Model vs. MSCI EAFE Long term outperformance remains Rolling 3-year excess returns 16% highly consistent 14% 12% ° Outperformance in 90% of rolling 3 year periods RAE outperforms 10% since live inception 8% 6% 4% 2% 0% -2% RAE underperforms -4% 1987 1990 1992 1994 1997 1999 2001 2003 2006 2008 2010 2012 2015

As of 30 June 2015 SOURCE: PIMCO

Your Global Investment Authority 2cs_rae_fundamental_review_07_15663 pg 16 RAE positioned for a rebound

RAE is underweight to industries that RAE Variation Total Fundamental MSCI in Return trade at high valuations Top 5 Industry International EAFE Weight Last 12 Current Underweights (%) (%) (%) months P/E ° These underweights have hurt relative performance Pharmaceuticals 6.05 9.35 -3.30 2% 27.0x Machinery 0.61 2.55 -1.94 -2% 23.2x ° These underweights may drive prospective performance as stock prices mean revert Automobiles 2.35 4.27 -1.92 5% 11.9x Food Products 1.14 2.95 -1.81 -3% 24.8x Beverages 1.05 2.45 -1.40 -2% 23.9x RAE Fundamental Int’l -8.65% 15.2x MSCI EAFE -4.00% 22.2x

At the portfolio level, RAE offers more RAE Fundamental value than the MSCI EAFE MSCI EAFE Discount International Dividend ° Higher dividend yield 3.5% 3.0% n/a Yield ° Average discount of 22% Price/Book 1.3 1.8 28% Price/Cash 6.3 8.4 25% Flow Price to 15.8 17.0 7% Earnings Price/Sales 0.8 1.1 27%

As of 30 June 2015

Your Global Investment Authority 2cs_rae_fundamental_review_06_15663 pg 17 RAE positioned for a rebound

RAE is underweight to industries that Variation Total RAE in Return trade at high valuations Top 5 Industry Fundamental MSCI Weight Last 12 Current Underweights EM (%) EM (%) (%) months P/E ° These underweights have hurt relative performance Internet Software & Services -- 3.04 -3.04 16% 46.8x Semiconductors & 2.34 5.03 -2.69 3% 12.4x ° These underweights may drive prospective Semiconductor Equipment performance as stock prices mean revert Media 0.05 2.39 -2.35 20% 88.9x IT Services 0.33 2.06 -1.73 -1% 21.2x Pharmaceuticals 0.01 1.68 -1.67 11% 32.5x RAE Fundamental EM -12.12% 9.7x MSCI EM -5.00% 21.7x

At the portfolio level, RAE offers more value than the MSCI EM RAE Fundamental EM MSCI EM Discount Dividend ° Higher dividend yield 3.8 2.6 n/a Yield ° Average discount of 40% Price/Book 1.0 1.6 38% Price/Cash 4.1 7.0 41% Flow Price to 8.5 13.2 36% Earnings Price/Sales 0.6 1.1 45%

As of 30 June 2015

Your Global Investment Authority 2cs_rae_fundamental_review_06_15662 pg 18 2. All Asset All Authority review

Your Global Investment Authority !cs_Dividend_Sep_body pg 19 Review of All Asset All Authority’s role in an investor’s portfolio

Issue Original rationale for launching the All Asset All Authority strategy is now more relevant than ever: ° Conventional stock/bond allocations may not provide adequate returns ° High equity allocations drive the need for risk diversification ° Institutions and individuals alike must earn returns that exceed future inflation ° Conventional balanced strategies would face serious headwinds by renewed inflation

Response PIMCO All Asset All Authority Fund Inception: 31 October 2003 Size: $16.0 billion

Structure PIMCO RESEARCH AFFILIATES

Active Manager of Underlying Funds Tactical Asset Allocation Sub-advisor

° A global leader in active investment ° A global leader in research-driven asset management across liquid asset classes allocation investment strategies ° 260+ portfolio managers, 60+ analysts ° 3 portfolio managers, 30+ researchers, 2 product specialists ° AUM $1.5 trillion¹, founded 1971 ° AUM $173.9 billion, founded by Rob Arnott in 2002

As of 30 June 2015 ¹ Effective 31 March 2012, PIMCO began reporting the assets managed on behalf of its parent’s affiliated companies as part of its assets under management. PIMCO manages $1.52 trillion in assets, including $1.15 trillion in third-party client assets as of 30 June 2015.

Your Global Investment Authority 2cs_AAAAF_review_02 pg 20 All Authority’s approach has a “third pillar” focus Seeking high real returns while diversifying and complementing the traditional 60/40 approach

FIRST PILLAR SECOND PILLAR THIRD PILLAR ° Participate in economic growth ° Provide income ° Provide uncorrelated return ° Seek returns ° Reduce volatility ° Seek diversification with income 1 ° Disinflationary bias 2 ° Disinflationary bias 3 ° Inflationary bias

Average allocation Max: 56% Max: 43% Max: 113% (since fund inception) -1% Min: -16% 15% Min: 0% 86% Min: 44%

As of 30 June 2015

2cs_AAAAF_review_14 Your Global Investment Authority pg 21 PIMCO All Asset All Authority’s historical allocations: Allocating across all liquid asset classes, using third pillar assets as the core

160 Gross exposure

140

Third pillar 120 Average: 86% Emerging markets equities Current: 101% 100 Commodities and REITs (%) 1 80 Emerging markets bonds

60 Credit

Second pillar Global bonds 40 Inflation-linked bonds Average: 15%

Current: 7% Percent of assetsnet Alternative strategies 20 First pillar U.S. Long maturity bonds U.S. Core bonds Average: -1% Short-term bonds Current: -6% 0 Developed ex-U.S. equities U.S. equities, net short -20

-40 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

° All Asset All Authority has always used all asset classes, and emphasized third pillar assets as the core ° The Fund has consistently been tactical across the three pillars and within each ° Tactical trading has always been contrarian – selling what has already gone up and buying what has already gone down

As of 30 June 2015 * TIPS: Treasury Inflation Protected Securities; REITs: Real Estate Investment Trusts 1 Allocations are shown based on net assets (assets net of leverage) in order to better visually illustrate the use of tactical leverage and inverse S&P 500 exposure. Prospectus allocation limits are based on percent of Gross Assets. For historical allocations as a percent of Gross Assets refer to the “All Asset All Authority Fund: Historical Allocations” table within this presentation.

2cs_AAAAF_structure_01c Your Global Investment Authority pg 22 The benefits of a third pillar strategy Diversification with attractive return potential

Third pillar helps provide attractive risk adjusted returns Third pillar delivers attractive diversification benefits 14.0% 14.0%

12.0% S&P 500 12.0% S&P 500 Third pillar Third pillar

10.0% 10.0% 60% S&P 500/ 60% S&P 500/ U.S. core fixed 40% U.S. core U.S. core fixed 40% U.S. core Annualized Annualized returns income bonds Annualized returns income bonds 8.0% 8.0%

6.0% 6.0% 4.0% 8.0% 12.0% 16.0% 0% 50% 100% Volatility Correlation

As of 30 June 2015 SOURCE: Research Affiliates, Ibbotson, Encorr, Bloomberg Chart intentionally not shown to scale to emphasize volatility and correlation * U.S. core bonds are represented by Barclays U.S. Gov't/Credit TR USD from Jan ‘74 to Dec ‘75 and the Barclays U.S. Aggregate Bonds TR USD thereafter. ** Third pillar consists of an equally-weighted blend of: U.S. high yield represented by Barclays U.S. Corporate High Yield Index (1973 to 1992) and BofA-ML U.S. High Yield (1993 to present); diversified commodities represented by S&P GSCI TR (1973 to 1990) and Bloomberg Commodity Index (1991 to present); REITs represented by FTSE REIT All REITS (1973 to 1986) and DJ-UBS Select REIT (1987 to present); EM equities represented by MSCI EM Index (1988 to present); EM local bonds/currencies represented by JPMorgan ELMI+ TR (1994 to 2002) and JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged) (2003 to present); and U.S. TIPS represented by Barclays U.S. Treasury U.S. TIPS (March 1997 to June 1998) and Barclays U.S. Treasury Inflation Notes: 10+ Year Index (July 1998 to present)

2cs_AAF_review_29 Your Global Investment Authority pg 23 Calendar year comparison of third pillar vs. 60/40: Higher performance with strong year-by-year diversification

Calendar year relative performance: 60/40 vs. Third pillar 40%

30% Third pillar* outperforms: Third pillar* full period performance: 27 of 42 years (64%) 10.8% per annum 20%

10%

-10% 3rd return Pillar3rd - 60/40 return -20% 60/40 outperforms: 15 of 42 years (36%) 60/40 full period performance: -30% 10.0% per annum

-40% '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

° 3 of the 6 years that 60/40 outperformed by >10% came during the tech bubble period

° Following strong 60/40 outperformance, third pillar assets tend to outperform in subsequent years

As of 30 June 2015 The 60/40 mix is comprised of 60% S&P 500 and 40% Barclays U.S. Aggregate Index * Third pillar composite is an equally-weighted blend of U.S. high yield (Barclays U.S. Corporate High Yield Index), Long U.S. TIPS (Barclays U.S. Treasury Inflation Notes: 10+ Year Index), EM local bonds (JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged)), EM equities (MSCI EM Index), REITs (Dow Jones U.S. Select REIT Total Return Index), and diversified commodities (DJ-UBS Commodity TR Index)

Your Global Investment Authority 2cs_AAF_review_24 pg 24 Market and strategy performance

Your Global Investment Authority AA_tab_02 pg 25 Quarterly summary: All Asset All Authority

The All Asset All Authority Fund returned -6.4% in Q3 2015 and -6.9% YTD Q3 market recap Most risk assets sold off in Q3 amid concerns of a slowdown in Chinese growth ° Third pillar assets lost -6.2% as EM equity, EM debt, and commodities fell ° First pillar assets (developed equities) were down -5.6% amid a broad risk-off sentiment, but second pillar assets posted a modest gain of +1.4% amid the flight to quality ° Peak-to-trough, the S&P 500 lost -11.2% from August 17th-25th while All Authority returned -3.0%, reflective of its diversifying characteristics, even in a surprise down market All Authority’s value tilt and inflationary bias could be catalysts for future performance ° Value-based investing may be more attractive following several years of momentum outperforming value, across and within asset classes ° Continued increases in inflation expectations from recent lows could provide a tailwind for third pillar assets going forward, in contrast to the disinflationary headwind of 2013-2014

Drivers of PIMCO All Asset All Authority is designed to serve as a “Third Pillar”-focused strategy that seeks performance to: ° Provide high real return potential over a full business cycle ° Diversify the pattern of returns away from core stock and bonds ° Provide greater inflation sensitivity to complement the disinflationary bias of core stocks and bonds

All Asset All Authority’s style benefits when: 1) Third pillar assets outperform first and second pillar assets (diversification beats core) 2) Cheaper assets outperform richer assets (value beats momentum) 3) PIMCO delivers alpha within the underlying funds

As of 31 August 2015 SOURCE: PIMCO

Your Global Investment Authority 2cs_AAAAF_review_01 pg 26 Most asset classes posted negative returns in Q3 Q3 returns have driven most markets into negative territory year to date

Asset class returns QTD Q3 YTD 5% 3.5%

0.6% 0.8% 0.4% 0.0% 0% -0.2% -0.3% -0.8% -0.4% -1.4% -1.9% -2.9% -3.0% -2.7% -5% -4.1% -5.4% -6.0% -7.4% -7.8% -10%

-11.4% -12.3% -12.9% -12.8% -15% -15.3% QTD average: -5.6% QTD average: +1.4% QTD average: -6.2% YTD average: -2.0% YTD average: -0.6% YTD average: -7.7% -20% U.S. Small cap Developed U.S. core Long U.S. U.S. U.S. high Long U.S. EM local EM REITs Diversified equities equities ex. U.S. fixed Treasuries investment yield TIPS bonds equities commodities equities income grade credit

First pillar Second pillar Third pillar

As of 31 August 2015 SOURCE: Barclays, BofA, JPMorgan, Bloomberg U.S. equities represented by S&P 500 Total Return Index; Developed ex. U.S. equities represented by MSCI Daily TR Gross EAFE USD Index; U.S. core fixed income represented by Barclays U.S. Aggregate Total Return Index; Long U.S. Treasuries represented by Barclays U.S. Aggregate Long Treasury Index; U.S. investment grade credit represented by Barclays U.S. Aggregate Credit Total Return Index; U.S. high yield represented by Barclays U.S. Corporate High Yield Index; Long U.S. TIPS represented by Barclays U.S. Treasury Inflation Notes: 10+ Year Index; EM local bonds represented by JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged); EM equities represented by MSCI EM Index; REITS represented by Dow Jones Select U.S. REITs Index.; Diversified commodities represented by DJ-UBS Commodity TR Index.

Your Global Investment Authority 2cs_AAF_review_31 pg 27 Most assets rallied following the financial crisis, but since 2012, larger gains have been limited to US equities

Mar ‘09 – Dec ‘12: Broad bull market after crash Dec ‘12 – Aug ’15: Most markets are flat despite U.S. equity gains

Annualized asset class returns Annualized asset class returns

US Small Equities 22.1% First pillar US Large Equities 15.3% First pillar US Large Equities 19.2% average: US Small Equities 13.8% average: Dev. Ex-US Equities 15.2% 18.8% Dev. Ex-US Equities 5.9% 11.7% US IG Credit 11.8% Long US Treasuries 2.8% Long US Treasuries 8.4% Second pillar US MBS 2.1% Second pillar average: average: US Core Fixed Income 6.5% US IG Credit 1.7% 7.8% 2.2% US MBS 4.8% US Core Fixed Income 1.6% US REITS 36.2% US REITS 8.9% Global HY 22.6% Global HY 4.5% EM Equities 20.7% Global bonds (Hedged) 4.2% US High Yield 18.6% US High Yield 3.9% EM External 16.7% Bank Loans 3.6% EM Local Bonds 15.5% Global IG 2.5% Bank Loans 13.2% Third pillar EM External -0.1% Third pillar average: average: Long U.S. TIPS 13.0% US TIPS -2.1% 14.2% -1.4% Global IG 10.0% Long U.S. TIPS -3.4% US TIPS 8.6% Global bond ex-U.S. (Unhedged) -4.5% Commodities 6.6% EM Currencies -6.0% Global bond ex-U.S. (Unhedged) 6.3% First Pillar EM Equities -6.7% EM Currencies 6.2% Second Pillar EM Local Bonds -10.1% Global bonds (Hedged) 4.1% Third Pillar Commodities -14.7%

As of 31 August 2015 SOURCE: PIMCO Refer to Appendix for additional index, and risk information.

Your Global Investment Authority 2cs_AAF_review_32 pg 28 PIMCO All Asset All Authority Fund performance review

San Joaquin County Employees Retirement Association Market value as of Aug '15 $ 81,620,300

Performance All Asset All Authority Fund (after fees) 25 19.4 20 17.7

15 11.9 10.0 10.7 10 6.7 5 3.1 3.0 Returns Returns (%)

-5 -2.4 -5.5 -10 -6.9 -6.9 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 YTD '15

PIMCO All Asset All Authority Fund Fund Account # ## inception inception¹ # YTD # # 31 Oct '03 10 yrs. 5 yrs. 3 yrs. 30 Nov '13 1 yr. 6 mos. 3 mos. # 31 Aug '15 # # After fees (%) 5.2 3.8 0.8 -3.2 -5.5 -14.5 -8.6 -8.0 # -6.9 ## S&P 500 Index (%) 7.7 7.2 15.9 14.3 7.3 0.5 -5.3 -5.9 # -2.9 ## CPI+ 6.5 (%) 8.7* 8.5* 8.3* 7.9* 7.5* 6.7* 4.6* 2.5* # 4.5* ##

As of 31 August 2015 ¹ Actual inception date: 26 November 2013 All periods longer than one year are annualized

Your Global Investment Authority 135932_perf_791 pg 29 All Asset All Authority long-term performance comparison: Consistent with 60/40 with diversification benefits along the way

All Asset All Authority 60% S&P 500 / 40% BAGG $350 Early Late expansion: Recession: Early expansion: Late expansion: expansion: Jan ‘05 – Dec ‘07 Jan ‘08 – Jun ‘09 Jul ‘09 – Dec ‘12 Jan ‘13 – Jun ‘15 $300 Oct’ 03 – Dec ‘04 AAAAF: 6.6% AAAAF: 1.5% V AAAAF: 11.4% AAAAF: -3.4% 60/40: 7.1% 60/40: -13.6% 60/40: 12.3% 60/40: 11.4% $250 V V V AAAAF: 13.9% V 60/40: 13.3% $200

Growth of $100 ofGrowth $150

$100

$50 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Trailing 1 yr return difference 20% All Asset All Authority outperforming 60/40 10%

-10%

-20% 60/40 outperforming Trailing 1-yr return difference (%) All Asset All Authority -30% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

° Given the Fund’s value-oriented, contrarian approach it has tended to lag in the late stages of bull markets when valuations become more mature, outperform during recessions and offer comparable performance during early expansions

As of 30 June 2015 SOURCE: PIMCO

Your Global Investment Authority 2cs_AAAF_outlook_11 pg 30 Outlook and positioning

Your Global Investment Authority AA_tab_02 pg 31 Research Affiliates’ current long-term real return estimates The highest return potential is outside of U.S. stocks and bonds

Long-term real return estimates for major asset classes Third pillar Second pillar First pillar 8% EM Equities 7%

EM Currency EM Local Bonds 5%

Developed ex-U.S. 4% Equities U.S. High Yield 3% EM Non Local Debt U.S. IG 2% Bank Loans Credit U.S. REITs U.S. Core Long-Term RealExpected Returns Commodities 1% U.S. TIPS Long U.S. Fixed Income Treasuries U.S. Equities U.S. Small Equities 0% Cash 4% 8% 12% 16% 20% 24% 28% -1% Volatility

° Most third pillar assets are attractively priced, after anemic recent results, while US stocks and bonds are not ° The dark side of a major bull market? Those asset classes are priced to offer weak future returns ° With PIMCO alpha, Research Affiliates Fundamental Index (RAFI) alpha and tactical asset allocation, CPI+6.5% is achievable

As of 30 June 2015 SOURCE: Research Affiliates, LLC, based on data building blocks, mean reversion and business cycle models. The asset classes shown above are represented by the following indexes: U.S. Equities represented by S&P 500; Developed ex U.S. Equities represented by MSCI EAFE; Long U.S. Treasuries represented by Barclays U.S. Treasury Long; U.S. Core Fixed Income represented by Barclays U.S. Aggregate; U.S. Investment Grade Credit represented by Barclays U.S. Interim Credit; U.S. high yield represented by Barclays U.S. Corporate High Yield; U.S. TIPS represented by Barclays U.S. Treasury U.S. TIPS, U.S. REITS represented by FTSE NAREIT; EM local bonds represented by JPM GBI-EM; EM equities represented by MSCI EM; and Commodities represented by Bloomberg Commodity Index.

Your Global Investment Authority 2cs_AAAAF_outlook_05 pg 32 Initial valuation levels are reliable predictors of subsequent returns For 60/40 portfolios, expectations are lower today than historically

Expected Beginning Real Implied Expected Beginning Return = Dividend + long-term + Inflation Return = Bond Equities Yield EPS Growth Bonds Yield Simplified Simplified Approach

Forecasted return 60/40 portfolio forecasted and realized returns by decade Realized return 18%

16%

14%

12%

10%

8% Percent (%)Percent 6%

0% ? 1871- 1881- 1891- 1901- 1911- 1921- 1931- 1941- 1951- 1961- 1971- 1981- 1991- 2001- Average Current 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

° Any valuation mean reversion in equities from today’s historically high Shiller P/E multiples would push future realized returns below the 4% forecasted level shown above

As of 30 June 2015 SOURCE: Research Affiliates, based on data from Robert Shiller, Federal Reserve, and BEA. Refer to Appendix for additional hypothetical example and risk information.

Your Global Investment Authority 2cs_AAF_Outlook_06 pg 33 Current positioning summary: Pro-cyclical tilt favoring cheaper asset classes

Current allocation mix ° Maintained equity exposure while 130 moving into lower beta strategies 120 ° Short U.S. equities used as risk 13 8 17 Emerging markets equities hedge against levered (1.4x) 110 7 16 holdings to limit total equity beta 11 and volatility 100 11 Commodities and REITs 8 ° Reduced credit exposure in 2014 as 90 26 credit spreads narrowed 25 Emerging markets bonds 80 23 24 ° Took profits in U.S. core and long bond strategies after rates rallied in 70 H2 2014

60 21 Credit ° Rotated some long duration 38 31 22 nominals into long TIPS to capture 50 cheap BEI levels as oil prices fell 3 Global bonds Inflation-linked bonds 1 8 ° Waiting for negative commodity 40 Percent of net ofnet Percent assets (%) 4 20 momentum to abate before adding 30 27 at these lower prices 13 22 Alternative strategies 4 ° Continue to hold alternative 20 5 6 U.S. Long maturity bonds strategies as a more market-neutral 3 5 U.S. Core bonds 7 4 dry powder, in lieu of core bonds 10 2 Short-term bonds 12 11 Developed ex-U.S. equities or cash 8 9 0

Key statistics -14 -14 -18 -15 U.S. equities, net short ° Total carry¹: 5.7% -10 ° Total equity beta (ex-ante)²: 0.26 ° Duration3: U.S. = 0.4 Total = 2.1 -20 Dec '12 Dec '13 Dec '14 Jun '15 As of 30 June 2015 ¹ Total carry reflects the expected return that could result in a static environment when considering yield curve roll-down, option income, financed fixed income holdings, credit spreads, and equity dividends ² Equity beta of current holdings versus the S&P 500 index using 10 years of equally-weighted data. Current holdings may not have been held by the Fund for the full calculation period. 3 See page “All Asset All Authority has limited exposure to U.S. rates while pursuing a high level of income” for more information on duration positioning

Your Global Investment Authority 2cs_AAAAF_structure_03 pg 34 Recent headwinds may be turning to tailwinds for the All Asset Suite

Headwinds since 2012 Potential Tailwinds

Falling inflation expectations ° Inflation expectations have been rising from lows reached in January

Rising USD vs. EM currencies ° After significant USD strength, stability for local EM currencies may be near

° A strong dollar can also mean positive earnings shocks for EM, Europe and Japan

U.S. equities have trended higher ° A mature bull market in U.S. stocks has led to while most global equity markets rich valuations and reduced return have stagnated or declined, expectations counter to valuation levels ° Int’l and EM stocks, and third pillar markets have become far more attractive

Your Global Investment Authority 2cs_AAF_outlook_07 pg 35 Inflation expectations, which had fallen for two years, may offer a tailwind to third pillar assets going forward

10yr breakeven inflation ° Inflation expectations fell sharply in 2013-14, driven most 10 Year BEI Average recently by falling oil prices in late 2014 3.5% 3.0% Dec '12: ° In 2015, inflation expectations began rising amid the 2.5% continued economic expansion, however concerns over 2.5% Chinese weakness re-fueled disinflationary concerns 2.0% Aug '15: ° Nevertheless, PIMCO sees these effects as being transitory 1.5% 2.09% Jan '15 1.6% 1.6% and expects a continued upward trend of core inflation average 1.0% towards the Fed’s target of 2.0% PCE (~2.3% CPI) 0.5%

0.0% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

° Historically, third pillar returns have been positively Changes in 10yr breakeven inflation and “third pillar” returns correlated with changes in breakeven inflation (78% 60% correlation) 50% 40% 2012 ° Low levels of inflation expectations tend to be predictive 30% of subsequent increases given active central bank 20% intervention 10% 2014 0% -10% -20% Correlation = 78% -30%

12 12 “thirdreturns pillar" month 2013 -40% -50% -2.0% -1.0% 0.0% 1.0% 2.0% From March 1997 – August 2015 SOURCE: Research Affiliates based on data from Bloomberg and St. Louis Fed 12 month changes in 10yr breakeven inflation NOTE: Breakeven inflation is the difference between TIPS and Treasury yields

Your Global Investment Authority 2cs_AAF_review_36 pg 36 All Asset All Authority has exposure to higher carry emerging markets currencies

Currency exposure 110 ° All Asset All Authority’s non-US positions 100 are hedged to USD, with the exception being 4 90 EM assets 80 39 ° EM currency allocation reflects higher real yields 70 U.S. Dollar 60 Emerging markets (~3% advantage over DM FX) and attractive 50 Euro valuations of the underlying assets (EM stocks 40 Yen and bonds) Other 30 58

Exposure breakdown Exposure (%) 20 10 0 -10

Returns during periods where 10-year yield is rising ° EM currencies had positive returns during periods of rising U.S. bond yields, with 2013’s “Taper Tantrum” Change in being the lone exception Period 10-yr yield EM Local EM Currency Jan '94 - Nov '94 226 bps N/A 9.1% 1 ° EM currencies are also positively correlated with Dec '95 - Aug '96 137 bps N/A 8.6% changes in expected U.S. inflation Sep '98 - Jan '00 225 bps N/A 25.2% – The Fed has defined rising inflation as a condition Oct '01 - Mar '02 116 bps N/A 3.4% precedent to raising interest rates Jun '05 - Jun '06 122 bps 3.8% 6.4% Dec '08 - Jun '09 132 bps 9.2% 5.8% Sep '10 - Mar '11 96 bps 2.5% 3.7% Apr '13 - Aug '13 111 bps -14.3% -5.3%

As of 30 June 2015 SOURCE: PIMCO, Bloomberg, Research Affiliates Asset Allocation Website 1 Quarterly correlation of EM currencies with 10 yr breakeven U.S. inflation changes is 0.19 from March 1997 through June 2015.

Your Global Investment Authority 2cs_AAAAF_Outlook_10 pg 37 Prolonged outperformance of U.S. stocks has led to rich valuations; International and EM exposures remain increasingly attractive

Shiller PE: Jan 1881 - Jun 2015 U.S. EAFE EM 50 US Equities 45 P/E Percentile

40 Dec '12 21.2x 80th Jun '15 26.1x 93rd 35 Dec '12 - Jun '15 return: +18.4%*

30 EAFE Equities 25 P/E Percentile

20 Dec '12 13.3x 9th Jun '15 17.1x 27th 15 Dec '12 - Jun '15 return: +8.7%* 10 EM Equities 5 P/E Percentile 0 Dec '12 16.6x 39th 1881 1981 2004 '81 '06 '31 '56 '81'83 '90 '97 '04'05 '08 '11 '15 Jun '15 15.1x 15th Dec '12 - Jun '15 return: -0.8%*

° Despite starting at much higher valuation levels, U.S. equities have experienced a significant momentum driven rally

° Today, international and EM equites are priced to deliver much higher forward-looking returns given much lower valuations

° RAE and RAE Low Volatility indexes, with their value tilt, offer even lower valuations and higher return potential

As of 30 June 2015. SOURCE: Research Affiliates * Annualized Return U.S. represented by S&P 500 from 1957. Prior to 1957, the stock market index was the "S&P 90". Prior to 1926, modeled data was provided by Shiller; EAFE/International represented by MSCI EAFE Index; EM represented by MSCI EM Index Refer to Appendix for additional index and risk information

Your Global Investment Authority 2cs_AA_outlook_12 pg 38 Strong outperformance for RAE strategies may occur as we transition from a momentum driven market to a fundamentally driven market

Average Excess Return of PIMCO RAE Index* Since Inception, Rolling 12 Months U.S. EAFE EM 7.0%

6.0% Average: 5.2% 5.0% Average: 4.4%

4.0%

Current environment Current environment 3.0% for U.S. and EAFE for EM Average: 2.0% 2.0%

1.0%

0.0%

Average: -0.3% -1.0% Average: -0.2% -2.0% Growth Growth Style Neutral Value Value significantly outperforms moderately outperforms -2.5% to 2.5% moderately outperforms significantly outperforms < -5.5% -5.5% to -2.5% 2.5% to 5.5% > 5.5%

° Current momentum driven environment has been more favorable for growth than value equites ° A failure to meet growth expectations, particularly in the U.S., may begin to favor value over growth

*The analysis above is based on the return series of Enhanced RAFI US Large (12/31/2004), Enhanced RAFI International (6/29/2005), and Enhanced RAFI EM (5/31/2006): inception dates are in the parentheses. The excess return is measured as the return over the core cap-weighted index, which is the S&P 500, MSCI EAFE, and MSCI EM, respectively. Source: Research Affiliates based on Factset.

Your Global Investment Authority 2cs_AAF_Outlook_13 pg 39 All Asset All Authority has limited exposure to U.S. rates while pursuing a high level of income

REGIONAL DURATION BREAKDOWN TOTAL CARRY1 (%)

6 3 5.7

1.0 5

2.1 2 4

1.6 Equities U.S. duration (0-7 year maturity) Percent 3 Non-core fixed income U.S. duration (7+ year maturity) 1 4.4 Core U.S. fixed income EM duration 2 Developed ex-U.S. Duration Duration (years) 0.8 1 0 0.1 -0.4 0.3 0

-1

° All Asset All Authority has limited overall duration and negative U.S. duration in maturities most sensitive to Fed rate hikes (0-7 year maturities)

° Diversified sources of yield across global fixed income and equities result in attractive total carry: 6.6%

As of 30 June 2015 ¹ Total carry reflects the expected return that could result in a static environment when considering yield curve roll-down, option income, financed fixed income holdings and credit spreads.

Your Global Investment Authority 2cs_AAAAF_review_16 pg 40 Summary

° All Asset is a “third pillar” focused strategy that offers high real return potential with diversification away from core stocks and bonds

° While the last two years has seen a bull market centered on U.S. stocks, the potential for rising inflation expectations and reversal of momentum outpacing value make third pillar assets appear particularly attractive today

° All Asset is well positioned going forward to meet its return and diversification goals: – An emphasis on cheaper priced third pillar assets – A high total carry (e.g., total yield capture) – Limited exposure to U.S. stocks and U.S. interest rates

Your Global Investment Authority 2cs_AAF_review_26 pg 41 Appendix

Your Global Investment Authority AA_tab_03 pg 42 PIMCO All Asset All Authority Fund: Historical exposures (Page 1 of 2)

Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Mar '15 Jun '15 Third Pillar 74.8% 77.8% 66.7% 88.8% 74.3% 85.2% 61.8% 85.2% 110.4% 96.3% 107.6% 94.9% 103.2% 100.6%

Emerging Markets Equities 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 1.4% 2.7% 9.3% 7.7% 12.7% 17.0% 16.7% 16.4% Fundamental PLUS EMG Fund - - - - - 0.1% 1.4% 2.7% 9.1% 7.6% 12.5% 6.2% 6.4% 6.1% Low Volatility PLUS EMG Fund ------0.0%10.8%10.4% 10.2% EqS Emerging Markets Fund ------0.2% 0.1% 0.1% 0.0% - - Commodities and REITs 7.9% 14.4% 3.7% 16.3% 5.4% 7.9% 7.0% 12.4% 19.0% 6.5% 10.8% 10.7% 9.9% 7.6% CommoditiesPLUS™ Strategy Fund ------4.0% 7.3% 5.2% 5.2% 4.6% 4.1% 3.0% CommodityRealReturn Strategy Fund® 2.6% 8.8% 1.5% 16.1% 4.5% 3.3% 6.7% 5.6% 6.4% 0.6% 1.9% 3.3% 3.3% 2.3% RealEstateRealReturn Strategy Fund 5.3% 5.7% 2.2% 0.2% 0.8% 4.7% 0.2% 2.8% 5.3% 0.7% 3.7% 2.8% 2.6% 2.4% Emerging Markets Bonds 7.4% 16.4% 16.0% 20.4% 18.4% 23.6% 6.2% 8.2% 23.9% 26.3% 25.4% 22.7% 22.9% 24.1% Emerging Local Bond Fund - - - - 5.4% 8.9% 1.4% 2.6% 8.1% 8.9% 8.5% 10.6% 10.7% 10.9% Emerging Markets Currency Fund - - 9.8% 14.9% 6.6% 6.4% 2.9% 5.1% 11.0% 9.8% 9.4% 10.2% 11.6% 12.5% Emerging Markets Bond Fund 7.4% 16.4% 6.1% 5.6% 6.5% 8.2% 1.8% 0.6% 4.8% 6.0% 5.6% 1.3% 0.4% 0.5% Emerging Markets Corporate Bond Fund ------1.6%1.9% 0.6% 0.2% 0.2% Credit 9.4% 21.3% 10.9% 37.8% 30.2% 23.0% 6.9% 23.5% 37.4% 38.1% 30.6% 20.7% 22.8% 21.7% High Yield Fund 1.5% 6.6% 4.1% 2.0% 5.7% 6.5% 2.4% 5.8% 10.0% 9.8% 6.1% 2.4% 3.1% 3.0% High Yield Spectrum Fund ------1.2% 4.0% 5.1% 4.3% 4.6% 4.8% Income Fund -- - - 2.6% 3.0% 1.6% 7.0% 8.0% 8.4% 9.5% 7.5% 8.2% 8.0% Diversified Income Fund - - - 2.5% 7.3% 1.7% 1.0% 2.0% 4.8% 5.8% 3.6% 0.1% 0.0% 0.3% Floating Income Fund - 10.0% 6.7% 33.3% 10.3% 3.4% 0.9% 4.7% 8.3% 4.9% 3.0% 0.1% 0.1% 0.2% Senior Floating Rate Fund ------0.6% 3.6% 3.3% 6.2% 6.7% 5.5% Convertible Fund - 2.8% 0.1% 0.1% 4.3% 8.4% 1.0% 4.0% 4.4% 1.6% - - - - European Convertible Fund 7.9%1.9% ------Global Bonds 0.0% 8.7% 1.4% 0.0% 3.7% 0.6% 2.2% 2.6% 2.7% 4.3% 1.0% 0.5% 0.6% 1.2% Foreign Bond Fund (Unhedged) - 8.7% 1.3% - 3.6% 0.6% 0.3% 1.1% 1.1% 1.8% 0.0% 0.4% 0.5% 0.4% Global Advantage Strategy Fund ------1.9% 1.5% 1.6% 2.5% 1.0% 0.1% 0.2% 0.8% Global Bond Fund (Unhedged) - - 0.0% 0.0% 0.0% 0.0% ------Inflation-Linked Bonds 50.0% 16.9% 34.8% 14.2% 16.6% 26.0% 26.4% 10.1% 6.5% 0.5% 0.5% 3.3% 7.6% 7.9% Real Return Fund 28.3% 9.4% 16.6% 7.0% 7.7% 1.1% 6.3% 1.6% 0.4% 0.1% 0.0% 1.8% 1.4% 1.5% Real Return Asset Fund 21.7% 7.5% 18.3% 7.2% 8.9% 24.9% 20.1% 8.6% 6.2% 0.3% 0.5% 1.4% 6.1% 6.3% Global Advantage® Inflation-Linked Bond ETF ------0.1% 0.1% 0.1% 0.1% 0.1% Alternative Strategies 0.0% 0.0% 0.0% 0.0% 0.0% 4.0% 11.8% 25.6% 11.5% 12.9% 26.6% 19.9% 22.6% 21.7% Unconstrained Bond Fund ------11.0% 5.8% 5.6% 7.5% 3.1% 3.3% 2.9% Credit Absolute Return Fund ------0.2% 0.7% 4.5% 1.1% 1.0% 0.9% Mortgage Opportunities Fund ------0.6%0.9%0.8% 0.8% TRENDS Managed Futures Strategy Fund ------0.3%0.3% 0.3% EqS Long/Short Fund ------0.4% 0.5% 0.6% 0.6% 0.6% Worldwide Long/Short PLUS Fund ------3.3%6.8% 8.0% Fundamental Advantage PLUS Fund - - - - - 4.0% 11.8% 14.6% 5.5% 5.5% 6.3% 2.9% 5.8% 4.2% Worldwide Fundamental Advantage PLUS Fund ------0.8% 7.2% 7.7% 4.1% 4.1%

* Fund liquidated on 1 August 2011 and is no longer available for investing after this date.

Your Global Investment Authority 2cs_AAAAF_structure_02 pg 43 PIMCO All Asset All Authority Fund: Historical exposures (Page 2 of 2)

Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Mar '15 Jun '15 Second Pillar 3.8% 15.6% 24.0% 1.9% 5.7% 15.0% 38.7% 18.6% 8.2% 13.9% 3.4% 14.5% 5.8% 6.8%

US Core Bonds 1.7% 13.7% 11.2% 0.5% 0.3% 14.6% 23.9% 14.0% 4.5% 6.9% 0.3% 5.0% 3.5% 3.8% Total Return Fund - 5.4% 10.9% 0.5% 0.3% 0.4% 14.5% 10.1% 0.1% 3.3% 0.1% 2.8% 1.4% 1.7% Investment Grade Corporate Bond Fund - - - - - 14.1% 9.4% 3.8% 4.4% 3.6% 0.2% 2.1% 2.1% 2.1% Mortgage-Backed Securities Fund - - 0.2%0.0%0.0% ------GNMA Fund 1.7%8.2%0.1% - 0.0% ------US Long Maturity Bonds 0.0% 1.9% 12.8% 0.6% 3.3% 0.4% 13.2% 2.8% 3.6% 6.5% 3.3% 4.2% 0.5% 1.3% Long-Term US Government Fund - 1.9% 12.8% 0.6% 3.3% 0.3% 4.3% 0.1% 1.3% 2.3% 0.6% 0.9% 0.0% 0.0% Long Term Credit Fund ------4.6% 2.2% 1.4% 1.7% 2.2% 1.6% 0.2% 0.5% Long Duration Total Return Fund - - - - - 0.1% 4.2% 0.6% 0.9% 2.4% 0.5% 1.7% 0.3% 0.8% Short-Term Bonds 2.2% 0.0% 0.0% 0.8% 2.1% 0.1% 1.6% 1.8% 0.1% 0.5% -0.2% 5.4% 1.8% 1.7% Low Duration Fund 2.2% 0.0% 0.0% 0.8% 2.1% 0.1% 1.6% 1.6% 0.0% 0.3% 0.1% 3.8% 0.8% 0.8% Low Duration Exchange Traded Fund ------0.3%0.3% 0.3% Short Term Fund -- - - 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% 0.0% 0.0% - - Government Money Market Fund 1.5% 0.9% 0.6% Net Cash Equivalents ------0.2% -0.3% -0.3% -0.1% -0.1%

First Pillar 32.9% 30.0% -1.7% -1.4% -8.5% 8.5% -12.2% -15.9% 3.6% -6.8% -6.3% -2.4% -4.6% -6.3%

US Equities, Net Short 24.8% 17.7% -9.2% -10.6% -15.0% 8.5% -12.2% -16.7% -1.9% -14.3% -18.1% -13.8% -15.1% -15.2% Fundamental PLUS Fund - - 7.7% 4.4% 2.8% 4.1% 0.4% 0.2% 1.3% 0.2% 0.0% 0.7% 0.5% 0.5% Low Volatility PLUS Fund ------0.0%2.8%2.5% 2.6% Fundamental PLUS Small Fund ------1.4% 0.9% 1.2% 0.8% 0.8% 0.8% Fundamental IndexPLUS™ - - - 3.7% 3.7% 0.0% 0.0% 0.0% - - - 0.0% - - StocksPLUS® Fund 5.7% 6.1% - 0.8% 0.2% 0.1% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% - - StocksPLUS® Absolute Return Fund 19.0% 11.6% 0.0% 0.0% 0.2% 0.1% 0.1% 0.0% 0.1% 0.1% 0.0% 0.0% - - StocksPLUS® Small Fund - - - - 0.3% 4.2% 0.2% 0.9% 0.5% 0.3% 0.0% 0.0% - - StocksPLUS® Short Fund** - - -17.0% -19.4% -22.3% 0.0% -12.9% -17.8% -5.3% -15.7% -19.3% -18.0% -19.0% -19.1% Developed ex-US Equities 8.1% 12.4% 7.6% 9.1% 6.5% 0.0% 0.0% 0.8% 5.5% 7.5% 11.8% 11.3% 10.5% 8.8% Fundamental PLUS International Fund ------1.6%5.4%8.0% 3.2% 2.6% 2.4% Low Volatility PLUS International Fund ------0.0%6.9% 6.7% 6.4% StocksPLUS® International Fund (USD-Hedged) ------0.1% 0.4% 0.1% 0.2% 0.0% - - StocksPLUS® International Fund (Unhedged) ------0.3%0.2% 0.1% - - - - EqS Dividend Fund 0.1% 0.1% 0.1% 0.0% - - EqS Pathfinder Fund ------0.4% 3.2% 1.8% 3.5% 1.2% 1.2% - European StocksPLUS® AR Strategy Fund 5.6% 3.3% - 0.6% 1.1%------Far East (ex-Japan) StocksPLUS® TR Strategy Fund 1.2% 4.0% 2.8% 2.1% 2.7% ------Japanese StocksPLUS® TR Strategy Fund 1.2% 5.1% 4.8% 6.4% 2.7%------

Leverage versus Net Assets 1.11x 1.23x 1.23x 1.28x 1.16x 1.09x 1.14x 1.24x 1.33x 1.35x 1.43x 1.43x 1.42x 1.39x

* Fund liquidated on 1 August 2011 and is no longer available for investing after this date. ** The StocksPLUS® Short Fund is shown as a negative allocation on this report because the Fund provides short exposure to the S&P 500 Index

Your Global Investment Authority 2cs_AAAAF_structure_02 pg 44 Attribution summary

Broad asset exposure and TAA¹: PIMCO alpha²: YTD total return: -90 bps + 36 bps = -53 bps

Attribution YTD '15 Q2 '15 60 50 48

18 20 12 10 10 7 9 3 3 0 0

-8 -9 -11 -13 -13 -20 Returrn (bps) Returrn contribution -22 -26 -29 -40 -34 -35

-48 -60 Credit Commodities EM and global U.S. core and EM equities Alternative International Short-term TIPS Levarage cost U.S. equities strategies and REITs bond long maturity strategies equity strategies (long and strategies bond (excluding strategies short) strategies short equity)

As of 30 June 2015 1 Broad asset exposure and tactical asset allocation is calculated by multiplying the monthly return of each underlying Fund's index (secondary index for portable alpha funds) by the beginning of the month allocation in that underlying fund 2 PIMCO alpha is calculated by multiplying the net of fee alpha of each underlying fund (relative to its respective benchmark) by the beginning of the month allocation to that underlying fund. The annual figure is the sum of monthly return contributions, scaled to account for compounding of monthly returns.

Your Global Investment Authority 2cs_AAAAF_attrib_01 pg 45 We invert the conventional portfolio to make third pillar assets the core

Conventional balanced portfolio Third pillar focused portfolio*

Global & Alternatives EM bonds U.S. bonds, 35% 80% U.S. equities, 55% EM equity Global credit

Diversifying and Inflation- inflation-related related U.S. equities and assets, 10% U.S. bonds, 20%

° Nominal return focused ° Real return focus ° Rigid benchmark orientation ° Tactical flexibility ° Risk concentrated in equities ° Risk diversified across multiple sectors

* Percentages based on historical average allocations for the PIMCO All Asset and All Asset All Authority Funds. Allocations at any point in time are subject to change.

