SACRS Trustees Handbook

 Trustees Handbook Handbook
Revised April, 2010
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1
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294
S
A
C
R
S V
i
r
t
u
a
l
Welcome Welcome
Welcome
to
your
copy
of
the
2010
Version
of
the
SACRS
Virtual
Handbook
for
Trustees
For
more
information
or
questions
concerning
this
handbook
or
SACRS
as
an
organization,
please
contact:
STATE
ASSOCIATION
OF
COUNTY
RETIREMENT
SYSTEMS
1415
L
STREET,
SUITE
200
SACRAMENTO
CA
95814
PHONE
AND
FAX:
(P)
916.441.1850
•
(F)
916.441.6178
EMAIL:
[email protected]
WEB
http://www.sacrs.org
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294
Requirements The
Virtual
Handbook
works
best
on
the
following: Any
Windows
XP/Vista/7
or
Mac
OS
10.4/5/6
computer
or
higher
and
Adobe
Acrobat
Reader
Version