Your Global Investment Authority 2cs_AAF_review_22 pg 46 Expectations for the “third pillar” in different environments

Calendar year change in inflation expectations ° The past two years have Disinflationary bull markets Reflationary bull markets been characterized by a Average calendar year returns: Average calendar year returns: disinflationary bull market, First and second pillar = 16.4% First and second pillar = 13.7% which tends to favor first and Third pillar = -3.2% Third pillar = 22.0% Years: ‘98, ‘13, ‘14 Years: ‘99, ‘03, ‘04, ‘09, ‘12 second pillar assets

Expectation: Expectation: ° Neutral markets and Third pillar underperformance Third pillar outperformance on Neutral Markets reflationary bull markets on a relative basis ∆ in inflation expectations both relative and absolute basis between -0.25% and 0.25% have historically led to strong outperformance of third Average Calendar Year Returns pillar assets First and second pillar = 3.5% ° Recent changes in breakeven -0.75% -0.50% Third Pillar =0.00% 10.0% 0.50% 0.75% Years: ‘01, ‘02, ‘05, ‘06, ‘07, inflation and RALLC’s ’10, ‘11 business cycle model would Disinflationary bear markets Reflationary bear markets Expectation: indicate a higher probability Third pillar as diversifying Average calendar year returns: Average calendar year returns: return driver of reflationary bull and First and second pillar = -11.5% *No observations since 1998* Third pillar = -10.4% neutral markets Calendar year S&P 500 return 500 S&P year Calendar Years: ‘00 and ‘08

Expectation: Expectation: Third pillar relative Infrequent but magnitude of outperformance, particularly third pillar relative with value orientation outperformance is large

From 1998–2014 SOURCE: Research Affiliates based on data from Bloomberg

2cs_AAF_review_28 Your Global Investment Authority pg 47 Equity valuations also favor EM vs. U.S. over a multi-year horizon

Median P/E in Growth Shiller PE: Sep 2005- Jun 2015 U.S. EAFE EM Median P/E in Slowdown 40 Current P/E (6/30/2015) 35 Shiller P/E in growth Current RAFI P/E (6/30/2015) 30 and slowdown regime Current Low volatility RAFI P/E (6/30/2015) 30 26.1 25 20 27 17.1 26.1 15 15.1 10 24 24.0 5 22.8 0 21

Shiller Shiller P/E Sep '05 Nov '06 Jan '08 Mar '09 May '10 Jul '11 Sep '12 Nov '13 Jan '15

18 17.1 Median Annualized Forward Five-Year Returns*

15 15.1 Starting Shiller PE U.S. International EM Pooled 14.6 13.7 <10x 17.5% N/A N/A 17.5% 12 10-15x 10.9% 25.8% 15.5% 11.4% 15-20x 9.5% 19.3% 7.6% 9.9% 10.7 10.1 20-25x 6.9% 8.5% 5.1% 7.3% 9 U.S. EAFE EM >25x 0.4% 1.6% 1.9% 0.9% Starting Date Jan-1900 Dec-1982 Sep-2005 Jan-1900 ° U.S. equity valuation does not support sustained ° Historical data supports that international and EM performance, even in a sustained economic expansion equities are better positioned for long-term returns

– Using RAFI® and Low Volatility RAFI® exposures in these markets may further increase return potential

As of 30 June 2015 SOURCE: Research Affiliates; U.S. represented by S&P 500; EAFE/International represented by MSCI EAFE Index; EM represented by MSCI EM Index

Your Global Investment Authority 2cs_AAF_review_21 pg 48 PIMCO All Asset All Authority investment process: Tactical, value-oriented, contrarian & real-return focused

ASSET CLASS FORECASTS Long-term real return = yield + income growth + valuation change - inflation Long-term: What to own? PIMCO ALPHA FORECASTS

Estimate PIMCO value add based on historical consistency and level of alpha for each PIMCO PM

Regime-dependent return, volatility, and correlation forecasts

TIME VARYING RISK PREMIUM

Compute a price change impact based on the anticipated stage of the business cycle

Intermediate-term: When to trade? PORTFOLIO CONSTRUCTION Use business cycle-contingent covariance matrix; seek to maximize real return

“WHAT ARE THE MODELS MISSING?” What insights are not “in the data” Research Affiliates & PIMCO investment professionals meet monthly

Target Allocations

Refer to Appendix for additional investment strategy and risk information.

all_asset_phil_18c Your Global Investment Authority pg 49 All Asset All Authority seeks to diversify equity risk while participating in up market moves

° The PIMCO All Asset All Authority Fund has displayed low ° The PIMCO All Asset All Authority Fund has provided systematic risk relative to the equity market meaningful “up-market capture” with limited “down- market capture” by: – Avoiding over-reliance on equity exposure – Tactically adjusting risk level based on valuation levels

PIMCO All Asset All Authority Fund (net of fees) vs. S&P 500 monthly returns from 31 October 2003 to 30 June 2015 S&P 500 10 Monthly returns from 31 October 2003 PIMCO All Asset All Authority Fund 8 Beta coefficient: 0.35 through 30 June 2015 (after fees) 4 6 2.50 1.11 4 2 2 0 -2 0 -1.04 Percent (%)Percent -4 -2 -3.55 -6 -4 Up months Down months -6 for S&P 500 for S&P 500 All Asset AllAuthority All FundAsset (%) -8 Up capture: vs. Down capture: -10 44% 29% -10-8 -6 -4 -2 0 2 4 6 8 10 S&P 500 (%)

As of 30 June 2015 SOURCE: Standard & Poor’s, PIMCO

Your Global Investment Authority 2cs_AAAAF_review_06 pg 50 PIMCO All Asset All Authority Fund has delivered TIPS-like characteristics with higher returns

° The PIMCO All Asset All Authority Fund has ° However, PIMCO All Asset All Authority Fund has demonstrated a high beta to TIPS, consistent with the outperformed TIPS over most 1-, 3- and 6-month time CPI-based orientation of each periods by: – Diversifying into other high return potential assets – Tactically adjusting risk level based on valuation levels PIMCO All Asset All Authority Fund (after fees) vs. TIPS monthly returns from 31 October 2003 to 30 June 2015 10 Beta coefficient: 8 1.03 Incidence of outperformance of PIMCO All Asset All 6 Authority Fund over Barclays U.S. TIPS Index 4 (after fees; rolling time periods since inception*) 100% 2 80% 0 64% 58% 59% -2 60% -4 40% -6 20% Percent of periods ofPercent -8 0%

PIMCO All Asset AllFundAsset (%) PIMCOAll Authority -10 1 Mo. 3 Mos. 6 Mos. -10-8 -6 -4 -2 0 2 4 6 8 10 TIPS (%)

As of 30 June 2015 SOURCE: Barclays, PIMCO * All Asset All Authority Fund inception date: 31 October 2003

Your Global Investment Authority 2cs_AAAAF_review_25 pg 51 All Asset’s stealth inflation fighters

Quarterly Correlation of Returns to US Inflation¹ Policy geared for reflation Commodities² Bank Loans ° Janet Yellen has been clear, “…we must be reasonably confident before the first rate Emerging Markets Currency³ increase that inflation will move up over time High Yield to our 2 percent objective…” TIPS²

° As such, secular inflation risks may be on the Local Currency EM rise as the Fed waits for full employment to Convertibles beget upward pressure on wages and prices before significant tightening occurs. REITs² Emg Mkts Equities Extensive inflation fighting toolkit Developed ex U.S. Equities Developed Markets ex U.S. Currency³ ° With TIPS real yields at all-time lows, All Asset has looked to other asset classes for Small Cap U.S. Equities inflation protection Emg Mkts Bonds

° High yield, bank loans, EM debt, and EM Large Cap U.S. Equities currencies offer higher yields with a correlation Short-Term Bonds to inflation that is comparable to TIPS Core Fixed Income

Long Credit

Long Treasury

-0.4 -0.2 0.0 0.2 0.4 0.6

As of 30 June 2015 Stocks Bonds Third pillar SOURCE: Bloomberg ¹ Correlation of asset class to U.S. Consumer Price Index (seasonally-adjusted) from January 1997 – June 2015 ² Classic Inflation Hedges 3 Emerging Markets Currency from January 1999 - March 2015. Developed Markets Currency from October 1997 – June 2015

Your Global Investment Authority 2cs_AAF_review_07 pg 52 Update on the sub-advisor: Research Affiliates, LLC

Mission: Total RAFI and All Asset suite assets Years ended 31 March RAFI* AAF ° Concentrate on research and product development $200 $180 ° Partner with world-class affiliates to bring product $160 $49 to market $140 $52 $66 Investment Philosophy: $120 $100 $62 ° Asset prices exhibit long-horizon mean reversion and $80 $40 shorter-horizon random variation $60 $117 $123 $30 $100 $40 ° Behavioral tendencies (i.e., trend following, asymmetric $19 $63 $20 $16 $15 $39 $48 risk tolerance) and governance constraints perpetuate $5 $14 $15 $17 $27 $0 $11 $4 these deviations 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 '15 ° Systematically contra-trading price volatility to capture YTD long-horizon mean reversion offers significant incremental return potential Total research and investment management professionals Years ended 31 March Global leader in: 40 Research and investment management professionals 34 33 35 32 ° Global tactical asset allocation (GTAA) Masters 30 PhDs 26 ° Innovative indexation 25 21 19 20 18 Profile: 15 16 15 ° Founded in 2002 by Rob Arnott & Jason Hsu 10 9 5 ° Majority employee-owned 5 ° Currently 93 employees, 33 investment professionals 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 '15 YTD As of 30 June 2015 * Excludes RAFI investments made by the AAF suite Based on estimates. Includes assets managed or sub-advised by Research Affiliates or licensees using RAFI, eRAFI® or GTAA strategies

Your Global Investment Authority 2cs_AAF_update_01 pg 53 Important: For PIMCO Fund clients/ U.S. Offices only PIMCO update: Focused on managing risks and delivering returns

Firm snapshot PIMCO’s value proposition “What’s new?”

Assets under management Time-tested investment philosophy New hires ° $1.52 trillion ° Diversified set of alpha engines ° 24 Senior IP hires in last 12 months – Top down: Reflects PIMCO’s global economic ° Joachim Fels: MD, Global Economics Global resources research ° Ben Bernanke: Advisor, Economic Policy ° 13 offices across five continents – Bottom up: Drives industry, company and security ° 2,412 total employees level selection Regulatory update – 763 IPs; 14 years average – Structural tilts: Captures recurring risk premia ° “BOND” ETF subject to Wells Notice investment experience in markets ° SIFI debate shifts away from Asset Managers – 260+ Portfolio Managers Long-term investment results Equity business re-alignment – 60+ Credit Analysts ° 80% of AUM outperformed benchmark over five-year ° Expanded Research Affiliates relationship 2 Comprehensive investment solutions period ° Closing global deep value and EM funds ° Alternatives Client-focused culture ° Virginie Maisonneuve to depart PIMCO ° Asset allocation ° Client education Industry recognition ° Equities ° Solutions capabilities ° Received eight 2015 Lipper Awards for ° Fixed income – Asset allocation and optimization consistent risk-adjusted performance3 Diversified global business – Liability driven investing ° 36 funds received Morningstar 5-star or 4- – Defined contribution plan design 4 ° 80% of AUM in non-core strategies star rating over three-year period – Analysis of Alternatives ° One of largest alternatives platforms ° Morningstar “Best Large Fixed-Income – Tail-risk hedging House” in seven countries in Europe and ° 120+ funds with positive inflows for the 5 trailing six month period1 Asia Thought leadership New product launches ° Global market dynamics ° Hybrid Target Date strategy: Passive equity, ° Economic analysis active fixed income ° Central bank policy ° Enhanced Fundamental Index equities ° Industry trends ° Opportunistic credit “follow-on” PE-style vehicle

As of 30 June 2015 Effective 31 March 2012, PIMCO began reporting the assets managed on behalf of its parent’s affiliated companies as part of its assets under management Please see Disclosures for additional information

Your Global Investment Authority 2cs_pimco_org_1a_FUND pg 54 Assets under management by strategy PIMCO manages $1.52 trillion in assets, including $1.15 trillion in third-party client assets

Alternatives Billions ($) Liquid Absolute Return Unconstrained bond strategies, credit absolute return, other absolute return strategies 20.82 Hedge Funds Global macro, long/short credit, multi-asset volatility arbitrage strategies, relative value commodities 15.67 Opportunistic/Distressed Opportunistic strategies focusing on real estate related assets (residential, commercial), corporate credit 5.72 Asset Allocation Asset Allocation Strategies Global Multi Asset, All Asset, EM Multi Asset, Real Retirement, Inflation-Response Multi Asset, DRA 59.07 Equities Equity Strategies Combines enhanced equities and active equities 25.82 Real Return Real Return Strategies Combines inflation linked strategies, actively managed commodities, and real-estate linked exposure 71.59 Fixed Income 1 Total Return Total Return 125.48 2 Intermediate Core Strategies, Moderate Duration 136.68 Credit Investment Grade Corporates, Bank Loans, High Yield Corporates, Convertibles 167.71 Long Duration Focus on long-term bonds; asset liability management 118.79 Global Non-U.S. and global multiple currency formats 98.75 2 Cash Management Money Market, Short-Term, Low Duration 92.09 Income Income-oriented, insurance income 85.75 Emerging Markets Local debt, external debt, currency 47.66 Mortgages Agency MBS, structured credit (non-Agency MBS, CMBS, and ABS) 33.39 Diversified Income Global credit combining corporate and emerging markets debt 22.63 Municipals Tax-efficient total return management 12.58 Other Custom mandates 9.19 Total assets under management $ 1,149.39 B

2 Stable Value Stable income with emphasis on principal stability 22.36 3 Tail-Risk Hedging Pooled and customized portfolios of actively managed tail-risk hedges 45.29

As of 30 June 2015 SOURCE: PIMCO Assets reflect those managed on behalf of third-party clients and exclude affiliated assets. Fund of funds assets have been netted from each strategy. Potential differences in asset totals are due to rounding. Represents assets of strategy group in dedicated and non-dedicated portfolios. 1 Total Return has been segregated to isolate the assets of PIMCO sponsored U.S. Total Return 1940-act fund and foreign pool fund accounts. All other U.S. Total Return portfolios are included in the Intermediate category 2 Stable value assets have not been netted from U.S. Total Return, U.S. Moderate Duration and U.S. Low Duration assets 3 Tail-risk hedging assets reflect total notional value of dedicated mandates and are not counted towards PIMCO total assets under management

Your Global Investment Authority asst_summary_01_USD pg 55 Fundamental index

Your Global Investment Authority AA_tab_03 pg 56 PIMCO enhanced equity mutual fund suite overview

Goal: Seek to outperform equity market benchmark consistently using a structurally-based and risk-managed process

° Inception date: July 1986

° $45.1 billion under management

° Award-winning performance (Lipper Best Group over 3 Years Large Equity Company in 2010, 2011, 2012, 2013)

Cap-Weighted Equity Research Affiliates RAE Low Volatility RAE Long / Short RAE Equity Market (Equity beta ~ 1.0) Equity (“RAE”) (Equity beta ~ 0.7) Equity (Equity beta ~ 0.3 Neutral (Equity beta ~ 0) (Equity beta ~ 1.0) avg, range of ~ 0.0 – 0.6) • StocksPLUS AR • RAE Fundamental Plus • RAE Low Volatility • RAE Worldwide • RAE Worldwide Long/Short PLUS Fundamental – Int’l – USD Hedged – Emerging Markets – Emerging Markets Advantage PLUS – Int’l – Unhedged – International – International • RAE Fundamental – U.S. Large – U.S. Large – U.S. Advantage PLUS – U.S. Small – U.S. Small • StocksPLUS (enhanced index)

– U.S. Large

Strategy inception: 1986 Strategy inception: 2005 Strategy inception: 2013 Strategy inception: 2014 Strategy inception: 2008

StocksPLUS Long Duration version also available for LDI focused investors

As of 31 March 2015

stocksplus_phil_01 Your Global Investment Authority pg 57 Bringing it all together: PIMCO RAE Fundamental PLUS

Meaningful alpha potential from two independent sources

Excess return from bond alpha strategy Excess return

Excess return from fundamentally-weighted equity exposure

Cap-weighted index return Benchmark (e.g. MSCI World) return

Benchmark RAE Bond alpha strategy RAE Fundamental PLUS

Hypothetical example for illustrative purposes only. Not intended to represent the past or future performance of any specific index, product or strategy.

Your Global Investment Authority stocksplus_phil_04e pg 58 PIMCO RAE Low Volatility process

Example number of stocks OBJECTIVE ACTION (U.S. version)

Construct portfolio that de-links Weight companies according to four measures of company size STEP 1 portfolio weights from price (equal weights applied to four factors) 1000

Book Equity Cash Flow Sales Dividends (current) (5-year trailing) (5-year trailing (5-year trailing)

Construct low volatility, high Concentrate investments in the top 15% of RAFI based on STEP 2 income equity portfolio composite score of yield, volatility and leverage metrics 150

Beta Yield Leverage

Avoid large concentrations and Annual rebalance using more frequent “tranches” STEP 3 minimize implementation cost 150

Monthly 5% single Turnover caps Adjustments rebalancing stock limit to seek country/ sector diversification

SOURCE: Research Affiliates, LLC Sample for illustrative purposes only.

Your Global Investment Authority stocksplus_phil_07a pg 59 sep Communications Associate: Disclosures This must be included if using 2cs_pimco_org_1a (U.S. offices only). Please move to the last page of the deck

1 Based on 314 funds domiciled in Cayman Islands, Bermuda, certain Ireland domiciled funds and our U.S. open-end 1940 act funds excluding exchange traded funds. 2 Based on 30 June 2015 data of PIMCO managed portfolios with at least a 5-years history. The net-of-fees performance of each portfolio was compared to the portfolio’s primary benchmark. If the net-of-fees portfolio performance was greater than the benchmark performance for a given period, the assets in that portfolio were included in the outperforming data. Benchmark outperformance indicates the performance of a portfolio as compared to its benchmark. As such, it does not indicate that a portfolio’s performance was positive during any given period. For example, if a portfolio declined 3% during a given period, and its benchmark declined 4%, the portfolio would have outperformed its benchmark, even though it lost value during the period. Certain absolute return oriented portfolios contained within the data may inflate the data either positively or negatively due to the low return/volatility characteristics of the primary benchmark. For example a portfolio measured against 3-month USD Libor would be more likely to out- or underperform its benchmark. No measure of past performance should be understood to ensure that future performance will be positive, whether on a relative or absolute basis. 3 The Lipper Fund Awards recognizes funds that have delivered consistently strong risk-adjusted performance, relative to peers. 4 Morningstar Rating based on 30 June 2015 data for Institutional Class Shares of 109 funds held in the PIMCO Funds and PIMCO Equity Series Trusts with a three-year performance record at time. Other classes may have different ratings. Fund ratings are out of 5 Stars. For funds with at least a 3-year history, Morningstar calculates a Morningstar Rating based on a risk-adjusted return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads and redemption fees) with an emphasis on downward variations and consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating is a weighted average of the performance figures for its 3-, 5- and 10-yr (if applicable) Morningstar Rating metrics. Morningstar, Inc.® 2014. All rights reserved. The information contained herein; (1) is proprietary to Morningstar and/or its affiliates; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 5 Morningstar Best Fund House is a quantitatively driven award that recognizes fund management companies that have delivered sustained outperformance on a risk- adjusted basis across their fund line-ups.

Your Global Investment Authority 2cs_pimco_org_1b_FUND pg 60 3. Additional information

Your Global Investment Authority !cs_Dividend_Sep_body pg 61 RAE Fundamental EM vs. MSCI EM Q2 2015 sector attribution

RAE FUNDAMENTAL EM MSCI EM ATTRIBUTION ANALYSIS Allocation Selection + Average Total Average Total Total GICS sector effect interaction weight (%) return (%) weight (%) return (%) effect (bps) (bps) (bps) Cons discretionary 3.9 -6.34 9.0 -3.15 0.06 -0.03 0.03 Cons staples 1.8 7.18 8.0 2.39 -0.03 0.02 -0.01 Energy 17.1 7.19 8.5 8.62 0.20 -0.07 0.13 Financials 37.2 3.82 29.3 3.07 0.05 0.10 0.15 Health care 0.0 -7.41 2.4 -4.00 0.04 -0.00 0.04 Industrials 5.6 4.08 6.9 1.12 0.01 0.06 0.06 Info tech 8.4 -7.76 18.2 -3.84 0.15 -0.11 0.04 Materials 9.3 -5.47 7.1 1.41 0.00 -0.20 -0.20 Telecom services 12.5 0.54 7.3 0.24 -0.01 0.01 0.00 Utilities 4.1 3.20 3.3 -0.12 -0.01 0.04 0.03 Total 100.0 0.97 100.0 .69 46 -18 28

RAE Fundamental EM

° Exposure to Korea added to performance, both from a broad underweight as the country underperformed the index and select stocks holdings, most notably underweight Samsung Electronics and Hyundai Motor

° Overweight exposure to Chinese banks contributed to performance, led by Bank of China, China Construction Bank, and Industrial and Commercial Bank of China

° Underweight exposure to Malaysia added to returns as it underperformed the index

° Overweight exposure to India detracted from performance, led by overweight exposure to names such as Tata Motors and others within the banking sector

° At the sector level, stock holdings within materials sectors detracted from relative performance while overweight exposure to the energy sector added.

As of 30 June 2015 SOURCE: FactSet Returns are in USD

Your Global Investment Authority 2cs_rae_attrib_01_15662 pg 62 RAE Fundamental EM vs. MSCI EM Q2 2015 contributors and detractors

Total Relative contribution Issuer Portfolio Weight (%) Index Weight (%) return (%) (bps) Top 5 contributors Petrobas 2.1 0.7 41.2 51 Samsung Electronic 0.4 3.8 -12.2 47 Bank of China 2.9 1.3 17.7 24 China Construction Bank 3.3 1.8 15.5 20 Industrial and Commercial Bank of China 2.9 1.5 13.3 15

HTC 0.7 0.1 -47.7 -38 Tata Motors 0.7 0.2 -21.6 -14 Tencent -- 2.5 5.3 -11 Ping An Insurance 0.1 0.9 12.3 -10 Acer 0.3 0.0 -24.9 -8

As of 30 June 2015 SOURCE: FactSet Returns are in USD

Your Global Investment Authority 2cs_rae_attrib_02_15662 pg 63 RAE Fundamental Emerging Markets – Characteristics

Portfolio characteristics Number of P/E (Trailing Weighted avg P/CF P/B Dividend yield holdings 12-Mo) market cap ($mm) MSCI EM 824 13.2 7.0 1.6 2.6 23,572 RAE Fundamental EM Model 445 9.2 4.1 1.0 3.6 20,819

Sector exposure MSCI EM RAE Fundamental Emerging Markets 40

15 Market Market percentage value(%) 10

0 Financials Info tech Cons. Energy Cons. staples Telecom. Materials Industrials Utilities Health care Discretionary services

As of 30 June 2015 SOURCE: Research Affiliates, FactSet

Your Global Investment Authority 2cs_rae_fundamental_review_08_3670 pg 64 RAE Fundamental Emerging Markets – Top Ten Holdings and Top Five Over-/ Underweight Comparison

TOP 10 HOLDINGS COMPARISON RAE Fundamental EM (market value %) MSCI EM (market value %)

China Construction Bank 3.41 Samsung Electronics 3.60 China Mobile 3.17 Taiwan Semiconductor Manufacturing 2.80

Bank of China 2.86 Tencent Holdings 2.57 Industrial and Commercial Bank of China 2.86 China Mobile 1.97

Petroleo Brasileiro 2.49 China Construction Bank 1.92 Surgutneftegas 2.14 Naspers 1.55

Itau Unibanco Holding 1.75 Industrial and Commercial Bank of China 1.46 Lukoil Oao 1.67 Bank of China 1.29

Taiwan Semiconductor Manufacturing 1.62 Hon Hai Precision Industry 1.05 America Movil 1.49 Ping An Insurance 0.88

Top 5 overweights (overweight %) Top 5 underweights (underweight %)

Surgutneftegas 1.90 Samsung Electronics -3.09

Petrobras 1.75 Tencent Holdings -2.57

Bank of China 1.57 Naspers -1.55

America Movil 1.49 Taiwan Semiconductor -1.18

China Construction Bank 1.49 America Movil -0.87

As of 30 June 2015 SOURCE: Research Affiliates, FactSet

Your Global Investment Authority 2cs_rae_fundamental_review_08_3670 pg 65 RAE Fundamental International vs MSCI EAFE Q2 2015 sector attribution

RAE FUNDAMENTAL MSCI EAFE ATTRIBUTION ANALYSIS INTERNATIONAL Allocation Selection + Average Total Average Total Total GICS sector effect interaction weight (%) return (%) weight (%) return (%) effect (bps) (bps) (bps) Cons discretionary 7.96 1.03 13.08 0.59 0 3 4 Cons staples 6.61 0.98 10.99 0.26 1 4 6 Energy 11.61 0.02 5.35 2.25 11 -25 -14 Financials 27.66 1.34 25.86 1.68 2 -9 -7 Health care 6.85 -2.77 11.36 -1.59 10 -8 2 Industrials 11.21 0.25 12.78 -0.30 2 6 8 Info tech 4.05 -4.40 4.74 -0.80 1 -14 -13 Materials 8.91 -1.35 7.45 -0.91 -3 -4 -7 Telecom services 9.05 3.97 4.76 4.84 17 -7 10 Utilities 6.08 1.06 3.62 1.63 2 -3 -1 Total 100.0 0.48 100.0 0.62 44 -58 -14

RAE Fundamental International

° Security selection in the energy sector detracted from performance as underweight BG Group outperformed the sector and overweight Suncor Energy underperformed

° Security selection in the information technology sector had a negative impact on returns as underweight Murata Manufacturing outperformed the sector

° While underweight exposure to Japan detracted from performance, security selection within the country more than offset returns due to overweight exposure to the Telecommunications Services sector, notably Nippon Telegraph and Telephone Corporation

As of 30 June 2015 SOURCE: FactSet Returns are in USD

Your Global Investment Authority 2cs_rae_attrib_01_15663 pg 66 RAE Fundamental International vs. MSCI EAFE Q2 2015 contributors and detractors

Total Relative contribution Issuer Portfolio Weight (%) Index Weight (%) return (%) (bps) Top 5 contributors

Nippon Telegraph and Telephone Corporation 0.78 0.19 17.48 9

Toyota 0.21 1.40 -3.85 6

Air Canada 0.32 -- 10.61 5

Peugeot 0.30 0.06 22.74 5

Royal Dutch Shell Plc Class B -- 0.56 -7.47 4 Top 5 detractors

Man Group 0.34 -- -16.93 -6

RWE 0.55 0.09 -13.14 -6

CK Hutchison -- 0.01 58.07 -7

Hong Kong Exchanges & Clearing 0.07 0.30 45.06 -7

Royal Dutch Shell Plc Class A 2.52 -- -4.03 -11

As of 30 June 2015 SOURCE: FactSet Returns are in USD

Your Global Investment Authority 2cs_rae_attrib_02_15663 pg 67 RAE Fundamental International – Characteristics

Portfolio characteristics Number of P/E (Trailing Weighted avg P/CF P/B Dividend yield holdings 12-Mo) market cap ($mm) MSCI EAFE 900 17.0 8.4 1.7 3.0 50,777 RAE Fundamental International Model 859 15.5 6.2 1.3 3.5 44,178

Sector exposure MSCI EAFE RAE Fundamental International 35

Market value percentage Market percentage (%)value 10

0 Financials Cons. Industrials Health care Cons. staples Materials Energy Telecom. Info tech Utilities Discretionary services

As of 30 June 2015 SOURCE: Research Affiliates, FactSet

Your Global Investment Authority 2cs_rae_fundamental_review_08_6950 pg 68 RAE Fundamental International – Top Ten Holdings and Top Five Over-/ Underweight Comparison

TOP 10 HOLDINGS COMPARISON RAE Fundamental International (market value %) MSCI EAFE (market value %)

Shell 2.35 Samsung Electronics 3.60 HSBC 2.06 Taiwan Semiconductor Manufacturing 2.80

BP 2.01 Tencent Holdings 2.57 Total 1.28 China Mobile 1.97

Banco Santander 1.20 China Construction Bank 1.92 Astrazeneca 1.11 Naspers 1.55

Orange 1.10 Industrial and Commercial Bank of China 1.46 Novartis 1.09 Bank of China 1.29

Vodafone 0.97 Hon Hai Precision Industry 1.05 Telefonica 0.93 Ping An Insurance 0.88

Top 5 overweights (overweight %) Top 5 underweights (underweight %)

BP 1.08 Nestle -1.42

Shell 0.99 Toyota -1.21

Orange 0.88 Roche Holding -0.82

HSBC 0.74 Novartis -0.64

Royal Bank of Canada 0.60 UBS -0.59

As of 30 June 2015 SOURCE: Research Affiliates, FactSet

Your Global Investment Authority 2cs_rae_fundamental_review_08_6950 pg 69

San Joaquin County Employees’ Retirement Association

Actuarial Valuation as of January 1, 2015

Produced by Cheiron

September 2015

TABLE OF CONTENTS

Section

Letter of Transmittal ...... i

Foreword ...... ii

Section I Executive Summary ...... 1

Section II Assets ...... 12

Section III Liabilities ...... 20

Section IV Contributions...... 24

Section V Additional CAFR Schedules ...... 27

Appendices

Appendix A Membership Information ...... 28

Appendix B Statement of Current Actuarial Assumptions and Methods ...... 47

Appendix C Summary of Plan Provisions ...... 53

Appendix D 401(h) Repayment Schedule ...... 66

Appendix E Glossary ...... 67

Appendix F General and Safety Employer Contribution Rates ...... 69

Appendix G Member Contribution Rates ...... 74

September 17, 2015

Retirement Board of San Joaquin County Employees’ Retirement Association 6 South El Dorado Street, Suite 400 Stockton, CA 95202

Dear Members of the Board:

At your request, we have conducted an actuarial valuation of the San Joaquin County Employees’ Retirement Association (SJCERA, the System, the Fund, the Plan) as of January 1, 2015. This report contains information on the System’s assets and liabilities and discloses employer and employee contribution levels. It also contains schedules for inclusion in the Actuarial Section of the Comprehensive Annual Financial Report (CAFR). Your attention is called to the Foreword in which we refer to the general approach employed in the preparation of this report.

The purpose of this report is to present the results of the annual actuarial valuation of SJCERA. This report is for the use of the Retirement Board of San Joaquin and its auditors in preparing financial reports in accordance with applicable law and accounting requirements. Any other user of this report is not an intended user and is considered a third party.

Cheiron’s report was prepared solely for the Retirement Board of San Joaquin for the purposes described herein, except that the plan auditor may rely on this report solely for the purpose of completing an audit related to the matters herein. It is not intended to benefit any third party, and Cheiron assumes no duty or liability to any such party.

To the best of our knowledge, this report and its contents have been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board. Furthermore, as credentialed actuaries, we meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in this report. This report does not address any contractual or legal issues. We are not attorneys and our firm does not provide any legal services or advice. Sincerely, Cheiron

Robert T. McCrory, FSA, FCA, EA, MAAA Graham Schmidt, ASA, MAAA Principal Consulting Actuary Consulting Actuary

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

FOREWORD

Cheiron has performed the actuarial valuation of the San Joaquin County Employees’ Retirement Association as of January 1, 2015. The valuation is organized as follows:

 In Section I, the Executive Summary, we describe the purpose of an actuarial valuation, summarize the key results found in this valuation and disclose important trends;

 The Main Body of the report presents details on the System’s

o Section II - Assets o Section III - Liabilities o Section IV- Contributions o Section V- Additional CAFR Schedules

 In the Appendices we conclude our report with detailed information describing plan membership (Appendix A), actuarial assumptions and methods employed in the valuation (Appendix B), a summary of pertinent plan provisions (Appendix C), a 401(h) repayment schedule (Appendix D), a glossary of key actuarial terms (Appendix E), a summary of General and Safety Employer contribution rates (Appendix F), and tables containing member contribution rates (Appendix G).

The results of this report rely on future plan experience conforming to the actuarial assumptions. To the extent that actual plan experience deviates from these assumptions, the results would vary accordingly.

In preparing our report, we relied on information supplied by the SJCERA staff. This information includes, but is not limited to, plan provisions, employee data, and financial information. We performed an informal examination of the obvious characteristics of the data for reasonableness and consistency in accordance with Actuarial Standard of Practice #23.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

The primary purpose of the actuarial valuation and this report is to measure, describe, and identify the following as of the valuation date:

 The financial condition of the System,  Past and expected trends in the financial progress of the System, and  Employer and employee contribution rates for Plan Year 2016.

In previous years, the valuation report included information required by the Government Accounting Standards Board (GASB). The information required under the new GASB standards (Nos. 67 and 68) is now included in a separate report, with the report for the Plan’s Fiscal Year Ending December 31, 2014 provided to SJCERA in September 2015.

In the balance of this Executive Summary, we present (A) the basis upon which this year’s valuation was completed, (B) the key findings of this valuation including a summary of all key financial results, (C) an examination of the historical trends, and (D) the projected financial outlook for the System.

A. Valuation Basis

This valuation determines the employer contributions for the plan year.

The System’s funding policy is to contribute an amount equal to the sum of:  The normal cost under the Entry Age Normal Cost Method;  Amortization of the unfunded actuarial liability; and  A portion of the Fund’s expected administrative expenses.

For the prior valuation, the unfunded actuarial liability payment was determined as the amount needed to fund the outstanding extraordinary actuarial loss from 2008 at January 1, 2014 over 25 years as a level percent of pay, and the remaining unfunded actuarial liability (UAL) as of January 1, 2014 amortized over a closed period of 19 years as a level percentage of member payroll. At the July 24, 2015 board meeting, the SJCERA Board of Retirement made a change to the funding policy, choosing to amortize any new unexpected changes in the UAL over a period of 15 years as a level percent of pay, with new amortization layers each year. The single equivalent amortization period for these streams of payments is 20 years. The amortization period for each layer of the remaining UAL will decrease each year.

This valuation was prepared based on the plan provisions shown in Appendix C. There have been no changes in plan provisions since the prior valuation.

A summary of the assumptions and methods used in the current valuation is shown in Appendix B.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

B. Key Findings of this Valuation

The key results of the January 1, 2015 actuarial valuation are as follows:

 The actuarially determined employer contribution rate decreased from 41.93% of payroll last year – prior to the phase-in of the impact from assumption changes - to 41.35% of payroll for 2015.

 The System’s funded ratio, the ratio of assets over actuarial liability, increased from 64.2% last year to 66.2% as of January 1, 2015 on an Actuarial Value of Assets (AVA) basis, and from 65.3% to 65.6% on a Market Value of Assets (MVA) basis.

 The unfunded actuarial liability (UAL) is the excess of the System’s actuarial liability over the Actuarial Value of Assets. The System experienced a decrease in the UAL from $1,276,693,084 to $1,260,343,325 as of January 1, 2015.

 During the year ending December 31, 2014, the return on Plan assets was 4.69% on a market value basis, as compared to the 7.50% assumption. This resulted in a market value loss on investments of $66,167,008. The Actuarial Value of Assets recognizes 20% of the difference between the expected actuarial value of assets and the Market Value of Assets. The market value losses from this year will be recognized over the next five years. This method of smoothing the asset gains and losses returned 7.47% on the smoothed value of assets, an actuarial asset loss of $653,120 for the year.

The System experienced a gain on the actuarial liability of $11,929,425. Combining the liability gain and the asset loss, the System experienced a total gain of $11,276,305.

 Overall participant membership increased compared to last year. There were 644 new hires and rehires during 2014 and the total active population increased from 5,553 active members to 5,706. Total projected payroll increased 2.30% from $388,691,431 to $397,636,401.

On the following page we present Table I-1, which summarizes all the key results of the valuation with respect to membership, assets and liabilities, and contributions. The results are presented and compared for both the current and prior plan year.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

TABLE I-1 Summary of Principal Plan Results

January 1, 2014 January 1, 2015 % Change Participant Counts Active Participants 5,553 5,706 2.76% Participants Receiving a Benefit 5,041 5,249 4.13% Terminated Vested Participants 904 900 -0.44% Terminated Non-Vested Participants 507 536 5.72% Total 12,005 12,391 3.22%

Annual Pay of Active Members $ 382,525,098 $ 391,328,162 2.30% Calendar Year Projected Pay $ 388,691,431 $ 397,636,401 2.30%

Assets and Liabilities Actuarial Liability (AL) $ 3,561,859,056 $ 3,731,634,372 4.77% Actuarial Value of Assets (AVA) 2,285,165,972 2,471,291,047 8.14% Unfunded Actuarial Liability (UAL) $ 1,276,693,084 $ 1,260,343,325 -1.28% Funded Ratio (AVA) 64.2% 66.2% 3.22% Funded Ratio (MVA) 65.3% 65.6% 0.37% Inactive Funded Ratio 57.5% 59.4% 3.17%

Contributions as a Percentage of Payroll Normal Cost Rate 17.28% 16.86% -0.42% Unfunded Actuarial Liability Rate 23.74% 23.58% -0.16% Administrative Expense 0.91% 0.91% 0.00% Total Contribution Rate 41.93% 41.35% -0.58%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

C. Changes in Plan Cost

Table I-2 below summarizes the impact of actuarial experience and changes in benefits on Plan cost. TABLE I-2 Summary of Changes in Plan Cost from Prior Review Employer Employer Contribution Cost Rate (% Payroll) January 1, 2014 $ 157,994,939 41.93% Change in Cost Due to: Demographic Experience 2,418,484 0.43% Salary Experience (4,251,863) ( 0.79%) New Entrants to the Plan 3,406,150 ( 0.43%) Payroll Amortization 2,842 0.23% Phase-In of Assumption Changes 1,769,048 0.44% Asset Experience 27,526 0.01% Healthcare Reserve (1,685,659) ( 0.42%) Funding Policy (179,552) ( 0.05%) Total Cost as of January 1, 2015 $ 159,501,915 41.35%

An analysis of the cost changes from the prior valuation reveals the following:

 Demographic experience was somewhat unfavorable.

The demographic experience of the Plan – rates of retirement, death, disability, and termination – was slightly worse than predicted by the actuarial assumptions in aggregate, causing a 0.43% increase in cost.

 Pay increases were below expectations.

Increases in pay among active members during 2014 were below those anticipated by the actuarial assumptions. As a result, actuarial liabilities increased less than expected, resulting in an actuarial gain, decreasing the employer contribution rate by 0.79% of payroll. This is partially offset by the fact that the payroll used to amortize the unfunded liability was lower than expected, which increased the employer contribution rate by 0.23% of pay.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

 New members entered the Plan.

During 2014, there were 644 newly hired or rehired members entering the Plan to replace departing members. Recent new hires have a smaller Plan normal cost as a percentage of payroll when compared to current members, but they increase the payroll on which contributions are based. Due to these new hires, the employer contribution rate decreased by 0.43% of payroll. The addition of these new members increased member payroll by $28 million, and increased the Plan cost by about $3.4 million.

Overall, the combined demographic and salary experience resulted in gains, for a net decrease in cost of about 0.56% of pay.

 Asset experience produced an investment loss on a market basis.

The assets of the Plan returned 4.7% on a market basis, lower than the assumed rate of 7.50%, resulting in a loss of approximately $66 million for 2014. Under the actuarial asset smoothing policy, 20% of this loss is recognized in the current year, in addition to 20% of the gains and losses from each of the prior three years. The overall return on the smoothed assets was 7.47%, increasing the contribution rate by 0.01% of pay.

 The phase-in of assumption changes increased the contribution rate.

As part of the 2013 actuarial valuation, the Board agreed to phase-in (over three years) the impact of several significant assumption changes on the employer contribution rates. For the 2014 calendar year, the total required employer contribution rate was 36.64% of pay, compared to the full actuarial contribution rate of 42.15%. This difference in the required contribution versus actuarial cost increased the contribution rates by about 0.44% of pay.

The actuarial cost computed for the current valuation is the full actuarial cost – no phase- in will be applied to the rates applicable to the 2016 Plan Year.

 Assets were transferred from the healthcare reserve.

Approximately $20 million was transferred from the healthcare reserve to the pension fund. These additional assets decreased Plan costs by about 0.42% of pay.

 A change was made to the Plan’s funding policy.

The board changed the funding policy during their July 25, 2015 board meeting. The new policy amortizes unexpected future changes in the UAL over a period of 15 years as a level percent of payroll. This change decreased Plan costs by about 0.05% of pay.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

Table I-3 below shows the ratio of assets to active member payroll for SJCERA.

TABLE I-3 Asset to Payroll Ratio as of December 31, 2014

Projected Active Member Payroll 397,636,401 Assets (Market Value Net of Non-Valuation Reserves) 2,446,553,095 Ratio of Assets to Payroll 6.15 Ratio with 100% Funding 9.38

The table above shows SJCERA’s assets as a percentage of projected active member payroll. This ratio indicates the sensitivity of the Plan to the returns earned on plan assets. We note in the table that plan assets currently are over 6 times covered payroll for the Plan; as funding improves and the Plan reaches 100% funding, the ratio of asset to payroll will increase to over 9 times payroll, perhaps higher depending on the Plan’s future demographic makeup.

To appreciate the impact of the ratio of assets to payroll on plan cost, consider the situation for a new plan with almost no assets. Even if the assets suffer a bad year of investment returns, the impact on the plan cost is nil, because the assets are so small.

On the other hand, consider the situation for SJCERA. Suppose SJCERA’s assets lose 10% of their value in a year. Since they were assumed to earn 7.50%, there is an actuarial loss of 17.50% of plan assets. Based on the current ratio of assets to payroll (615%), that means the loss in assets is about 108% of active payroll (615% of the 17.50% loss). There is only one source of funding to make up for this loss: the employers. Consequently, barring future offsetting investment gains, the employer has to make up the asset loss in future contributions. In this example of a one-year loss of 10%, this shortfall will eventually require an additional amortization payment in the vicinity of 9.7% of payroll if amortized over 15 years.

Furthermore, consider the impact of a one-year asset loss of 10% if the Plan is 100% funded. Based on the ratio of asset to payroll at 100% funding (938%), the asset loss would be about 164% of active payroll (938% of the 17.50% loss). Again, there is only one source of funding to make up for this loss: the employers. In this example, the shortfall could require an additional amortization payment of approximately 14.8% of payroll, amortized over 15 years.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

D. Historical Trends

Despite the fact that for most retirement plans the greatest attention is given to the current valuation results and in particular, the size of the current unfunded actuarial liability and the employer contribution, it is important to remember that each valuation is merely a snapshot in the long-term progress of a pension fund. It is more important to judge a current year’s valuation result relative to historical trends, as well as trends expected into the future.

Assets and Liabilities

The chart on this page compares the Market Value of Assets (MVA) and Actuarial Value of Assets (AVA) to the Actuarial Liabilities. The percentage shown at the top of each bar is the ratio of the Actuarial Value of Assets to the Actuarial Liability (the funded ratio).

The funded ratio has declined from 72.5% in 2009 to 63.4% in 2013, and has since increased to 66.2% as of January 1, 2015. The extraordinary asset loss of 2008 adversely affected the funded ratio from 2009 to 2013. In addition, for the January 1, 2013 valuation assumption changes were made that reflect lower expected future returns on assets and improved mortality, lessening the impact of recent asset gains on the funded ratio.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

Participant Trends

The chart above provides a measure for the maturity in the Plan by comparing the ratio of active members to inactive members (retirees and deferred vested participants). These ratios are given at the top of each bar. As the Plan matures, this ratio is expected to decrease as more employees leave the active workforce and receive benefits. The increase in inactive liabilities relative to active liabilities may result in a larger burden on the employers should assets perform poorly. The active-to-inactive ratio has decreased significantly from 2008 to 2013, but increased slightly in 2014, indicating an influx of new members to the Plan.

Cash Flows

The chart on the next page shows the Plan’s cash flow (contributions less benefit payments and administrative expenses). This is a critical measure, as it reflects the ability to have funds available to meet benefit payments without having to make difficult investment decisions, especially during volatile markets.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

The contributions, benefit payments and the Plan’s net cash flow (NCF) are represented by the chart above. The NCF - shown as the black line in the chart - has slowly decreased during the period shown, but shows a slight increase the past two years, with a -$5.9 million net cash flow this year. A negative net cash flow could magnify the losses during a market decline hindering the Plan in its ability to absorb market fluctuations. The implications of a plan in negative net cash flow are that the impact of market fluctuations can be more severe: As assets are being depleted to pay benefits in down markets, there is less principal available to be reinvested during favorable return periods.

E. Future Expected Financial Trends

The analysis of projected financial trends is perhaps the most important component of this valuation. In this Section, we present our assessment of the implications of the January 1, 2015 valuation results in terms of benefit security (assets over liabilities). All the projections in this section are based on the current interest rate assumption of 7.50%. We have assumed future salary increases of 3.25% per year.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

The following graphs show the expected employer contribution rates for General and Safety members based on actually achieving the 7.50% assumption each year for the next 20 years, which is clearly an impossibility.

Projection of General Employer Contributions, 7.50% return each year

Projection of Safety Employer Contributions, 7.50% return each year

Projection of Total Employer Contributions, 7.50% return each year

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION I EXECUTIVE SUMMARY

The contribution rate graphs on the previous page show that General, Safety and Total County contributions are expected to decline slowly as the unfunded actuarial liability is amortized. The dollar contribution will be approximately $113 million for General and $46 million for Safety in 2015, growing to around $134 million for General and $55 million for Safety in five years.

Note that the graphs above do not forecast any actuarial gains or losses. Even relatively modest losses relative to the 7.5% assumed return could push the employer contribution rates higher in the next few years.

Asset and Liability Projections:

The graph below shows the projection of SJCERA’s assets and liabilities assuming that assets will earn the 7.50% assumption each year during the projection period.

Projection of Assets and Liabilities, 7.50% return each year

The graph shows that the projected funded status increases over the next 20 years to 99%, assuming the actuarial assumption is achieved. However, as above, it is the actual return on System assets that will determine the future funding status and contribution rate to the Fund.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

Pension Plan assets play a key role in the financial operation of the System and in the decisions the Board may make with respect to future deployment of those assets. The level of assets, the allocation of assets among asset classes, and the methodology used to measure assets will likely impact benefit levels, employer contributions, and the ultimate security of participants’ benefits.

In this section, we present detailed information on System assets including:

 Disclosure of System assets as of December 31, 2013 and December 31, 2014;  Statement of the changes in market values during the year;  Development of the Actuarial Value of Assets;  An assessment of investment performance; and  Determination of reserve balances as of January 1, 2015.

Disclosure

There are two types of asset values disclosed in the valuation, the market value of assets and the actuarial value of assets. The market value represents the fair value of assets that provide the principal basis for measuring financial performance from one year to the next. Market values, however, can fluctuate widely with corresponding swings in the marketplace. As a result, market values are usually not as suitable for long-range planning as are the actuarial value of assets, which reflect smoothing of annual investment returns.

Table II-1 on the next page discloses and compares each asset value as of December 31, 2013 and December 31, 2014.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

TABLE II-1 Statement of Assets at Market Value December 31, Assets 2013 2014 Cash and Cash Equivalents $ 62,574,166 $ 86,304,586 Cash Collateral-Securities Lending 107,126,504 164,195,271 Total Cash and Cash Equivalents 169,700,670 250,499,857 Receivables: Investment Income Receivables 2,774,881 2,664,983 Contributions Receivable 7,537,892 8,960,303 Securities Sold, Not Received - Domestic 18,162,236 420,303 Other Investment Income Receivable 536 637 Miscellaneous Receivables 15,822 34,606 Total Receivables 28,491,367 12,080,832 Investments, at Market Value: Fixed Income 484,341,760 527,386,250 U.S. and Non U.S. Equities 891,888,949 891,844,719 Global Equity 59,253,441 57,668,488 Real Estate 258,866,921 253,709,478 Real Asset 155,406,359 108,824,107 Global Opportunistic Strategy 178,452,433 278,197,288 Risk Parity 228,698,438 253,749,953 Total Investments 2,256,908,301 2,371,380,283 Other Assets: Prepaid Expenses 81,357 86,318 Equipment and Fixtures, Net 427,463 314,644 Total Assets 2,455,609,158 2,634,361,934 Liabilities: Securities Lending-Cash Collateral 107,126,504 164,195,271 Securities Purchased, Not Paid 5,432,718 1,671,227 Accrued Expenses and Other Payables 1,537,573 2,137,604 Security Lending Interest and Other Expense 0 8,303 Total Liabilities 114,096,795 168,012,405 Market Value of Assets $ 2,341,512,363 $ 2,466,349,529

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

Changes in Market Value

The components of asset change are:  Contributions (employer and employee)  Benefit payments  Expenses (investment and administrative)  Investment income (realized and unrealized)

Table II-2 below shows the components of change in the market value of assets during 2013 and 2014.

TABLE II-2 Changes in Market Values Additions 2013 2014 Contributions Employer's Contribution 119,494,319 136,686,133 Members' Contributions 22,689,882 27,367,908 Total Contributions 142,184,201 164,054,041

Net Investment Income Net Appreciation/(Depreciation) in Fair Value of Investments 178,161,110 94,708,384 Interest 24,829,363 20,784,139 Dividends 4,796,804 2,680,448 Real Estate Income, net 7,105,263 10,112,793 Investment Expenses (17,141,459) (18,119,634) Miscellaneous Investment Income 7,804 7,293 Net Investment Income, Before Securities Lending Income 197,758,885 110,173,423

Securities Lending Income Earnings 374,904 450,412 Rebates 176,043 184,507 Fees (137,436) (157,231) Net Securities Lending Income 413,511 477,688 Net Investment Income 198,172,396 110,651,111 Miscellaneous Income 72,467 77,192 Total Additions 340,429,064 274,782,344

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

TABLE II-2 Changes in Market Values (Continued) Deductions Benefit payments 153,620,152 163,711,716 Death Benefits 612,733 623,557 Refunds of Members' Contributions 1,168,934 1,535,698 Total Benefit Payments 155,401,819 165,870,971

Administrative & Other Expenses General Administrative Expenses 3,672,857 3,636,863 Actuary Fees 217,819 161,342 Fund Legal Fees 244,040 244,781 Total Administrative & Other Expenses 4,134,716 4,042,986 Transfer Between Plans (204,375) (19,968,779) Total Deductions 159,332,160 149,945,178 Net increase (Decrease) 181,096,904 124,837,166

Net Assets Held in Trust for Pension Benefits: Beginning of Year 2,160,415,459 2,341,512,363 End of Year 2,341,512,363 2,466,349,529

Approximate Return 9.22% 4.69%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

Actuarial Value of Assets (AVA)

The actuarial value of assets represents a “smoothed” value developed by the actuary to reduce the volatile results, which could develop due to short-term fluctuations in the market value of assets. For this System, the actuarial value of assets is calculated by recognizing the deviation of actual investment returns compared to the expected return over a five-year period. The dollar amount of the expected return on the market value of assets is determined using the actual contributions, administrative expense (beginning in 2013), and benefit payments during the year. Any difference between this amount and the actual investment earnings is considered a gain or loss. However, in no event will the actuarial value of assets be less than 80% or more than 120% of market value on the valuation date. The following table shows the development of the actuarial asset value.

TABLE II-3 Development of Actuarial Value of Assets as of January 1, 2015 (a) (b) (c) (d) (e) (f) (g) = (f) – (e) (h) (i) = (g) x (h) Administrative Healthcare Expected Actual Additional Not Unrecognized Year Contributions Benefits Expense Fund Transfer Return Return Earnings Recognized Earnings 2011 126,932,474 132,709,273 0 0 150,952,879 25,735,622 (125,217,257) 20% (25,043,451) 2012 127,962,598 144,978,040 0 0 150,473,721 227,485,527 77,011,806 40% 30,804,722 2013 142,184,201 155,401,819 4,134,716 0 161,392,211 198,449,237 37,057,026 60% 22,234,216 2014 164,054,041 165,870,971 4,042,986 19,968,779 176,895,311 110,728,303 (66,167,008) 80% (52,933,607) 1. Total Unrecognized Dollars (24,938,120) 2. Market Value of Assets as of December 31, 2014 2,466,349,529 3. Preliminary Actuarial Value of Assets as of December 31, 2014: [(2) - (1)] 2,491,287,649 4. Corridor Limits a. 80% of Net Market Value 1,973,079,623 b. 120% of Net Market Value 2,959,619,434 5. Actuarial Value of Assets after Corridor 2,491,287,649 6. Ratio of Actuarial Value to Market Value 101.01% [(5) ÷ (2)] 7. Market Stabilization Designation (24,938,120) [(2) – (5)] 8. Special (Non Valuation) Reserves: Class Action Settlement – Post 4/1/1982 6,338,007 Contingency 13,458,426 Undistributed Earnings Reserve 0 Total Special Reserves 19,796,433 9. Pension Reserves at Actuarial Value (Valuation Assets): [(5) - (8)*(6)] $2,471,291,047

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

Investment Performance

The following table calculates the investment related gain/loss for the plan year on both a Market Value and an Actuarial Value basis. The Market Value gain/loss is a useful measure for comparing the actual asset performance to the previous valuations.

TABLE II-4 Asset Gain/(Loss)

Market Value Actuarial Value January 1, 2014 value $ 2,341,512,363 $ 2,285,165,972 County Contributions 136,686,133 136,686,133 Employee Contributions 27,367,908 27,367,908 Healthcare Transfer 19,968,779 19,968,779 Benefit Payments (165,870,971) (165,870,971) Administrative Expenses (4,042,986) (4,042,986) Expected Investment Earnings (7.50%) 176,895,311 172,669,332 Expected Value December 31, 2014 $ 2,532,516,537 $ 2,471,944,167 Investment Gain / (Loss) (66,167,008) (653,120) January 1, 2015 value 2,466,349,529 $ 2,471,291,047

Return 4.69% 7.47%

Note that the return on market value shown above is not the dollar-weighted return on assets required for purposes of GASB Statements 67 and 68.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

The following table shows the historical annual asset returns on a market value and actuarial value basis, as well in the increase in the Consumer Price Index (CPI) since 1995.

TABLE II-5 Historical Asset Returns Year Ended Return on Return on December 31 Market Value Actuarial Value Increase in CPI*

1996 13.5% 12.2% 3.3% 1997 17.3% 13.9% 1.7% 1998 9.9% 13.3% 1.6% 1999 13.7% 15.1% 2.7% 2000 3.2% 11.5% 3.4% 2001 ( 0.1%) 8.8% 1.6% 2002 ( 5.5%) 4.7% 2.4% 2003 25.5% 6.8% 1.9% 2004 11.8% 6.6% 3.3% 2005 6.9% 7.2% 3.4% 2006 12.7% 9.6% 2.5% 2007 6.9% 11.2% 4.1% 2008 ( 30.1%) ( 14.3%) ( 0.5%) 2009 11.4% 11.6% 2.5% 2010 12.4% 6.4% 1.5% 2011 1.3% ( 1.8%) 3.0% 2012 11.7% ( 0.2%) 1.7% 2013 9.2% 8.5% 1.5% 2014 4.7% 7.5% 0.8% Compounded 15 4.7% 5.4% 2.2% Year Average Compounded 10 3.9% 4.3% 2.0% Year Average Compounded 5 7.8% 4.0% 1.7% Year Average

* Based on All Urban Consumers - U.S. City Average, December Indices.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION II ASSETS

Reserve Balances

The following table shows the Post-1982 Settlement Reserve balances as of January 1, 2015.

TABLE II-6 Post-1982 Settlement Reserve Valuation Date Number of Estimated Years January 1 Recipients Benefits Payable Reserve of Payments

2008 1,896 3,683,939 25,872,222 13 2009 1,856 3,602,904 22,015,055 10 2010 1,800 3,484,762 20,090,654 9 2011 1,738 3,370,636 18,108,660 6 2012 1,679 3,243,068 14,556,866 5 2013 1,709 3,244,009 11,063,855 4 2014 1,662 3,197,416 8,765,004 3 2015 1,617 3,046,233 6,338,007 2 As of January 1, 2015, the total projected liability associated with paying the Post-82 Settlement allowances for the lifetime of the members and beneficiaries is estimated to be $29,240,663.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION III LIABILITIES

In this section, we present detailed information on System liabilities including:

 Disclosure of System liabilities at January 1, 2014 and January 1, 2015;  Statement of changes in these liabilities during the year.

Disclosure

Several types of liabilities are calculated and presented in this report. Each type is distinguished by the people ultimately using the figures and the purpose for which they are using them.

 Present Value of Future Benefits: Used for measuring all future System obligations, represents the amount of money needed today to fully pay off all benefits of the System both earned as of the valuation date and those to be earned in the future by current plan participants, under the current System provisions.

 Actuarial Liability: Used for funding calculations, this liability is calculated taking the Present Value of Future Benefits and subtracting the present value of future Member Contributions and future Employer Normal Costs under an acceptable actuarial funding method. The method used for this System is called the Entry Age Normal (EAN) funding method.

 Unfunded Actuarial Liability: The excess of the Actuarial Liability over the Actuarial Value of Assets.

Table III-1 on the following page discloses each of these liabilities for the current and prior valuations. With respect to each disclosure, a subtraction of the appropriate value of Plan assets yields, for each respective type, a net surplus, or an unfunded actuarial liability.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION III LIABILITIES

TABLE III-1 Liabilities/Net (Surplus)/Unfunded January 1, 2014 January 1, 2015 Present Value of Future Benefits Active Participant Benefits $ 2,252,362,516 $ 2,269,045,331 Retiree and Inactive Benefits 2,049,548,704 2,215,349,763 Present Value of Future Benefits (PVB) $ 4,301,911,220 $ 4,484,395,094

Actuarial Liability Present Value of Future Benefits (PVB) $ 4,301,911,220 $ 4,484,395,094 Present Value of Future Normal Costs (PVFNC) 740,052,164 752,760,722 Actuarial Liability (AL = PVB – PVFNC) $ 3,561,859,056 $ 3,731,634,372 Actuarial Value of Assets (AVA) 2,285,165,972 2,471,291,047 Net (Surplus)/Unfunded (AL – AVA) $ 1,276,693,084 $ 1,260,343,325

Changes in Liabilities

Each of the Liabilities disclosed in the prior table are expected to change at each valuation. The components of that change, depending upon which liability is analyzed, can include:  New hires since the last valuation  Benefits accrued since the last valuation  Plan amendments  Passage of time which adds interest to the prior liability  Benefits paid to retirees since the last valuation  Participants retiring, terminating, or dying at rates different than expected  A change in actuarial or investment assumptions  A change in the actuarial funding method

Unfunded liabilities will change because of all of the above, and due to changes in System assets resulting from:

 Employer contributions different than expected  Investment earnings different than expected  A change in the method used to measure plan assets

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION III LIABILITIES

TABLE III-2 Changes in Actuarial Liability

Actuarial Liability at January 1, 2014 $ 3,561,859,056 Actuarial Liability at January 1, 2015 $ 3,731,634,372 Liability Increase (Decrease) 169,775,316

Change due to: Accrual of Benefits $ 83,470,441 Actual Benefit Payments (165,870,971) Interest 264,105,271 Actuarial Liability (Gain)/Loss (11,929,425)

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION III LIABILITIES

TABLE III-3 Development of Actuarial Gain / (Loss)

1. Unfunded Actuarial Liability at Start of Year (not less than zero) $ 1,276,693,084

2. Employer Normal Cost at Middle of Year 83,470,441

3. Administrative Expense 4,042,986

4. Interest on 1. 2. and 3. to End of Year 98,974,406

5. Contributions for Prior Year 164,054,041

6. Healthcare Fund Transfer 19,968,779

7. Interest on 5. and 6. to End of Year 7,538,467

8. Expected Unfunded Actuarial Liability at End of Year [1. + 2. + 3. + 4. – 5. – 6. + 7.] $ 1,271,619,630

9. Actual Unfunded Actuarial Liability at End of Year (not less than zero) 1,260,343,325

10. Unfunded Actuarial Liability Gain / (Loss) [8. – 9.] $ 11,276,305

11. Actuarial Liability Gain / (Loss) $ 11,929,425

12. Actuarial Asset Gain / (Loss) [10. – 11.] $ (653,120)

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION IV CONTRIBUTIONS

In the process of evaluating the financial condition of any pension plan, the actuary analyzes the assets and liabilities to determine what level (if any) of contributions is needed to properly maintain the funding status of the System. Typically, the actuarial process will use a funding technique that will result in a pattern of contributions that are both stable and predictable.

For this System, the actuarial funding method used to determine the normal cost and the unfunded actuarial liability is the Entry Age Normal (EAN) cost method. There are three primary components to the total contribution: the normal cost rate (employee and employer), the unfunded actuarial liability rate (UAL rate), and the administrative expense contribution.

The normal cost rate is determined in the following steps. First, an individual normal cost rate is determined by taking the value, as of entry age into the System, of each member’s projected future benefits. This value is then divided by the value, also at entry age, of the member’s expected future salary producing a normal cost rate that should remain relatively constant over a member’s career. The total normal cost is adjusted with interest to the middle of the year, to reflect the fact that the normal cost contributions are paid throughout the year as member payroll payments are made. Finally, the total normal cost rate is reduced by the member contribution rate to produce the employer normal cost rate.

The unfunded actuarial liability is the difference between the EAN actuarial liability and the actuarial value of assets. For the prior valuation, the UAL rate was based on a 25-year amortization of half of the extraordinary investment loss from 2008 and a 19-year amortization of the remainder of the unfunded actuarial liability as of January 1, 2014, again assuming mid- year payment to reflect the fact that employer contributions are made throughout the year.

At the July 24, 2015 board meeting, the SJCERA Board of Retirement chose to make a change to their funding policy, opting to amortize any unexpected changes in the UAL over a period of 15 years as a level percent of pay, with new amortization layers each year. The result is a set of three amortization bases as of January 1, 2015: The 2008 loss being amortized over 24 years, the remaining UAL as of December 31, 2014 being amortized over 18 years, and new additions to the UAL on and after January 1, 2015 amortized over 15 years. The single amortization period for these streams of payments is 20 years as of January 1, 2015. The amortization period for each unfunded actuarial liability layer will decrease each year.

The administrative expenses are assumed to be $4,243,600 per year.

The tables on the following pages present the employer contributions for the System for this valuation.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION IV CONTRIBUTIONS

TABLE IV-1 Employer Contribution Rate January 1, 2014 January 1, 2015 Contributions as a Percentage of Payroll Gross Entry Age Normal Cost Rate 24.05% 23.76% Employee Contribution Rate 6.77% 6.89% Employer Entry Age Normal Cost Rate 17.28% 16.86%

Employer Normal Cost Rate 17.28% 16.86% Administrative Expense 0.91% 0.91% Amortization Payment 23.74% 23.58% Employer Contribution Rate 41.93% 41.35%

Annual Required Contribution (Employer) $ 157,994,939 $ 159,501,915

TABLE IV-2 Development of Employer Contribution Amount January 1, 2015 % of pay 1. Normal Cost at Middle of Year $ 62,096,642 16.86%

2. Amortization of Unfunded Liability a. Actuarial Liability $ 3,731,634,372 b. Actuarial Value of Assets 2,471,291,047 c. Unfunded Liability (a) – (b) $ 1,260,343,325 d. Amortization of Unfunded Liability 93,779,720 23.58%

3. Administrative Expense $ 3,625,553 0.91%

4. Annual Required Contribution $ 159,501,915 41.35% (1c) + (2d) + (3)

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION IV CONTRIBUTIONS

TABLE IV-3 Development of Amortization Payment For Fiscal Year 2015

Initial 1/1/2015 Remaining Date Initial Amortization Outstanding Amortization Amortization Type of Base Established Amount Years Balance Years Amount

Charges/(Credits) 1. 2008 Extraordinary Actuarial Loss 1/1/2009 $ 424,264,899 30 $ 459,885,419 24 $ 30,395,173 2. Remaining 1/1/2014 UAL 1/1/2014 820,499,756 19 816,896,789 18 64,868,906 3. 1/1/2015 Gain 1/1/2015 (16,438,883) 15 (16,438,883) 15 (1,484,359)

$ 1,260,343,325 $ 93,779,720

The January 1, 2015 gain shown in Table IV-3 does not match the UAL gain shown in Table III-3 due to the phase-in of the contribution rate and the $20 million transfer from the healthcare reserve to the pension fund.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

SECTION V ADDITIONAL CAFR SCHEDULES

This section of the report provides schedules for the Actuarial Section of the CAFR for SJCERA that are not provided in the GASB 67 and 68 reports.

We have prepared the following schedule:

Solvency Test

The solvency test shows the portion of actuarial liabilities for active member contributions, inactive members, and the employer financed portion of the active members that are covered by the actuarial value of assets.

The Actuarial Liability is determined assuming that the System is ongoing and participants continue to terminate employment, retire, etc., in accordance with the actuarial assumptions. Liabilities for 2013 through 2015 are discounted at the assumed valuation interest rate of 7.5%.

Table V-1 Solvency Test Aggregate Actuarial Liabilities for

Valuation Date Active Member Retirees & Active Actuarial Value Portion of Actuarial January 1, Contributions Beneficiaries Members* of Assets Liabilities Covered by (1) (2) (3) (1) (2) (3) 2015 $ 276,818,405 $ 2,117,009,658 $ 1,337,806,309 $ 2,471,291,047 100% 100% 6% 2014 258,198,240 1,956,930,619 1,346,730,197 2,285,165,972 100% 100% 5% 2013 209,987,230 1,810,775,897 1,332,531,085 2,125,700,227 100% 100% 8% 2012 202,924,928 1,627,338,404 1,218,058,024 2,130,052,649 100% 100% 25% 2011 193,612,757 1,495,665,075 1,228,410,127 2,120,384,183 100% 100% 35% 2010 187,986,706 1,373,256,766 1,208,368,072 1,949,011,498 100% 100% 32% 2009 176,235,961 1,231,647,623 1,103,041,755 1,821,357,079 100% 100% 37% 2008 166,804,000 1,119,690,000 1,048,027,000 2,029,949,000 100% 100% 71% 2007 159,100,000 1,023,296,000 967,542,000 1,869,717,000 100% 100% 71% 2006 147,953,000 904,208,000 883,657,000 1,727,033,000 100% 100% 76% 2005 140,800,000 805,878,000 822,829,000 1,614,979,000 100% 100% 81% 2004 129,606,000 726,382,000 739,749,000 1,531,288,000 100% 100% 91% 2003 137,209,000 643,984,000 637,016,000 1,448,905,000 100% 100% 100%

* Includes terminated vested members.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

The data for this valuation was provided by the San Joaquin County staff as of January 1, 2015.

Summary of Participant Data as of January 1, 2015 General Safety Total Active Participants Number 4,879 827 5,706 Average Age 46.91 41.76 46.16 Average Benefit Service 11.01 12.42 11.22 Average Vesting Service 11.08 12.60 11.30 Average Pay $66,169 $82,819 $68,582

Service Retired Number 3,385 524 3,909 Average Age 70.07 65.54 69.46 Average Annual Base Benefit $19,730 $42,838 $22,827 Average Annual Total Benefit $30,336 $59,611 $34,260

Beneficiaries Number 580 162 742 Average Age 72.79 67.45 71.63 Average Annual Base Benefit $8,480 $15,555 $10,025 Average Annual Total Benefit $15,856 $25,829 $18,034

Duty Disabled Number 232 192 424 Average Age 62.93 59.79 61.51 Average Annual Base Benefit $16,338 $33,241 $23,992 Average Annual Total Benefit $23,910 $48,206 $34,912

Non-Duty Disabled Number 161 13 174 Average Age 63.35 66.77 63.61 Average Annual Base Benefit $10,628 $15,069 $10,960 Average Annual Total Benefit $15,698 $24,864 $16,383

Total Receiving Benefits Number 4,358 891 5,249 Average Age 69.81 64.67 68.93 Average Annual Base Benefit $17,716 $35,404 $20,718 Average Annual Total Benefit $27,526 $50,504 $31,427

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Summary of Participant Data as of January 1, 2015 General Safety Total Deferred Vested Number 381 28 409 Average Age 49.31 45.71 49.07 Average Service 9.22 7.68 9.12

Transfers and DROs Number 387 103 490 Average Age 49.33 44.07 48.22 Average Service 5.50 4.19 5.23

Funds on Account Number 507 29 536 Average Age 44.90 37.83 44.52 Average Service 1.33 1.20 1.32

Total Inactive Number 1,275 160 1,435 Average Age 47.56 43.23 47.08 Average Service 4.95 4.26 4.88

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Changes in Plan Membership: General

Transfers/ Non-Vested Vested Non-Duty Duty Actives Retired Beneficiaries Total DROS Terminations Terminations Disabled Disabled

January 1, 2014 4,748 354 480 425 161 227 3,227 557 10,179 New Entrants 579 0 0 0 0 0 0 0 579 Rehires 34 (3) (5) (6) 0 0 0 0 20 Duty Disabilities (2) 0 0 0 0 2 0 0 0 Non-Duty Disabilities (4) 0 0 (1) 5 0 0 0 0 Retirements (195) (19) (1) (20) 0 0 234 1 0 Vested Terminations (42) 0 0 42 0 0 0 0 0 Retirements from Safety with 0 0 0 0 0 4 3 2 9 General Service Died, With Beneficiaries' (3) 0 0 0 (4) (4) (26) 37 0 Benefit Payable Died, Without Beneficiary, (49) (1) 45 (5) (3) (1) (46) 0 (60) and Other Terminations Transfers (48) 56 (11) (27) 0 0 0 0 (30) Redeposits – AB 2766 0 0 0 1 0 0 0 0 1 Withdrawals Paid (139) (5) (20) (10) 0 0 0 0 (174) Beneficiary Deaths 0 0 0 0 0 0 0 (28) (28) Domestic Relations Orders 0 6 0 0 0 0 0 5 11 Data Corrections 0 0 19 (18) 2 4 (7) 6 6 January 1, 2015 4,879 388 507 381 161 232 3,385 580 10,513

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Changes in Plan Membership: Safety

Transfers/ Non-Vested Vested Non-Duty Duty Actives Retired Beneficiaries Total DROS Terminations Terminations Disabled Disabled

January 1, 2014 805 86 27 39 13 186 516 154 1,826 New Entrants 30 0 0 0 0 0 0 0 30 Rehires 1 0 0 0 0 0 0 0 1 Duty Disabilities (8) 0 0 0 0 8 0 0 0 Non-Duty Disabilities 0 0 0 0 0 0 0 0 0 Retirements (18) (2) 0 (1) 0 0 20 1 0 Vested Terminations 0 0 0 0 0 0 0 0 0 Retirements from Safety with 0 0 0 0 0 0 1 0 1 General Service Died, With Beneficiaries' 0 0 0 0 0 (4) (6) 10 0 Benefit Payable Died, Without Beneficiary, (3) 0 3 0 0 0 (5) 0 (5) and Other Terminations Transfers 27 14 0 (11) 0 0 0 0 30 Redeposits – AB 2766 0 1 0 1 0 0 0 0 2 Withdrawals Paid (7) (1) (1) 0 0 0 0 0 (9) Beneficiary Deaths 0 0 0 0 0 0 0 (6) (6) Domestic Relations Orders 0 5 0 0 0 0 0 3 8 Data Corrections 0 0 0 0 0 2 (2) 0 0 January 1, 2015 827 103 29 28 13 192 524 162 1,878

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Changes in Plan Membership: All Groups

Transfers/ Non-Vested Vested Non-Duty Duty Actives Retired Beneficiaries Total DROS Terminations Terminations Disabled Disabled

January 1, 2014 5,553 440 507 464 174 413 3,743 711 12,005 New Entrants 609 0 0 0 0 0 0 0 609 Rehires 35 (3) (5) (6) 0 0 0 0 21 Duty Disabilities (10) 0 0 0 0 10 0 0 0 Non-Duty Disabilities (4) 0 0 (1) 5 0 0 0 0 Retirements (213) (21) (1) (21) 0 0 254 2 0 Vested Terminations (42) 0 0 42 0 0 0 0 0 Retirements from Safety with 0 0 0 0 0 4 4 2 10 General Service Died, With Beneficiaries' (3) 0 0 0 (4) (8) (32) 47 0 Benefit Payable Died, Without Beneficiary, (52) (1) 48 (5) (3) (1) (51) 0 (65) and Other Terminations Transfers (21) 70 (11) (38) 0 0 0 0 0 Redeposits – AB 2766 0 1 0 2 0 0 0 0 3 Withdrawals Paid (146) (6) (21) (10) 0 0 0 0 (183) Beneficiary Deaths 0 0 0 0 0 0 0 (34) (34) Domestic Relations Orders 0 11 0 0 0 0 0 8 19 Data Corrections 0 0 19 (18) 2 6 (9) 6 6 January 1, 2015 5,706 491 536 409 174 424 3,909 742 12,391

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Active Member Data by Plan Average Average Valuation at Member Plan Type Annual Payroll Annual Salary Year End Count Salary Increase 2006 General 5,234 $288,178,806 $55,059 18.22% Safety 820 $56,293,820 $68,651 15.52% Total 6,054 $344,472,626 $56,900 17.68% 2007 General 5,353 $308,773,122 $57,682 4.76% Safety 871 $62,988,014 $72,317 5.34% Total 6,224 $371,761,136 $59,730 4.97% 2008 General 5,180 $315,202,954 $60,850 5.49% Safety 900 $67,127,759 $74,586 3.14% Total 6,080 $382,330,713 $62,883 5.28% 2009 General 4,990 $320,526,792 $64,234 5.56% Safety 925 $70,801,157 $76,542 2.62% Total 5,915 $391,327,949 $66,159 5.21% 2010 General 4,643 $308,183,424 $66,376 3.33% Safety 830 $64,817,396 $78,093 2.03% Total 5,473 $373,000,820 $68,153 3.01% 2011 General 4,441 $298,308,687 $67,172 1.20% Safety 813 $64,041,814 $78,772 0.87% Total 5,254 $362,350,501 $68,967 1.19% 2012 General 4,492 $301,505,122 $67,120 -0.08% Safety 803 $64,386,900 $80,183 1.79% Total 5,295 $365,892,023 $69,101 0.19% 2013 General 4,748 $316,885,044 $66,741 -0.57% Safety 805 $65,640,055 $81,540 1.69% Total 5,553 $382,525,098 $68,886 -0.31% 2014 General 4,879 $322,836,680 $66,169 -0.86% Safety 827 $68,491,483 $82,819 1.57% Total 5,706 $391,328,162 $68,582 -0.44%

Payroll figures represent active member's annualized pay rates on December 31.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Schedule of Retirees and Beneficiaries Valuation Data

Members and Annual Average Average Valuation at Member Beneficiary Total Retirees Plan Type Beneficiaries Retirement Annual Allowance Year End Retirements Continuance on Payroll Removed Payroll Allowance Increase 2006 General 190 41 102 3,107 58,634,478 18,872 3.96% Safety 31 8 11 632 25,003,422 39,562 2.14% Total 221 49 113 3,739 83,637,900 22,369 3.45% 2007 General 199 31 99 3,238 65,213,731 20,140 6.72% Safety 38 6 8 668 27,396,329 41,012 3.67% Total 237 37 107 3,906 92,610,060 23,710 5.99% 2008 General 203 30 83 3,388 71,488,335 21,100 4.77% Safety 50 10 18 710 30,575,540 43,064 5.00% Total 253 40 101 4,098 102,063,875 24,906 5.04% 2009 General 207 31 104 3,522 78,988,070 22,427 6.29% Safety 24 7 11 730 32,575,964 44,625 3.62% Total 231 38 115 4,252 111,564,034 26,238 5.35% 2010 General 242 35 102 3,697 85,931,078 23,243 3.64% Safety 65 5 8 792 36,354,738 45,902 2.86% Total 307 40 110 4,489 122,285,816 27,241 3.82% 2011 General 240 42 108 3,871 92,938,361 24,009 3.30% Safety 32 4 14 814 38,098,866 46,805 1.97% Total 272 46 122 4,685 131,037,227 27,970 2.68% 2012 General 278 27 135 4,041 102,025,575 25,248 5.16% Safety 52 12 20 856 42,008,598 49,075 4.85% Total 330 39 155 4,897 144,034,172 29,413 5.16% 2013 General 213 52 134 4,172 109,869,721 26,335 4.31% Safety 22 11 20 869 43,548,028 50,113 2.11% Total 235 63 154 5,041 153,411,632 30,433 3.47% 2014 General 247 51 112 4,358 120,722,240 27,701 9.72% Safety 29 14 21 891 45,889,472 51,503 4.95% Total 276 65 133 5,249 166,611,711 31,742 7.92% Payroll figures represent year end monthly retirement benefits annualized and exclude Post-Employment Healthcare benefit and benefits under the Class Action Settlement.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Retirees and Beneficiaries Added to and Removed from Retiree Payroll

Annual Average Added Allowances Removed Average Fiscal Beginning Allowances End of Retirement Allowance During Added During Annual Year of Year Removed Year Payroll Percentage Year 1 Year Allowance (in 000s) (in 000s) Increase 2010 4,252 353 12,918 116 2,196 4,489 122,286 3.82% 27,241 2011 4,489 318 11,544 122 2,793 4,685 131,037 2.67% 27,969 2012 4,685 361 16,400 149 3,403 4,897 144,034 5.16% 29,413 2013 4,897 297 12,908 153 3,530 5,041 153,412 3.47% 30,433 2014 5,041 340 12,522 132 3,030 5,249 166,612 4.30% 31,742 [1] Includes COLA amounts not included in previous year’s Annual Allowance totals.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/11 to 1/1/12 Retirees General Members Average Benefits $470 $1,205 $1,464 $2,615 $3,302 $3,968 $4,670 Average Final Compensation $5,518 $5,903 $4,928 $6,463 $6,110 $5,541 $5,570 Count 12 26 56 27 41 16 39 Safety Members Average Benefits $922 $1,112 $2,551 $3,970 $7,499 $7,790 $10,586 Average Final Compensation $9,746 $4,483 $5,290 $7,767 $10,430 $9,162 $10,797 Count 2 6 3 3 4 5 3 Survivors/QDROs General Members Average Benefits $622 $890 $773 $1,367 $1,838 $2,039 $3,281 Average Final Compensation $9,807 $4,816 $3,578 $4,371 $4,108 $3,364 $5,366 Count 5 9 11 10 5 5 5 Safety Members Average Benefits $825 $859 $1,591 $3,334 $0 $0 $3,829 Average Final Compensation $9,779 $4,960 $2,795 $9,010 $0 $0 $5,257 Count 1 1 2 1 0 0 1 1/2/12 to 1/1/13 Retirees General Members Average Benefits $517 $1,077 $1,481 $2,129 $2,729 $4,198 $6,317 Average Final Compensation $7,532 $5,925 $5,233 $4,900 $5,338 $6,449 $7,295 Count 19 31 56 36 42 30 44 Safety Members Average Benefits $429 $2,194 $3,026 $4,186 $5,302 $9,183 $13,206 Average Final Compensation $6,793 $5,812 $6,636 $8,124 $7,306 $13,360 $13,606 Count 4 5 7 3 14 11 5 Survivors/QDROs General Members Average Benefits $331 $1,189 $1,017 $1,525 $1,274 $3,105 $2,783 Average Final Compensation $4,482 $3,558 $2,664 $2,604 $3,639 $4,794 $3,940 Count 4 4 8 3 1 2 4 Safety Members Average Benefits $0 $1,039 $2,423 $3,450 $3,573 $3,206 $4,887 Average Final Compensation $0 $6,972 $7,561 $1,358 $1,776 $3,836 $6,169 Count 0 2 2 2 1 3 2

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/13 to 1/1/14 Retirees General Members Average Benefits $433 $1,410 $1,589 $2,556 $3,149 $4,241 $5,837 Average Final Compensation $7,695 $7,279 $5,787 $6,125 $6,132 $6,467 $6,718 Count 10 25 40 35 35 26 29 Safety Members Average Benefits $1,165 $1,435 $2,621 $3,501 $4,260 $11,134 $9,279 Average Final Compensation $9,478 $7,434 $6,316 $7,044 $5,599 $13,945 $9,670 Count 3 2 7 4 1 2 2 Survivors/QDROs General Members Average Benefits $687 $1,000 $883 $1,182 $2,063 $1,572 $2,985 Average Final Compensation $3,804 $4,531 $3,953 $3,163 $3,722 $1,821 $3,681 Count 6 9 15 7 5 2 5 Safety Members Average Benefits $650 $3,101 $1,385 $2,012 $1,918 $3,745 $4,936 Average Final Compensation $4,955 $10,868 $2,506 $3,966 $2,525 $6,184 $5,381 Count 3 1 2 1 2 1 1 1/2/14 to 1/1/15 Retirees General Members Average Benefits $618 $1,120 $1,601 $2,635 $4,409 $4,672 $6,283 Average Final Compensation $9,300 $6,612 $5,529 $6,454 $8,122 $6,944 $7,635 Count 9 25 49 46 23 45 41 Safety Members Average Benefits $380 $1,190 $3,433 $4,546 $3,993 $7,412 $11,302 Average Final Compensation $8,910 $6,591 $7,642 $8,863 $6,031 $9,013 $11,761 Count 1 1 3 5 4 6 1 Survivors/QDROs General Members Average Benefits $475 $654 $1,087 $814 $2,160 $1,680 $2,941 Average Final Compensation $5,928 $4,152 $2,879 $2,457 $4,998 $3,887 $8,068 Count 11 6 11 6 5 3 5 Safety Members Average Benefits $2,030 $2,464 $2,890 $3,326 $2,002 $3,569 $3,499 Average Final Compensation $9,251 $8,581 $5,515 $4,817 $4,850 $5,955 $2,018 Count 2 3 4 1 1 1 2

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

DISTRIBUTION OF GENERAL ACTIVE MEMBERS DISTRIBUTION OF SAFETY ACTIVE MEMBERS BY AGE AND SERVICE AS OF JANUARY 1, 2015 BY AGE AND SERVICE AS OF JANUARY 1, 2015

COUNTS BY AGE/SERVICE COUNTS BY AGE/SERVICE Service Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 17 21 0 0 0 0 0 0 0 0 38 25 to 29 59 172 20 0 0 0 0 0 0 0 251 30 to 34 75 206 160 36 1 0 0 0 0 0 478 35 to 39 39 201 201 151 32 0 0 0 0 0 624 40 to 44 38 155 161 203 108 18 1 0 0 0 684 45 to 49 19 124 143 168 124 56 26 0 0 0 660 50 to 54 19 100 119 164 123 106 88 27 0 0 746 55 to 59 17 88 103 128 124 82 97 57 31 1 728 60 to 64 3 54 73 82 83 57 55 45 20 3 475 65 to 69 2 15 36 37 38 13 16 4 3 2 166 70 & up 0 4 6 7 8 1 2 0 1 0 29 Total 288 1,140 1,022 976 641 333 285 133 55 6 4,879

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

DISTRIBUTION OF SAFETY ACTIVE MEMBERS PAYROLL DISTRIBUTION OF GENERAL ACTIVE PARTICIPANTS BY AGE AND SERVICE AS OF JANUARY 1, 2015 BY AGE AND SERVICE AS OF JANUARY 1, 2015

COUNTS BY AGE/SERVICE COUNTS BY AGE/SERVICE Service Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 1 15 0 0 0 0 0 0 0 0 16 25 to 29 6 31 20 0 0 0 0 0 0 0 57 30 to 34 2 19 97 22 1 0 0 0 0 0 141 35 to 39 0 18 43 68 16 0 0 0 0 0 145 40 to 44 2 6 28 63 61 2 0 0 0 0 162 45 to 49 0 0 12 31 37 17 20 1 0 0 118 50 to 54 1 7 11 14 19 14 29 8 0 0 103 55 to 59 0 3 4 9 9 4 22 3 0 0 54 60 to 64 1 0 4 3 2 4 8 1 1 0 24 65 to 69 0 0 0 3 3 1 0 0 0 0 7 70 & up 0 0 0 0 0 0 0 0 0 0 0 Total 13 99 219 213 148 42 79 13 1 0 827

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

PAYROLL DISTRIBUTION OF GENERAL ACTIVE PARTICIPANTS PAYROLL DISTRIBUTION OF SAFETY ACTIVE PARTICIPANTS BY AGE AND SERVICE AS OF JANUARY 1, 2015 BY AGE AND SERVICE AS OF JANUARY 1, 2015

COUNTS BY AGE/SERVICE COUNTS BY AGE/SERVICE Service Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 44,180 40,169 0 0 0 0 0 0 0 0 41,964 25 to 29 51,544 54,806 59,425 0 0 0 0 0 0 0 54,408 30 to 34 49,278 57,277 58,401 56,188 49,459 0 0 0 0 0 56,299 35 to 39 44,693 60,443 68,562 67,052 58,607 0 0 0 0 0 63,579 40 to 44 50,866 71,328 69,256 66,857 68,672 64,533 65,187 0 0 0 67,770 45 to 49 43,765 58,814 65,884 70,170 69,245 65,681 75,368 0 0 0 65,998 50 to 54 53,228 64,994 64,596 65,521 70,135 73,871 78,598 76,320 0 0 68,870 55 to 59 49,772 70,260 70,434 66,289 62,192 74,020 83,339 83,580 68,388 63,103 70,853 60 to 64 57,242 73,908 63,688 70,462 65,435 65,235 78,648 82,737 89,767 57,995 71,068 65 to 69 105,654 114,307 68,815 70,370 65,136 70,139 61,248 101,480 140,084 52,691 74,129 70 & up 0 151,000 71,958 65,417 47,783 56,453 40,323 0 53,846 0 71,271 Total 49,431 62,771 65,935 67,191 66,388 70,349 78,637 82,359 79,809 57,078 66,169

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

PAYROLL DISTRIBUTION OF SAFETY ACTIVE PARTICIPANTS BY AGE AND SERVICE AS OF JANUARY 1, 2015

COUNTS BY AGE/SERVICE Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 39,574 61,576 0 0 0 0 0 0 0 0 60,201 25 to 29 49,844 58,742 87,104 0 0 0 0 0 0 0 67,757 30 to 34 44,275 61,562 78,544 76,954 96,022 0 0 0 0 0 75,645 35 to 39 0 62,724 75,604 77,886 83,018 0 0 0 0 0 75,893 40 to 44 51,226 63,194 78,313 80,514 83,810 87,622 0 0 0 0 80,460 45 to 49 0 0 73,165 78,690 82,881 110,522 121,501 176,281 0 0 92,111 50 to 54 69,326 89,400 71,269 73,798 80,186 99,227 120,830 133,185 0 0 97,034 55 to 59 0 85,096 74,852 75,128 75,714 79,740 116,924 100,036 0 0 94,512 60 to 64 69,326 0 96,363 71,478 109,636 86,608 105,679 71,626 289,788 0 101,740 65 to 69 0 0 0 77,888 83,140 68,994 0 0 0 0 78,868 70 & up 0 0 0 0 0 0 0 0 0 0 0 Total 51,407 63,673 78,317 78,209 82,953 99,469 118,378 124,115 289,788 0 82,819

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Service Retired Benefits General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 0 $0 0 $0 0 $0 25-29 0 $0 0 $0 0 $0 30-34 0 $0 0 $0 0 $0 35-39 0 $0 0 $0 0 $0 40-44 0 $0 0 $0 0 $0 45-49 0 $0 3 $48,581 3 $48,581 50-54 80 $16,049 46 $52,225 126 $29,257 55-59 269 $23,190 89 $67,869 358 $34,297 60-64 606 $36,313 99 $64,168 705 $40,225 65-69 865 $35,277 128 $66,814 993 $39,342 70-74 621 $31,281 88 $50,588 709 $33,677 75-79 415 $26,442 41 $41,413 456 $27,788 80-84 256 $24,778 20 $46,725 276 $26,368 85-89 143 $24,638 9 $67,823 152 $27,195 90-94 104 $17,959 1 $48,467 105 $18,250 95+ 26 $19,709 0 $0 26 $19,709 All Ages 3,385 $30,336 524 $59,611 3,909 $34,260

Non-Duty Disabled Benefits General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 0 $0 0 $0 0 $0 25-29 0 $0 0 $0 0 $0 30-34 0 $0 0 $0 0 $0 35-39 2 $18,802 0 $0 2 $18,802 40-44 2 $16,359 0 $0 2 $16,359 45-49 5 $18,154 0 $0 5 $18,154 50-54 15 $19,060 0 $0 15 $19,060 55-59 32 $16,581 3 $25,118 35 $17,313 60-64 36 $15,099 3 $18,598 39 $15,368 65-69 34 $13,242 2 $18,443 36 $13,531 70-74 18 $17,130 2 $48,550 20 $20,272 75-79 12 $15,343 2 $19,129 14 $15,884 80-84 2 $15,569 1 $19,842 3 $16,993 85-89 1 $6,999 0 $0 1 $6,999 90-94 2 $12,724 0 $0 2 $12,724 95+ 0 $0 0 $0 0 $0 All Ages 161 $15,698 13 $24,864 174 $16,383

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Duty Disabled Benefits General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 0 $0 0 $0 0 $0 25-29 0 $0 0 $0 0 $0 30-34 0 $0 1 $27,717 1 $27,717 35-39 0 $0 4 $32,099 4 $32,099 40-44 13 $10,009 15 $34,335 28 $23,041 45-49 6 $10,305 9 $39,758 15 $27,977 50-54 17 $19,916 33 $43,497 50 $35,480 55-59 40 $21,355 30 $50,953 70 $34,040 60-64 50 $22,588 32 $52,940 82 $34,432 65-69 55 $27,955 34 $53,582 89 $37,745 70-74 31 $31,159 19 $50,158 50 $38,378 75-79 11 $27,389 9 $47,031 20 $36,228 80-84 7 $23,613 1 $56,275 8 $27,696 85-89 0 $0 5 $62,838 5 $62,838 90-94 2 $31,451 0 $0 2 $31,451 95+ 0 $0 0 $0 0 $0 All Ages 232 $23,910 192 $48,206 424 $34,912

Surviving Beneficiary Benefits (all benefit types) General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 8 $9,229 0 $0 8 $9,229 25-29 2 $18,221 0 $0 2 $18,221 30-34 2 $9,899 0 $0 2 $9,899 35-39 0 $0 0 $0 0 $0 40-44 7 $13,699 1 $43,080 8 $17,372 45-49 6 $10,345 7 $21,696 13 $16,457 50-54 19 $9,372 20 $15,890 39 $12,714 55-59 37 $16,130 23 $24,875 60 $19,482 60-64 70 $14,413 19 $39,993 89 $19,874 65-69 77 $18,582 19 $35,774 96 $21,984 70-74 84 $19,767 25 $35,246 109 $23,317 75-79 66 $15,619 15 $33,637 81 $18,956 80-84 72 $18,083 17 $33,917 89 $21,108 85-89 63 $17,807 14 $38,396 77 $21,551 90-94 43 $21,754 2 $25,015 45 $21,899 95+ 24 $16,953 0 $0 24 $16,953 All Ages 580 $17,173 162 $31,323 742 $20,262

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Assumed Probabilities of Separation from Active Membership Non-Duty Ordinary Service Duty Age Duty Death Death Disability Retirement1 Disability General Members – Male 20 0.0003 0.000 0.000 0.000 0.001 25 0.0003 0.001 0.000 0.000 0.001 30 0.0004 0.001 0.000 0.000 0.001 35 0.0007 0.001 0.000 0.000 0.001 40 0.0010 0.001 0.000 0.000 0.004 45 0.0014 0.002 0.000 0.000 0.004 50 0.0019 0.002 0.050 0.000 0.002 55 0.0033 0.003 0.050 0.000 0.002 60 0.0052 0.003 0.150 0.000 0.002 65 0.0082 0.004 0.300 0.000 0.002 General Members – Female 20 0.0002 0.000 0.000 0.000 0.000 25 0.0002 0.001 0.000 0.000 0.000 30 0.0002 0.001 0.000 0.000 0.000 35 0.0004 0.001 0.000 0.000 0.001 40 0.0006 0.001 0.000 0.000 0.001 45 0.0010 0.002 0.000 0.000 0.001 50 0.0015 0.002 0.020 0.000 0.001 55 0.0023 0.003 0.040 0.000 0.002 60 0.0035 0.004 0.100 0.000 0.002 65 0.0063 0.005 0.250 0.000 0.003

1 Lower rates assumed for members with less than 10 years of service, and higher rates assumed for members with at least 30 years of service.

The probabilities for each cause of separation represent the likelihood that a given member will separate at a particular age for the indicated reason. As an example, if the probability of separation of a male general member at age 20 is 0.036, that indicates that 3.6% of active general members are expected to separate from service during the year.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Assumed Probabilities of Separation from Active Membership Non-Duty Ordinary Service Duty Age Duty Death Death Disability Retirement1 Disability Safety Members – Male 20 0.0002 0.000 0.000 0.0002 0.000 25 0.0002 0.000 0.000 0.0002 0.001 30 0.0002 0.000 0.000 0.0002 0.001 35 0.0004 0.000 0.000 0.0002 0.002 40 0.0006 0.000 0.000 0.0003 0.004 45 0.0009 0.001 0.050 0.0004 0.008 50 0.0014 0.001 0.150 0.0005 0.014 55 0.0026 0.002 0.300 0.0007 0.023 Safety Members – Female 20 0.0001 0.000 0.000 0.0001 0.000 25 0.0001 0.000 0.000 0.0001 0.001 30 0.0001 0.000 0.000 0.0001 0.001 35 0.0002 0.000 0.000 0.0002 0.002 40 0.0003 0.000 0.000 0.0003 0.004 45 0.0006 0.001 0.050 0.0004 0.008 50 0.0010 0.003 0.150 0.0005 0.014 55 0.0017 0.005 0.300 0.0006 0.023 1 Lower rates assumed for members with less than 20 years of service.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX A MEMBERSHIP INFORMATION

Salary Increase, Termination and Withdrawal Assumptions Salary Salary Years of Withdrawal: Withdrawal: Termination: Termination: Increase: Increase: Service General Safety General Safety General Safety 0 0.0724 0.0824 0.064 0.018 0.064 0.070 1 0.0724 0.0824 0.050 0.016 0.050 0.062 2 0.0724 0.0824 0.050 0.012 0.050 0.046 3 0.0724 0.0824 0.039 0.006 0.039 0.022 4 0.0724 0.0824 0.024 0.006 0.024 0.022 5 0.0424 0.0524 0.016 0.002 0.029 0.018 6 0.0424 0.0524 0.016 0.002 0.029 0.018 7 0.0424 0.0524 0.016 0.002 0.029 0.018 8 0.0424 0.0524 0.013 0.002 0.024 0.018 9 0.0424 0.0524 0.011 0.002 0.020 0.018 10 0.0424 0.0524 0.007 0.001 0.013 0.009 11 0.0424 0.0524 0.007 0.001 0.013 0.009 12 0.0424 0.0524 0.007 0.001 0.013 0.009 13 0.0424 0.0524 0.007 0.001 0.013 0.009 14 0.0424 0.0524 0.007 0.001 0.013 0.009 15 0.0424 0.0524 0.000 0.000 0.020 0.010 16 0.0424 0.0524 0.000 0.000 0.020 0.010 17 0.0424 0.0524 0.000 0.000 0.020 0.010 18 0.0424 0.0524 0.000 0.000 0.020 0.010 19 0.0424 0.0524 0.000 0.000 0.020 0.010 20 0.0424 0.0524 0.000 0.000 0.010 0.000 21 0.0424 0.0524 0.000 0.000 0.010 0.000 22 0.0424 0.0524 0.000 0.000 0.010 0.000 23 0.0424 0.0524 0.000 0.000 0.010 0.000 24 0.0424 0.0524 0.000 0.000 0.010 0.000 25 0.0424 0.0524 0.000 0.000 0.010 0.000 26 0.0424 0.0524 0.000 0.000 0.010 0.000 27 0.0424 0.0524 0.000 0.000 0.010 0.000 28 0.0424 0.0524 0.000 0.000 0.010 0.000 29 0.0424 0.0524 0.000 0.000 0.010 0.000 30+ 0.0325 0.0524 0.000 0.000 0.000 0.000

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX B STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS

The assumptions and methods used in the actuarial valuation as of January 1, 2015 are: Actuarial Methods

1. Actuarial Cost Method The actuarial valuation is prepared using the entry age actuarial cost method (CERL 31453.5). Under the principles of this method, the actuarial present value of the projected benefits of each individual included in the valuation is allocated as a level percentage of the individual's projected compensation between entry age and assumed exit (until maximum retirement age). For members who transferred from outside of SJCERA, entry age is based on entry into the system. The normal cost for the Plan is based on the sum of the individual normal costs for each member (Individual Entry Age Method).

The UAL (or Surplus Funding) is amortized as a percentage of the projected salaries of present and future members of SJCERA. Effective with the January 1, 2015 valuation, the UAL as of January 1, 2014 is amortized over a closed 19-year period (18 years remaining as of January 1, 2015), except for the additional UAL attributable to the extraordinary loss from 2008, which is being amortized over a separate closed period (24 years as of January 1, 2015).

Any subsequent unexpected change in the unfunded actuarial liability after January 1, 2014 is amortized over 15 years.

2. Valuation of Assets The assets are valued using a five-year smoothed method based on the difference between the expected market value and the actual market value of the assets as of the valuation date. The expected market value is the prior year’s market value increased with the net increase in the cash flow of funds, all increased with interest during the past fiscal year at the expected investment return rate assumption.

An asset corridor limit is applied such that the smoothed market value of assets stays within 20% of the market value of assets.

Actuarial Assumptions

The actuarial assumptions have been adopted by the Board based on recommendations included in an Experience Study performed by Cheiron covering the period from 2010 through 2012.

3. Rate of Return Assets are assumed to earn 7.50% net of investment expenses.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX B STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS

4. Administrative Expenses Administrative expenses are assumed to be $4,243,600 for the next year, to be split between employees and employers based on their share of the overall contributions. Expenses are expected to grow with the cost of living (by 3.00% per year.)

5. Cost of Living The cost of living as measured by the Consumer Price Index (CPI) will increase at the rate of 3.00% per year.

6. Post Retirement COLA Benefits are assumed to increase after retirement at the rate of 2.6% per year.

7. Increases in Pay Assumed pay increases for active Members consist of increases due to base salary adjustments plus service-based increase due to longevity and promotion, as shown below:

Pay Increases Years of Service <5 5-29 30+ Base Increase 3.25% 3.25% 3.25% Longevity & Promotion General 3.86% 0.96% 0.00% Safety 4.83% 1.93% 1.93% Total (Compound) General 7.24% 4.24% 3.25% Safety 8.24% 5.24% 5.24%

8. Family Composition Percentage married for all active members who retire, become disabled, or die during active service is shown in the following table. Women are assumed to be three years younger than men.

Percentage Married Gender Percentage Males 70% Females 50%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX B STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS

9. Rates of Termination Sample rates of termination are show in the following table.

Rates of Termination* Years of General Safety Service 0 12.75% 8.75% 1 10.00% 7.75% 2 10.00% 5.75% 3 7.75% 2.75% 4 4.75% 2.75% 5 4.50% 2.00% 6 4.50% 2.00% 7 4.50% 2.00% 8 3.75% 2.00% 9 3.00% 2.00% 10-19 2.00% 1.00% 20-29 1.00% 0.00% 30+ 0.00% 0.00% * Termination rates do not apply once a member is eligible for retirement.

10. Withdrawal Rates of withdrawal apply to active Members who terminate their employment and withdraw their member contributions, forfeiting entitlement to future Plan benefits.

50% of all General Member terminations with less than five years of service are assumed to take a refund of contributions, as well as 35% of those with five to fourteen years of service.

20% of all Safety Member terminations with less than five years of service are assumed to take a refund of contributions and 10% of those between five and fourteen years are assumed to take a refund.

11. Vested Termination and Reciprocal Transfers Rates of vested termination apply to active Members who terminate their employment and leave their member contributions on deposit with the Plan.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX B STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS

50% of all General Member terminations with less than five years of service are assumed to leave their contributions on deposit, as well as 65% of those with five to fourteen years of service, and 100% of those with fifteen or more years of service.

80% of all Safety Member terminations with less than five years of service are assumed to leave their contributions on deposit, as well as 90% of those between five and fourteen years of service and 100% of those with fifteen or more years of service.

Vested terminated General Members are assumed to begin receiving benefits at age 58; terminated Safety Members are assumed to begin receiving benefits at age 53.

25% of vested terminated General Members and 50% of vested terminated Safety Members are assumed to be reciprocal.

Final average pay for General Members who terminate with reciprocity is assumed to increase by 4.25% per year until their assumed retirement date. Final average pay for Safety Members who terminate with reciprocity is assumed to increase by 5.25% per year until their assumed retirement date. 12. Rates of Service-Connected Disability Sample service-connected disability rates of active participants are provided in the table below.

Rates of Svc Disability General General Age Male Female Safety 22 0.066% 0.022% 0.050% 27 0.066% 0.030% 0.088% 32 0.066% 0.051% 0.165% 37 0.066% 0.073% 0.302% 42 0.380% 0.094% 0.566% 47 0.380% 0.123% 0.995% 52 0.226% 0.159% 1.713% 57 0.226% 0.204% 2.633% 62 0.226% 0.249% 0.000%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX B STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS

13. Rates of Nonservice-Connected Disability Sample nonservice-connected disability rates of active participants are provided in the table below.

Rates of Non-Svc Disability General General Safety Safety Age Male Female Male Female 22 0.051% 0.053% 0.000% 0.000% 27 0.068% 0.067% 0.003% 0.006% 32 0.086% 0.081% 0.005% 0.010% 37 0.108% 0.102% 0.009% 0.019% 42 0.138% 0.138% 0.028% 0.057% 47 0.178% 0.197% 0.082% 0.164% 52 0.225% 0.267% 0.167% 0.334% 57 0.286% 0.337% 0.265% 0.529% 62 0.362% 0.408% 0.000% 0.000%

14. Rates of Mortality for Healthy Lives Mortality rates for active members, retirees, beneficiaries, terminated vested, and reciprocal members are based on the sex distinct Retired Pensioner (RP) 2000 Combined Healthy Tables, published by the Society of Actuaries, with Generational Projection using Projection Scale BB.

15. Rates of Mortality for Disabled Retirees Mortality rates for active members, retirees, beneficiaries, terminated vested, and reciprocal members are based on the sex distinct Retired Pensioner (RP) 2000 Combined Healthy Tables, published by the Society of Actuaries, with Generational Projection using Projection Scale BB, set-forward eight years for males and females.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX B STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS

16. Rates of Retirement Rates of retirement are based on age according to the following table.

Rates of Retirement General Male General Female Safety Years of Service Years of Service Years of Service Age 5-9 10-29 30+ 5-9 10-29 30+ 10-29 20+ 45 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.00% 46 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.00% 47 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.00% 48 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.00% 49 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.00% 50 5.00% 5.00% 5.00% 5.00% 2.00% 7.00% 10.00% 15.00% 51 5.00% 5.00% 5.00% 5.00% 2.00% 7.00% 5.00% 10.00% 52 5.00% 5.00% 5.00% 5.00% 2.00% 7.00% 5.00% 10.00% 53 5.00% 5.00% 5.00% 5.00% 2.00% 7.00% 5.00% 20.00% 54 5.00% 5.00% 5.00% 5.00% 3.00% 7.00% 5.00% 20.00% 55 5.00% 5.00% 15.00% 5.00% 4.00% 15.00% 5.00% 30.00% 56 5.00% 5.00% 15.00% 5.00% 7.00% 15.00% 5.00% 20.00% 57 5.00% 5.00% 15.00% 5.00% 7.00% 15.00% 5.00% 20.00% 58 5.00% 7.50% 20.00% 5.00% 10.00% 20.00% 5.00% 20.00% 59 5.00% 7.50% 25.00% 5.00% 10.00% 25.00% 5.00% 20.00% 60 7.50% 15.00% 25.00% 7.50% 10.00% 25.00% 5.00% 20.00% 61 7.50% 20.00% 35.00% 7.50% 15.00% 35.00% 25.00% 25.00% 62 7.50% 25.00% 40.00% 7.50% 25.00% 35.00% 25.00% 50.00% 63 7.50% 25.00% 35.00% 7.50% 25.00% 35.00% 25.00% 50.00% 64 7.50% 25.00% 35.00% 7.50% 25.00% 35.00% 25.00% 50.00% 65 15.00% 30.00% 50.00% 15.00% 25.00% 50.00% 100.00% 100.00% 66 15.00% 30.00% 50.00% 15.00% 25.00% 50.00% 100.00% 100.00% 67 15.00% 30.00% 40.00% 15.00% 35.00% 40.00% 100.00% 100.00% 68 15.00% 30.00% 30.00% 15.00% 35.00% 30.00% 100.00% 100.00% 69 15.00% 30.00% 30.00% 15.00% 35.00% 30.00% 100.00% 100.00% 70 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

17. Changes in Assumptions There have been no changes in assumptions since the prior valuation.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

A. Definitions

Compensation: Compensation means the cash remuneration for services paid by the employer. It includes base pay and certain differential, incentive, and special pay allowances defined by the Board of Retirement. Overtime is excluded, with the exception of overtime paid under the Fair Labor Standards Act that is regular and recurring.

For members joining the Plan on and after January 1, 2013 (Tier II Members), only pensionable compensation up to the Social Security Taxable Wage Base ($117,020 for 2015) will count for computing Plan benefits and employee contributions and employer contributions for those participating in Social Security. For those not participating in Social Security, the compensation cap is 120% of the Taxable Wage Base ($140,424 for 2015.) In addition, it is possible that some sources of compensation, such as any payments deemed to be terminal or special pays, may be excluded from benefit and contribution computations for Tier II Members.

Credited Service: In general, Credited Service is earned for the period during which Member Contributions are paid.

Temporary service for which the Member was not credited, or service for which the Member withdrew his or her Member Contributions, may be purchased by paying or repaying the Member Contributions with interest. Credit for up to 12 months of a medical leave of absence and all military leaves of absence may also be purchased.

Public Service (see below) is part of Credited Service for the computation of benefits only, not for eligibility for benefits or for vesting.

Final Compensation: For Tier I Members, Final Compensation means the highest average Compensation earned during any 12 consecutive months of the Member’s employment.

For Tier II Members, highest average Compensation will be based on the highest 36 consecutive months, rather than 12 months.

General Member: Any Member who is not a Safety Member is a General Member.

Public Service: The Member may elect to purchase Public Service for time spent while employed in another recognized public agency. The public agency must

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

have a reciprocal agreement with the Plan or be one of several specified municipalities, counties, special districts, or State or Federal agencies.

Public Service cannot be purchased if it is used for eligibility for another pension.

The cost to purchase Public Service is twice the Member Contributions and interest applicable for the period of time purchased. Public Service is used to compute benefits, but does not count toward eligibility for benefits or vesting.

Safety Member: Any sworn Member engaged in law enforcement, probation, or fire suppression is a Safety Member.

B. Membership

Eligibility: All full-time, permanent employees of San Joaquin County and other participating special districts become Members on their date of appointment. Membership is mandatory; only elected officials and members who are age 60 or older at the time of employment in a position requiring membership in SJCERA may choose not to participate.

A Tier II Member is any Member joining the Plan for the first time on or after January 1, 2013. Employees who transfer from and are eligible for reciprocity with another public employer will not be Tier II Members if their service in the reciprocal system was under a previous tier. Employees who were Members of SJCERA prior to January 1, 2013 and experienced a break in service of more than six months and then were reemployed by a different SJCERA-participating employer on or after January 1, 2013 will be considered Tier II Members for all subsequent service. Member Contributions: Each Member contributes a percentage of Compensation to the Plan through payroll deduction. For Tier I members, the percentage contributed depends on the Member’s age upon joining the Plan. Representative rates are shown in Table 1 on the next page (complete rate tables in appendix).

Tier I members covered by Social Security have their contributions reduced by one-third on the first $161.54 of biweekly Compensation. General Members who joined the Plan prior to March 7, 1973 and who have earned 30 years of Credited Service do not contribute; Safety Members do not contribute after earning 30 years of Credited Service.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Table 1: Tier I Member Contribution Rates (Basic Rates) General Member Rate Safety Member Rate Entry Age 1st $350/month Over $350 1st $350/month Over $350 20 1.83% 2.74% 3.00% 4.50% 25 2.07% 3.11% 3.19% 4.78% 30 2.27% 3.40% 3.39% 5.08% 35 2.48% 3.72% 3.61% 5.41% 40 2.71% 4.07% 3.86% 5.79% 45 2.99% 4.48% 4.13% 6.20% 50 3.27% 4.91% 4.07% 6.11%

Tier II Members contribute half of the normal cost of the Plan. Contributions for these Members will be based on the Normal Cost associated with their benefits; General and Safety members will pay different rates.

Tier II Members pay a single contribution rate, not a rate based on entry age. All Tier II Members continue contributing after earning 30 years of service.

Table 2: Tier II Member Contribution Rates

General Member Rate Safety Member Rate 9.15% 15.22%

Interest is credited semiannually to each Member’s accumulated contributions. The crediting rate is set by the Board; the semi-annual rate is 3.68%, for an effective annual rate of 7.50%.

C. Service Retirement:

Eligibility: Tier I General Members are eligible to retire at age 50 if they have earned five years of Credited Service and have passed the tenth anniversary of their membership in the Plan. Alternatively, General Members are eligible to retire at any age after having earned 30 years of Credited Service, or upon reaching age 70 with no service requirement.

Tier I Safety Members are eligible to retire at age 50 if they have earned five years of Credited Service and have passed the tenth anniversary of their membership in the Plan. Alternatively, Safety Members are eligible to retire at any age after having earned 20 years of Credited Service.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Tier II General Members are eligible to retire upon attaining age 52 and completing five or more years of service. Tier II Safety Members are eligible to retire upon attaining age 50 and completing five or more years of service. Tier II Members are eligible to retire, regardless of service, after attaining age 70.

Benefit Amount: The Service Retirement Benefit payable to Tier I General Members is equal to the percentage in Table 3 on the next page multiplied by the Member’s Final Compensation. The Service Retirement Benefit payable to Tier I Safety Members is equal to the percentage in Table 4 on page 57 multiplied by the Member’s Final Compensation. The percentage of Final Compensation may not exceed 100%.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Table 3: Tier I General Members (CERL Section 31676.14)

Service 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 10 14.75 15.67 16.67 17.41 18.41 19.48 20.61 21.82 22.68 23.54 24.40 25.26 26.11 26.11 26.11 26.11 11 16.23 17.23 18.33 19.15 20.25 21.42 22.67 24.00 24.95 25.89 26.84 27.78 28.72 28.72 28.72 28.72 12 17.70 18.80 20.00 20.89 22.10 23.37 24.73 26.19 27.22 28.25 29.28 30.31 31.34 31.34 31.34 31.34 13 19.18 20.36 21.67 22.64 23.94 25.32 26.79 28.37 29.48 30.60 31.72 32.83 33.95 33.95 33.95 33.95 14 20.65 21.93 23.33 24.38 25.78 27.27 28.85 30.55 31.75 32.95 34.16 35.36 36.56 36.56 36.56 36.56 15 22.13 23.50 25.00 26.12 27.62 29.22 30.91 32.73 34.02 35.31 36.60 37.88 39.17 39.17 39.17 39.17 16 23.60 25.06 26.67 27.86 29.46 31.16 32.97 34.92 36.29 37.66 39.04 40.41 41.78 41.78 41.78 41.78 17 25.08 26.63 28.33 29.60 31.30 33.11 35.03 37.10 38.56 40.01 41.47 42.93 44.39 44.39 44.39 44.39 18 26.55 28.20 30.00 31.34 33.14 35.06 37.09 39.28 40.82 42.37 43.91 45.46 47.00 47.00 47.00 47.00 19 28.03 29.76 31.67 33.08 34.98 37.01 39.16 41.46 43.09 44.72 46.35 47.98 49.61 49.61 49.61 49.61 20 29.50 31.33 33.33 34.82 36.83 38.95 41.22 43.64 45.36 47.08 48.79 50.51 52.23 52.23 52.23 52.23 21 30.98 32.90 35.00 36.57 38.67 40.90 43.28 45.83 47.63 49.43 51.23 53.04 54.84 54.84 54.84 54.84 22 32.45 34.46 36.67 38.31 40.51 42.85 45.34 48.01 49.90 51.78 53.67 55.56 57.45 57.45 57.45 57.45 23 33.93 36.03 38.33 40.05 42.35 44.80 47.40 50.19 52.16 54.14 56.11 58.09 60.06 60.06 60.06 60.06 24 35.40 37.60 40.00 41.79 44.19 46.74 49.46 52.37 54.43 56.49 58.55 60.61 62.67 62.67 62.67 62.67 25 36.88 39.16 41.67 43.53 46.03 48.69 51.52 54.56 56.70 58.85 60.99 63.14 65.28 65.28 65.28 65.28 26 38.35 40.73 43.33 45.27 47.87 50.64 53.58 56.74 58.97 61.20 63.43 65.66 67.89 67.89 67.89 67.89 27 39.83 42.30 45.00 47.01 49.72 52.59 55.64 58.92 61.24 63.55 65.87 68.19 70.51 70.51 70.51 70.51 28 41.30 43.86 46.67 48.75 51.56 54.54 57.70 61.10 63.50 65.91 68.31 70.71 73.12 73.12 73.12 73.12 29 42.78 45.43 48.33 50.49 53.40 56.48 59.76 63.28 65.77 68.26 70.75 73.24 75.73 75.73 75.73 75.73 30 35.28 37.27 39.41 41.73 44.25 47.00 50.00 52.24 55.24 58.43 61.82 65.47 68.04 70.61 73.19 75.77 78.34 78.34 78.34 78.34 31 38.51 40.72 43.12 45.73 48.56 51.67 53.98 57.08 60.38 63.88 67.65 70.31 72.97 75.63 78.29 80.95 80.95 80.95 80.95 32 42.04 44.51 47.20 50.13 53.33 55.72 58.92 62.33 65.95 69.83 72.58 75.32 78.07 80.82 83.56 83.56 83.56 83.56 33 45.90 48.68 51.69 55.00 57.46 60.76 64.27 68.01 72.01 74.84 77.68 80.51 83.34 86.17 86.17 86.17 86.17 34 50.15 53.26 56.67 59.20 62.60 66.22 70.07 74.19 77.11 80.03 82.95 85.87 88.78 88.78 88.78 88.78 35 54.83 58.33 60.94 64.45 68.17 72.13 76.38 79.38 82.38 85.39 88.39 91.40 91.40 91.40 91.40 36 60.00 62.68 66.29 70.12 74.19 78.56 81.65 84.74 87.83 90.92 94.01 94.01 94.01 94.01 37 64.42 68.13 72.06 76.25 80.74 83.92 87.09 90.27 93.44 96.62 96.62 96.62 96.62 38 69.97 74.01 78.31 82.92 86.18 89.44 92.71 95.97 99.23 99.23 99.23 99.23 39 75.96 80.37 85.11 88.45 91.80 95.15 98.49 100 100 100 100 40 82.43 87.29 90.72 94.15 97.59 100 41 89.47 92.99 96.51 100 42 95.26 98.86 43 100

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Table 4: Tier I Safety Members (CERL Section 31664.1)

Service 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 10 30.00 30.00 30.00 30.00 30.00 30.00 11 33.00 33.00 33.00 33.00 33.00 33.00 12 36.00 36.00 36.00 36.00 36.00 36.00 13 39.00 39.00 39.00 39.00 39.00 39.00 14 42.00 42.00 42.00 42.00 42.00 42.00 15 45.00 45.00 45.00 45.00 45.00 45.00 16 48.00 48.00 48.00 48.00 48.00 48.00 17 51.00 51.00 51.00 51.00 51.00 51.00 18 54.00 54.00 54.00 54.00 54.00 54.00 19 57.00 57.00 57.00 57.00 57.00 57.00 20 37.55 39.75 42.02 44.38 46.83 49.36 52.07 54.51 57.13 60.00 60.00 60.00 60.00 60.00 60.00 21 41.74 44.13 46.6 49.17 51.82 54.67 57.24 59.99 63.00 63.00 63.00 63.00 63.00 63.00 22 46.23 48.82 51.51 54.29 57.27 59.96 62.85 66.00 66.00 66.00 66.00 66.00 66.00 23 51.04 53.85 56.76 59.88 62.69 65.7 69.00 69.00 69.00 69.00 69.00 69.00 24 56.2 59.23 62.48 65.41 68.56 72.00 72.00 72.00 72.00 72.00 72.00 25 61.7 65.09 68.14 71.42 75.00 75.00 75.00 75.00 75.00 75.00 26 67.69 70.86 74.27 78.00 78.00 78.00 78.00 78.00 78.00 27 73.59 77.13 81.00 81.00 81.00 81.00 81.00 81.00 28 79.98 84.00 84.00 84.00 84.00 84.00 84.00 29 87.00 87.00 87.00 87.00 87.00 87.00 30 90.00 90.00 90.00 90.00 90.00 90.00 31 93.00 93.00 93.00 93.00 93.00 93.00 32 96.00 96.00 96.00 96.00 96.00 96.00 33 99.00 99.00 99.00 99.00 99.00 99.00 34 100.00 100.00 100.00 100.00 100.00 100.00 35 100.00 100.00 100.00 100.00 100.00 36 100.00 100.00 100.00 100.00 37 100.00 100.00 100.00 38 100.00 100.00 39 100.00

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Table 5: Tier I Social Security Adjustment General Age at Safety Member Member Retirement Reduction Reduction 46 $1.372 $2.879 47 $1.449 $3.037 48 $1.533 $3.180 49 $1.623 $3.333 50 $1.721 $3.500 51 $1.828 $3.500 52 $1.944 $3.500 53 $2.031 $3.500 54 $2.148 $3.500 55 $2.272 $3.500 56 $2.404 $3.500 57 $2.546 $3.500 58 $2.646 $3.500 59 $2.746 $3.500 60 $2.846 $3.500 61 $2.946 $3.500 62 $3.046 $3.500 63 $3.046 $3.500 64 $3.046 $3.500 65 $3.046 $3.500

For Tier II General Members, the benefit multiplier is 1% at age 52, increasing by 0.1% for each year of age to 2.5% at 67. For Tier II Safety Members, the benefit multiplier is 2% at age 50, increasing by 0.1% for each year of age to 2.7% at age 57. In between exact ages, the multiplier increases by 0.025% for each quarter year increase in age.

Form of Benefit: The Service Retirement Benefit will be paid monthly beginning at retirement and for the life of the Member. If the member selects the unmodified benefit form, in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse, or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.

Actuarially equivalent optional benefit forms are also available.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

A lump sum benefit of $5,000 will be payable upon the death of a retired member.

D. Service-Connected Disability

Eligibility: Members are eligible for Service-Connected Disability Retirement benefits at any age if they are permanently disabled as a result of injuries or illness sustained in the line of duty.

Benefit Amount: The Service-Connected Disability Retirement Benefit payable to Members is equal to the greater of 50% of their Final Compensation or – if the Member is eligible at disability for a Service Retirement Benefit – the Service Retirement Benefit accrued on the date of disability.

Members who return to work at a different position with lower pay may receive a Supplemental Disability Allowance that, when added to their new pay, may bring the Member’s total income up to the current pay for his or her position at the time of disability. The Supplemental Disability Allowance may not exceed the Service-Connected Disability Retirement benefit.

Form of Benefit: The Service-Connected Disability Retirement Benefit will be paid monthly beginning at the effective date of disability retirement and for the life of the Member; in the event of the Member’s death, 100% of the benefit will continue for the life of the Member’s spouse, or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.

Actuarially equivalent optional benefit forms are also available.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

A lump sum benefit of $5,000 will be payable upon the death of a retired member.

E. Nonservice-Connected Disability

Eligibility: Members are eligible for Nonservice-Connected Disability Retirement benefits if they are permanently disabled at any age after earning five years of Credited Service or after becoming eligible for a deferred vested benefit.

Benefit Amount: The Nonservice-Connected Disability Retirement Benefit payable to General Members is equal to the greatest of:

 1.5% of Final Compensation at disability multiplied by years of Credited Service at disability;  1.5% of Final Compensation at disability multiplied by years of Credited Service projected to age 65, but not to exceed one-third of Final Compensation; or  If the Member is eligible at disability for a Service Retirement Benefit, the Service Retirement Benefit accrued on the date of disability.

The Nonservice-Connected Disability Retirement Benefit payable to Safety Members is equal to the greatest of:

 1.8% of Final Compensation at disability multiplied by years of  Credited Service at disability; 1.8% of Final Compensation at disability multiplied by years of Credited Service projected to age 55, but not to exceed one-third of Final Compensation; or  If the Member is eligible at disability for a Service Retirement Benefit, the Service Retirement Benefit accrued on the date of disability.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

Form of Benefit: The Nonservice-Connected Disability Retirement Benefit will be paid monthly beginning at the effective date of disability retirement, and for the life of the Member; in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.

Actuarially equivalent optional benefit forms are also available.

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

A lump sum benefit of $5,000 will be payable upon the death of a retired member.

F. Service-Connected Death

Eligibility: A Member’s survivors are eligible to receive Service-Connected Death benefits if the Member’s death resulted from injury or illness sustained in connection with the Member’s duties.

Benefit Amount: The Service-Connected Death benefit payable to a surviving spouse or minor children will be 50% of the Member’s Final Compensation.

In the event the Member’s death was caused by external violence or physical force, an additional benefit of 25% of the above basic benefit will be paid for the first minor child, 15% for the second, and 10% for the third.

Furthermore, for Safety Members only, there will be an additional lump sum benefit of 12 months of pay at the time of death.

Form of Benefit: The Service-Connected Death Benefit will be paid monthly beginning at the Member’s death and for the life of the surviving spouse or to the age of majority of dependent minor children if there is no spouse.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

G. Nonservice-Connected Death

Eligibility: A Member’s survivors are eligible to receive Nonservice-Connected Death benefits if the Member’s death arose from causes unrelated to the Member’s duties.

Benefit Amount: In the event the Member had earned fewer than five years of Credited Service and has no or insufficient reciprocity service from another system, the Nonservice-Connected Death benefit will be a refund of the Member’s accumulated contributions with interest plus a payment of one month of Final Compensation for each year of Credited Service, not to exceed six months.

In the event the Member had earned five or more years of Credited Service, the Nonservice-Connected Death benefit payable to a surviving spouse or minor children will be 60% of the amount the Member would have received as a Nonservice-Connected Disability Retirement Benefit on the date of death.

Form of Benefit: For Members who had earned fewer than five years of Credited Service at death, the benefit will be paid as a lump sum.

For Members with five or more years of Credited Service, the Nonservice- Connected Death Benefit will be paid monthly beginning at the Member’s death and for the life of the surviving spouse or to the age of majority of dependent minor children if there is no spouse.

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

H. Withdrawal Benefit:

Eligibility: A Member is eligible for a Withdrawal Benefit upon termination of employment.

Benefit Amount: The Withdrawal Benefit is a refund of the Member’s accumulated Contributions with interest. Upon receipt of the Withdrawal Benefit, the Member forfeits all Credited Service.

Form of Benefit: The Withdrawal Benefit is paid in a lump sum upon election by the Member.

I. Deferred Vested Benefit:

Eligibility: A Member is eligible for a Deferred Vested Benefit upon termination of employment after earning five years of Credited Service, including reciprocity service from another system. The Member must leave his or her Member Contributions with interest on deposit with the Plan.

Benefit Amount: The Deferred Vested Benefit is computed in the same manner as the Service Retirement Benefit, but it is based on Credited Service and Final Compensation on the date of termination.

For Tier I Members, Tables 2 and 3 are extended for service under ten years using benefit multipliers of one-sixtieth per year of Credited Service at age 52 (General) or 3% per year of Credited Service at age 50 (Safety), with adjustments for earlier or later retirement under Sections 31676.14 and 31664.1, respectively, of the County Employees Retirement Law of 1937.

Form of Benefit: The Deferred Vested Benefit will be paid monthly beginning at retirement and for the life of the Member; in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.

Actuarially equivalent optional benefit forms are also available.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX C SUMMARY OF PLAN PROVISIONS

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

A lump sum benefit of $5,000 will be payable upon the death of a retired member.

J. Reciprocal Benefit:

Eligibility: A Member is eligible for a Reciprocal Benefit upon termination of employment and entry, within a specified period of time, into another retirement system recognized as a reciprocal system by the Plan. In addition, the Member must leave his or her Member Contributions with interest on deposit with the Plan.

Benefit Amount: The Reciprocal Benefit is computed in the same manner as the Service Retirement Benefit, but it is based on Credited Service on the date of termination and Final Compensation on the date of retirement; Final Compensation is based on the highest of the Compensation earned under this Plan or the reciprocal plan.

Form of Benefit: The Reciprocal Benefit will be paid monthly beginning at retirement and for the life of the Member; in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.

Actuarially equivalent optional benefit forms are also available.

In addition, ad hoc cost of living adjustments have been granted in the past and may be granted in the future.

A lump sum benefit may be payable upon the death of a retired Member by the last system under which the Member’s service was covered.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX D 401(H) REPAYMENT SCHEDULE

As of January 1, 2014, a separate amortization layer was established for the repayment of funds originally transferred to a retiree health reserve. This schedule was prepared in compliance with an approved Voluntary Correction Program that SJCERA submitted to the IRS. The original balance of the amortization layer ($48.0 million) is being amortized using the same methodology and assumptions as the UAL - as a level percentage of payroll over a 19-year period - after an initial payment of $19.8 million.

End of Outstanding Years Initial Date Year Balance Remaining Payment Payment 1/1/2014 $48,000,000 19 $19,800,000 $2,238,831 1/1/2015 $28,076,169 18 $2,311,593 1/1/2016 $27,870,288 17 $2,386,720 1/1/2017 $27,573,839 16 $2,464,289 1/1/2018 $27,177,588 15 $2,544,378 1/1/2019 $26,671,529 14 $2,627,070 1/1/2020 $26,044,824 13 $2,712,450 1/1/2021 $25,285,736 12 $2,800,605 1/1/2022 $24,381,561 11 $2,891,624 1/1/2023 $23,318,554 10 $2,985,602 1/1/2024 $22,081,843 9 $3,082,634 1/1/2025 $20,655,347 8 $3,182,820 1/1/2026 $19,021,678 7 $3,286,262 1/1/2027 $17,162,042 6 $3,393,065 1/1/2028 $15,056,131 5 $3,503,340 1/1/2029 $12,682,001 4 $3,617,198 1/1/2030 $10,015,953 3 $3,734,757 1/1/2031 $7,032,392 2 $3,856,137 1/1/2032 $3,703,685 1 $3,981,461 1/1/2033 $0 0 $4,110,859

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX E GLOSSARY

1. Actuarial Assumptions

Assumptions as to the occurrence of future events affecting pension costs such as mortality, withdrawal, disability, retirement, changes in compensation, and rates of investment return.

2. Actuarial Cost Method

A procedure for determining the Actuarial Present Value of pension plan benefits and expenses and for developing an allocation of such value to each year of service, usually in the form of a Normal Cost and an Actuarial Liability.

3. Actuarial Gain (Loss)

The difference between actual experience and that expected based upon a set of Actuarial Assumptions during the period between two Actuarial Valuation dates, as determined in accordance with a particular Actuarial Cost Method.

4. Actuarial Liability

The portion of the Actuarial Present Value of Projected Benefits that will not be paid by future Normal Costs. It represents the value of the past Normal Costs with interest to the valuation date.

5. Actuarial Present Value (Present Value)

The value as of a given date of a future amount or series of payments. The Actuarial Present Value discounts the payments to the given date at the assumed investment return and includes the probability of the payment being made.

6. Actuarial Valuation

The determination, as of a specified date, of the Normal Cost, Actuarial Liability, Actuarial Value of Assets, and related Actuarial Present Values for a pension plan.

7. Actuarial Value of Assets

The value of cash, investments, and other property belonging to a pension plan as used by the actuary for the purpose of an Actuarial Valuation. The purpose of an Actuarial Value of Assets is to smooth out fluctuations in market values.

8. Actuarially Equivalent

Of equal Actuarial Present Value, determined as of a given date, with each value based on the same set of actuarial assumptions.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX E GLOSSARY

9. Amortization Payment

The portion of the pension plan contribution that is designed to pay interest and principal on the Unfunded Actuarial Liability in order to pay for that liability in a given number of years.

10. Entry Age Normal Actuarial Cost Method

A method under which the Actuarial Present Value of the Projected Benefits of each individual included in an Actuarial Valuation is allocated on a level basis over the earnings of the individual between entry age and assumed exit ages.

11. Funded Ratio

The ratio of the Actuarial Value of Assets to the Actuarial Liabilities. The Funded Ratio shown in this report is not appropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations, in the case of a plan termination or other similar action. However, it is an appropriate measure for assessing the need for or the amount of future contributions.

12. Normal Cost

That portion of the Actuarial Present Value of pension plan benefits and expenses, which is allocated to a valuation year by the Actuarial Cost Method.

13. Projected Benefits

Those pension plan benefit amounts which are expected to be paid in the future under a particular set of Actuarial Assumptions, taking into account such items as increases in future compensation and service credits.

14. Unfunded Actuarial Liability

The excess of the Actuarial Liability over the Actuarial Value of Assets.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX F GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES

Tier I Contribution Rates for General and Safety (no COLA Cost-Sharing)

Separate rates for General and Safety members are shown below. These rates are applicable for employment groups that have not implemented equal sharing of the contributions required for post-retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873.

As of January 1, 2014 As of January 1, 2015 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 12.38% 21.50% 14.06% Basic 13.23% 23.18% 15.13% COL 4.83% 8.90% 5.58% COL 5.21% 9.52% 6.04% Total 17.21% 30.40% 19.64% Total 18.44% 32.70% 21.17% UAL Amortization Cost UAL Amortization Cost Basic 15.80% 29.30% 18.25% Basic 16.07% 29.97% 18.71% COL 4.29% 9.10% 5.17% COL 4.79% 9.61% 5.70% Total 20.09% 38.40% 23.42% Total 20.86% 39.58% 24.41% Total Cost Total Cost Basic 28.18% 50.80% 32.31% Basic 29.30% 53.15% 33.84% COL 9.12% 18.00% 10.75% COL 10.00% 19.13% 11.74% Total 37.30% 68.80% 43.06% Total 39.30% 72.28% 45.58%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX F GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES

Tier I Contribution Rates for General and Safety (Employer Cost with additional 14% / 33% Normal Rates by members without COLA Cost-sharing)

Separate rates for General and Safety members contributing an additional 14% / 33% of Normal Rates are shown below.

As of January 1, 2014 As of January 1, 2015 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 11.91% 20.02% 13.40% Basic 12.71% 21.61% 14.41% COL 4.83% 8.90% 5.58% COL 5.21% 9.52% 6.04% Total 16.74% 28.92% 18.98% Total 17.92% 31.13% 20.45% UAL Amortization Cost UAL Amortization Cost Basic 15.80% 29.30% 18.25% Basic 16.07% 29.97% 18.71% COL 4.29% 9.10% 5.17% COL 4.79% 9.61% 5.70% Total 20.09% 38.40% 23.42% Total 20.86% 39.58% 24.41% Total Cost Total Cost Basic 27.71% 49.32% 31.65% Basic 28.78% 51.58% 33.12% COL 9.12% 18.00% 10.75% COL 10.00% 19.13% 11.74% Total 36.83% 67.32% 42.40% Total 38.78% 70.71% 44.86%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX F GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES

Tier I Contribution Rates for General and Safety (with COLA Cost-sharing)

Separate rates for General and Safety members contributing Normal Rates plus COLA Cost-sharing are shown below.

As of January 1, 2014 As of January 1, 2015 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 12.38% 21.50% 14.06% Basic 13.23% 23.18% 15.13% COL 2.64% 4.70% 3.02% COL 2.80% 5.06% 3.24% Total 15.02% 26.20% 17.08% Total 16.03% 28.24% 18.37% UAL Amortization Cost UAL Amortization Cost Basic 15.80% 29.30% 18.25% Basic 16.07% 29.97% 18.71% COL 4.29% 9.10% 5.17% COL 4.79% 9.61% 5.70% Total 20.09% 38.40% 23.42% Total 20.86% 39.58% 24.41% Total Cost Total Cost Basic 28.18% 50.80% 32.31% Basic 29.30% 53.15% 33.84% COL 6.93% 13.80% 8.19% COL 7.59% 14.67% 8.94% Total 35.11% 64.60% 40.50% Total 36.89% 67.82% 42.78%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX F GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES

Tier I Contribution Rates for General and Safety (Employer Cost with additional 14% / 33% Normal Rates by members and COLA Cost-sharing)

Separate rates for General and Safety members contributing an additional 14% / 33% of Normal Rates and COLA Cost-sharing are shown below.

As of January 1, 2014 As of January 1, 2015 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 11.91% 20.02% 13.40% Basic 12.71% 21.61% 14.41% COL 2.64% 4.70% 3.02% COL 2.80% 5.06% 3.24% Total 14.55% 24.72% 16.42% Total 15.51% 26.67% 17.65% UAL Amortization Cost UAL Amortization Cost Basic 15.80% 29.30% 18.25% Basic 16.07% 29.97% 18.71% COL 4.29% 9.10% 5.17% COL 4.79% 9.61% 5.70% Total 20.09% 38.40% 23.42% Total 20.86% 39.58% 24.41% Total Cost Total Cost Basic 27.71% 49.32% 31.65% Basic 28.78% 51.58% 33.12% COL 6.93% 13.80% 8.19% COL 7.59% 14.67% 8.94% Total 34.64% 63.12% 39.84% Total 36.37% 66.25% 42.06%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX F GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES

Tier II Contribution Rates for General and Safety (PEPRA Members)

Separate rates for General and Safety members are shown below. These rates are applicable for employment groups that are subject to Government Code Section 7522.30.

As of January 1, 2014 As of January 1, 2015 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 7.28% 11.62% 7.44% Basic 7.08% 11.33% 7.42% COL 2.10% 3.97% 2.16% COL 2.07% 3.89% 2.21% Total 9.38% 15.59% 9.60% Total 9.15% 15.22% 9.63% UAL Amortization Cost UAL Amortization Cost Basic 15.80% 29.30% 16.28% Basic 16.07% 29.97% 17.15% COL 4.29% 9.10% 4.46% COL 4.79% 9.61% 5.17% Total 20.09% 38.40% 20.74% Total 20.86% 39.58% 22.32% Total Cost Total Cost Basic 23.08% 40.92% 23.72% Basic 23.15% 41.30% 24.57% COL 6.39% 13.07% 6.62% COL 6.86% 13.50% 7.38% Total 29.47% 53.99% 30.34% Total 30.01% 54.80% 31.95%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX G MEMBER CONTRIBUTION RATES

General Member Contribution Rates Basic Half Rate (Government Code Section 31621.3) Basic Rate COLA Cost-Sharing Rate1 Entry Age 1st $350/month Over $350 1st $350/month Over $350 16 1.63% 2.45% 1.14% 1.71% 17 1.68% 2.52% 1.14% 1.71% 18 1.73% 2.59% 1.14% 1.71% 19 1.77% 2.66% 1.14% 1.71% 20 1.83% 2.74% 1.14% 1.71% 21 1.87% 2.81% 1.17% 1.76% 22 1.93% 2.89% 1.21% 1.82% 23 1.98% 2.97% 1.25% 1.87% 24 2.03% 3.05% 1.29% 1.93% 25 2.07% 3.11% 1.32% 1.98% 26 2.11% 3.17% 1.35% 2.03% 27 2.15% 3.22% 1.38% 2.08% 28 2.19% 3.28% 1.41% 2.12% 29 2.23% 3.34% 1.44% 2.16% 30 2.27% 3.40% 1.47% 2.20% 31 2.31% 3.46% 1.50% 2.24% 32 2.35% 3.53% 1.52% 2.28% 33 2.39% 3.59% 1.55% 2.32% 34 2.43% 3.65% 1.58% 2.37% 35 2.48% 3.72% 1.61% 2.41% 36 2.53% 3.79% 1.64% 2.47% 37 2.57% 3.86% 1.68% 2.52% 38 2.62% 3.93% 1.72% 2.58% 39 2.67% 4.00% 1.77% 2.65% 40 2.71% 4.07% 1.81% 2.72% 41 2.77% 4.15% 1.83% 2.75% 42 2.81% 4.22% 1.86% 2.79% 43 2.87% 4.30% 1.89% 2.83% 44 2.93% 4.39% 1.91% 2.86% 45 2.99% 4.48% 1.95% 2.92% 46 3.05% 4.57% 1.97% 2.96% 47 3.11% 4.67% 1.99% 2.99% 48 3.19% 4.78% 2.01% 3.01% 49 3.27% 4.90% 2.02% 3.03% 50 3.27% 4.91% 2.02% 3.03% 51 3.27% 4.91% 2.03% 3.04% 52 3.28% 4.92% 2.02% 3.02% 53 3.28% 4.92% 1.98% 2.97% 54+ 3.29% 4.93% 1.94% 2.91% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. 74

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX G MEMBER CONTRIBUTION RATES

General Member Contribution Rates Basic Half Rate (Government Code Section 31621.3) + 14% , not greater than 1/2 Normal Cost Basic Rate COLA Cost-Sharing Rate1 Entry Age 1st $350/month Over $350 1st $350/month Over $350 16 1.86% 2.79% 1.14% 1.71% 17 1.91% 2.87% 1.14% 1.71% 18 1.97% 2.95% 1.14% 1.71% 19 2.02% 3.03% 1.14% 1.71% 20 2.08% 3.12% 1.14% 1.71% 21 2.13% 3.20% 1.18% 1.77% 22 2.19% 3.29% 1.21% 1.82% 23 2.26% 3.39% 1.25% 1.88% 24 2.32% 3.48% 1.29% 1.93% 25 2.37% 3.55% 1.32% 1.98% 26 2.41% 3.61% 1.35% 2.03% 27 2.45% 3.67% 1.39% 2.08% 28 2.49% 3.74% 1.41% 2.12% 29 2.54% 3.81% 1.45% 2.17% 30 2.59% 3.88% 1.47% 2.20% 31 2.63% 3.94% 1.50% 2.25% 32 2.68% 4.02% 1.52% 2.28% 33 2.73% 4.09% 1.55% 2.32% 34 2.77% 4.16% 1.58% 2.37% 35 2.83% 4.24% 1.61% 2.42% 36 2.88% 4.32% 1.65% 2.47% 37 2.93% 4.40% 1.69% 2.53% 38 2.99% 4.48% 1.73% 2.59% 39 3.04% 4.56% 1.77% 2.65% 40 3.09% 4.64% 1.81% 2.72% 41 3.15% 4.73% 1.84% 2.76% 42 3.21% 4.81% 1.87% 2.80% 43 3.27% 4.90% 1.89% 2.83% 44 3.33% 5.00% 1.91% 2.86% 45 3.41% 5.11% 1.95% 2.93% 46 3.47% 5.21% 1.98% 2.97% 47 3.55% 5.32% 1.99% 2.99% 48 3.63% 5.45% 2.01% 3.01% 49 3.73% 5.59% 2.02% 3.03% 50 3.73% 5.60% 2.02% 3.03% 51 3.73% 5.60% 2.03% 3.04% 52 3.74% 5.61% 2.01% 3.02% 53 3.74% 5.61% 1.98% 2.97% 54+ 3.75% 5.62% 1.94% 2.91% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. 75

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX G MEMBER CONTRIBUTION RATES

Safety Member Contribution Rates Basic Half Rate (Government Code Section 31639.5) Basic Rate COLA Cost-Sharing Rate1 Entry Age 1st $350/month Over $350 1st $350/month Over $350 16 2.85% 4.28% 2.85% 4.27% 17 2.89% 4.34% 2.85% 4.27% 18 2.93% 4.39% 2.85% 4.27% 19 2.96% 4.44% 2.85% 4.27% 20 3.00% 4.50% 2.85% 4.27% 21 3.03% 4.55% 2.87% 4.31% 22 3.07% 4.61% 2.91% 4.36% 23 3.11% 4.66% 2.93% 4.40% 24 3.15% 4.72% 2.96% 4.44% 25 3.19% 4.78% 2.99% 4.49% 26 3.23% 4.84% 3.03% 4.54% 27 3.27% 4.90% 3.05% 4.58% 28 3.31% 4.96% 3.08% 4.62% 29 3.35% 5.02% 3.11% 4.66% 30 3.39% 5.08% 3.13% 4.69% 31 3.43% 5.14% 3.16% 4.74% 32 3.47% 5.21% 3.19% 4.78% 33 3.51% 5.27% 3.23% 4.84% 34 3.56% 5.34% 3.23% 4.84% 35 3.61% 5.41% 3.24% 4.86% 36 3.65% 5.48% 3.22% 4.83% 37 3.70% 5.55% 3.23% 4.85% 38 3.75% 5.63% 3.25% 4.88% 39 3.81% 5.71% 3.28% 4.92% 40 3.86% 5.79% 3.31% 4.96% 41 3.92% 5.88% 3.27% 4.90% 42 3.99% 5.98% 3.30% 4.95% 43 4.06% 6.09% 3.31% 4.96% 44 4.15% 6.22% 3.33% 5.00% 45 4.13% 6.20% 3.36% 5.04% 46 4.11% 6.17% 3.40% 5.10% 47 4.10% 6.15% 3.44% 5.16% 48 4.09% 6.13% 3.48% 5.22% 49+ 4.07% 6.11% 3.51% 5.27% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2015

APPENDIX G MEMBER CONTRIBUTION RATES

Safety Member Contribution Rates Basic Half Rate (Government Code Section 31639.5) + 33% , not greater than 1/2 Normal Cost Basic Rate COLA Cost-Sharing Rate1 Entry Age 1st $350/month Over $350 1st $350/month Over $350 16 3.79% 5.69% 2.85% 4.27% 17 3.85% 5.77% 2.85% 4.27% 18 3.89% 5.84% 2.85% 4.27% 19 3.94% 5.91% 2.85% 4.27% 20 3.99% 5.99% 2.85% 4.27% 21 4.03% 6.05% 2.87% 4.31% 22 4.09% 6.13% 2.91% 4.36% 23 4.13% 6.20% 2.93% 4.40% 24 4.19% 6.28% 2.96% 4.44% 25 4.24% 6.36% 3.00% 4.50% 26 4.29% 6.44% 3.03% 4.54% 27 4.35% 6.52% 3.05% 4.58% 28 4.40% 6.60% 3.09% 4.63% 29 4.45% 6.68% 3.11% 4.66% 30 4.51% 6.76% 3.13% 4.69% 31 4.56% 6.84% 3.16% 4.74% 32 4.62% 6.93% 3.19% 4.79% 33 4.67% 7.01% 3.23% 4.84% 34 4.73% 7.10% 3.23% 4.85% 35 4.80% 7.20% 3.24% 4.86% 36 4.86% 7.29% 3.22% 4.83% 37 4.92% 7.38% 3.23% 4.85% 38 4.99% 7.49% 3.25% 4.88% 39 5.06% 7.59% 3.28% 4.92% 40 5.13% 7.70% 3.31% 4.96% 41 5.21% 7.82% 3.27% 4.91% 42 5.30% 7.95% 3.30% 4.95% 43 5.40% 8.10% 3.31% 4.96% 44 5.51% 8.27% 3.34% 5.01% 45 5.50% 8.25% 3.36% 5.04% 46 5.47% 8.21% 3.40% 5.10% 47 5.45% 8.18% 3.44% 5.16% 48 5.43% 8.15% 3.48% 5.22% 49+ 5.42% 8.13% 3.52% 5.28% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA.

San Joaquin County Employees’ Retirement Association

GASB 67/68 Report as of December 31, 2014

Produced by Cheiron

September 2015

Table of Contents

Letter of Transmittal……………………………………………………………………………….i

Section I Board Summary ...... 1

Section II Determination of Discount Rate ...... 3

Section III Projection of Total Pension Liability ...... 4

Section IV Note Disclosures ...... 5

Section V Required Supplementary Information...... 7

Section VI Employer Reporting Amounts ...... 9

Appendix A Glossary of Terms ...... 20

LETTER OF TRANSMITTAL

September 10, 2015

Retirement Board of San Joaquin County Employees’ Retirement Association 6 South El Dorado Street, Suite 400 Stockton, CA 95202

Dear Members of the Board: The purpose of this report is to provide accounting and financial reporting information under GASB 67 for the San Joaquin County Employees’ Retirement Association (SJCERA, the System, the Fund, the Plan) and under GASB 68 for the County of San Joaquin and the other participating employers. This report is for the use of SJCERA and their auditors in preparing financial reports in accordance with applicable law and accounting requirements. This report is not appropriate for other purposes, including the measurement of funding requirements for SJCERA, nor is it intended to benefit any other party, and Cheiron assumes no duty or liability to any such party. In preparing our report, we relied on information (some oral and some written) supplied by SJCERA. This information includes, but is not limited to, the plan provisions, employee data, and financial information. We performed an informal examination of the obvious characteristics of the data for reasonableness and consistency in accordance with Actuarial Standard of Practice No. 23. Future actuarial measurements may differ significantly from the current measurements due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and, changes in plan provisions or applicable law. To the best of our knowledge, this report and its contents have been prepared in accordance with generally recognized and accepted actuarial principles and practices that are consistent with the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board. Furthermore, as credentialed actuaries, we meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in this report. This report does not address any contractual or legal issues. We are not attorneys and our firm does not provide any legal services or advice. Sincerely, Cheiron

Robert T. McCrory, FSA, FCA, EA, MAAA Graham A. Schmidt, ASA, EA, MAAA Principal Consulting Actuary Consulting Actuary

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION I BOARD SUMMARY

The purpose of this report is to provide accounting and financial reporting information under the Government Accounting Standards Board Statements 67 and 68 for the San Joaquin County Employees’ Retirement Association (the Plan) and the Plan’s participating employers. This information includes:

 Projection of the Total Pension Liability from the valuation date to the measurement date,  Calculation of the Net Pension Liability at the discount rate as well as discount rates 1% higher and lower than the discount rate,  Changes in the Net Pension Liability,  Schedule of Employer Contributions,  Disclosure of Deferred Inflows and Outflows, and  Calculation of the Proportionate Share and Annual Pension Expense for the participating employers.

Highlights

This report is the first report under GASB Statements 67 and 68. The San Joaquin County Employees’ Retirement Association (SJCERA) is a cost-sharing multiple-employer pension plan with a reporting date of December 31, 2014. Measurements as of the reporting date are based on the fair value of assets as of December 31, 2014, and the Total Pension Liability as of the valuation date, January 1, 2014, updated to December 31, 2014. There were no significant events between the valuation date and the measurement date so the updated procedures only include the addition of service cost and interest cost offset by actual benefit payments.

Beginning of the year measurements are also based on the actuarial valuation as of January 1, 2014. Because the beginning and ending values are based on the same actuarial valuation and there were no significant events, no liability gains or losses due to experience are reported this year. In future years, liability gains and losses will be reported reflecting the liability gains and losses between actuarial valuation dates as well as any significant events during the update period.

Table I-1 below provides a summary of the key results during this reporting period.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION I BOARD SUMMARY

Table I-1 Summary of Results Measurement Date 12/31/2014 12/31/2013 Net Pension Liability $ 1,317,495,335 $ 1,251,105,621 Deferred Inflows 0 0 Deferred Outflows (52,323,714) 0 Net Impact on Statement of Net Position $ 1,265,171,621 $ 1,251,105,621 Pension Expense ($ Amount) $ 150,752,133 N/A Pension Expense (% of Payroll) 40.09% N/A

Under GASB Statement 27, we assume San Joaquin County and the other participating employers will report a Net Pension Obligation of $0 as of June 30, 2014. The SJCERA participating employers are not required to implement GASB 68 until their reporting date of June 30, 2015, assuming a July 1 – June 30 fiscal year. However, the amounts reported as of June 30, 2015, can be based on the Plan’s December 31, 2014 measurement dates.

Assuming the County and the other employers elect to use December 31, 2014 as their initial measurement date under GASB 68, a Net Pension Liability of $1,251,105,621 would be recognized as of the beginning of the reporting year, to be split among the participating employers based on their Proportionate Shares. As of the end of the reporting year, the employers would report a total Net Pension Liability of $1,317,495,335 and Deferred Outflows of $52,323,714. Consequently, the net impact on the County and other employers’ Statement of Net Position due to SJCERA would be $1,265,171,621 at the end of the reporting year. In addition, any contributions between the measurement date and the reporting date by each employer would be reported as deferred outflows to match the cash outflow reported.

For the measurement year ending December 31, 2014, the collective annual pension expense is $150,752,133 or 40.09% of payroll. This amount is not expected to be the same as the employers’ contribution to SJCERA ($136,686,133), but instead represents the change in the net impact on the employers’ Statement of Net Position plus employer contributions ($1,265,171,621 – $1,251,105,621 + $136,686,133). A breakdown of the components of the net pension expense, in total and for each employer, is shown in this report.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION II DETERMINATION OF DISCOUNT RATE

The discount rate used to measure the Total Pension Liability was 7.50%.

We have assumed that the employees will continue to contribute to the Plan at the required rates and the employers will continue the historical and legally required practice of contributing to the Plan based on an actuarially determined contribution, reflecting a payment equal to annual Normal Cost, a portion of the expected Administrative Expenses, an amortization payment for the extraordinary losses of 2008 over a closed period (25 years remaining as of January 1, 2014) and an amount necessary to amortize the remaining Unfunded Actuarial Liability as a level percentage of payroll over a closed period (19 years remaining as of January 1, 2014). The cost impact of assumption changes adopted as of January 1, 2013 is being phased-in over a three-year period.

We have not performed a formal cash flow projection as described under Paragraph 41 of GASB Statement 67. However, Paragraph 43 allows for alternative methods to confirm the sufficiency of the Net Position if the evaluations “can be made with sufficient reliability without a separate projection of cash flows into and out of the pension plan…” In our professional judgment, adherence to the actuarial funding policy described above will result in the pension plan’s projected Fiduciary Net Position being greater than or equal to the benefit payments projected for each future period.

Therefore, the long-term expected rate of return on Plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION III PROJECTION OF TOTAL PENSION LIABILITY

The Total Pension Liability (TPL) for SJCERA at the beginning of the measurement year is measured as of December 31, 2013, based on a valuation date of January 1, 2014. The TPL at the end of the measurement year, December 31, 2014, is measured as of a valuation date of January 1, 2014 and projected to December 31, 2014. In future years, both the beginning and end of year TPL will be measured as of a valuation date one year prior and projected to the appropriate date. There were no significant events during the projection period of which we are aware. Table III-1 below shows the projection of the TPL at discount rates equal to the rate used for disclosure and plus and minus one percent from the rate used for disclosure.

Table III-1 Projection of Total Pension Liability

Discount Rate 6.50% 7.50% 8.50%

Total Pension Liability, 12/31/2013 $ 4,080,834,114 $ 3,592,617,984 $ 3,190,967,244

Service Cost 114,784,548 90,429,416 72,029,180

Interest 263,620,046 266,668,435 267,325,269

Benefit Payments (165,870,971) (165,870,971) (165,870,971)

Change in Benefits 0 0 0 Change in Assumptions 0 0 0 Other Significant Events 0 0 0

Total Pension Liability, 12/31/2014 $ 4,293,367,737 $ 3,783,844,864 $ 3,364,450,722

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION IV NOTE DISCLOSURES

Table IV-1 below shows the changes in the Total Pension Liability, the Plan Fiduciary Net Position (i.e., fair value of Plan assets), and the Net Pension Liability during the Measurement Year.

Table IV-1 Change in Net Pension Liability Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a) (b) (a) - (b)

Balances at 12/31/2013 $ 3,592,617,984 $ 2,341,512,363 $ 1,251,105,621 Changes for the year: Service cost 90,429,416 90,429,416 Interest 266,668,435 266,668,435 Changes of benefits Changes of assumptions Differences between expected and actual experience Contributions - employer 136,686,133 (136,686,133) Contributions - member 27,367,908 (27,367,908) Transfer from healthcare plan 19,968,779 (19,968,779) Net investment income 110,728,303 (110,728,303) Benefit payments (165,870,971) (165,870,971) Administrative expense (4,042,986) 4,042,986 Net changes 191,226,880 124,837,166 66,389,714 Balances at 12/31/2014 $ 3,783,844,864 $ 2,466,349,529 $ 1,317,495,335

There were no changes in benefits or changes in assumptions during the year. Because the beginning and end of year TPL are both based on the same actuarial valuation, there are no differences between expected and actual experience reported this year.

Service cost, interest cost and administrative expenses exceeded total contributions and investment income, resulting in an increase in the Net Pension Liability (NPL) of approximately $66.3 million. The NPL remaining as of December 31, 2014, is approximately $1.32 billion.

The TPL as of December 31, 2013 was based upon the same data, actuarial methods and assumptions, and plan provisions as were used in the actuarial valuation as of January 1, 2014, and which are summarized in the Actuarial Valuation Report as of January 1, 2014. The actuarial assumptions used in the January 1, 2014 valuation were based on the results of an actuarial

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION IV NOTE DISCLOSURES experience study for the period January 1, 2010 – December 31, 2012. A summary of the key assumptions is as follows:

 Inflation: 3.00%  Amortization growth rate: 3.25%  Salary increases: 3.25% plus merit component  COLA increases: 2.60%  Investment rate of return: 7.50%, net of investment expense  Post-Retirement Mortality: Sex distinct RP-2000 Combined Mortality, projected with generational improvements using Scale BB.

Changes in the discount rate affect the measurement of the TPL. Lower discount rates produce a higher TPL and higher discount rates produce a lower TPL. Because the discount rate does not affect the measurement of assets, the percentage change in the NPL can be very significant for a relatively small change in the discount rate. Table IV-2 below shows the sensitivity of the NPL to the discount rate.

Table IV-2 Sensitivity of Net Pension Liability to Changes in Discount Rate

1% Discount 1% Decrease Rate Increase 6.50% 7.50% 8.50% Total Pension Liability $ 4,293,367,737 $ 3,783,844,864 $ 3,364,450,722 Plan Fiduciary Net Position 2,466,349,529 2,466,349,529 2,466,349,529 Net Pension Liability $ 1,827,018,208 $ 1,317,495,335 $ 898,101,193

Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 57.4% 65.2% 73.3%

A one percent reduction in the discount rate increases the TPL by approximately 13% and increases the NPL by approximately 39%. A one percent increase in the discount rate decreases the TPL by approximately 11% and decreases the NPL by approximately 32%.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION V REQUIRED SUPPLEMENTARY INFORMATION

The schedules of Required Supplementary Information generally start with one year of information as of the implementation of GASB 67, but eventually will need to build up to 10 years of information. Table V-1 below shows the schedule of changes in NPL required by GASB.

Table V-1 Schedule of Changes in Net Pension Liability and Related Ratios FYE 2014 Total Pension Liability Service cost (MOY) $ 90,429,416 Interest (includes interest on service cost) 266,668,435 Changes of benefit terms Differences between expected and actual experience Changes of assumptions Benefit payments, including refunds of member contributions (165,870,971) Net change in total pension liability 191,226,880 Total pension liability - beginning 3,592,617,984 Total pension liability - ending $ 3,783,844,864 Plan fiduciary net position Contributions - employer $ 136,686,133 Contributions - member 27,367,908 Transfer from healthcare plan 19,968,779 Net investment income 110,728,303 Benefit payments, including refunds of member contributions (165,870,971) Administrative expense (4,042,986) Net change in plan fiduciary net position $ 124,837,166 Plan fiduciary net position - beginning 2,341,512,363 Plan fiduciary net position - ending $ 2,466,349,529 Net pension liability - ending $ 1,317,495,335 Plan fiduciary net position as a percentage of the total pension 65.18% liability Covered employee payroll $ 376,030,944 Net pension liability as a percentage of covered employee payroll 350.37%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION V REQUIRED SUPPLEMENTARY INFORMATION

Table V-2 Schedule of Employer Contributions Last 10 Fiscal Years

2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Actuarially Determined Contribution$ 136,686,133 $ 119,494,000 $ 108,063,000 $ 112,892,000 $ 104,452,000 $ 97,806,000 $ 94,163,000 $ 85,869,000 $ 73,612,000 $ 62,509,000 Contributions in Relation to the Actuarially Determined Contribution 136,686,133 119,494,000 108,063,000 112,892,000 104,452,000 97,806,000 94,163,000 85,869,000 73,612,000 62,509,000 Contribution Deficiency/(Excess) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Covered-Employee Payroll1 $ 376,030,944 $ 362,650,568 $ 356,419,000 $ 367,344,000 $ 385,442,000 $ 377,559,000 $ 367,361,000 $ 340,828,000 $ 309,692,000 $ 296,473,000 Contributions as a Percentage of 36.35% 32.95% 30.32% 30.73% 27.10% 25.90% 25.63% 25.19% 23.77% 21.08% Covered-Employee Payroll

1Payroll reported by plan sponsor for FYE 2013 and FYE2014. Previous year's amounts are based on projected payroll from the actuarial valuation reports and can be updated with actual amounts by the Plan for the final disclosure.

Notes to Schedule

Valuation Date 1/1/2013 Timing Actuarially determined contribution rates are calculated based on the actuarial valuation one year prior to the beginning of the plan year

Key Methods and Assumptions Used to Determine Contribution Rates for the Year Ending December 31, 2014: Actuarial cost method Entry Age Normal Asset valuation method Actuarial value: Excess earnings smoothed over five years, 80% / 120% corridor around market value Amortization method Level percentage of payroll (20 years as of 1/1/2013) with separate periods for Extraordinary Actuarial Gains or Losses (26 years for 2008 losses as of 1/1/2013). Cost impact of assumption changes adopted as of 1/1/2013 to be phased-in over three year period Discount rate 7.50% Amortization growth rate 3.25% Price inflation 3.00% Salary increases 3.25% plus merit component based on employee classification and years of service Mortality Healthy: RP 2000 Combined Healthy Table, with Generational Projection using Projection Scale BB Disabled: RP 2000 Combined Healthy Table, with Generational Projection using Scale BB, Set-Forward 8 Years for males and females

A complete description of the methods and assumptions used to determine contribution rates for the year ending December 31, 2014 can be found in the January 1, 2013 Actuarial Valuation Report.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

The SJCERA participating employers are not required to implement GASB 68 until their reporting date of June 30, 2015. However, the amounts reported as of June 30, 2015, can be based on the December 31, 2014 measurement date. The schedules in this section are provided for the use of the employers, assuming they are using the December 31, 2014 measurement date for their 2015 reporting. First, the collective amounts for SJCERA are developed, and then the collective amounts are allocated to individual employers based on their proportionate share.

The impact of experience gains or losses and assumption changes on the TPL are recognized in the collective pension expense over the average expected remaining service life of all active and inactive (i.e. retirees, beneficiaries, disabled members) members of the Plan. As of the measurement date, this recognition period was 4.86 years. However, there were no experience gains or losses, and there were no assumption changes during the measurement year.

The impact of investment gains or losses is recognized over a period of five years. During the measurement year, there was an investment loss of approximately $65.4 million. Approximately $13.1 million of that loss was recognized in the current year and an identical amount will be recognized in each of the next four years, resulting in a deferred outflow of resources of approximately $52.3 million. Table VI-1 below summarizes the current balances of collective deferred outflows and deferred inflows of resources along with the net recognition over the next five years.

Table VI-1 Schedule of Collective Deferred Inflows and Outflows Deferred Outflows of Deferred Inflows Resources of Resources Differences between expected and actual experience $ 0 $ 0 Changes in assumptions 0 0 Net difference between projected and actual earnings on pension plan investments 52,323,714 0 Total $ 52,323,714 $ 0 Amounts reported as deferred outflows and deferred inflows of resources will be recognized in pension expense as follows: Year ended December 31: 2015 13,080,928 2016 13,080,928 2017 13,080,928 2018 13,080,930 2019 0 Thereafter $ 0

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

The collective annual pension expense recognized in aggregate by the participating employers of SJCERA can be calculated two different ways. First, it is the change in the amounts reported on the employers’ Statement of Net Position that relate to SJCERA and are not attributable to employer contributions. That is, it is the change in NPL plus the changes in deferred outflows and inflows plus employer contributions.

Alternatively, the collective annual pension expense can be calculated by its individual components. While GASB does not require or suggest the organization of the individual components shown in Table VI-2 below, we believe it helps to understand the level and volatility of pension expense.

Table VI-2 Calculation of Collective Pension Expense

Change in Net Pension Liability $ 66,389,714 Change in Deferred Outflows (52,323,714) Change in Deferred Inflows 0 Employer Contributions 136,686,133 Pension Expense $ 150,752,133 Pension Expense as % of Payroll 40.09%

Operating Expenses Service cost $ 90,429,416 Employee contributions (27,367,908) Transfers (19,968,779) Administrative expenses 4,042,986 Total $ 47,135,715 Financing Expenses Interest cost $ 266,668,435 Expected return on assets (176,132,945) Total $ 90,535,490 Changes Benefit changes $ 0 Recognition of assumption changes 0 Recognition of liability gains and losses 0 Recognition of investment gains and losses 13,080,928 Total $ 13,080,928 Pension Expense $ 150,752,133

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

First, there are components that we refer to as operating expenses. These are items directly attributable to the operation of the plan during the measurement year. Service cost less employee contributions represents the increase in employer-provided benefits attributable to the year, and administrative expenses are the cost of operating SJCERA for the year.

Second, there are the financing expenses: the interest on the Total Pension Liability less the expected return on assets. Since the discount rate is equal to the long-term expected return on assets, the financing expense is just the interest on the Net Pension Liability.

The final category is changes. This category will drive most of the volatility in pension expense from year to year. It includes any changes in benefits made during the year and the recognized amounts due to assumption changes, gains or losses on the TPL, and investment gains or losses. For the first year, there is an investment gain recognized that effectively eliminates the financing expense.

PROPORTIONATE SHARES

Because SJCERA is a Cost-sharing Multiple-employer Pension Plan, each employer participating in SJCERA must reflect a portion of the collective Net Pension Liability, Pension Expense and Deferred Outflows and Inflows in their financial statements. GASB 68 requires that the Proportionate Share for each employer shall be determined based on the “employer’s projected long-term contribution effort to the pension … as compared to the total projected long- term contribution effort of all employers …” Although not required as part of the Plan’s GASB 67 reporting requirements, SJCERA is following the advice of the AICPA1 and making a determination of each employer’s Proportionate Share, which will be reviewed by the Plan’s auditor.

The following schedules include the proportionate shares for each employer, reflecting a methodology that allocates the NPL and Pension Expense based on each employer’s share of the Unfunded Liability amortization payments. In Table VI-3a, each employer’s amortization share as of December 31, 2014 is determined by multiplying the actual pensionable payroll for the current Plan year by the employer’s amortization rate from the most recent actuarial valuation report (the report as of January 1, 2014). Because this is the first report under the new standards, we have also included the Proportionate Shares as of December 31, 2013 in Table VI-3b – using the prior year’s payroll amounts and the amortization rates from the actuarial valuation as of January 1, 2013.

1http://www.aicpa.org/interestareas/governmentalauditquality/resources/gasbmatters/downloadabledocuments/aicpas lgep_cs_er_reporting_whitepaper.pdf

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

Table VI-3a Determination of Employers' Proportionate Share (As of December 31, 2014)

Unfunded Liability Amortization Rate (from the January 1, 2014 Actuarial Valuation) Pensionable Payroll General General Safety Safety General General Safety Safety Amortization Share Proportionate Employer Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2 (Rate x Pay) Share

County of San Joaquin 20.09% 20.09% 38.40% 38.40%$ 258,539,429 $ 34,582,364 $ 59,519,191 $ 1,197,326 $ 82,203,311 94.2002% Superior Courts 20.09% 20.09% $ 13,825,160 $ 1,123,279 $ 0 $ 0 $ 3,003,141 3.4414% Manteca-Lathrop Rural Fire Protection District 20.09% 38.40% 38.40% $ 0 $ 10,800 $ 2,157,503 $ 132,726 $ 881,618 1.0103% Waterloo-Morada Rural Fire Protection District 38.40% 38.40% $ 0 $ 0 $ 705,326 $ 295,718 $ 384,401 0.4405% Tracy Public Cemetery District 20.09% 20.09% $ 114,584 $ 74,187 $ 0 $ 0 $ 37,924 0.0435% SJC Mosquito & Vector Control District 20.09% 20.09% $ 2,010,554 $ 255,875 $ 0 $ 0 $ 455,326 0.5218% SJC Historical Society & Museum 20.09% $ 122,075 $ 0 $ 0 $ 0 $ 24,525 0.0281% Mountain House Community Services District 20.09% 20.09% $ 882,709 $ 390,492 $ 0 $ 0 $ 255,786 0.2931% Local Agency Formation Commission 20.09% $ 32,629 $ 0 $ 0 $ 0 $ 6,555 0.0075% San Joaquin County Law Library 20.09% $ 59,018 $ 0 $ 0 $ 0 $ 11,857 0.0136% Total $ 275,586,158 $ 36,436,997 $ 62,382,020 $ 1,625,770 $ 87,264,444 100.0000%

Table VI-3b Determination of Employers' Proportionate Share (As of December 31, 2013)

Unfunded Liability Amortization Rate (from the January 1, 2013 Actuarial Valuation) Pensionable Payroll General General Safety Safety General General Safety Safety Amortization Share Proportionate Employer Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2 (Rate x Pay) Share

County of San Joaquin 16.92% 16.92% 32.32% 32.32%$ 270,869,483 $ 9,936,433 $ 60,239,792 $ 281,627 $ 67,072,884 94.2535% Superior Courts 16.92% 16.92% $ 13,996,760 $ 235,958 $ 0 $ 0 $ 2,408,176 3.3841% Manteca-Lathrop Rural Fire Protection District 16.92% 32.32% 32.32% $ 48,445 $ 0 $ 2,118,337 $ 70,046 $ 715,482 1.0054% Waterloo-Morada Rural Fire Protection District 32.32% 32.32% $ 0 $ 0 $ 856,276 $ 81,902 $ 303,219 0.4261% Tracy Public Cemetery District 16.92% 16.92% $ 129,362 $ 32,184 $ 0 $ 0 $ 27,334 0.0384% SJC Mosquito & Vector Control District 16.92% 16.92% $ 2,122,917 $ 58,106 $ 0 $ 0 $ 369,029 0.5186% SJC Historical Society & Museum 16.92% $ 118,785 $ 0 $ 0 $ 0 $ 20,098 0.0282% Mountain House Community Services District 16.92% 16.92% $ 1,133,007 $ 176,239 $ 0 $ 0 $ 221,524 0.3113% Local Agency Formation Commission 16.92% $ 109,957 $ 0 $ 0 $ 0 $ 18,605 0.0261% San Joaquin County Law Library 16.92% $ 34,952 $ 0 $ 0 $ 0 $ 5,914 0.0083% Total $ 288,563,668 $ 10,438,920 $ 63,214,405 $ 433,575 $ 71,162,265 100.0000%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

Tables VI-4a and VI-4b present the collective Net Pension Liability as of December 31, 2014, and December 31, 2013, respectively (including the NPL amounts under the alternative discount rates for December 31, 2014); allocated using the Proportionate Share amounts shown in the previous schedules. For Table VI-4b, the Proportionate Share of the collective Net Pension Liability is only shown for the current discount rate (7.5%), as implementation of GASB 68 does not require the interest rate sensitivity results as of the beginning of year.

Table VI-4a Schedule of Employers' Proportionate Share of Collective Net Pension Liability December 31, 2014 Share NPL Proportionate Share of NPL @ Share of NPL @ Share of NPL @ @ 7.5% as Employer Share 6.5% 8.5% 7.5% Payroll % Payroll

County of San Joaquin 94.2002%$ 1,721,054,806 $ 846,013,120 $ 1,241,083,241 $ 353,838,310 350.7% Superior Courts 3.4414% 62,875,005 30,907,254 45,340,284 14,948,438 303.3% Manteca-Lathrop Rural Fire Protection District 1.0103% 18,458,365 9,073,516 13,310,655 2,301,028 578.5% Waterloo-Morada Rural Fire Protection District 0.4405% 8,048,015 3,956,136 5,803,567 1,001,044 579.8% Tracy Public Cemetery District 0.0435% 794,753 390,674 573,110 188,771 303.6% SJC Mosquito & Vector Control District 0.5218% 9,533,381 4,686,292 6,874,691 2,266,428 303.3% SJC Historical Society & Museum 0.0281% 513,392 252,366 370,216 122,075 303.3% Mountain House Community Services District 0.2931% 5,354,990 2,632,335 3,861,579 1,273,202 303.3% Local Agency Formation Commission 0.0075% 137,026 67,358 98,812 32,629 302.8% San Joaquin County Law Library 0.0136% 248,474 122,142 179,179 59,018 303.6% Total 100.0000%$ 1,827,018,207 $ 898,101,193 $ 1,317,495,334 $ 376,030,943 350.4%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

Table VI-4b Schedule of Employers' Proportionate Share of Collective Net Pension Liability December 31, 2013 Share NPL Proportionate Share of NPL @ @ 7.5% as Employer Share 7.5% Payroll % Payroll

County of San Joaquin 94.2535%$ 1,179,210,836 $ 341,327,334 345.5% Superior Courts 3.3841% 42,338,665 14,232,718 297.5% Manteca-Lathrop Rural Fire Protection District 1.0054% 12,578,616 2,236,828 562.3% Waterloo-Morada Rural Fire Protection District 0.4261% 5,330,961 938,178 568.2% Tracy Public Cemetery District 0.0384% 480,425 161,546 297.4% SJC Mosquito & Vector Control District 0.5186% 6,488,234 2,181,023 297.5% SJC Historical Society & Museum 0.0282% 352,812 118,785 297.0% Mountain House Community Services District 0.3113% 3,894,692 1,309,246 297.5% Local Agency Formation Commission 0.0261% 326,539 109,957 297.0% San Joaquin County Law Library 0.0083% 103,842 34,952 297.1% Total 100.0000%$ 1,251,105,622 $ 362,650,567 345.0%

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

This schedule presents the allocation of the Collective Deferred Inflows and Outflows (Table VI-1) based on the Proportionate Shares (Table VI-3a). Deferred Inflows represent gains (or reductions in the unfunded liability) that will be recognized as reductions to future years’ Pension Expense, while Deferred Outflows represent losses (or increases in the unfunded liability). As stated previously, experience gains or losses and assumption changes will be recognized in each employer’s expense over the average expected remaining service life of all active and inactive members of the Plan (not just those of the individual employer), while investment gains or losses will be recognized over a five-year period.

Table VI-5 Schedule of Employers' Proportionate Share of Deferred Outflows and Deferred Inflows at 12/31/2014 Proportionate Share of Deferred Outflows Proportionate Share of Deferred Inflows Recognition for FYE Proportionate Assumption Investment Assumption Investment Employer Shares Experience Changes Return Experience Changes Return

County of San Joaquin 94.2002% $ 0 $ 0 $ 49,289,044 $ 0 $ 0 $ 0 Superior Courts 3.4414% 0 0 1,800,668 0 0 0 Manteca-Lathrop Rural Fire Protection District 1.0103% 0 0 528,626 0 0 0 Waterloo-Morada Rural Fire Protection District 0.4405% 0 0 230,486 0 0 0 Tracy Public Cemetery District 0.0435% 0 0 22,761 0 0 0 SJC Mosquito & Vector Control District 0.5218% 0 0 273,025 0 0 0 SJC Historical Society & Museum 0.0281% 0 0 14,703 0 0 0 Mountain House Community Services District 0.2931% 0 0 153,361 0 0 0 Local Agency Formation Commission 0.0075% 0 0 3,924 0 0 0 San Joaquin County Law Library 0.0136% 0 0 7,116 0 0 0 Total 100.0000% $ 0 $ 0 $ 52,323,714 $ 0 $ 0 $ 0

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

GASB 68 requires that each employer disclose the change in Proportionate Share and the impact on the employer’s share of the Net Pension Liability and Deferred Inflows and Outflows (Table VI-6), with the impact for each employer to be recognized over the same expected service period as the experience and assumption changes (4.86 years for the 2014 changes). If the Proportionate Share for an employer increases, a portion of the resulting increase in the Net Pension Liability will be recognized in the current year as an increase in the employer’s Pension Expense, with the remainder acting as Deferred Outflows to be recognized in future years’ Pension Expense. The reverse will be true for reductions in the Proportionate Share; i.e. reductions in the Net Pension Liability will be recognized as offsets to current and future years’ Pension Expense.

Table VI-6 Schedule of Employers' Changes in Proportion Recognition of Proportion Change for Proportionate Shares Impact of Change in Proportion FYE 2014 Deferred Deferred Net Pension Pension Deferred Deferred Employer 12/31/2013* 12/31/2014** Outflows Inflows Liability Expense Outflows Inflows

County of San Joaquin 94.2535% 94.2002% $ (666,839) $ (137,210) $ 0 $ 529,629 Superior Courts 3.3841% 3.4414% 716,884 147,507 569,377 0 Manteca-Lathrop Rural Fire Protection District 1.0054% 1.0103% 61,304 12,614 48,690 0 Waterloo-Morada Rural Fire Protection District 0.4261% 0.4405% 180,159 37,070 143,089 0 Tracy Public Cemetery District 0.0384% 0.0435% 63,806 13,129 50,677 0 SJC Mosquito & Vector Control District 0.5186% 0.5218% 40,035 8,238 31,797 0 SJC Historical Society & Museum 0.0282% 0.0281% (1,251) (257) 0 994 Mountain House Community Services District 0.3113% 0.2931% (227,701) (46,852) 0 180,849 Local Agency Formation Commission 0.0261% 0.0075% (232,706) (47,882) 0 184,824 San Joaquin County Law Library 0.0083% 0.0136% 66,309 13,644 52,665 0 Total 100.0000% 100.0000% $ 0 $ 1 $ 896,295 $ 896,296

* From Table VI-3b ** From Table VI-3a

Note: The Change in Proportion, this year does not affect the Deferred Outflows or Inflows, because there are no deferred amounts as of December 31, 2013.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

The Statement also requires that the employers disclose the difference between their actual contributions and their Proportionate Share of the total contributions, with this difference to be recognized over the same expected service period (Table VI-7). If an employer contributes an amount greater than their Proportionate Share of the total contributions, the difference increases the current year pension expense and results in Deferred Outflows to be recognized in future years’ Pension Expense. The reverse will be true for contributions less than the Proportionate Share; the difference will be recognized as a decrease to current and future years’ Pension Expense.

Table VI-7 Schedule of Employers' Differences Between Actual Contributions and Proportionate Share of Contributions Recognition of Contribution Difference for Contributions FYE 2014 Proportionate Pension Deferred Deferred Employer Actual Share* Difference Expense Outflows Inflows

County of San Joaquin $ 128,428,697 $ 128,758,612 $ (329,915) $ (67,884) $ 0 $ 262,031 Superior Courts 5,047,948 4,703,917 344,031 70,788 273,243 0 Manteca-Lathrop Rural Fire Protection District 1,347,206 1,380,940 (33,734) (6,941) 0 26,793 Waterloo-Morada Rural Fire Protection District 549,362 602,102 (52,740) (10,852) 0 41,888 Tracy Public Cemetery District 49,501 59,458 (9,957) (2,049) 0 7,908 SJC Mosquito & Vector Control District 702,065 713,228 (11,163) (2,297) 0 8,866 SJC Historical Society & Museum 38,759 38,409 350 72 278 0 Mountain House Community Services District 367,300 400,627 (33,327) (6,857) 0 26,470 Local Agency Formation Commission 125,985 10,251 115,734 23,814 91,920 0 San Joaquin County Law Library 29,310 18,589 10,721 2,206 8,515 0 Total $ 136,686,133 $ 136,686,133 $ 0 $ 0 $ 373,956 $ 373,956

* Based on total employer contribution, multiplied by Proportionate Share from Table VI-3a

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

Table VI-8 presents the Schedule of Deferred Outflows and Inflows to be recognized in future years for each employer. These Deferred Outflows and Inflows include amounts based on each employer’s share of the Collective Pension Expense (Table VI-5), as well as the amounts based on changes in the employer’s Proportionate Share (Table VI-6) and the differences between the actual and allocated contributions (Table VI-7). Positive amounts – as shown below for most employers - would represent increases in the employer’s Pension Expense in future years; negative amounts will be recognized as reductions or offsets in future years’ Pension Expense.

Table VI-8 Schedule of Employers' Recognition of Deferred Outflows and Inflows at 12/31/2014 Recognition for FYE

Employer 2015 2016 2017 2018 Thereafter

County of San Joaquin $ 12,117,166 $ 12,117,166 $ 12,117,166 $ 12,145,885 $ 0 Superior Courts 668,462 668,462 668,462 637,902 0 Manteca-Lathrop Rural Fire Protection District 137,830 137,830 137,830 137,035 0 Waterloo-Morada Rural Fire Protection District 83,839 83,839 83,839 80,168 0 Tracy Public Cemetery District 16,770 16,770 16,770 15,219 0 SJC Mosquito & Vector Control District 74,197 74,197 74,197 73,364 0 SJC Historical Society & Museum 3,491 3,491 3,491 3,515 0 Mountain House Community Services District (15,369) (15,369) (15,369) (7,852) 0 Local Agency Formation Commission (23,087) (23,087) (23,087) (19,719) 0 San Joaquin County Law Library 17,629 17,629 17,629 15,409 0 Total $ 13,080,928 $ 13,080,928 $ 13,080,928 $ 13,080,926 $ 0

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

SECTION VI EMPLOYER REPORTING AMOUNTS

Table VI-9 presents the Pension Expense for each employer, based on each employer’s share of the collective Pension Expense, and adjusted for changes in the employer’s Proportionate Share and the differences between the actual and allocated contributions, as computed in the prior schedules. Note that in any given year, the employer’s Pension Expense can differ greatly from their Actuarially Determined Contribution – the Actuarially Determined Contribution is determined based on the actuarial funding policies adopted by the Board.

Table VI-9 Schedule of Employers' Pension Expense for the Measurement Year Ending 12/31/2014

Collective Employer Proportionate Pension Change in Contribution Pension Employer Shares Expense Proportion Difference Prior Periods Expense

County of San Joaquin 94.2002%$ 142,008,812 $ (137,210) $ (67,884) $ 141,803,718 Superior Courts 3.4414% 5,187,984 147,507 70,788 5,406,279 Manteca-Lathrop Rural Fire Protection District 1.0103% 1,523,049 12,614 (6,941) 1,528,722 Waterloo-Morada Rural Fire Protection District 0.4405% 664,063 37,070 (10,852) 690,281 Tracy Public Cemetery District 0.0435% 65,576 13,129 (2,049) 76,656 SJC Mosquito & Vector Control District 0.5218% 786,625 8,238 (2,297) 792,566 SJC Historical Society & Museum 0.0281% 42,361 (257) 72 42,176 Mountain House Community Services District 0.2931% 441,854 (46,852) (6,857) 388,145 Local Agency Formation Commission 0.0075% 11,306 (47,882) 23,814 (12,762) San Joaquin County Law Library 0.0136% 20,501 13,644 2,206 36,351 Total 100.0000%$ 150,752,131 $ 1 $ 0 $ 0 $ 150,752,132

Note: There are no Prior Periods to disclose in this schedule.

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

APPENDIX A GLOSSARY OF TERMS

1. Actuarially Determined Contribution

A target or recommended contribution for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted.

2. Actuarial Valuation Date

The date as of which an actuarial valuation is performed. This date may be up to 24 months prior to the measurement date and up to 30 months prior to the employer’s reporting date.

3. Average Expected Remaining Service Life

The average amount of time each member is expected to continue working as an active employee. Inactive members (i.e. retirees, beneficiaries, disabled members and terminated vested members) are included in the calculation of the average, with a 0 included in calculation for each inactive member (since no future active service is assumed for these members).

4. Cost-sharing Pension Plan

A multiple-employer plan in which the pension obligations to the employees of more than one employer are pooled and pension plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan.

5. Deferred Inflow of Resources

An acquisition of net assets by a government employer that is applicable to a future reporting period. In the context of GASB 68, these are experience gains on the Total Pension Liability, assumption changes reducing the Total Pension Liability, or investment gains that are recognized in future reporting periods.

6. Deferred Outflow of Resources

A consumption of net assets by a government employer that is applicable to a future reporting period. In the context of GASB 68, these are experience losses on the Total Pension Liability, assumption changes increasing the Total Pension Liability, or investment losses that are recognized in future reporting periods.

7. Entry Age Actuarial Cost Method

The actuarial cost method required for GASB 67 and 68 calculations. Under this method, the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis over the earnings of the individual between entry age

SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION GASB 67 AND 68 REPORTING FOR DECEMBER 31, 2014 MEASUREMENT DATE

APPENDIX A GLOSSARY OF TERMS

and assumed exit ages. The portion of this actuarial present value allocated to a valuation year is called the Service Cost. The portion of this actuarial present value not provided for at a valuation date by the actuarial present value of future service costs is called the Total Pension Liability. 8. 9. Measurement Date

The date as of which the Total Pension Liability and Plan Fiduciary Net Position are measured. The Total Pension Liability may be projected from the Actuarial Valuation Date to the Measurement Date. The Measurement Date must be the same as the Reporting Date for the plan.

10. Net Pension Liability

The liability of employers and nonemployer contributing entities to employees for benefits provided through a defined benefit pension plan. It is calculated as the Total Pension Liability less the Plan Fiduciary Net Position.

11. Plan Fiduciary Net Position

The fair or market value of assets.

12. Proportionate Share

The portion of the Net Pension Liability, Deferred Inflows and Outflows allocated to each employer in a Cost-Sharing Pension Plan, based on the employer’s share of the projected long-term contribution effort.

13. Reporting Date

The last day of the plan or employer’s fiscal year.

14. Service Cost

The portion of the actuarial present value of projected benefit payments that is attributed to the current period of employee service in conformity with the requirements of GASB 67 and 68. The Service Cost is the normal cost calculated under the entry age actuarial cost method.

15. Total Pension Liability

The portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service in conformity with the requirements of GASB 67 and 68. The Total Pension Liability is the actuarial liability calculated under the entry age actuarial cost method.

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

Agenda Item 11.0 September 25, 2015

SUBJECT: Cyber Liability Insurance

SUBMITTED FOR: ___ CONSENT l_X_l ACTION ___ INFORMATION

RECOMMENDATION

Staff recommends the Board approve the purchase of a Cyber Liability Insurance policy issued by Travelers that provides $3 million in coverage, with an annual premium of $34,561 and a $25,000 deductible. This quote includes a 4.8% multi-policy discount, as Travelers also provides Fiduciary Liability Insurance for SJCERA.

PURPOSE

To obtain insurance coverage for liability that arises out of unauthorized use of, or unauthorized access to, electronic data or software within SJCERA’s network or business.

The $3 million cyber liability insurance policy offered to SJCERA includes the following coverage:

Liability Insurance:

• Network and Information Security Liability - $3 million coverage per claim arising from unauthorized access to data, failure to provide notification of a data breach where required by law, transmission of computer virus and failure to provide authorized users with access to company website. Coverage response includes damages and defense costs for covered lawsuits. • Communications and Media Liability - $3 million coverage per claim arising from copyright infringement, plagiarism, defamation, libel and slander in electronic content. Coverage response includes damages and defense costs for covered lawsuits.

• Regulatory Defense Expenses - $1.5 million coverage per governmental claim made as a result of network and information security liability or communications and media liability. Coverage response includes costs for responding to regulatory claims stemming from the data breach, including any resulting fines or penalties. First-party Insurance:

• Security Breach Remediation and Notification Expenses - $1.5 million coverage per event for costs associated with notifying individuals breached, credit monitoring for 365 days, fraud expense reimbursement, and call center. Coverage response includes costs for retaining legal counsel to assist with breach response, including September 25, 2015 Page 2 of 3 Agenda Item 11.0

forensics, notice requirements and expenses, credit monitoring and call center for impacting individuals, and obtaining identity fraud policy for affected victims.

• Computer Program and Electronic Data Restoration Expenses - $1.5 million coverage per event for expenses to restore data lost from system damage due to a computer virus or unauthorized access.

• Funds Transfer Fraud - $1.5 million coverage per event for loss of money or securities due to fraudulent transfer instructions to a financial institution.

• Computer Fraud - $1.5 million coverage per event for loss of money, securities, or other property due to unauthorized system access.

• E-Commerce Extortion - $1.5 million coverage per event for money paid as a result of threats made to fraudulently transfer funds, destroy data, introduce a virus, attack a system or disclose electronic customer information. Coverage response includes expenses to manage the incident and monies or securities paid to the extortioner.

• Crisis Management Event Expenses - $1.5 million coverage per event for public relations services to mitigate negative publicity. Coverage response includes costs for hiring public relations services to restore stakeholder confidence.

• Travelers eRisk Hub – Access at no additional charge to this specialized web portal to help insureds prevent and respond to cyber events.

DISCUSSION

In response to a trustee request during a meeting of the Retirement Board, staff obtained information on the availability and cost of cyber liability insurance for SJCERA. Staff requested SJCERA’s insurance broker conduct a market survey, and the following results were reported.

Cyber liability insurance is an emerging and very specialized market with very few carriers actually writing the coverage or with the coverage limits appropriate for SJCERA. Five insurance firms were asked to provide a quote; three declined to quote. Hiscox (Lloyds of London) provided a quote, but is a non-admitted carrier (meaning has not been approved by the California Department of Insurance), which would require the insured to pay taxes of approximately $6,500 in addition to the annual premium.

Travelers, an admitted carrier, offered a quote to provide cyber liability insurance with a $3 million coverage limit and a $25,000 deductible per claim/event for an annual premium of $34,561. This includes a 4.8% multi-policy discount, as Travelers provides SJCERA’s fiduciary liability insurance. Travelers quote is valid through September 30, 2015.

BACKGROUND The www.filetransferglossary.com defines “cyber liability” as the risk posed by conducting business over the Internet, over other networks or using electronic storage technology. Cyber liability addresses the first- and third-party risks associated with e-business, the

September 25, 2015 Page 3 of 3 Agenda Item 11.0

Internet, networks and informational assets. Cyber risks include breaches of private data, malicious code, viruses, worms, trojans, malware, phishing and social engineering, fraud, extortion, etc. The list of high-profile data breaches is long and continually growing. According to one study, 42% of data breaches globally are due to malicious cyber attacks, with the remainder attributable equally to human error or system glitches.1 Cyber attacks cause information/data loss, business disruption, revenue loss, and equipment damages.

Cyber liability insurance generally provides coverage for expenses incurred from a security or data breach, computer virus, malware, extortion, or other cyber crime. Covered expenses typically include damages, litigation defense, system restoration, security breach remediation and notification, business interruption, etc.

At the recent Global CFO Forum held in Sacramento, presenters discussing cyber security and risks repeatedly stated, “It is not ‘if,’ but rather ‘when’ an entity will be the victim of a cyber attack.”

While it does not prevent or mitigate cyber threats, the proposed cyber liability insurance coverage would provide funds to cover the increased, possibly significant, expense of dealing with the consequences of a cyber attack.

ATTACHMENTS

Travelers Summary of Cyber Risk Coverage Description of Travelers eRisk Hub ® NCPERS Article from Spring 2015 PERSist Newsletter USA Today article on Cyber Predictions for 2015 FBI Alerts related to cyber risks/crimes

______ANNETTE ST. URBAIN PATRICIA PABST Chief Executive Officer Assistant Chief Executive Officer

1 Source: 2014 Cost of a Data Breach Study: Global Analysis, the Ponemon Institute, sponsored by IBM, May 2014

CyberRisk

HOW OUR COVERAGE RESPONDS FOR PRIVATE, NON-PROFIT AND PUBLIC COMPANIES

Liability Insuring Agreements

Insuring Agreement Definition Claim Scenario Coverage Response Network and Coverage for claims arising from A hacker obtains sensitive personal information Damages and defense costs Information unauthorized access to data, failure to from the insured’s computer system. As a result, for covered lawsuits Security Liability provide notification of a data breach a number of customers bring a claim against where required by law, transmission of the insured for allowing access to their personal computer virus and failure to provide information. authorized users with access to the company website Communications and Coverage for claims arising from A lawsuit is brought against the insured by Damages and defense costs Media Liability copyright infringement, plagiarism, another entity alleging that their online content for covered lawsuits defamation, libel and slander in and organizational branding have been plagiarized electronic content and their trademarks infringed upon.

Regulatory Defense Coverage for governmental claims made A charity with offices nationwide suffers a major Costs for responding to Expenses as a result of network and information data breach involving thousands of donors. As a regulatory claims stemming security liability or communications and result, attorneys general in multiple states bring from the data breach, media liability regulatory action against the insured. including any resulting fines or penalties

First-party Insuring Agreements

Insuring Agreement Definition Claim Scenario Coverage Response Crisis Management Coverage for public relations services to The insured’s chief customer service officer has Costs for hiring a public Event Expenses mitigate negative publicity his laptop stolen. The laptop contains more than relations firm to restore 100,000 donor records, including their personal donor confidence or contact information. mitigate negative publicity generated from the incident

Security Breach Coverage for costs associated with A skilled cyber criminal hacks into the insured’s Costs for retaining legal Remediation and notification of individuals breached, internal processing system. Names, addresses counsel to assist with Notification Expenses credit monitoring for 365 days, fraud and credit information for more than 50,000 the breach response, expense reimbursement and call center of the insured’s members are captured from including forensics, notice the system. requirements and expenses; providing credit monitoring and a call center for impacted individuals; and obtaining an ID fraud policy for affected victims

Computer Program Coverage for expenses to restore data lost A computer virus corrupts the insured’s system Costs for repair and and Electronic Data from system damage due to a computer software and data. restoration of the insured’s Restoration Expenses virus or unauthorized access computer programs and electronic data

Computer Fraud Coverage for loss of money, securities An organized crime ring gains unauthorized Direct loss of the insured’s or other property due to unauthorized access to the insured’s accounts payable in its money, securities or other system access computer system and alters the bank routing property information on outgoing payments. The result – $1 million transferred to the crime ring’s account. First-partyFirst-party Insuring Insuring Agreements Agreements (continued)

Insuring Agreement Definition Claim Scenario Coverage Response Funds Transfer Fraud Coverage for loss of money or securities An insured receives an email that appeared to The insured’s funds due to fraudulent transfer instructions to be from its bank, but was not. The insured’s that were fraudulently a financial institution employee opens the email, which activates transferred from its embedded malware that reads keystrokes from bank account his computer. The perpetrator uses this means to obtain banking and password information and initiate a fraudulent electronic wire transfer from the insured’s bank account. E-Commerce Extortion Coverage for money paid as a result of The insured receives a series of notes that Expenses to manage threats made to fraudulently transfer threaten to hack into its customer database and the incident and monies funds, destroy data, introduce a virus, disclose all of the contact information to the or securities paid to the attack a system or disclose electronic general public. extortioner customer information

Business Interruption Coverage for loss of income and expenses An organization’s server is infected by a severe The net proceeds that and Additional Expense to restore operations as a result of a virus and as a result, its internal computer would have been earned computer system disruption caused by a network is not available for an extended period. (or net losses that would virus or unauthorized computer attack have been avoided) resulting from the computer system disruption

Travelers CyberRisk coverage is offered as a stand-alone policy or as a cohesive part of theWrap+ ® and Executive Choice+® management liability suite of coverages. CyberRisk provides a combination of coverage options to help protect organizations from emerging cyber threats and now includes access to the Travelers eRisk Hub powered by NetDiligence® – an information portal of risk management tools.

travelersbond.com Travelers Casualty and Surety Company of America and its property casualty affiliates. One Tower Square, Hartford, CT 06183 This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law. Availability of coverage referenced in this document can depend on underwriting qualifications and state regulations. © 2015 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. 59878 Rev. 1-15 Travelers eRisk Hub®

A specialized web portal to help YOU prevent and respond to cyber events

It takes only one cyber attack or data security breach to impair In addition, our coverage includes access to Travelers eRisk Hub® your company’s financial results, or even potentially put you out powered by NetDiligence®, a risk management web portal to of business. Just one stolen laptop, one resourceful hacker, one help your organization successfully prevent and respond to virus or even lost paper records can cause data breaches and cyber events. impact the privacy of the data your organization stores. Finding and remedying a breach can be complex and expensive. Prevention benefits: • News center with the latest cyber-related headlines Travelers’ cyber coverage solutions are specifically designed to • Tools to build privacy controls as well as information and help in the event of a cyber breach. We provide options that IT security programs include coverage for forensic investigations and litigation expenses associated with the breach. Some of our coverage solutions • Learning center featuring white papers, articles and upcoming also offer options for regulatory defense expenses and related webinars on a variety of topics including business interruption, fines, crisis management or public relations expenses, business forensics, compliance and security awareness interruption and cyber extortion. • Calculators to estimate potential costs of an event

• Resources for statutory, regulatory and case law updates regarding privacy liability and notification obligations

• Access to experts who can help your organization build or improve its cyber programs

Post-event response benefits:

• Breach Coach® service — a 30-minute consultation with an attorney to receive immediate triage assistance

• Sample incident roadmap for dealing with a privacy breach

• Easy access to Travelers claim reporting website

Travelers eRisk Hub is available at no additional cost to insureds of CyberRisk and CyberFirst® for technology companies and public entities.

Travelers knows cyber coverage solutions. To learn more, talk to your independent agent or visit travelers.com/cyber.

travelers.com/cyber This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law. Availability of coverage referenced in this document can depend on underwriting qualifications and state regulations. © 2013 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. 56200 New 9-13 Why Do NCPERS Members Need to Consider Cyber Liability Insurance? By Brandon Cole

WHAT IS CYBER LIABILITY INSURANCE?

yber liability insurance is an insurance policy that has multiple parts, but the most Cpopular part is coverage for the cost of notification and credit monitoring after a privacy breach. This could be a breach of personally identifiable information or protected health information. However, over But I outsource … Outsourcing does ed to notify or monitor anyone’s time these policies have evolved to help limit some liability arising out of credit? Most laws have some include media liability for the opera- fiduciary duty and can help reduce kind of time obligation to notify. tion of websites, coverage for the loss liability for privacy breaches, but of digital assets, regulatory fines and most states still leave the ultimate lia- Questions like these have given rise penalties coverage, and more. bility with the party that originates to the purchase of an independent the information. The other fallacy is cyber liability insurance policy. This WHAT’S THE RISK? that the risk has transferred properly way you aren’t left searching for a Almost every state has passed some to the party to whom you have out- way to handle a breach but can be kind of privacy law. Your company sourced. Most contracts contain little assured that you have your own will be responsible for responding to or no reference to indemnification insurance and can quickly get your a privacy breach and following the regarding a privacy breach, and even own answers. applicable law based on where the fewer contain clauses requiring the affected person lives at the time of vendor to carry cyber liability insur- For further information please con- the breach – think of your ex- ance. Even if both the service contact Brandon Cole at employee or retiree that has moved to tract has a solid indemnification [email protected] or by phone another state. agreement and a requirement for at 949-349-9871 or James Martinez cyber liability insurance is in place, at [email protected] or by On top of being responsible for navi- can you respond to the following phone at 303-889-2526. gating the privacy legislation of sever- questions or scenarios? al states, you may have to deal with Brandon Cole, CPCU, CRM, over- federal laws like the Health Insurance sees day-to-day client relationships as Portability and Accountability Act m How will a breach be handled? part of Arthur J. Gallagher’s Public (HIPAA) or the Health Information What is the vendor responsible Entity and Scholastic Division. Technology for Economic and for, and what are you responsi- Brandon has twice been acknowl- Clinical Heath (HITECH) Act. ble for? edged as a “Power Broker” by Risk m Most likely a breach of a & Insurance magazine. He has more But I have immunity … Some public provider won’t affect just one than 10 years of experience in the organizations may have immunity for client but multiple clients. Are insurance industry, including time as traditional liability issues, but most this vendor’s insurance limits an insurance company underwriter. immunity statutes lack verbiage for high enough? He has created several national pro- privacy breaches – plus they protect m Does the vendor have the finan- grams including a cyber and privacy you only at the state level. Think of cial wherewithal to indemnify all solution for more than 300 clients the other states and federal issues of their clients? that were struggling to find appropri- raised above. m While the vendor is figuring out ate coverage at an appropriate price. what happened, are you obligat-

Return to front page • NCPERS PERSIST Spring 2015 3 Cyber predictions for 2015

Steve Weisman, Special to USA TODAY 9 a.m. EST December 20, 2014

As the great sage and Hall of Fame baseball player Yogi Berra once noted, "It's tough to make predictions, especially about the future," but as 2014 rapidly comes to a close and we leave the hackings of Home Depot, JPMorgan, Sony, Community Health Systems and many others in the rear-view mirror, we turn our attention to what 2015 will bring in regards to hacking, data breaches and identity theft.

Cognizant of the words of wisdom of the ancient Chinese philosopher Lao Tzu that "those who have knowledge, don't predict. Those who predict, don't have knowledge" I humbly offer my cyber predictions for 2015.

1. While hacks of major retail businesses will continue to occur with frightening regularity, it will be the health care industry that will be the source of many, if not most, major data breaches. Due to a perfect storm of vulnerability caused by large amounts of stored electronic data shared by many users within the health care system, the health care industry has become a major target for hacking, with the stolen personal information used for identity theft, including medical identity theft. The effects of that can be particularly harmful when an identity thief's medical records become mixed with the victim's medical records. The FBI has warned the health care industry that its cyber security is not presently sufficient to protect the information it stores.

2. As evidenced by the recent attack on Sony, companies are extremely vulnerable to hacking by nation states, criminal organizations or terrorists. The type of malware used to attack government agencies and major corporations is increasingly available to such groups who are showing a willingness to wreak havoc for purposes not restricted to financial gain.

3. A key element found in just about all major data breaches is that the malware necessary to harm the company or governmental agency is unwittingly downloaded. This is done through sophisticated phishing e-mails that appear to be legitimate and are specifically addressed to the employee or third-party contractor who is the weak link. Then it is exploited by luring that person into downloading the malware that brings about the hacking. These e-mails will continue to become more difficult to recognize in the upcoming year. Dealing with this type of phishing, called spear phishing or social engineering, and learning how to identify it must become an element of primary security for everyone, including individuals, companies and government agencies.

4. The Cloud will become even more broadly used by everyone for data storage and will consequently become a greater target for hackers and identity thieves. They will will focus their attention on hacking smartphones to gain the passwords necessary for access to the victims' information in the cloud. Greater use of dual-factor identification, and greater attention to smartphone security, including complex passwords, encryption and security software, will help us all increase security. 5. Just as in 2014 we learned of the Heartbleed and Shellshock computer vulnerabilities that had been present, but largely unrecognized, for years, so will we find that other long-standing vulnerabilities will be discovered and exploited by identity thieves and hackers. Part of the problem is that much of the development of new software is built upon open-source programming such as Open SSL that contained and most likely still contains vulnerabilities waiting to be exploited. Developers have got to do a better job of building in security and updating security to all programs.

6. Personal banking and other financial transactions will become increasingly mobile and consequently will become an increasing target of hackers and identity thieves. We can learn from the experience in Europe where mobile banking has been done longer and where hackers have been able to even defeat dual-factor identification programs used for enhanced security. A great source of the problem with smartphone security can be traced to malicious apps that are unwittingly downloaded. Limiting your sources for apps to legitimate vendors, such as Google App, can help limit your vulnerability.

7. Hacks of major retailers will increase in the months preceding October of 2015. That is the date that stores must switch to smart cards with computer chips that generate a unique number for every individual transaction. Although some stores, such as Walmart have already switched to smart card technology, many have not, and many people have not received new credit cards with computer chips to avail themselves of the protection provided by the new system. Security measures to eliminate the types of hacking done to Target, Home Depot and others have still not been sufficiently taken by many American companies.

8. Expect a repeat in 2015. As exposed recently by the security company FireEye, hackers were able to use spear-phishing techniques to gain access to pharmaceutical companies' computers, data and e-mails in order to gain information that they could use for purposes of profiting by insider trading using information not available to the public. We can well expect that this scenario will be repeated again and again in 2015.

So, there you have it. I didn't want to even get into threats involved with the Internet of Things and other possible cyber threats that may or may not materialize because, as Mark Twain said, "I've had a lot of worries in my life, most of which never happened."

Steve Weisman is a lawyer, a professor at Bentley University and one of the country's leading experts in scams and identity theft. He writes the blog www.scamicide.com and his new book is Identity Theft Alert.

UNCLASSIFIED

BUSINESS EMAIL COMPROMISE

August 27, 2015 This Public Service Announcement (PSA) is an update for the Business E-mail Compromise (BEC) PSA I-012215-PSA posted on www.ic3.gov and includes new information and updated statistical data as of August 2015. Alert Number

I-082715a-PSA DEFINITION Business Email Compromise (BEC) is defined as a sophisticated scam targeting businesses working with foreign suppliers and/or businesses that regularly perform Questions regarding this PSA wire transfer payments. The scam is carried out by compromising legitimate should be directed to your local FBI business e-mail accounts through social engineering or computer intrusion Field Office. techniques to conduct unauthorized transfers of funds.1

Local Field Office Locations: Most victims report using wire transfers as a common method of transferring funds www.fbi.gov/contact-us/field for business purposes; however, some victims report using checks as a common method of payment. The fraudsters will use the method most commonly associated with their victim’s normal business practices.

STATISTICAL DATA The BEC scam continues to grow and evolve and it targets businesses of all sizes. There has been a 270 percent increase in identified victims and exposed loss since January 2015. The scam has been reported in all 50 states and in 79 countries. Fraudulent transfers have been reported going to 72 countries; however, the majority of the transfers are going to Asian banks located within China and Hong Kong.

The following BEC statistics were reported to the Internet Crime Complaint Center from October 2013 to August 2015:

 Total U.S. Victims: 7,066  Total U.S. exposed2 dollar loss: $747,659,840.63

 Total non-U.S. victims: 1,113  Total non-U.S. exposed dollar loss: $51,238,118.62

 Combined victims: 8,179  Combined exposed dollar loss: $798,897,959.25

These totals, combined with those identified by international law enforcement agencies during this same time period, bring the BEC exposed loss to over $1.2 billion.

1 This definition was revised to emphasize the different techniques used to compromise victim e-mail accounts. 2 Exposed dollar loss includes actual and attempted loss in United States dollars. FBI — Ransomware on the Rise https://www.fbi.gov/news/stories/2015/january/ransomware-on-the-rise

Home • News • Stories • 2015 • January • Ransomware on the Rise Story Index

By Date

By Subject - Art Theft - Civil Rights - Counterterrorism - Crimes Against Children - Criminal Justice Information Services - Cyber Crimes - Director/FBI Leadership - Field Cases - Foreign Counterintelligence - General - History - Intelligence - International - Lab/Operational Technology - Linguist/Translation Program - Major Thefts/Violent Crime - Organized Crime/Drugs - Partnerships Ransomware on the Rise - Public/Community Outreach FBI and Partners Working to Combat This Cyber Threat - Public Corruption - Recruiting/Diversity 01/20/15 - Responding to Your Concerns Your computer screen freezes with a pop-up message—supposedly from the FBI or another federal - Technology agency—saying that because you violated some sort of federal law your computer will remain locked - Training until you pay a fine. Or you get a pop-up message telling you that your personal files have been - White-Collar Crime encrypted and you have to pay to get the key needed decrypt them.

These scenarios are examples of ransomware scams, which involve a type of malware that infects computers and restricts users’ access to their files or threatens the permanent destruction of their information unless a ransom—anywhere from hundreds to thousands of dollars—is paid.

Ransomware doesn’t just impact Latest Ransomware Threat home computers. Businesses, financial institutions, government agencies, A fairly new ransomware variant has been making the rounds lately. academic institutions, and other Called CryptoWall (and CryptoWall 2.0, its newer version), this virus organizations can and have become encrypts files on a computer’s hard drive and any external or shared infected with it as well, resulting in the drives to which the computer has access. It directs the user to a loss of sensitive or proprietary personalized victim ransom page that contains the initial ransom information, a disruption to regular amount (anywhere from $200 to $5,000), detailed instructions about operations, financial losses incurred to how to purchase Bitcoins, and typically a countdown clock to notify restore systems and files, and/or victims how much time they have before the ransom doubles. potential harm to an organization’s Victims are infected with CryptoWall by clicking on links in malicious reputation. e-mails that appear to be from legitimate businesses and through compromised advertisements on popular websites. According to the Ransomware has been around for U.S. CERT, these infections can be devastating and recovery can be several years, but there’s been a definite a difficult process that may require the services of a reputable data uptick lately in its use by cyber criminals. recovery specialist. And the FBI, along with public and private sector partners, is targeting these For more information on ransomware in general, visit the U.S. CERT offenders and their scams. website.

When ransomware first hit the scene, computers predominately became infected with it when users opened e-mail attachments that contained the malware. But more recently, we’re seeing an increasing number of incidents involving so-called “drive-by” ransomware, where users can infect their computers simply by clicking on a compromised website, often lured there by a deceptive e-mail or pop-up window.

Another new trend involves the ransom payment method. While some of the earlier ransomware scams involved having victims pay “ransom” with pre-paid cards, victims are now increasingly asked to pay with Bitcoin, a decentralized virtual currency network that attracts criminals because of the anonymity the system offers.

Also a growing problem is ransomware Protect Your Computer from Ransomware that locks down mobile phones and demands payments to unlock them. - Make sure you have updated antivirus software on your computer.

The FBI and our federal, international, - Enable automated patches for your operating system and web and private sector partners have browser. taken proactive steps to neutralize - Have strong passwords, and don’t use the same passwords for some of the more significant everything. ransomware scams through law - Use a pop-up blocker. enforcement actions against major botnets that facilitated the distribution - Only download software—especially free software—from sites you and operation of ransomware. For know and trust (malware can also come in downloadable games, example: file-sharing programs, and customized toolbars).

- Don’t open attachments in unsolicited e-mails, even if they come Reveton ransomware, delivered from people in your contact list, and never click on a URL contained by malware known as Citadel, in an unsolicited e-mail, even if you think it looks safe. Instead, close falsely warned victims that their out the e-mail and go to the organization’s website directly. computers had been identified by the FBI or Department of Justice - Use the same precautions on your mobile phone as you would on as being associated with child your computer when using the Internet.

pornography websites or other - To prevent the loss of essential files due to a ransomware infection, illegal online activity. In June it’s recommended that individuals and businesses always conduct 2013, Microsoft, the FBI, and our regular system back-ups and store the backed-up data offline. financial partners disrupted a massive criminal botnet built on

1 of 2 9/18/15 2:53 PM FBI — Ransomware on the Rise https://www.fbi.gov/news/stories/2015/january/ransomware-on-the-rise

the Citadel malware, putting the brakes on Reveton’s distribution. FBI statement and additional details. Cryptolocker was a highly sophisticated ransomware that used cryptographic key pairs to encrypt the computer files of its victims and demanded ransom for the encryption key. In June 2014, the FBI announced—in conjunction with the Gameover Zeus botnet disruption—that U.S. and foreign law enforcement officials had seized Cryptolocker command and control servers. The investigation into the criminals behind Cryptolocker continues, but the malware is unable to encrypt any additional computers. Additional details.

If you think you’ve been a victim of Cryptolocker, visit the Department of Homeland Security’s U.S. Computer Emergency Readiness Team (CERT) CryptoLocker webpage for remediation information.

The FBI—along with its federal, international, and private sector partners—will continue to combat ransomware and other cyber threats. If you believe you’ve been the victim of a ransomware scheme or other cyber fraud activity, please report it to the Bureau’s Internet Crime Complaint Center.

Resources: - Botnets 101 - Taking Down Botnets - The Cyber Threat - Cyber Threats Against the Financial Sector

2 of 2 9/18/15 2:53 PM UNCLASSIFIED Federal Bureau of Investigation Public Service Announcement

RECENT TRENDS There has been an increase in the number of reported computer intrusions linked to BEC scams. These intrusions can initially be facilitated through a phishing scam in which a victim receives an e-mail from a seemingly legitimate source that contains a malicious link. The victim clicks on the link, and it downloads malware, allowing the actor(s) unfettered access to the victim’s data, including passwords or financial account information.

Three versions of the BEC scam were described in PSA I-012215-PSA. A fourth version of this scam has recently been identified, based on victim complaints. Victims report being contacted by fraudsters, who typically identify themselves as lawyers or representatives of law firms and claim to be handling confidential or time-sensitive matters. This contact may be made via either phone or e-mail. Victims may be pressured by the fraudster to act quickly or secretly in handling the transfer of funds. This type of BEC scam may occur at the end of the business day or work week or be timed to coincide with the close of business of international financial institutions.

SUGGESTIONS FOR PROTECTION Raised awareness of the BEC scam has helped businesses detect the scam before sending payments to the fraudsters. Some financial institutions reported holding their customer requests for international wire transfers for an additional period of time, to verify the legitimacy of the request.

Businesses reported using the following new measures for added protection:

 Create intrusion detection system rules that flag e-mails with extensions that are similar to company e-mail. For example, legitimate e-mail of abc_company.com would flag fraudulent e-mail of abc-company.com.  Register all company domains that are slightly different than the actual company domain.  Verify changes in vendor payment location by adding additional two-factor authentication such as having a secondary sign- off by company personnel.  Confirm requests for transfers of funds. When using phone verification as part of the two-factor authentication, use previously known numbers, not the numbers provided in the e-mail request.  Know the habits of your customers, including the details of, reasons behind, and amount of payments.  Carefully scrutinize all e-mail requests for transfer of funds to determine if the requests are out of the ordinary.

Additional information is publicly available on the United States Department of Justice website www.justice.gov publication entitled “Best Practices for Victim Response and Reporting of Cyber Incidents”. UNCLASSIFIED Federal Bureau of Investigation Public Service Announcement

WHAT TO DO IF YOU ARE A VICTIM

If funds are transferred to a fraudulent account, it is important to act quickly:

 Contact your financial institution immediately upon discovering the fraudulent transfer  Request that your financial institution contact the corresponding financial institution where the fraudulent transfer was sent.  Contact your local Federal Bureau of Investigation (FBI) office if the wire is recent. The FBI, working with the United States Department of Treasury Financial Crimes Enforcement Network, might be able to help return or freeze the funds.  File a complaint, regardless of dollar loss, with www.IC3.gov.

When contacting law enforcement or filing a complaint with IC3, it is important to identify your incident as “BEC” and also consider providing the following information:

 Originating business name  Originating financial institution name and address  Originating account number  Beneficiary name  Beneficiary financial institution name and address  Beneficiary account number  Correspondent bank if known or applicable  Dates and amounts transferred  IP and/or e-mail address of fraudulent e-mail

Detailed descriptions of BEC incidents should include but not be limited to the following when contacting law enforcement:

 Date and time of incidents  Incorrectly formatted invoices or letterheads  Requests for secrecy or immediate action  Unusual timing, requests, or wording of the fraudulent phone calls or e- mails  Phone numbers of the fraudulent phone calls  Description of any phone contact, including frequency and timing of calls  Foreign accents of the callers  Poorly worded or grammatically incorrect e-mails  Reports of any previous e-mail phishing activity

SJCERA MONTHLY FLASH REPORT PRELIMINARY INVESTMENT RETURNS* (Net of Fees) PERIODS ENDING July 31, 2015 7/31/2015 ASSET CLASS % of Inception Month ITD or Mkt Value 3-Months 2015 YTD 1-Year 3-Years Manager - Style Total Date Ending 5-Years ($000) 1 TOTAL PLAN 2,496,747 100.0% Apr-90 -0.38 -1.09 3.00 3.00 7.73 7.76 Policy Benchmark 2 0.35 -0.17 3.19 3.83 7.05 7.41 Difference -0.73 -0.92 -0.19 -0.83 0.68 0.35 U.S. EQUITY 468,119 18.7% Dec-89 0.86 1.74 4.02 11.64 18.35 15.10 Benchmark : Russell 3000 1.67 1.35 3.65 11.28 18.00 16.35 Difference -0.81 0.39 0.37 0.36 0.35 -1.25 BlackRock Russell 1000 Index - Large Cap Core 288,727 11.6% Oct-09 1.93 1.34 3.68 11.24 18.01 16.45 Benchmark : Russell 1000 1.93 1.32 3.67 11.24 18.02 16.45 Difference 0.00 0.02 0.01 0.00 -0.01 0.00 Capital Prospects - Small Cap Value 86,528 3.5% Jul-06 -1.94 -1.25 0.12 5.85 18.12 14.92 Benchmark : Russell 2000 Value -2.76 -1.82 -2.02 4.30 14.82 12.60 Difference 0.82 0.57 2.14 1.55 3.30 2.32 Bennzott 12,954 0.5% Jul-06 -0.62 1.71 4.31 12.84 19.07 16.93 Difference 2.14 3.53 6.33 8.54 4.25 4.33 Channing 20,700 0.8% Jul-06 -1.71 1.91 3.05 9.54 21.54 15.78 Difference 1.05 3.73 5.07 5.24 6.72 3.18 Inview 18,367 0.7% Jul-06 -0.46 -2.04 -0.42 3.10 15.52 12.10 Difference 2.30 -0.22 1.60 -1.20 0.70 -0.50 Keeley 10,906 0.4% Jul-06 -1.25 -0.86 -0.81 2.50 16.22 13.76 Difference 1.51 0.96 1.21 -1.80 1.40 1.16 Pacific Ridge 11,998 0.5% Nov-13 4.79 3.60 9.22 18.91 --- 12.42 Difference 7.55 5.42 11.24 14.61 --- 7.87 Walthausen 11,603 0.5% Oct-10 -3.72 -3.10 -4.74 -0.03 16.46 15.41 Difference -0.96 -1.28 -2.72 -4.33 1.64 2.90 Legato Capital - Small Cap Growth 92,864 3.7% Jun-08 -0.10 5.20 8.22 18.06 20.52 17.77 Benchmark : Russell 2000 Growth 0.41 5.50 9.18 20.07 20.98 17.90 Difference -0.51 -0.30 -0.96 -2.01 -0.46 -0.13 AMI Asset 19,933 0.8% Oct-14 0.18 2.23 4.94 ------11.38 Difference -0.23 -3.27 -4.24 ------8.78 CastleArk Management 16,318 0.7% Apr-10 0.52 6.59 7.79 19.52 23.95 19.74 Difference 0.11 1.09 -1.39 -0.55 2.97 1.84 EAM Investors 13,507 0.5% Apr-11 0.54 9.20 10.25 28.54 23.40 12.85 Difference 0.13 3.70 1.07 8.47 2.42 0.09 Lee Munder 21,944 0.9% Apr-10 0.90 6.11 14.20 23.52 26.64 20.51 Difference 0.49 0.61 5.02 3.45 5.66 2.61 Rice Hall James 21,163 0.8% Oct-14 -2.20 4.25 5.95 ------17.58 Difference -2.61 -1.25 -3.23 ------2.58 NON-U.S. EQUITY 426,066 17.1% Sep-92 -0.66 -5.39 2.16 -6.69 9.83 6.26 Benchmark : MSCI ACWI ex US 1.60 -2.01 6.36 -1.59 11.78 7.91 Difference -2.26 -3.38 -4.20 -5.10 -1.95 -1.65 BlackRock International Stock Index - Non-U.S. Developed Core 172,588 6.9% Oct-09 1.58 -2.08 6.25 -1.78 11.60 7.76 Benchmark : MSCI World ex U.S. Index 1.60 -2.01 6.36 -1.59 11.78 7.91 Difference -0.02 -0.07 -0.11 -0.19 -0.18 -0.15 Research Affiliates International - Non-U.S. Enhanced 174,876 7.0% Apr-06 0.54 -3.85 3.49 -5.63 13.07 7.83 Benchmark : MSCI EAFE Index 2.08 -1.18 8.08 0.15 12.80 8.50 Difference -1.54 -2.67 -4.59 -5.78 0.27 -0.67 Research Affiliates Emerging Mkts. - Emerging Markets 78,602 3.1% Apr-07 -7.57 -14.77 -8.20 -17.78 -0.63 -0.19 Benchmark : MSCI EM Index -6.87 -12.84 -3.97 -13.07 0.96 0.92 Difference -0.70 -1.93 -4.23 -4.71 -1.59 -1.11 *The Manager Performance Summary is only an estimate of the portfolio returns and/or the value of the referenced funds or accounts and is provided for informational purposes only. The monthly returns are reported on a preliminary, best estimate basis and are subject to revisions. The final figure for a fund or account may vary significantly. SJCERA may or may not provide updates or changes to this data as circumstances warrant without any obligation to do so. 1July 1, 2015 - July 31, 2015 data is provided by the managers. Private Real Estate data is provided by Courtland on a quarter lag. Public Real Estate, Global Opportunistic, and some Fixed Income data is also lagged 1 quarter. 2Currently 16.25% US Equity Benchmark (BM), 16.25% Intl Equity BM 1.5% Glbl Equity BM 24% Fixed Income BM 10% Real Estate BM 7% Real Assets BM 15% Global Opps BM 10% Risk Parity BM.

Page 1 SJCERA MONTHLY FLASH REPORT PRELIMINARY INVESTMENT RETURNS* (Net of Fees) PERIODS ENDING July 31, 2015 7/31/2015 ASSET CLASS % of Inception Month ITD or Mkt Value 3-Months 2015 YTD 1-Year 3-Years Manager - Style Total Date Ending 5-Years ($000) GLOBAL EQUITY 54,510 2.2% Sep-12 -4.29 -8.16 -6.63 -11.94 --- 3.40 Benchmark : MSCI World 1.83 -0.07 4.83 5.49 --- 14.55 Difference -6.12 -8.09 -11.46 -17.43 --- -11.15 Kleinwort Benson - Global Water/Ag. 54,510 2.2% Sep-12 -4.29 -8.16 -6.63 -11.94 --- 3.40 Benchmark : MSCI World 1.83 -0.07 4.83 5.49 --- 14.55 Difference -6.12 -8.09 -11.46 -17.43 --- -11.15 FIXED INCOME 561,749 22.5% Jan-95 0.35 0.43 2.09 3.13 4.75 5.55 Benchmark : Custom Fixed Income Benchmark 0.52 -0.13 1.31 3.06 2.24 3.37 Difference -0.17 0.56 0.78 0.07 2.51 2.18 Dodge & Cox - Core Fixed Income 113,696 4.6% Oct-90 0.53 -0.44 0.99 2.68 3.48 4.78 Benchmark : BC Aggregate 0.70 -0.64 0.59 2.82 1.60 3.27 Difference -0.17 0.20 0.40 -0.14 1.88 1.51 Doubleline Capital - Mortgage Backed Securities 120,080 4.8% Feb-12 1.09 0.35 2.20 5.32 5.89 7.04 Benchmark : BC Aggregate 0.70 -0.64 0.59 2.82 1.60 3.27 Difference 0.39 0.99 1.61 2.50 4.29 3.77 1 Mesa West RE Income II - Comm. Mortgage 14,339 0.6% Jan-10 0.00 2.29 1.53 -3.45 8.25 8.29 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 9.00 9.00 Difference -0.72 0.11 -3.63 -12.45 -0.75 -0.71 1 Mesa West RE Income III - Comm. Mortgage 20,249 0.8% Sep-13 0.00 2.53 4.64 9.18 --- 7.43 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 --- 9.00 Difference -0.72 0.35 -0.52 0.18 --- -1.57 1 Prima Mortgage Investment Trust - Comm. Mortgage 137,070 5.5% Apr-08 0.38 2.20 3.90 6.03 5.11 5.88 Benchmark : BC Aggregate (lagged) -0.36 -0.84 3.06 4.46 2.60 4.12 Difference 0.74 3.04 0.84 1.57 2.51 1.76 Stone Harbor - Absolute Return 94,614 3.8% Oct-06 -0.47 -1.35 0.17 -1.82 2.52 3.37 Benchmark : 3-month Libor Total Return 0.02 0.06 0.15 0.24 0.27 0.32 Difference -0.49 -1.41 0.02 -2.06 2.25 3.05 Stone Harbor - Bank Loans 61,701 2.5% Mar-14 0.02 -0.03 2.54 1.51 --- 1.93 Benchmark : S&P/LSTA Lev. Loan -0.01 -0.24 2.82 1.84 --- 2.52 Difference 0.03 0.21 -0.28 -0.33 --- -0.59 RISK PARITY 232,855 9.3% Mar-12 -1.43 -5.19 -2.01 -6.31 -5.97 -3.48 Benchmark : 70% Tbills + 6% / 30% Parametric Custom -0.14 -0.67 1.62 2.52 -2.62 -1.18 Difference -1.29 -4.52 -3.63 -8.83 -3.35 -2.30 Bridgewater All Weather - Strategic Asset Allocation 76,964 3.1% Mar-12 -0.50 -4.93 -0.04 -1.36 2.20 4.11 Benchmark : T-Bill + 6% 0.49 1.48 3.48 6.04 6.04 6.04 Difference -0.99 -6.41 -3.52 -7.40 -3.84 -1.93 Parametric Contraction - Risk Parity 68,739 2.8% Mar-12 -1.61 -5.14 -3.35 -6.72 -13.33 -10.54 Benchmark : Custom Benchmark -1.61 -5.57 -2.74 -5.55 -12.51 -10.34 Difference 0.00 0.43 -0.61 -1.17 -0.82 -0.20 PIMCO All Asset All Authority - Strategic Asset Allocation 87,153 3.5% Nov-13 -2.12 -5.46 -2.65 -10.05 --- -3.11 Benchmark : T-Bill + 6% 0.49 1.48 3.48 6.04 --- 6.04 Difference -2.61 -6.94 -6.13 -16.09 --- -9.15 REAL ASSETS 107,029 4.3% Mar-09 -1.88 -4.98 -1.62 -4.54 -2.57 2.65 Benchmark : Custom -1.14 -2.82 -4.48 -16.14 -6.68 -0.54 Difference -0.74 -2.16 2.86 11.60 4.11 3.19 Bridgewater Real Asset 107,029 4.3% Mar-09 -1.88 -4.98 -1.62 -4.54 -1.29 3.75 Benchmark : RA Bench -1.96 -4.83 -2.62 -5.30 -2.77 2.71 Difference 0.08 -0.15 1.00 0.76 1.48 1.04 *The Manager Performance Summary is only an estimate of the portfolio returns and/or the value of the referenced funds or accounts and is provided for informational purposes only. The monthly returns are reported on a preliminary, best estimate basis and are subject to revisions. The final figure for a fund or account may vary significantly. SJCERA may or may not provide updates or changes to this data as circumstances warrant without any obligation to do so. 1Performance data is lagged 1 quarter.

Page 2 SJCERA MONTHLY FLASH REPORT PRELIMINARY INVESTMENT RETURNS* (Net of Fees) PERIODS ENDING July 31, 2015 7/31/2015 ASSET CLASS % of Inception Month ITD or Mkt Value 3-Months 2015 YTD 1-Year 3-Years Manager - Style Total Date Ending 5-Years ($000) CASH 59,387 2.4% Sep-94 -0.07 -0.07 -0.04 -0.10 -0.01 -0.09 Benchmark : U.S. Treasury Bills 0.00 0.00 0.00 0.01 0.06 0.08 Difference -0.07 -0.07 -0.04 -0.11 -0.07 -0.17 Northern Trust STIF - Collective Govt. Short-Term 46,271 1.9% Jan-95 0.00 0.01 0.05 0.05 0.05 0.09 Difference 0.00 0.01 0.05 0.04 -0.01 0.01 Parametric PIOS - Cash Overlay 13,116 0.5% Mar-06 -0.24 -0.41 -0.46 -0.81 -0.28 -0.35 Difference -0.24 -0.41 -0.46 -0.82 -0.34 -0.43 1 GLOBAL OPPORTUNISTIC 334,646 13.4% Aug-09 -1.09 8.34 12.15 14.00 8.39 4.12 Benchmark : 9% Annual 0.72 2.18 9.00 9.00 9.00 Difference -1.81 6.16 12.15 5.00 -0.61 -4.88 1 Mount Lucas - Managed Futures 44,886 1.8% Jan-05 -4.84 -0.49 43.56 52.68 14.01 10.07 Benchmark : 6% Annual + (10% 91 Day T-bill) 0.49 1.48 3.48 6.04 6.04 6.04 Difference -5.33 -1.97 40.08 46.64 7.97 4.03 1 Bridgewater Pure Alpha & PAMM - Uncorrelated Alpha 106,514 4.3% Aug-06 -1.71 5.56 16.38 14.55 9.93 8.43 Benchmark : 12% Annual 0.95 2.87 6.83 12.00 12.00 12.00 Difference -2.66 2.69 9.55 2.55 -2.07 -3.57 1 Crestline Opportunity II - Credit, Niche Alts. & HF Secondaries 26,043 1.0% Nov-13 0.00 -1.08 1.77 8.33 --- 8.45 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 --- 9.00 Difference -0.72 -3.26 -3.39 -0.67 --- -0.55 1 Marinus Opportunity - MBS HF 46,893 1.9% Apr-12 0.76 1.64 0.67 1.82 6.76 7.02 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 9.00 9.00 Difference 0.04 -0.54 -4.49 -7.18 -2.24 -1.98 1 Medley Opportunity II - Direct Lending 52,733 2.1% Jul-12 0.00 1.91 3.87 5.89 7.01 6.81 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 --- 9.00 Difference -0.72 -0.27 -1.29 -3.11 --- -2.19 1 Morgan Creek III - Co-Investments 3,166 0.1% Feb-15 0.00 0.00 ------0.00 Benchmark : 9% Annual 0.72 2.18 ------4.40 Difference -0.72 -2.18 ------4.40 1 Morgan Creek V - Multi-Strategy Fund-of-Funds 8,539 0.3% Jun-13 0.00 -2.69 -2.65 11.25 --- 12.99 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 --- 9.00 Difference -0.72 -4.87 -7.81 2.25 --- 3.99 1 Morgan Creek VI - Multi-Strategy Fund-of-Funds 765 0.0% Feb-15 0.00 0.00 ------0.00 Benchmark : 9% Annual 0.72 2.18 ------4.40 Difference -0.72 -2.18 ------4.40 Ocean Avenue II1 - Private Equity Buyout Fund-of-Funds 13,132 0.5% May-13 0.00 4.42 4.95 -2.42 --- -1.77 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 --- 9.00 Difference -0.72 2.24 -0.21 -11.42 --- -10.77 1 Raven Opportunity II - Direct Lending 31,974 1.3% Aug-14 0.00 2.34 1.19 -14.34 --- -14.34 Benchmark : 9% Annual 0.72 2.18 5.16 9.00 --- 9.00 Difference -0.72 0.16 -3.97 -23.34 --- -23.34 *The Manager Performance Summary is only an estimate of the portfolio returns and/or the value of the referenced funds or accounts and is provided for informational purposes only. The monthly returns are reported on a preliminary, best estimate basis and are subject to revisions. The final figure for a fund or account may vary significantly. SJCERA may or may not provide updates or changes to this data as circumstances warrant without any obligation to do so. 1Performance data is lagged 1 quarter.

Page 3 SJCERA MONTHLY FLASH REPORT PRELIMINARY INVESTMENT RETURNS* (Net of Fees) PERIODS ENDING July 31, 2015 7/31/2015 ASSET CLASS % of Inception Month ITD or Mkt Value 3-Months 2015 YTD 1-Year 3-Years Manager - Style Total Date Ending 5-Years ($000) 1 REAL ESTATE 252,386 10.1% Jun-05 -0.34 2.17 6.56 5.66 11.65 14.91 Benchmark : Custom -0.47 1.86 8.07 9.49 11.28 12.92 Difference 0.13 0.31 -1.51 -3.83 0.37 1.99 1 PUBLIC REAL ESTATE 55,959 2.2% Aug-04 -1.51 2.01 9.94 4.57 9.00 9.40 Benchmark : Public RE Bench -1.90 -2.67 11.64 16.49 12.46 14.84 Difference 0.39 4.68 -1.70 -11.92 -3.46 -5.44 1 Invesco All Equity REIT - Core U.S. 30,238 1.2% Aug-04 -5.43 -2.02 10.84 22.50 14.04 15.51 Benchmark : FTSE NARIET Equity (lagged) -5.49 -7.22 13.06 25.01 14.96 16.36 Difference 0.06 5.20 -2.22 -2.51 -0.92 -0.85 BlackRock Developed ex-US REIT1 - Value Added 25,721 1.0% Aug-14 3.53 7.20 8.91 5.37 --- 5.37 Benchmark : NAREIT Developed ex US Index (lagged) 3.49 4.13 8.87 2.54 --- 2.54 Difference 0.04 3.07 0.04 2.83 --- 2.83 1 PRIVATE REAL ESTATE 196,427 7.9% Nov-04 --- 2.20 2.20 12.20 14.80 19.50 Benchmark : NCREIF ODCE Net +1% --- 3.40 3.40 13.50 12.60 13.40 Difference --- -1.20 -1.20 -1.30 2.20 6.10 1 Prologis Targeted US Logistics - Core 34,166 1.4% Jul-07 --- 3.00 3.00 15.80 14.70 16.90 Difference --- -0.40 -0.40 2.30 2.10 3.50 1 Almanac VI - Value Added 8,039 0.3% Nov-12 --- -1.80 -1.80 6.10 --- 14.50 Difference --- -5.20 -5.20 -7.40 --- 2.84 1 Colony Realty Partners III - Value Added 19,767 0.8% Sep-09 --- 1.90 1.90 8.80 9.00 16.30 Difference --- -1.50 -1.50 -4.70 -3.60 2.90 1 Colony Realty Partners IV - Value Added 13,710 0.5% Dec-12 --- 5.90 5.90 22.60 --- 19.40 Difference --- 2.50 2.50 9.10 --- 7.39 1 Steel Wave (Legacy) II - Value Added 1 0.0% Nov-06 ------N/M 1 Steel Wave (Legacy) III - Value Added 10,460 0.4% Aug-07 --- 0.70 0.70 2.90 --- N/M Difference --- -2.70 -2.70 -10.60 ------1 RREEF America REIT III - Value Added 7,592 0.3% Nov-04 --- 2.30 2.30 23.90 20.90 N/M Difference --- -1.10 -1.10 10.40 8.30 --- 1 Saraofim Multifamily II - Value Added 4,250 0.2% Oct-08 --- -0.30 -0.30 -11.40 2.50 6.50 Difference --- -3.70 -3.70 -24.90 -10.10 -6.90 1 Greenfield Acquisition V - Opportunistic 7,935 0.3% Apr-08 --- 2.20 2.20 6.30 11.40 15.60 Difference --- -1.20 -1.20 -7.20 -1.20 2.20 1 Greenfield Acquisition VI - Opportunistic 21,794 0.9% Jan-12 --- -0.20 -0.20 15.30 16.20 13.40 Difference --- -3.60 -3.60 1.80 3.60 2.24 1 Greenfield Acquisition VII - Opportunistic 9,689 0.4% Aug-14 --- 0.90 0.90 ------N/M Difference --- -2.50 -2.50 ------1 Miller Global V - Opportunistic 6,519 0.3% Jul-05 --- 1.90 1.90 13.70 12.30 40.00 Difference --- -1.50 -1.50 0.20 -0.30 26.60 1 Miller Global VI - Opportunistic 17,110 0.7% May-08 --- 3.10 3.10 14.30 11.30 14.00 Difference --- -0.30 -0.30 0.80 -1.30 0.60 1 Miller Global VII - Opportunistic 10,378 0.4% Dec-13 --- 3.20 3.20 22.70 --- 19.70 Difference --- -0.20 -0.20 9.20 --- 8.26 1 Walton Street V - Opportunistic 12,933 0.5% Aug-06 --- 4.30 4.30 12.60 11.50 15.30 Difference --- 0.90 0.90 -0.90 -1.10 1.90 1 Walton Street VI - Opportunistic 12,082 0.5% Apr-09 --- 2.70 2.70 10.30 12.90 31.80 Difference --- -0.70 -0.70 -3.20 0.30 18.40 *The Manager Performance Summary is only an estimate of the portfolio returns and/or the value of the referenced funds or accounts and is provided for informational purposes only. The monthly returns are reported on a preliminary, best estimate basis and are subject to revisions. The final figure for a fund or account may vary significantly. SJCERA may or may not provide updates or changes to this data as circumstances warrant without any obligation to do so. 1Private Real Estate Data is lagged 1 quarter and provided by Courtland quarterly. Public Real Estate Data is also lagged 1 quarter and provided by the managers monthly.

Page 4 PCA INVESTMENT MARKET RISK METRICS

Monthly Report

September 2015 Takeaways

• Growth concerns weighed on world equity markets, causing U.S. equity volatility to skyrocket. The VIX touched 40 and ended the month near 30, the highest level since 2011(an average reading is 20).

• U.S. growth oriented assets; equity, private equity, and private real estate, continue to register top decile valuation levels relative to their histories, even after significant public equity market declines.

• U.S. credit spreads widened further in August and Treasury interest rates fell, as market anxiety rose.

• International equity valuations fell further below their historical average valuation levels, cheap relative to U.S. valuation levels.

• Commodity prices continued their five-year decline on news of China’s slowing, and a continued decline in oil prices.

• 10-year breakeven inflation levels dropped to 1.5%, a level of anticipated inflation not seen since 2010.

• The PCA Market Sentiment Indicator remained neutral at month end; however, the indicator flashed red intra-month. The level of the indicator (the line) continued to fall. The spread element of the indicator is negative already. Year-over-year equity returns are very close to negative. (page 4)

1See Appendix for the rationale for selection and calculation methodology used for the risk metrics.

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 2 Monthly Report - September 2015 Risk Overview

Valuation Metrics versus Historical Range A Measure of Risk

Unfavorable Top Decile Pricing

Average Neutral

Bottom Decile Favorable Pricing US Equity Dev ex‐US EM Equity Private Private Private US IG Corp US High (page 5) Equity Relative to Equity Real Real Debt Yield Debt (page 5) DM Equity (page 6) Estate Estate Spread Spread (page 6) Cap Rate Spread (page 8) (page 8) (page 7) (page 7)

Other Important Metrics within their Historical Ranges Pay Attention to Extreme Readings

Top Decile Attention!

Average Neutral

Bottom Decile Attention!

Equity Volatility Yield Curve Slope Breakeven Inflation Interest Rate Risk (page 9) (page 9) (page 10) (page 11)

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 3 Monthly Report - September 2015 Market Sentiment PCA Market Sentiment Indicator (1995‐Present)

Positive Positive

Neutral Neutral

Negative Negative

Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator

PCA Market Sentiment Indicator ‐ Most Recent 3‐Year Period

Positive Positive

Neutral Neutral

Negative Negative

Information Behind Current Sentiment Reading Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator

Bond Spread Momentum Trailing‐Twelve Months Negative Equity Return Momentum Trailing‐Twelve Months Positive Agreement Between Bond Spread and Equity Spread Momentum Measures? Disagree Growth Risk Visibility (Current Overall Sentiment) Neutral

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 4 Monthly Report - September 2015 Developed Public Equity Markets U.S. Equity Market P/E Ratio1 versus Long‐Term Historical Average 50 45 2000 US Markets 40 Current P/E as of 35 1929 8/2015 = 25.6x 30 1901 25 1966 Ratio

20 P/E 15 10 2009 US Markets 5 1981 Long‐term Average 1921 0 (since 1880) P/E = 16.6x

1 P/E ratio is a Shiller P/E‐10 based on 10 year real S&P 500 earnings over S&P 500 index level.

(Please note the different time scales) DDldeveloped ex‐US EEitquity MMktarket P/E RRtiatio1 versus Long‐Term Historical Average2 45 40 Average 1982‐ 35 8/2015 EAFE Only P/E 30 = 23.9x

25 Long‐Term

Ratio Average 20 Historical 2

P/E P/E = 16.9x 15 10

5 Intl Developed Markets Current 0 P/E as of 8/2015 = 14.0x

1 P/E ratio is a Shiller P/E‐10 based on 10 year real 2 To calculate the LT historical average, from 1881 to 1982 U.S. data is used as developed market MSCI EAFE earnings over EAFE index level. proxy. From 1982 to present, actual developed ex‐US market data (MSCI EAFE) is used.

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 5 Monthly Report - September 2015 Emerging Market Public Equity Markets Emerging Markets PE / Developed Markets PE (100% = Parity between PE Ratios) 275% 250% Russian Crisis, LTCM implosion, 225% currency devaluations Mexican 200% Peso Technology EM/DM Crisis World 175% and Telecom relative PE ratio Financial 150% Crash is slightly below the Crisis historical average 125% 100% 75% 50% Asian Commodity 25% Crisis price runup 0%

Source: Bloomberg, MSCI World, MSCI EMF EM/DM PE Average EM/DM PE Parity

US Private Equity Quarterly Data, Updated to June 30th

Price to EBITDA Multiples Discl osed USU.S. QtlQuarterly Paid in LBOs Deal Volume* 250 11.0 (updated to July 31st)

10.0 200

9.0 150 Deal volume remains in an

($) upward trend. 8.0 100

7.0 Multiples have risen above Billions the pre‐crisis highs. 50 6.0

5.0 0

Source: Thomson Reuters Buyouts Source: S&P LCD study, data presented is on 1‐month lag * quarterly total deal size (both equity and debt)

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 6 Monthly Report - September 2015 Private Real Estate Markets Quarterly Data, Updated to June 30th Core Real Estate Current Value Cap Rates1 10.0% Core real estate cap rates remain low 9.0% by historical standards (expensive). 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Core Cap Rate Cap Rate 2.0% LT Average Cap Rate 1.0% 10 Year Treasury Rate 0.0%

Sources: NCRIEF, www.ustreas.gov 1Acap rate is the current annual income of the property divided by an estimate of the current value of the property . It is the current yield of the property. Low cap rates indicate high valuations.

Core Cap Rate Spread over 10‐Year Treasury Interest Rate 5.0% Spread to the 10‐year Treasury narrowed due to recent rise of U.S. interest rates.

4.0%

3.0%

2.0% te Spread t 1.0% Core Cap Rate Spread to Treasuries LT Average Spread Cap Ra 0.0%

Transactions as a % of Market Value Trailing‐Four Quarters (a measure of property turnover activity) 20.00%

Activity has plateaued over 15.00% the last 2‐year period.

10.00%

5.00%

0.00%

Source: NCREIF, PCA calculation

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 7 Monthly Report - September 2015 Credit Markets US Fixed Income

Investment Grade Corporate Bond Spreads

700

600 points)

500 Investment grade spreads widened

(basis during August, ending the month just

400 Investment above the long‐term average level. Grade Bond Spreads 300 Treasuries

Over

200 Average spread

Spread 100 since 1994 (IG Bonds) 0

Source: LehmanLive: Barclays Capital US Corporate Investment Grade Index Intermediate Component.

High Yield Corporate Bond Spreads 1800

1600 Likewise, high yield spreads widened 1400 during August, ending the month slightly points)

1200 above the long‐term average level. (basis

1000 High Yield Bond 800 Spreads Treasuries

600 Over Average 400 spread

Spread since 1994 200 (HY Bonds)

Source: LehmanLive: Barclays Capital U.S. Corporate High Yield Index.

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 8 Monthly Report - September 2015 Other Market Metrics

VIX ‐ a measure of equity market fear / uncertainty

80.00

70.00 Equity market volatility (VIX) soared intra‐month in August, 60.00 hitting levels not seen since 2011, and ending the month well above the long‐term average level (≈ 20) at nearly 30. 50.00

40.00

30.00

20.00

10.00

0.00

Source: http://www.cboe.com/micro/vix/historical.aspx

Yield Curve Slope 5.0 The average 10‐year Treasury interest rate decreased during August. The average short‐ term rate (the one‐year Treasury) rose modestly, but remains at low levels (≈ 40 bps). The 4.0 change in slope over the month was down, and the yield curve remains upward sloping.

3.0

2.0

1.0

0.0

‐1.0 Yield curve slopes that ‐2.0 are negative (inverted) portend a recession. ‐3.0

Source: www.ustreas.gov (10 yr treasury yield minus 1 year treasury yield) Recession Dating: NBER http://www.nber.org/cycles.html

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 9 Monthly Report - September 2015 Measures of Inflation Expectations

10‐Year Breakeven Inflation (10‐year nominal Treasury yield minus 10‐year TIPS yield) 3.00%

2.50%

2.00%

1.50% Breakeven inflation ended August at 1.63%, decreasing from the end 1.00% of July. The 10‐year TIPS real‐yield increased to 0.58%, and the nominal 10‐year Treasury yield was relatively unchanged at 2.21%.

0.50%

0.00%

Source: www.ustreas.gov

(Please note the different time scales) Inflation Adjusted Dow Jones UBS Commodity Price Index (1991 = 100) 160

140

120

100

60 Broad commodity prices dropped during August, ending the month at 40 the lowest levels (inflation adjusted) since the dataset began in 1991.

Source: Bloomberg Commodity Index, St. Louis Fed for US CPI all urban consumers.

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 10 Monthly Report - September 2015 Measures of U.S. Treasury Interest Rate Risk

Estimate of 10‐Year Treasury Forward‐Looking Real Yield 10.0

8.0 The forward‐looking annual real yield on 10‐year Treasuries Treasury is estimated at approximately 0.02% real, assuming 10‐year 6.0 annualized inflation of 2.15%* per year. Year 10 ‐

of 4.0 Yield

2.0 Real

0.0 Expected

‐2.0

Sources: www.ustreas.gov for 10‐year constant maturity rates *Federal Reserve Bank of Philadelphia survey of professional forecasts for inflation estimates

10‐Year Treasury Duration (Change in Treasury price with a change in interest rates) 9.50 Interest rate risk is off the 30 year high, but not by much. Higher Risk 9.00 8.50 8.00 Duration 7.50

Bond 7.00

6.50 If the 10‐year Treasury yield rises by 100 basis points from today's levels, the capital loss from the change Treasury

6.00 in price is expected to be ‐8.9%.

Year 5.50

10 ‐ 5.00 4.50 Lower Risk 4.00

Source: www.ustreas.gov for 10‐year constant maturity rates, calculation of duration

PENSION CONSULTING ALLIANCE, LLC. • Investment Market Risk Metrics 11 Appendix

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 1 Appendix

METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY

US Equity Markets: Metric: P/E ratio = Price / “Normalized” earnings for the S&P 500 Index

To represent the price of US equity markets, we have chosen the S&P 500 index. This index has the longest published history of price, is well known, and also has reliable, long-term, published quarterly earnings. The price=P of the P/E ratio is the current price of the market index (the average daily price of the most recent full month for the S&P 500 index). Equity markets are very volatile. Prices fluctuate significantly during normal times and extremely during periods of market stress or euphoria. Therefore, developing a measure of earnings power (E) which is stable is vitally important, if the measure is to provide insight. While equity prices can and do double, or get cut in half, real earnings power does not change nearly as much. Therefore, we have selected a well known measure of real, stable earnings power developed by Yale Professor Robert Shiller known as the Shiller E-10. The calculation of E-10 is simply the average real annual earnings over the past 10 years. Over 10 years, the earnings shenanigans and boom and bust levels of earnings tend to even out (and often times get restated). Therefore, this earnings statistic gives a reasonably stable, slow-to-change estimate of average real earnings power for the index. Professor Shiller’s data and calculation of the E-10 are available on his website at http://www.econ.yale.edu/~shiller/data.htm. Wehaveusedhisdataasthebaseforourcalculations. Details of the theoretical justification behind the measure can be found in his book Irrational Exuberance [Princeton University Press 2000, Broadway Books 2001, 2nd ed., 2005].

Developed Equity Markets Excluding the US: Metric: P/E ratio = Price / “Normalized” earnings for the MSCI EAFE Index

To represent the price of non-US developed equity markets, we have chosen the MSCI EAFE index. This index has the longest published history of price for non-US developed equities. The price=P of the P/E ratio is the current price of the market index (the average daily price of the most recent full month for the MSCI EAFE index). The price level of this index is available starting in December 1969. Again, for the reasons described above, we elected to use the Shiller E-10 as our measure of earnings (E). Since 12/1972, a monthly price earnings ratio is available from MSCI. Using this quoted ratio, we have backed out the implied trailing-twelve month earnings of the EAFE index for each month from 12/1972 to the present. These annualized earnings are then inflation adjusted using CPI-U to represent real earnings in US dollar terms for each time period. The Shiller E-10 for the EAFE index (10 year average real earnings) is calculated in the same manner as detailed above.

However, we do not believe that the pricing and earningshistoryoftheEAFEmarketsarelongenoughto be a reliable representation of pricing history for developed market equities outside of the US. Therefore, in constructing the Long-Term Average Historical P/E for developed ex-US equities for comparison purposes, we have elected to use the US equity market as a developed market proxy, from 1881 to 1982. This lowers the Long-Term Average Historical P/E considerably. We believe this methodology provides a more realistic historical comparison for a market with a relatively short history.

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 2 Appendix

METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY

Emerging Market Equity Markets: Metric: Ratio of Emerging Market P/E Ratio to Developed Market P/E Ratio

To represent the Emerging Markets P/E Ratio, we have chosen the MSCI Emerging Market Free Index, which has P/E data back to January 1995 on Bloomberg. To represent the Developed Markets PE Ratio, we have chosen the MSCI World Index, which also has data back to January 1995 on Bloomberg. Although there are issues with published, single time period P/E ratios, in which the denominator effect can cause large movements, we feel that the information contained in such movements will alert investors to market activity that they will want to interpret.

US Private Equity Markets: Metrics: S&P LCD Average EBITDA Multiples Paid in LBOs and US Quarterly Deal Volume

The Average Purchase Price to EBITDA multiples paid in LBOs is published quarterly by S&P in their LCD study. This is the total price paid (both equity and debt) over the trailing-twelve month EBITDA (earnings before interest, taxes, depreciation and amortization) as calculated by S&P LCD. This is the relevant, high-level pricing metric that private equity managers use in assessing deals. Data is published monthly. US quarterly deal volume for private equity is the total deal volume in $ billions (both equity and debt) reported in the quarter by Thomson Reuters Buyouts. This metric gives a measure of the level of activity in the market. Data is published quarterly.

U.S Private Real Estate Markets: Metrics: US Cap Rates, Cap Rate Spreads, and Transactions as a % of Market Value

Real estate cap rates are a measure of the price paid in the market to acquire properties versus their annualized income generation before financing costs (NOI=net operating income). The data, published by NCREIF, describes completed and leased properties (core) on an unleveraged basis. We chose to use current value cap rates. These are capitalization rates from properties that were revalued during the quarter. This data relies on estimates of value and therefore tends to be lagging (estimated prices are slower to rise and slower to fall than transaction prices). The data is published quarterly. Spreads between the cap rate (described above) and the 10-year nominal Treasury yield, indicate a measure of thecost of properties versus a current measure of thecost of financ ing. Transactions as a % of Market Value Trailing-Four Quarters is a measure of property turnover activity in the NCREIF Universe. This quarterly metric is a measure of activity in the market.

Credit Markets US Fixed Income: Metric: Spreads

The absolute level of spreads over treasuries and spread trends (widening / narrowing) are good indicators of credit risk in the fixed income markets. Spreads incorporate estimates of future default, but can also be driven by technical diiislocations inthefixed income markets. Abnormally narrow spreads (i(relative to historical levels) indicate higher levels of valuation risk, wide spreads indicate lower levels of valuation risk and / or elevated default fears. Investment grade bond spreads are represented by the Barclays Capital US Corporate Investment Grade Index Intermediate Component. The high yield corporate bond spreads are represented by the Barclays Capital US Corporate High Yield Index.

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 3 Appendix

METRIC DESCRIPTION, RATIONALE FOR SELECTION AND CALCULATION METHODOLOGY

Measure of Equity Market Fear / Uncertainty Metric: VIX – Measure of implied option volatility for U.S. equity markets

The VIX is a key measure of near-term volatility conveyed by implied volatility of S&P 500 index option prices. VIX increases with uncertainty and fear. Stocks and the VIX are negatively correlated. Volatility tends to spike when equity markets fall.

Measure of Monetary Policy Metric: Yield Curve Slope

We calculate the yield curve slope as the 10 year treasury yield minus the 1 year treasury yield. When the yield curve slope is zero or negative, this is a signal to pay attention. A negative yield curve slope signals lower rates in the future, caused by a contraction in economic activity. Recessions are typically preceded by an inverted (negatively sloped) yield curve. A very steep yield curve (2 or greater) indicates a large difference between shorter-term interest rates (the 1 year rate) and longer-term rates (the 10 year rate). This can signal expansion in economic activity in the future, or merely higher future interest rates.

Measures of US Inflation Expectations Metrics: Breakeven Inflation and Inflation Adjusted Commodity Prices

Inflation is a very important indicator impacting all assets and financial instruments. Breakeven inflation is calculated as the 10 year nominal treasury yield minus the 10 year real yield on US TIPS (treasury inflation protected securities). Abnormally low long-term inflation expectations are indicative of deflationary fears. A rapid rise in breakeven inflation indicates an acceleration in inflationary expectations as market participants sell nominal treasuries and buy TIPs. If breakeven inflation continues to rise quarter over quarter, this is a signal of inflationary worries rising, which may cause Fed action and / or dollar decline. Commodity price movement (above the rate of inflation) is an indication of anticipated inflation caused by real global economic activity putting pressure on resource prices. We calculate this metric by adjusted in the Dow Jones UBS Commodity Index (formerly Dow Jones AIG Commodity Index) by US CPI-U. While rising commodity prices will not necessarily translate to higher US inflation, higher US inflation will likely show up in higher commodity prices, particularly if world economic activity is robust. These two measures of anticipated inflation can, and often are, conflicting.

Measures of US Treasury Bond Interest Rate Risk Metrics: 10-Year Treasury Forward-Looking Real Yield and 10-Year Treasury Duration

The expected annualized real yield of the 10 year U.S. Treasury Bond is a measure of valuation risk for U.S. Treasuries. A low real yield means investors will accept a low rate of expected return for the certainly of receiving their nominal cash flows. PCA estimates the expected annualized real yield by subtracting an estimate of expected 10 year inflation (produced by the Survey of Professional Forecasters as collected by the Federal Reserve Bank of Philadelphia), from the 10 year Treasury constant maturity interest rate. Durationforthe10-YearTreasuryBondiscalculated based on the current yield and a price of 100. This is a measure of expected percentage movements in the price of the bond based on small movements in percentage yield. We make no attempt to account for convexity.

Definition of “extreme” metric readings

A metric reading is defined as “extreme” if the metric reading is in the top or bottom decile of its historical readings. These “extreme” reading should cause the reader to pay attention. These metrics have reverted toward their mean values in the past.

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 4 PCA Market Sentiment Indicator

Explanation, Construction and Q&A

By:

Pension Consulting Alliance, LLC.

John Linder, CFA, CPA Neil Rue, CFA

PCA has created the PCA Market Sentiment Indicator (PMSI) to complement our valuation-focused PCA Investment Market Risk Metrics. This measure of sentiment is meant to capture significant and persistent shifts in long-lived market trends of economic growth risk, either towards a risk-seeking trend or a risk-aversion trend.

This paper explores:

 What is the PCA Market Sentiment Indicator (PMSI)?  How do I read the indicator graph?  How is the PCA Market Sentiment Indicator (PMSI) constructed?  What do changes in the indicator mean?

© 2012 Pension Consulting Alliance, LLC. Reproduction of all or any part of this report is permissible if reproduction contains notice of Pension Consulting Alliance’s copyright as follows: “Copyright © 2012 byPensionConsultingAlliance,LLC.”Informationisconsideredtobereliablebutnotguaranteed. This report is not intended to be an offer, solicitation, or recommendation to purchase any security or a recommendation of the services supplied by any money management organization unless otherwise noted. PCA Market Sentiment Indicator

PCA has created a market sentiment indicator for monthly publication (the PMSI – see below) to complement PCA’s Investment Market Risk Metrics.

PCA’s Investment Market Risk Metrics, which rely significantly on standard market measures of relative valuation, often provide valid early signals of increasing long-term risk levels in the global investment markets. However, as is the case with numerous valuation measures, the Risk Metrics may convey such risk concerns long before a market corrections take place. The PMSI helps to address this early-warning bias by measuring whether the markets are begiiinning to acknowledge key Risk Metrics trends, and / or indicating non-valuation based concerns. Once the PMSI indicates that the market sentiment has shifted, it is our belief that investors should consider significant action, particularly if confirmed by the Risk Metrics. Importantly, PCA believes the Risk Metrics and PMSI should always be used in conjunction with one another and never in isolation. The questions and answers below highlight and discuss the basic underpinnings of the PCA PMSI:

What is the PCA Market Sentiment Indicator (PMSI)? The PMSI is a measure meant to gauge the market’s sentiment regarding economic growth risk. Growth risk cuts across most financial assets, and is the largest risk exposure that most portfolios bear. The PMSI takes into account the momentum (trend over time, positive or negative) of the economic growth risk exposure of publicly traded stocks and bonds, as a signal of the future direction of growth risk returns; either positive (risk seeking market sentiment), or negative (risk averse market sentiment).

How do I read the PCA Market Sentiment Indicator (PMSI) graph? Simply put, the PMSI is a color coded indicator that signals the market’s sentiment regarding economic growth risk. It is read left to right chronologically. A green indicator on the PMSI indicates that the market’s sentiment towards growth risk is positive. A gray indicator indicates that the market’s sentiment towards growth risk is neutral or inconclusive. A red indicator indicates that the market’s sentiment towards growth risk is negative. The black line on the graph is the level of the PMSI. The degree of the signal above or below the neutral reading is an indication the signal’s current strength.

Momentum as we are defining it is the use of the past behavior of a series as a predictor of its future behavior.

PCA Market Sentiment Indicator (1995 ‐ Present)

Positive Positive

Neutral Neutral

Negative Negative

Avoid Growth Risk Growth Risk Neutral Embrace Growth Risk PCA Sentiment Indicator

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 6 PCA Market Sentiment Indicator

How is the PCA Market Sentiment Indicator (PMSI) Constructed?

The PMSI is constructed from two sub-elements representing investor sentiment in stocks and bonds: 1. Stock return momentum: Return momentum for the S&P 500 Equity Index (trailing 12-months) 2. Boodnd yyedield spr ead mooeumentum: Mooeumentum of bond yyedield spr eads (ex cess ofthe measured bond yield over the identical duration U.S. Treasury bond yield) for corporate bonds (trailing 12-months) for both investment grade bonds (75% weight) and high yield bonds (25% weight). The scale of this measure is adjusted to match that of the stock return momentum measure.

The black line reading on the graph is calculated as the average of the stock return momentum measure and the bonds spread momentum measure. The color reading on the graph is determined as follows:

1. If bthboth stktock return momentum and bdbond spread momentum are positive = GREEN (iti)(positive) 2. If one of the momentum indicators is positive, and the other negative = GRAY (inconclusive) 3. If both stock return momentum and bond spread momentum are negative = RED (negative)

What does the PCA Market Sentiment Indicator (PMSI) mean? Why might it be useful?

There is strong evidence that time series momentum is significant and persistent. In particular, across an extensive array of asset classes, the sign of the trailing 12-month return (positive or negative ) is idiindica tive of ftfuture returns (iti(positive or negative ) over thenext 12 month peridiod. The PMSI is constructed to measure this momentum in stocks and corporate bond spreads. A reading of green or red is agreement of both the equity and bond measures, indicating that it is likely that this trend (positive or negative) will continue over the next 12 months. When the measures disagree, the indicator turns gray. A gray reading does not necessarily mean a new trend is occurring, as the indicator may move back to green, or into the red from there. The level of the reading (black line) and the number of months at the red or green reading, gives the user additional information on which to form an opinion, and potentially take action.

I Momentum as we are defining it is the use of the past behavior of a series as a predictor of its future behavior.

ii “Time Series Momentum” Moskowitz, Ooi, Pedersen, August 2010 http://pages.stern.nyu.edu/~lpederse/papers/TimeSeriesMomentum.pdf

PENSION CONSULTING ALLIANCE, LLC.• Investment Market Risk Metrics 7

MEMORANDUM M E M O R A N D U M

Date: September 14, 2015

To: SJCERA Board of Retirement

From: Pension Consulting Alliance, LLC (PCA)

RE: SJCERA Manager Certification Update: 2Q 2015 Overview and Responses

Summary of Responses PCA reviewed the SJCERA Quarterly Manager Certification Updates for the quarter ending June 30, 2015 from all funded managers. In PCA’s opinion, the manager information reported for the quarter presents no significant concerns to the SJCERA portfolio. PCA’s opinion is based on the written reponses and on PCA’s conversations with managers that reported senior investment personnel or management departures.

The managers’ responses indicate that1:  All funded managers reported: o Compliance with SJCERA Policy Guidelines, or not applicable as a comingled fund, o Registered Investment Advisor in Good Standing, or are exempt, o Reconciliation against the custodian, or N/A, and o Delivered current ADV, SSAE-16 or equivalent Annual Financial Audits.

 All funded managers, except PIMCO, reported compliance with internal risk management practices. PIMCO notes they do not respond to questions pertaining to internal guidelines.

 Two managers (Legato and PIMCO) reported material business changes.

 Three managers and PCA reported litigation or regulatory investigation information: Bridgewater, BlackRock, Morgan Creek. None of the proceedings are considered material.

 Five managers reported investment team changes: BlackRock, Crestline, Dodge & Cox, Marinus, and Raven Capital.

 Two firms reported management changes: Parametric and PIMCO.

1 Managers’ responses to footnoted (“*”) questions begin on page 3.

SJCERA Overview of Investment Mgr Compliance Report

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 RIA in Complied Good with Plan Complied Reconciled Investment Material Complied Standing; Investment w/ Mngr With Personnel Mgmt Business Internal Risk Sent Fncl Manager Asset Class RIA Policy Guidelines Custodian Litigation Changes Changes Changes Mgt Stmnts Equity BlackRock Large Cap Core Yes Yes Yes Yes Yes* Yes* No No Yes Yes Capital Prospects Small Cap Value Yes Yes Yes Yes No No No No Yes Yes Legato Small Cap Growth Yes Yes Yes Yes No No* No Yes* Yes Yes KBI Water/Agr. Yes Yes Yes Yes No No No No Yes Yes BlackRock Int’l Equity Yes Yes Yes Yes Yes* Yes* No No Yes Yes PIMCO Intl Equity Yes Yes Yes Yes No No Yes* Yes* Yes Yes PIMCO Emerging Mkts. Yes Yes Yes Yes No No Yes* Yes* Yes Yes Global Opp. Bridgewater Pure Alpha Yes Yes Yes Yes Yes* No No No Yes Yes Crestline Opportunistic Yes Yes Yes Yes No Yes* No No Yes Yes Marinus Opportunistic Yes Yes Yes Yes No Yes* No No Yes Yes Medley Opportunistic Yes Yes Yes Yes No No No No Yes Yes Morgan Creek Opportunistic Yes Yes Yes N/A* Yes* No No No Yes Yes Mount Lucas Opportunistic Yes Yes Yes Yes No No No No Yes Yes Ocean Avenue Opportunistic Yes Yes Yes Yes No No No No Yes Yes Raven Capital Opportunistic Yes Yes Yes Yes No Yes* No No Yes Yes Fixed Income Dodge & Cox Aggregate Yes Yes Yes Yes No Yes* No No Yes Yes Doubleline Aggregate Yes Yes Yes Yes No No No No Yes Yes Mesa West Income Yes Yes Yes Yes No No No No Yes Yes Mesa West Income Yes Yes Yes Yes No No No No Yes Yes Prima Aggregate Yes Yes Yes Yes No No No No Yes Yes Stone Harbor Aggregate Yes Yes Yes Yes No No No No Yes Yes Stone Harbor Bank Loans Yes Yes Yes Yes No No No No Yes Yes Real Asset Bridgewater Real Asset Yes Yes Yes Yes Yes* No No No Yes Yes Risk Parity Bridgewater All Weather Yes Yes Yes Yes Yes* No No No Yes Yes Parametric Custom Yes Yes Yes Yes No No Yes* No Yes Yes PIMCO All Asset All Auth. Yes Yes Yes Yes No No Yes* Yes* No Yes Consultant PCA Consultant Yes Yes Yes N/A Yes* No No No Yes Yes *Detailed written response provided below.

Manager Responses to Highlighted Questions

This section includes the verbatim text of the manager’s response to any highlighted questions to provide more detail to the table above.

BlackRock Litigation: As a global investment manager, BlackRock Inc., and its various subsidiaries including BTC, may be subject to regulatory oversight in numerous jurisdictions, including examinations and various requests for information. BTC’s regulators routinely provide it with comment letters at the conclusion of these examinations in which they request that BTC correct or modify certain of its practices. In all such instances, BTC has addressed, or is working to address, these requests to ensure that it continues to operate in compliance with applicable laws, statutes and regulations.

BTC also receives subpoenas or requests for information in connection with regulatory inquiries and/or investigations by its various regulators, some of which are ongoing. None of these matters has had or is expected to have any adverse impact on BTC’s ability to manage its clients' assets. Please refer to BlackRock’s Form ADV and SEC disclosures for additional information on regulatory matters concerning BTC or BlackRock as a whole. The recent fines related to BlackRock Inc. or BTC’s investment advisory responsibilities include the following:

On 8 March 2012, BlackRock Institutional Trust Company, N.A. (“BTC”) entered into an Offer of Settlement (the “Agreement”) with the CFTC and consented to the entry of an Order, which makes findings and imposes remedial sanctions against BTC. Without admitting or denying wrongdoing, BTC agreed to the imposition of a $250,000 penalty and the entry of the Order to resolve allegations by the CFTC that two trades by BTC violated Section 4c(a)(1) of the Commodity Exchange Act and CFTC Regulation 1.38(a). BTC also agreed to refrain from any further violations of the above-mentioned statutory provisions. The CFTC did not allege that any clients of BTC, BlackRock or any related affiliate were harmed in any way in the execution of these two trades.

On 11 September 2012, the UK Financial Services Authority (“FSA”) issued a Final Notice against BlackRock Investment Management (UK) Limited (“BIM”), following a settlement agreement reached between the FSA and BIM. The FSA found that BIM had breached certain provisions of the FSA’s Client Money Rules and Principles, during the period 1 October 2006 to 31 March 2010, by not having trust letters in place for client money placed on money market deposit and not having adequate systems and controls for the identification and protection of client money in this respect. BIM agreed to a settlement payment of GBP 9,533,100 for the breach, which it had self-reported to the FSA in April 2010. The FSA final order acknowledged that no client of BIM (or BlackRock or any related affiliate) suffered any harm and that BIM had remedied the situation and put in place robust systems and controls relating to client money protection.

On 3 October 2012, BlackRock Inc. reached an agreement with the U.S. Department of Labor (“DOL”) to reimburse clients $2,661,513 in connection with certain trades the DOL alleged violated Title I of the Employee Retirement Income Security Act (“ERISA”). BlackRock also agreed to pay to the DOL a $266,151 penalty.

On 8 January 2014, BlackRock Inc. reached a settlement with the New York Attorney General's office (“AG”) pursuant to which the AG found BlackRock's use of analyst surveys violated New York's Martin Act and Executive Law. The settlement did not involve the payment of any fine or

other penalty although BlackRock paid $400,000 to cover the AG’s costs of investigation. BlackRock neither admitted nor denied the allegations, but agreed to stop using analyst surveys. On 8 May 2014, the primary Italian securities regulator (“CONSOB”) fined BlackRock Investment Management (UK) Limited (“BIM UK”) 150,000 EURO (approximately $205,826 USD) for negligent market manipulation. The fine was based on BIM UK’s filing, on behalf of the BlackRock group of companies, a large shareholder report regarding its holdings in Unicredit S.p.A. to CONSOB in December 2011, that turned out to be incorrect.

On 16 September 2014, BlackRock Institutional Trust Company, N.A. (“BTC”) entered into an agreement with the SEC to resolve allegations relating to three alleged violations of an SEC regulation prohibiting short sales of an equity security during the restricted period preceding a public offering. The three trades at issue occurred in 2010 and 2011. As part of the approximately $1.7 million settlement, BTC agreed to disgorge profits from each of the violations and to pay interest and a civil penalty. BTC also agreed to cease and desist from any future violations of the rule in question.

On 20 April 2015, BlackRock Advisors, LLC (“BAL”) reached a settlement with the Securities and Exchange Commission (“SEC”) regarding BlackRock’s handling of a former portfolio manager’s personal investments and involvement in a family business, Rice Energy LP and related entities. As part of the settlement, BAL agreed to pay a $12 million penalty and will also retain an independent compliance consultant to review BlackRock’s policies and procedures regarding the outside activities of BlackRock’s employees. There was neither an allegation by the SEC of any loss to any BlackRock investors, nor did this settlement have any adverse impact on BlackRock’s ability to manage its clients’ funds.

In the past years, BlackRock has acquired organizations that provide investment-related services, including, but not limited to, State Street Research & Management Company, Merrill Lynch Investment Managers, the fund of funds business of Quellos Group, LLC, and Barclays Global Investors. This response does not address any regulatory matters that arose out of conduct within the acquired organizations prior to their acquisition by BlackRock. It also does not address any regulatory matters unrelated to BlackRock or BTC’s investment management responsibilities.

BlackRock Personnell Changes: In 2Q 2015, the Beta Strategy team lost 1 senior investment professional (Director level and above).

 John Scruggs, Director and Research Analyst, left the firm to pursue other opportunities.

John’s departure was out of the research team for the broader Beta strategies group.

Bridgewater Litigation: Bridgewater has never been involved in any legal proceedings related to its investment management activities. Below please find an update on pending legal matters, neither of which is deemed to be material.

 Copyright Matter: Bridgewater and Ray Dalio were named as defendants in a lawsuit filed in July 2013 in Federal District Court in Florida. Among other related claims, the plaintiff in this action is seeking a declaratory judgment establishing his right to use certain domain names that include the word "Bridgewater." The World Intellectual Property Organization ("WIPO") ordered that the domain names in question be transferred to Bridgewater. The plaintiff alleges that such order misapplied federal law. Defendants moved to dismiss the complaint in its entirety. In its decision on this motion,

the Court dismissed all claims against Mr. Dalio individually and the majority of the counts brought against Bridgewater. The plaintiff subsequently filed an amended complaint in an effort to address deficiencies noted by the Court in its opinion, which Bridgewater also moved to dismiss. The court granted Bridgewater’s motion on July 20 with the exception of the claim directed at establishing plaintiff’s right to use certain domain names that include the word “Bridgewater.” On August 3, Bridgewater filed its Answer and Counterclaim against the plaintiff for violation of the Anticybersquatting Consumer Protection Act by his registration of domain names incorporating Bridgewater’s distinctive and well known mark with bad faith.

 A consultant hired by a Bridgewater service provider filed a charge against Bridgewater with the Connecticut Commission on Human Rights and Opportunities and the EEOC, alleging age, national origin, ancestry and religious discrimination.

Crestline Personnel Changes: Additions: William Palmer, Director, performs due diligence and monitors investments for the Crestline Opportunistic Strategies. Brooke New, Senior Analyst, analyzes investments for the Crestline Opportunistic Strategies. Aaron Mack, Associate, analyzes investments for the Crestline Opportunities Strategies. Departures: Dustin Earnest, Associate, was replaced by Aaron Mack in June 2015.

Dodge & Cox Investment Personnel Changes: Robert B. Thompson, Fixed Income Portfolio Manager and former Fixed Income Investment Policy Committee member, retired in 2Q15 after 23 years with the firm. We are pleased to announce the hiring of David Strasburg as a Fixed Income Analyst during 2Q15. The account’s portfolio manager and client service contacts remain the same.

Legato Investment Personnel Changes: No, there have not been any significant personnel changes at the management level at Legato during the quarter, During August 2015, we made a change in our compliance management. Eric C. Pollack assumed the role of Chief Compliance Officer, with Tiffani D'Angelico joining the firm to assist Mr. Pollack in the implementation of firm compliance. On·going compliance support will be delivered by Cordium, through Lusine Moshkounian (our former Chief Compliance Officer).

Legato Material Business Changes: Yes, Legato has acquired the equity ownership of its limited partner, Forward, in a management buyout effective July 31, 2015. Legato is now 100'70 employee owned, and still majority minority held. Legato will continue to be focused on developing multi-manager equity porHolios over a broad range of domestic and international benchmarks, as well as full range of cap sizes.

Marinus Capital Personnel Changes: The addition of Aaron Garvey, Senior Macro Trader. This is a capital committing position focused on top-down portfolio construction approaches and strategies. Marinus will continue to opportuniscally enhance its team around the core group of individuals who have been together since the founding of the firm.

Morgan Creek Reconciliation: Please note that Q2 2015 has not been finalized with our administrator, CITI. We would expect it to be complete in mid-September.

Morgan Creek Litigation: Morgan Creek is a defendant in a matter styled Markan Villa, Inc. et al. v. Morgan Creek Absolute Return Fund, LP, et aI., pending in the State Court of Fulton County, Georgia. The action was filed on September 6,2013 and sets forth a number of claims for relief. No trial date for the matter has been set.

Parametric Management Changes: Deborah Lamb, Parametric’s Chief Compliance Officer, left the organization on April 17, 2015. Parametric has initiated a search for a new Chief Compliance Officer. In the interim, Christine Smith, Chief Administrative Officer, who has over 25 years of industry experience in investment operations, compliance and risk management will serve as the acting Chief Compliance officer.

During this transition, Parametic’s compliance personnel will report directly to Christine and she will work with the seasoned five-member compliance team, which has approximately 48 years of combined industry experience, to maintain compliance excellence that clients expect of Parametric.

PCA Litigation: State of California v. Northern Trust - In February 2012, the City Attorney of Los Angeles, on behalf of the People of the State of California, filed suit against Northern Trust and PCA. The plaintiff has alleged violations of certain state laws arising out of Northern Trust’s management of the securities lending program for the benefit of the Los Angeles City Employees’ Retirement System. Of the two causes of action, one was dismissed without prejudice while the other was remanded to the Superior Court of Los Angeles, where it is currently pending. PCA continues to vigorously deny the allegations and expects to have its summary judgment motion heard and resolved by the end of the calendar year.

PIMCO All Asset All Authority Fund: PIMCO serves as a fiduciary to each Fund pursuant to the Investment Advisors Act of 1940 and the Investment Company Act of 1940, as applicable.

PIMCO Compliance with Plan Investment Guidelines: PIMCO does not provide responses to questions pertaining to internal guidelines.

PIMCO Litigation: PIMCO is not the subject of any lawsuit or proceeding which could reasonably be expected to have a material adverse effect on PIMCO’s ability to provide investment management services.

Although PIMCO does not expect the below matters will have a material adverse effect on its ability to provide investment management services, PIMCO notes the following:

(i) on December 31, 2014, a lawsuit was filed in the United States District Court for the Western District of Washington by Robert Kenny, a purported investor in the PIMCO Total Return Fund, against PIMCO and PIMCO Investments LLC (collectively, the "36(b) Parties"). The complaint purports to be brought derivatively on behalf of the PIMCO Total Return Fund, a registered management investment company advised and administered by PIMCO and distributed by PIMCO Investments, and alleges that the 36(b) Parties violated Section 36(b) of the Investment Company Act of 1940 by receiving excessive compensation from the PIMCO Total Return Fund.

(ii) on January 28, 2015, a putative class action lawsuit was filed in the United States District Court for the Central District of California by William Hampton, an investor in the PIMCO Total Return Fund, against PIMCO, PIMCO Investments LLC and the PIMCO Total Return Fund, alleging that the named defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder due to alleged misrepresentations in connection with the management of the

PIMCO Total Return Fund. On July 6, 2015, an amended complaint was filed by the plaintiff. The amended complaint, which supersedes the original filing, advances a new theory, that the PIMCO Total Return Fund improperly invested in emerging markets in excess of the guidelines described in the fund’s Prospectus, and adds as additional parties the PIMCO Funds Trust and those persons who served as Trustees to the fund during the relevant period (PIMCO, the PIMCO Funds Trust and the named Trustees are collectively referred to herein as the “Class Action Parties”). PIMCO Investments and the PIMCO Total Return Fund are no longer named as defendants.

The 36(b) Parties and the Class Action Parties believe the above claims are without merit and intend to vigorously defend the actions. On July 22, 2015, PIMCO entered into a settlement with the Chicago Board of Trade (“CBOT”), in which PIMCO agreed to pay a fine of $35,000 for inadvertently exceeding certain position limits in the CBOT soybean meal futures contract on two days in November 2014. PIMCO has enhanced its monitoring procedures to prevent a recurrence. The settlement does not materially affect PIMCO’s ability to manage client portfolios.

PIMCO has received a Wells Notice from the staff of the U.S. Securities and Exchange Commission (“SEC”) that relates to the PIMCO Total Return Active Exchange-Traded Fund (“BOND”). The notice indicates the staff’s preliminary determination to recommend that the SEC commence a civil action against PIMCO stemming from a nonpublic investigation relating to BOND. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any law was violated. This matter principally pertains to the valuation of smaller sized positions in non-agency mortgage-backed securities purchased by BOND between its inception on February 29, 2012 and June 30, 2012, the fund’s performance disclosures for that period, and the firm’s compliance policies and procedures related to these matters. The Wells process provides us with our opportunity to demonstrate to the SEC staff why we believe our conduct was appropriate, in keeping with industry standards, and that no action should be taken. We are confident that this matter will not affect our ability to serve our clients.

As a general practice, PIMCO does not comment on pending regulatory matters.

PIMCO Management Changes/Material Business Changes: In May 2015, the firm announced an evolution of its equity platform that involved a refocusing of its equities efforts on areas that are more fully aligned with its capabilities and client needs. As a result of this evolution, Virginie Maisonneuve, CIO, Global Equities has decided to leave the firm after assisting with business transitions. During her tenure at PIMCO, Virginie has made significant contributions leading the active equity team and elevating PIMCO’s visibility as an equity manager, and we thank her for her leadership and commitment to our clients and the firm.

Raven Personnell Changes: New Senior Accountant – Jelfi Jimenez.

The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.

The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.

Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc.

The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.

The Citigroup indices are trademarks of Citicorp or its affiliates.

The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.

SJCERA Manager Review Schedule Most Recent PCA Memo Under Scheduled Onsite Onsite Date Most Recent Presented to Mgr. Meeting Manager Asset Class Review Last Rvw Next Rvw Visit Date Completed Visit to PCA Board with SJCERA Comments Mgr. Location KBI Global Equity Yes 5/18/2015 10/1/2015 6/10/2015 5/8/2015 Dublin, Ireland BlackRock Large Cap Core Fall 2015 San Francisco, CA Legato Small Cap Growth Fall 2015 San Francisco, CA Capital Prospects Small Cap Value Fall 2015 Stamford, CT BlackRock Int'l Equity Fall 2015 San Francisco, CA PIMCO (RAFI) Int'l Equity 5/15/2015 1/12/2015 6/26/2015 9/25/2015 Common clients Newport Beach, CA PIMCO (RAFI) Emerging Markets 5/15/2015 1/12/2015 6/26/2015 9/25/2015 Common clients Newport Beach, CA Dodge & Cox Fixed Income October-15 San Francisco, CA Doubleline Fixed Income October-15 3/24/2015 Los Angeles, CA Mesa West Income 9/3/2015 2/11/2015 Los Angeles, CA Mesa West Income 9/3/2015 2/11/2015 Los Angeles, CA Prima Capital Aggregate October-15 Scarsdale, NY Stone Harbor Aggregate October-15 New York, NY Stone Harbor Bank Loans October-15 New York, NY Bridgewater Real Assets 2/19/2015 2/24/2015 Westport, CT Bridgewater Pure Alpha 2/19/2015 2/24/2015 Common clients Westport, CT Crestline Opportunities Fall 2015 Fort Worth, TX Marinus Opportunistic 2/20/2015 6/26/2015 Darien, CT Medley Direct Lending October-15 3/12/2015 New York, NY Morgan Creek Opportunistic Fall 2015 Chapel Hill, NC Mount Lucas Opportunistic 6/17/2015 2/10/2015 Newton, PA Ocean Avenue Opportunistic 9/3/2015 Santa Monica, CA Raven Capital Opportunistic 5/28/2015 6/26/2015 6/26/2015 Common client New York, NY PIMCO Risk Parity (All Asset AA) 5/11/2015 9/25/2015 Common clients Newport Beach, CA Bridgewater Risk Parity (All Weather) 2/19/2015 2/24/2015 Common clients Westport, CT Parametric Risk Parity (Custom) 9/8/2015 6/3/2015 Common clients w/ firm Minneapolis, MN Northern Trust Stif - Cash 9/4/2015 Common clients Chicago, IL

San Joaquin County Employees' Retirement Association

M E M O R A N D U M

TO: Annette H. St. Urbain Chief Executive Officer

FROM: Nancy Calkins Chief Investment Officer

DATE: September 16, 2015

SUBJECT: Expected Cash Flows and Rebalancing

In October 2014, the Real Estate Committee authorized a commitment of $20 million to the Principal U.S. Property Account. At that point in time, there was an inbound queue to invest in the Account.

In late August 2015, Principal U.S. Property Account requested capital contribution from SJCERA for the total amount of $20 million to be wired on or after October 1, 2015. Another large expense due at the first of each month is retiree payroll (nearly $16 million).

Coordinating with our consultant PCA and SJCERA Investment Accounting staff, we reviewed and updated the quarterly cash flow analysis and agreed to raise $30 million to meet near-term cash needs. Based on a review of SJCERA’s current target and actual manager allocations and PCA’s rebalancing recommendation, three managers will be the source of the $30 million: KBI Global Equity $20 million BlackRock Int’l Equity Developed Markets Index 5 million PIMCO/RAE Enhanced Int’l Equity Developed Markets 5 million

Based on the requirements for trading the three portfolios, cash will be raised and available to SJCERA over a ten-day period from September 28 to October 8, 2015. During this transition period, Parametric will provide exposure to international equities as an overlay to the cash that is raised.

SJCERA Investment Accounting staff will coordinate the accumulation of cash with our custodian, Northern Trust and wire the $20 million to the Principal U.S. Property Account on October 9, 2015.

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

Once revised asset allocation targets are established by the Board, staff and consultants will address SJCERA’s cash needs through year end.

Attachments: SJCERA’s Expected Cash Flows for 3rd and 4th Quarter 2015 Rebalancing Recommendation prepared by PCA

Expected Cash Flows and Rebalancing / September 16, 2015 / 2 of 2 SJCERA Expected Cash Flows 2015 Q3 Jul-15 Aug-15 Sep-15 Totals Transactions Cash Balance Transactions Cash Balance Transactions Cash Balance Beginning Cash Balance: 7/1/15 $40,398,904.31 $46,234,762.00 $38,046,435.94 Active Monthly Payroll Contributions #1 7/2/15 6,696,233.48 8/14/15 $6,710,472.67 9/11/15 $6,700,000.00 $20,106,706.15 Active Monthly Payroll Contributions #2 7/17/15 6,911,324.66 8/28/15 $6,801,690.19 9/25/05 $6,700,000.00 $20,413,014.85 Active Monthly Payroll Contributions #3 7/31/15 6,767,252.71 N/A N/A $6,767,252.71 SLB Reimbursement from County 7/31/15 318,132.05 8/31/15 $317,591.00 8/31/15 $317,591.00 $953,314.05 Monthly Retiree Payroll 7/1/15 (15,544,479.60) 8/1/15 ($15,718,801.60) 9/1/15 ($15,548,035.07) ($46,811,316.27) Transfer to Treasury to Cover Admin Costs 8/28/15 ($1,000,000.00) ($1,000,000.00) Cash Sweep 7/1/15 $3,073,670.78 $3,073,670.78 Parametric Clifton Margin Call 7/20/15 ($3,000,000.00) 9/15/15 ($3,000,000.00) ($6,000,000.00) Securities Lending Income9net of fees) 7/15/05 $43,387.80 8/17/15 $42,016.36 $85,404.16 Blackrock MSCI World EX-Redemption 9/28/15 $5,000,000.00 $5,000,000.00 Investment Mgmt./Consultant/Legal Fees/Misc 7/31/15 ($779,901.16) 8/31/15 ($270,242.80) 9/30/15 ($33,760.16) ($1,083,904.12) Sub-Total $4,485,620.72 ($3,117,274.18) $135,795.77 $1,504,142.31 Global Opportunistic Funds: Totals Crestline 7/27/15 ($1,149,792.00) 9/1/15 ($632,386.00) ($1,782,178.00) Crestline 9/21/15 ($1,149,792.00) ($1,149,792.00) Medley $0.00 $0.00 $0.00 Morgan Creek V $0.00 $0.00 $0.00 Morgan Creek VI $0.00 9/28/15 ($2,000,000.00) ($2,000,000.00) Morgan Creek III Coinv 8/13/15 ($1,500,000.00) $0.00 ($1,500,000.00) Ocean Avenue $0.00 Estimate ($2,000,000.00) ($2,000,000.00) Raven III-Capital Call 8/18/15 ($4,946,381.92) Estimate ($3,000,000.00) ($7,946,381.92) Raven-Distribution 8/20/15 $730,753.33 $730,753.33 Totals Global Opps: ($1,149,792.00) $0.00 ($5,715,628.59) $0.00 ($8,782,178.00) $0.00 ($15,647,598.59)

Private RE/FI Funds: Almanac Realty VI-Distribution 7/31/15 $146,572.00 $146,572.00 Almanac Realty VI-Capital Call 7/16/15 ($223,200.65) 8/27/15 ($148,800.44) 9/16/15 ($278,256.44) ($650,257.53) AGCP IV 8/24/15 ($1,900,000.00) ($1,900,000.00) Colony Realty III-Capital Call $0.00 $0.00 Colony Realty III-Distribution Estimate $260,000.00 $260,000.00 Colony Realty IV-Distribution 7/2/15 $161,835.00 $0.00 $161,835.00 Colony Realty IV-Capital Call 7/24/15 ($4,351,559.00) Estimate $180,000.00 ($4,171,559.00) Legacy Fund III $0.00 $0.00 Mesa West II (Fixed Income-Distribution 7/9&7/24 $4,820,755.95 $0.00 $4,820,755.95 Mesa West III (Fixed Income) $0.00 Greenfield V-Distribution 8/31/15 $1,350,000.00 9/11/15 $405,000.00 $1,755,000.00 Greenfield VI-Distribution 8/25/15 $1,128,607.00 Estimate $1,128,607.00 $2,257,214.00 Greenfield VII Estimate ($954,018.00) ($954,018.00) Miller Global V-Distribution 7/30/15 $64,939.61 8/26/15 $40,603.42 Estimate $31,584.00 $137,127.03 Miller Global VI-Distribution 7/30/15 $124,254.21 8/26/15 $174,166.73 Estimate $95,718.00 $394,138.94 Miller Global VII-Capital Call 7/15/15 ($2,025,647.40) Estimate ($34,088.00) ($2,059,735.40) Miller Global VII 7/31/15 $1,214,068.80 $1,214,068.80 Principal US Property $0.00 Sarofim II $0.00 $0.00 RREEF America III 7/31/15 $2,568,010.45 $0.00 $2,568,010.45 Walton Street V-Distribution $0.00 9/16/15 $467,014.17 $467,014.17 Walton Street VI $0.00 9/16/15 $709,673.51 $709,673.51 Totals Private RE/FI: $2,500,028.97 $644,576.71 $2,011,234.24 $5,155,839.92 Total Capital Calls/Distributions: $1,350,236.97 $0.00 ($5,071,051.88) $0.00 ($6,770,943.76) $0.00 ($10,491,758.67)

End of Month Estimated Cash Balance: $46,234,762.00 $38,046,435.94 $31,411,287.95 $31,411,287.95

Necessary Adjustments: $0.00 $0.00 $0.00

Estimates SJCERA Expected Cash Flows 2015 Q4 Oct-15 Nov-15 Dec-15 Totals Transactions Cash Balance Transactions Cash Balance Transactions Cash Balance Beginning Cash Balance: 10/1/15 $31,411,287.95 $5,087,601.95 $3,911,493.95 Active Monthly Payroll Contributions #1 10/9/15 $6,700,000.00 11/6/15 $6,700,000.00 12/4/15 $6,700,000.00 $20,100,000.00 Active Monthly Payroll Contributions #2 10/23/15 $6,700,000.00 11/20/15 $6,700,000.00 12/18/15 $6,700,000.00 $20,100,000.00 Active Monthly Payroll Contributions #3 $0.00 12/31/15 $6,700,000.00 $6,700,000.00 SLB Reimbursement from County 10/31/15 $315,000.00 11/30/15 $315,000.00 12/31/15 $315,000.00 $945,000.00 Monthly Retiree Payroll 10/1/15 ($15,800,000.00) 11/1/15 ($15,800,000.00) 12/1/15 ($15,800,000.00) ($47,400,000.00) Transfer to Treasury to Cover Admin Costs $0.00 ($1,000,000.00) ($1,000,000.00) Cash Sweep $0.00 Parametric Clifton Margin Call ($3,000,000.00) ($3,000,000.00) ($6,000,000.00) Securities Lending Income9net of fees) $0.00 Investment Mgmt./Consultant/Legal Fees/Misc ($800,000.00) ($300,000.00) ($1,100,000.00) Sub-Total ($5,885,000.00) ($2,385,000.00) $615,000.00 ($7,655,000.00) Global Opportunistic Funds: Totals Crestline $0.00 Medley $0.00 Morgan Creek V Estimate ($360,000.00) ($360,000.00) Morgan Creek VI $0.00 Morgan Creek III Coinv Estimate ($500,000.00) Estimate ($500,000.00) ($1,000,000.00) Ocean Avenue Estimate ($4,000,000.00) ($4,000,000.00) Raven II Capital Call 11/15/15 ($500,000.00) ($500,000.00) Raven III-Capital Call 11/1/15 ($2,500,000.00) ($2,500,000.00) Raven-Distribution $0.00 Totals Global Opps: ($860,000.00) $0.00 ($3,500,000.00) $0.00 ($4,000,000.00) $0.00 ($8,360,000.00)

Private RE/FI Funds: Almanac Realty VI-Distribution Estimate $100,000.00 $100,000.00 Almanac Realty VI-Capital Call Estimate ($495,333.00) Estimate ($495,333.00) Estimate ($495,333.00) ($1,485,999.00) AGCP IV Estimate ($600,000.00) Estimate ($600,000.00) Estimate ($600,000.00) ($1,800,000.00) Colony Realty III-Capital Call $0.00 Colony Realty III-Distribution Estimate $260,000.00 $260,000.00 Colony Realty IV-Distribution Estimate $220,000.00 $220,000.00 Colony Realty IV-Capital Call Estimate ($3,600,000.00) ($3,600,000.00) Legacy Fund III $0.00 Mesa West II (Fixed Income-Distribution $0.00 Mesa West III (Fixed Income) $0.00 Greenfield V-Distribution Estimate $660,000.00 $660,000.00 Greenfield VI-Distribution Estimate $3,272,960.00 Estimate $56,430.00 $3,329,390.00 Greenfield VII Estimate ($954,018.00) Estimate ($954,018.00) Estimate ($2,340,018.00) ($4,248,054.00) Miller Global V-Distribution Estimate $21,239.00 Estimate $26,412.00 Estimate $10,896.00 $58,547.00 Miller Global VI-Distribution Estimate $82,500.00 Estimate $68,750.00 Estimate $45,833.00 $197,083.00 Miller Global VII-Capital Call Estimate ($23,074.00) Estimate ($17,322.00) Estimate ($20,718.00) ($61,114.00) Miller Global VII $0.00 Principal US Property 10/1/15 ($20,000,000.00) ($20,000,000.00) Sarofim II $0.00 RREEF America III Estimate $2,290,000.00 $2,290,000.00 Walton Street V Estimate $709,068.00 $709,068.00 Walton Street VI Estimate $2,698,375.00 $2,698,375.00 Totals Private RE/FI: ($19,578,686.00) $4,708,892.00 ($5,802,910.00) ($20,672,704.00) Total Capital Calls/Distributions: ($20,438,686.00) $0.00 $1,208,892.00 $0.00 ($9,802,910.00) $0.00 ($29,032,704.00)

End of Month Estimated Cash Balance: $5,087,601.95 $3,911,493.95 ($5,276,416.05) ($5,276,416.05)

Necessary Adjustments: $0.00 $0.00 $0.00

ESTIMATES Crestline is not able to give a forecast SJCERA Rebalancing Recommendation Summary 8/31/2015 Variance to Proposed $ $ Post- % Post Variance to ASSET CLASS Est. Value % of Total % Policy % Policy Policy Rebalance Rebalance Rebalance Policy ($000)1 U.S. EQUITY 439,833 18.1% 16.3% 1.8% 0 439,833 18.3% 16.3% 2.1% BlackRock Russell 1000 Index - Large Cap Core 271,355 11.2% 12.4% -1.2% 271,355 11.3% 12.4% -1.1% Capital Prospects - Small Cap Value 82,038 82,038 6.9% 3.9% 3.1% 7.0% 3.9% 3.2% Legato Capital - Small Cap Growth 86,441 86,441 NON-U.S. EQUITY 394,212 16.2% 16.3% 0.0% -10,000 384,212 16.0% 16.3% -0.2% BlackRock International Stock Index - Non-U.S. Developed Core 160,029 -5,000 155,029 13.3% 12.4% 0.9% 13.0% 12.4% 0.6% Research Affiliates International - Non-U.S. Enhanced 162,706 -5,000 157,706 Research Affiliates Emerging Mkts. - Emerging Markets 71,477 2.9% 3.9% -0.9% 71,477 3.0% 3.9% -0.9% GLOBAL EQUITY 52,413 2.2% 1.5% 0.7% -20,000 32,413 1.3% 1.5% -0.2% Kleinwort Benson - Global Water/Ag. 52,413 2.2% -20,000 32,413 1.3% FIXED INCOME 557,525 22.9% 24.0% -1.1% 0 557,525 23.2% 24.0% -0.8% Dodge & Cox - Core Fixed Income 113,000 4.6% 113,000 4.7% Doubleline Capital - Mortgage Backed Securities 120,607 5.0% 120,607 5.0% Mesa West RE Income II - Comm. Mortgage 6,398 0.3% 6,398 0.3% Mesa West RE Income III - Comm. Mortgage 25,235 1.0% 25,235 1.1% Prima Mortgage Investment Trust - Comm. Mortgage 136,817 5.6% 136,817 5.7% Stone Harbor - Absolute Return 93,768 3.9% 93,768 3.9% Stone Harbor - Bank Loans 61,701 2.5% 61,701 2.6% RISK PARITY 226,501 9.3% 10.0% -0.7% 0 226,501 9.4% 10.0% -0.6% Bridgewater All Weather - Strategic Asset Allocation 76,958 3.2% 76,958 3.2% Parametric Contraction - Risk Parity 67,923 2.8% 67,923 2.8% PIMCO All Asset All Authority - Strategic Asset Allocation 81,620 3.4% 81,620 3.4% REAL ASSETS 107,015 4.4% 7.0% -2.6% 0 107,015 4.5% 7.0% -2.5% Bridgewater Real Asset 107,015 4.4% 107,015 4.5% CASH 55,710 2.3% 0.0% 2.3% 0 55,710 2.3% 0.0% 2.3% NthNorthern Trus t STIF - CllCollec tive Gov t. ShtTShort-Term 38 , 012 16%1.6% 38 , 012 16%1.6% Parametric PIOS - Cash Overlay 17,698 0.7% 17,698 0.7% GLOBAL OPPORTUNISTIC 348,620 14.3% 15.0% -0.7% 0 348,620 14.5% 15.0% -0.5% Mount Lucas - Managed Futures 48,690 2.0% 48,690 2.0% Bridgewater Pure Alpha & PAMM - Uncorrelated Alpha 94,321 3.9% 94,321 3.9% Crestline Opportunity II - Credit, Niche Alts. & HF Secondaries 29,445 1.2% 29,445 1.2% Marinus Opportunity - MBS HF 46,990 1.9% 46,990 2.0% Medley Opportunity II - Direct Lending 54,969 2.3% 54,969 2.3% Morgan Creek III - Co-Investments 6,397 0.3% 6,397 0.3% Morgan Creek V - Multi-Strategy Fund-of-Funds 7,820 0.3% 7,820 0.3% Morgan Creek VI - Multi-Strategy Fund-of-Funds 3,658 0.2% 3,658 0.2% Ocean Avenue II - Private Equity Buyout Fund-of-Funds 13,655 0.6% 13,655 0.6% Raven Opportunity II - Direct Lending 42,674 1.8% 42,674 1.8% REAL ESTATE 249,404 10.3% 10.0% 0.3% 249,404 10.4% 10.0% 0.4% PUBLIC REAL ESTATE 52,136 2.1% 2.5% -0.4% 52,136 2.2% 2.5% -0.3% PRIVATE REAL ESTATE 197,269 8.1% 7.5% 0.6% 197,269 8.2% 7.5% 0.7% TOTAL PLAN 2,431,234 100.0% 100.0% --- -30,000 2,401,234 100.0% 100% --- 1All Market Values excluding Research Affiliates market values are from Northern Trust as of 8/31/2015 SJCERA - CIO Report September 25, 2015 Calendar Year 2015 Proposed Topics and Meeting Schedule

January 23, 2015 February 27, 2015 March 27, 2015

1. Monthly Perf. (Nov/Dec 2014) 1. Monthly Perf. (January) 1. Monthly Perf. (February) 2. General Investment Consultant 2. Quarterly Reports (Q4) Interviews 3. Real Estate Implementation Plan 3. Discussion on 2015 Roundtable & 4. General Pension Consultant Contract Due Diligence meetings 5. Managed Futures Account - Mt. Lucas General Pension Consultant Plan/Transition 6. Funding Policy Cheiron Transition Data from SIS Asset/Liability Introduction

4. RE Committee Meeting 4. RE Committee Meeting Implementation Plan Quarterly Report

April 24. 2015 May 8, 2015 June 26, 2015

1. Monthly Perf. (March) 1. Monthly Perf. (April) 1. Cash Mgt and Liquidity Policy 2. Quarterly Reports (Q1) 2. Raven Fund III presentation & due diligence 3. Initial Asset Liability Modeling Results & Asset/Liability Study- Class Framework Model Expected and Behavior for all Asset Class Discussion PCA/Cheiron Classes 4. Proposed Outline for All Asset Roundtable 5. Quarterly Reports 6. Reports: Monthly Perf. (May), Due Diligence, CIO, Travel, RE Committee June 4, 2015 RE Committee Quarterly reports & Real Estate Roundtable June 26, 2015 RE Committee July 24, 2015 August 2015 September 25, 2015

1. Model and Consideration of Various August 19 & 20 Monthly Perf. (August) Portfolio Options PCA/Cheiron Financial Board meeting 1. Preliminary Results of A/L Study 2. Actuarial Valuation and Funding Policy Monthly Perf. (July) 2. 2015 Roundtable - Summary & Evaluations Quarterly Reports (Q2) 3. Report on Stone Harbor Bank Loan Strategy Reports: Due Diligence, CIO, Travel, 4. Actuarial Valuation Report & GASB 67/68 Reports: Monthly Perf. (June), Due Diligence, Education Session on Changing Interest Rates 5. PIMCO portfolio review - Rob Arnott CIO, Travel, RE Committee 6. Cyber Liability Insurance 10th Annual Roundtable Event RE Committee meeting RE Committee Sept. 11th Regular Meeting - presentations by Qtrly Report Ocean Avenue & Mesa West follow-on funds.

October 23, 2015 November 13, 2015 December 11, 2015

Monthly Perf. (September) Monthly Perf. (September) Monthly Perf. (October) Recommendation / Approval of New Quarterly Reports (Q3) RE Delegation Policy approval by Board Strategic Policy Mix Begin Investment Policy Review to Update (if needed) Policies to Reflect A/L decisions Consultant/Actuary Evaluations Begin Risk Parity Review Quarterly RE Committee meeting 1. Quarterly Reports 2. RE Delegation Policy Review SJCERA

Topics of Interest to Bring Forward: Alpha Generation (low correlation to equities) Asset/Liabilty Study - March thru October 2015 2015 Follow on Funds

Recent Topics Brought to SJCERA Board: - Agriculture/Farmland - investment opportunities - October 2014 - Venture & Growth Equity Educational Session - October 2014 - Real Assets Structure - May 2014 - Revisit Infrastructure - Educational Session April 2014 Continue to Monitor—Look for Right Opportunities; Portfolio Fit - Operational Due Diligence - March 2014 - Risk Parity Review - February 2014 - Global Opportunistic Strategies - ongoing - Fixed Income—Floating Rate Notes (Bank Loans) - February 2014 - Real Assets (Education and Manager Structure) Review - Infrastructure - April 2014; AA Policy revision for Real Assets - May 2014

MEMORANDUM

Date: September 25, 2015

To: SJCERA Board of Retirement

From: Pension Consulting Alliance, Inc. (PCA)

CC: John Linder - PCA David Sancewich – PCA Ryan Lobdell - PCA Annette St. Urbain - SJCERA Nancy Calkins - SJCERA

RE: Consent Granted by SJCERA as a Member of the LPAC to Raven II and III

Conclusions: On July 29, 2015, SJCERA provided a conflict waiver to Raven III as an LPAC member. This waiver was regarding conflicts that could arise between Raven Fund II and Raven Fund III, based on Investment in Fund III loans that are secured by (but subordinate to) the same assets securing Fund II loans. Given that SJCERA is an investor in both funds, there is no conflict for SJCERA, and signing the waiver is does not degrade the position of SJCERA as a whole.

The other issue, described below, was in reference to notice regarding the default of another L.P. This is informational only.

Discussion: On July 29, 2015, Raven Capital Management LLC, disclosed potential conflicts of interest pertaining to the interests of the limited partners in each of Raven Fund II and Fund III, which it sought to disclose in connection with the proposed Fund III Loan and in accordance with Sections 3.4 and 3.15 of each of the Fund II LP Agreement and the Fund III LP Agreement. The Fund II Credit Agreement prohibits borrowers from incurring any indebtedness not permitted by the Fund II Credit Agreement. The indebtedness to be incurred under the proposed Fund III Facility is not permitted by the terms of the Fund II Credit Agreement, and consent of Fund II is therefore required. The consent was granted by SJCERA as a member of the LPAC, and limited partner in both funds.

On August 27, 2015, SJCERA was provided notice as a member of the Raven III LPAC, regarding the failure of another L.P. in fund III to make their first capital contribution when called. The total commitment of this L.P was $20 million. The management (Josh Green) of Raven III decided to use the subscription line to fund the call. He intends to pursue forced removal of the L.P. under provisions of the Limited Partnership Agreement. The LPAC approval is not required to pursue this action.

According Josh Green, the L.P. indicated that they believed they would be able to approve investments in Fund III deal by deal. This is not the case. The L.P. had competent counsel representing them, and the Limited Partnership Agreement documents are clear. PCA believes

the course of action that the general partner is pursuing is reasonable, and not detrimental to the interests of other non-defaulting limited partners.

As of August 27, the total commitments to Fund III were $173 million. After the forced removal of this L.P., total commitments will be $153 million. It is anticipated that another $50 to $75 million in commitments will come in prior to yearend.

The Russell indices are either registered trademarks or tradenames of Frank Russell Company in the U.S. and/or other countries.

The MSCI indices are trademarks and service marks of MSCI or its subsidiaries.

Standard and Poor’s (S&P) is a division of The McGraw-Hill Companies, Inc. S&P indices, including the S&P 500, are a registered trademark of The McGraw-Hill Companies, Inc.

The Barclays Capital indices (formerly known as the Lehman indices) are trademarks of Barclays Capital, Inc.

The Citigroup indices are trademarks of Citicorp or its affiliates.

The Merrill Lynch indices are trademarks of Merrill Lynch & Co. or its affiliates.

While PCA has reviewed the terms of the Fund referred to in this document and other accompanying financial information, this document does not constitute a formal legal review of the partnership terms and other legal documents pertaining to the Fund. PCA recommends that its clients retain separate legal and tax counsel to review the legal and tax aspects and risks of investing in the Fund. Information presented in this report was gathered from documents provided by third party sources, including but not limited to, the private placement memorandum and related updates, due diligence responses, marketing presentations, limited partnership agreement and other supplemental materials. Analysis of information was performed by PCA.

An investment in the Fund is speculative and involves a degree of risk and no assurance can be provided that the investment objectives of the Fund will be achieved. Investment in the Fund is suitable only for sophisticated investors who are in a position to tolerate such risk and satisfy themselves that such investment is appropriate for them. The Fund may lack diversification, thereby increasing the risk of loss, and the Fund’s performance may be volatile. As a result, an investor could lose all or a substantial amount of its investment. The Fund’s governing documents will contain descriptions of certain of the risks associated with an investment in the Fund. In addition, the Fund’s fees and expenses may offset its profits. In making an investment decision, you must rely on your own examination of the Fund and the terms of the offering.

2015 CONFERENCES AND EVENTS SCHEDULE 2015

EVENT DATES 2015 REG. WEBLINK EVENT TITLE EVENT SPONSOR LOCATION BEGIN END FEE FOR MORE INFO Sep 30 Oct 2 CALAPRS Adminstrators' Institute CALAPRS Carmel, CA $1,000 calaprs.org

Oct 1 Oct 1 Public Retirement Seminar Public Retirement Journal Sacramento, CA $200 publicretirementjournal.org

Investment Strategies & Portfolio Oct 26 Oct 30 Wharton School of Business Philadelphia, PA $10,000 wharton.upenn.edu Management Oct 1 Oct 2 PIMCO Client Education Seminars PIMCO Newport Beach, CA N/A pimco.com Oct 5 Oct 8

Nov 3 Nov 5 Invesco Real Estate US Client Conf Invesco La Jolla, CA N/A invesco.com

Nov 17 Nov 20 SACRS Fall Conference SACRS San Diego, CA $120 sacrs.org

2016 CONFERENCES AND EVENTS SCHEDULE 2016

EVENT DATES 2016 REG. WEBLINK EVENT TITLE EVENT SPONSOR LOCATION BEGIN END FEE FOR MORE INFO

Jan 26 Jan 27 Risk and Liquidity Forum Institutional Investor San Francisco, CA N/A www.iiconferences.com/risk&liquidity

2015 Visions, Insights & Perspectives Jan 27 Jan 29 Institutional Real Estate Inc. Carlsbad, CA N/A irei.com (VIP) Advanced Principles of Pension Jan 27 Jan 29 CALAPRS Los Angeles, CA $3,100 calaprs.org Management for Trustees at UCLA

Mar 5 Mar 8 CALAPRS General Assembly CALAPRS Indian Wells, CA $100 calaprs.org

Apr 5 Apr 6 Annual Investor Meeting Miller Global San Antonio, TX N/A

Printed 9/14/15 9:20 AM Developing an Investment and Risk Strategy Suitable for Today http://www.iiconferences.com/risk&liquidity/ﬁles/r&l16-em.html

View this email online

January 26-27, 2016 The Ritz-Carlton San Francisco

5TH ANNUAL Risk & Liquidity

Dear [SALUTATION],

You are cordially invited to attend Institutional Investor Forums' Risk & Liquidity, on January 26-27, 2016 at The Ritz-Carlton, in San Francisco. Please accept our invitation online today to reserve your seat.

Developing an Investment and On January 26-27 in San Francisco, we will present the latest, best thinking on the ways Risk Strategy that North American pension funds and US Suitable for endowments and foundations can meet the challenges of - and take advantage of the Today opportunities presented by - a rapidly changing global investment landscape.

This-day-and-a-half program will be populated with experts from both leading asset management firms as well as some academic thinkers and speakers from leading, innovative institutions. These speakers will provide their expertise - through panel sessions, discussion groups, and real-world case studies - on how the new investment landscape we are confronting is altering the way they allocate assets, construct portfolios, and identify and select the managers they need to reach their investment objectives.

Topics may include:

What are the greatest investment opportunities for institutions in the current investment landscape? What are investors' greatest fears? The cost of beta is increasing (eg, futures are relatively expensive), what is the best way to access it today? Being more dynamic with your strategic allocation What decisions would you make if your fund had a longer-term investment horizon? How do you reconcile the industry (standard) benchmark with the investable opportunity set of today? Re-assessing liquidity in the bond market Assessing the appropriate use of leverage If equity is over-valued, how do you protect on the down-side? Asset allocation from a risk-managed perspective How do you measure risk in a way that is consistent with a longer-term investment horizon? When is risk reporting actionable? How can we make it appropriately actionable? How much should you commit to the private markets right now? How do you deal with the risks attendant with these investments?

The Risk & Liquidity agenda is being developed under the guidance of an advisory board of your peers.

1 of 2 9/10/15 12:03 PM Developing an Investment and Risk Strategy Suitable for Today http://www.iiconferences.com/risk&liquidity/ﬁles/r&l16-em.html

Advisory Board (to date):

Ryan Abrams, Portfolio Manager, Wisconsin Alumni Research Foundation Jase Auby, Chief Risk Officer, Teacher Retirement System of Texas Alan Benjamin Polansky, Senior Director of Investments, Jewish Federation of Metropolitan Chicago Marc Gauthier, Treasurer, Concordia University Sandra Gayle, Risk Manager, NYC Retirement Systems Suleyman Gokcan, Risk Manager, MSKCC Michael Griswold, Senior Director of Risk Management and Asset Allocation, Ascension Investment Management Jinde Guo, Vice President & Senior Managing Director of Investments, John Templeton Foundation Anjum T. Hussain, Director of Strategy, Asset Allocation & Risk Management, Case Western Reserve University Jing Li, Investment Risk Manager, DUMAC, LLC Mark Lundin, Deputy Chief Investment Officer - Risk, Arizona Public Safety Personnel Retirement System Patrick Roy, Portfolio Manager, Public Assets, Canadian Medical Protective Association Joseph Sheva, Portfolio Manager, Traditional Public Market Strategies, Pennsylvania Public School Employees' Retirement System Dimitry Shishkoff, Director of Risk, Texas Municipal Retirement System Alan Wong, Investment Strategist, Chevron Corporation

Only qualified representatives can be registered to attend this meeting, but there is no registration fee for those who are qualified. If you would like to ensure your place at this exclusive gathering, please complete the online response form. Once received Institutional Investor will send you an email letting you know if you are qualified to attend. For further information, please contact Katarina Storfer at (212) 224-3073 or [email protected].

We are certain you will find attending the meeting a worthwhile investment of your time and look forward to receiving your response form.

Sincerely,

Steven Olson Editor in Chief / Managing Director Institutional Investor Forums Institutional Investor, Inc.

www.iiforums.com [email protected] +1 212 224 3073

If you do not want to recieve any further email, please unsubscribe

2 of 2 9/10/15 12:03 PM SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION SUMMARY OF PENDING TRUSTEE AND EXECUTIVE STAFF TRAVEL

2015 Estimated BOR Approval Event Dates Sponsor / Event Description Location Traveler(s) Cost Date Sep 24 - 25 Public Pensions & Investment Forum San Francisco, CA Eshoo $1,000 June 12, 2015

Sep 30 - Oct 2 CALAPRS Adminstrator's Institute Carmel, CA St. Urbain $2,000 Approved by Board Policy Nov 3 - 5 Invesco Real Estate Conference La Jolla, CA Garman $2,500 August 14, 2015 Garman, McCray, Miller, Praus, Nov 17 - 20 SACRS Fall Conference SACRS Restuccia, Souza, TBD Approved by Board Policy Eshoo, St. Urbain, Pabst, Calkins

Printed 9/18/15 4:12 PM SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION

SUMMARY OF COMPLETED TRUSTEE AND EXECUTIVE STAFF TRAVEL

Event Estimated Actual Event Report Dates Sponsor / Event Description Location Traveler(s) Cost Cost Filed 2015 Jan 13 Due Diligence visit Portland, OR St. Urbain, Calkins $1,320 $1,334 N/A Jan 15 Due Diligence visit Santa Monica, CA St. Urbain, Calkins $1,100 $979 N/A 2015 Visions, Insights & Perspectives Restuccia, Garman, Jan 28-30 Dana Point, CA $4,265 $1,977 2/20/15 (VIP) Calkins St. Urbain Advanced Principles of Pension (Audit course as Jan 28-30 Los Angeles, CA $300 $942 N/A Management for Trustee at UCLA CALAPRS Board Member) Garman, McCray, Souza, Weydert, Approved by Mar 7-10 CALAPRS General Assembly Monterey, CA $5,000 $7,392 Duffy, St. Urbain, Board Policy Pabst, Calkins, Mar 17-19 2015 Real Asset Conference Dana Point, CA Calkins $1,950 $1,130 4/10/15 Apr 7-8 Pension Bridge San Francisco, CA McCray, Calkins $2,370 $1,495 6/26/15 Apr 8-9 Miller Global Annual Investor Meeting San Antonio, TX St. Urbain $2,000 $1,387 4/24/15 Approved by Apr 20-21 CALAPRS Management Academy Pasedena, CA St. Urbain $1,250 $385 (as Program Faculty) Board Policy Apr 21-23 IREI Editorial Board Meeting San Diego, CA Garman $1,750 $371 N/A Apr 28-29 Mesa West Annual Investors Meeting Santa Monica, CA Calkins $1,500 $632 6/26/15 Garman, Khan, Mills, Eshoo, St. Approved by May 12-15 SACRS Spring Conference Anaheim, CA $12,000 $8,443 Urbain, Pabst, Board Policy Calkins, May 17-20 World Investment Forum Newport Coast, CA Calkins $1,250 $1,024 6/26/15 May 31 - Jun 3 GFOA Annual Conference Philadelphia, PA Cherng $2,500 $2,305 8/6/15 SACRS Public Pension Investment Jul 26 - 29 Berkeley, CA Van Houten $2,851 TBD N/A Management Program Van Houten, Principles of Pension Management for Aug 25 - 28 Malibu, CA St. Urbain $4,500 TBD N/A Trustees at Pepperdine (as Program Faculty)

Printed 9/14/15 9:28 AM SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION

SUMMARY OF COMPLETED TRUSTEE AND EXECUTIVE STAFF TRAVEL

Event Estimated Actual Event Report Dates Sponsor / Event Description Location Traveler(s) Cost Cost Filed 2015 Aug 31-Sep 1 Global CFO Forum Sacramento, CA St. Urbain, Cherng $1,000 TBD Pending

Sep 1 - 3 IREI Editorial Board Meeting Laguna Beach, CA Restuccia $750 TBD N/A Approved by Sep 18 CALPRS Attorney Roundtable San Jose, CA Eschoo $1,000 TBD Board Policy

Printed 9/14/15 9:28 AM

MEMOR ANDUM Date: 9/18/15

To: PCA Clients

From: Pension Consulting Alliance, LLC (PCA)

RE: Crisis Risk Offset

Summary For the last several years, PCA has advocated that its clients seriously consider applying a risk- based/functional framework to their strategic allocation policies. As expected, some clients have fully embraced this concept, some clients have partially embraced this concept, and some clients have said, “thanks, but no thanks…” For those clients that have begun embracing the risk-based/functional class framework, in whole or at least in part, a natural progression of applying the framework is considering more purpose-driven/goal-oriented strategic classes.

Recently, as part of their ongoing strategic review processes, a handful of PCA clients have decided to adopt and/or seriously consider a form of a Crisis Risk Offset (CRO) class. The objective of this class is to materially appreciate in value at a time when growth-risk-related assets are experiencing significant challenges (i.e., producing extended declines of close to -20% or more). If the CRO works as designed, then the class’s appreciation should offset the depreciation experienced by other classes at approximately the same time. When this occurs, the overall portfolio’s periodic investment returns should exhibit a more stable pattern, helping to mitigate the asset balance sheet risk at the overall pension plan level.

Discussion Over the last couple of weeks, the press has reported that three pension funds (CalSTRS, the Hawaii ERS, and the San Joaquin County ERA) have adopted or are considering new investment policies that include some form of a CRO.1 To the casual reader, these separate funds considering or adopting these strategies at roughly the same time might indicate one or both of the following: (a) a burgeoning new trend in the institutional investment marketplace and/or (b) a reaction to recent market turmoil. Neither of these two motivations is close to the truth.

First, all three funds are PCA clients. At a minimum, these clients have embraced PCA’s thinking on risk/functional allocation and/or risk mitigation to varying degrees. Deliberating, considering, and finally adopting such significant concepts often takes significant time. CalSTRS has been discussing risk mitigation concepts since late 2010. Hawaii ERS has been evolving toward such strategies since 2009. San Joaquin is restructuring from a policy that previously also emphasized enhanced diversification.

1 At CalSTRS, this class is designated the Risk Mitigation Strategies (RMS) class. Its structure reflects, and is consistent with, PCA’s recommendations to CalSTRS and its other PCA clients.

Second, it is by mere coincidence that these three clients conducted their asset-liability studies at almost exactly the same time. Typical asset-liability studies often occur in 3-5 year cycles in order to reflect the natural evolution in investment market cycles as well as incorporate what can be material actuarial adjustments to a pension plan’s liabilities over time.

In summary, these three funds considering a CRO-type class may or may not constitute a trend in the institutional investment marketplace. Further, our clients’ decisions are not a reaction to recent market volatility. What we do know is that risk mitigation remains a very important topic to our clients. We also believe a CRO-type strategic class can be an important strategic tool for a pension fund concerned about taking significant amounts of shorter-term drawdown risk.

We believe a CRO-type class can help plan sponsors better manage their progress along their paths toward improved financial health for several reasons:

 A properly-structured CRO (typically containing a core allocation to Long US Treasury duration, accompanied by Trend Following strategies, and Alternative Risk Premia strategies) should provide a better counterbalance during crisis periods than typical fixed income. Typical fixed income will not respond as dramatically during an investment crisis as the CRO. In addition, a typical fixed income portfolio still has a significant credit allocation (which will likely depreciate during a crisis) while also expected to produce very low levels of returns in the future.

 A properly-structured CRO should exhibit significant liquidity, particularly during a crisis period. All of the above three strategies emphasize the world’s largest, most liquid trading markets. Possessing liquidity during such periods constitutes a huge competitive advantage for investors and plan sponsors.

 During an extend crisis period, the CRO is meant to capture the positive attributes of “flight-to-quality” market behavior. At its core, the CRO assumes the U.S. Dollar (as the world’s reserve currency) and, by extension, U.S. Treasury bonds (given their default-free nature) will be highly sought after during an extended crisis. Given the continuing developments in the world’s major economic regions, there seems to be very little evidence to the contrary, at least for the next decade or so. The other strategies represent important complements to the core Long Treasuries position.

We recognize a CRO-type class exhibits its own set of tradeoffs (just like any other strategic class) and may not be applicable to every client. However, we have worked closely with several clients over the years to find solutions that should help clients manage high-level macro risks in as efficient and effective manner as possible consistent with each plan’s unique investment structure and tolerance for risk. We believe the CRO is a strategy that PCA’s clients should, at a minimum, explore.

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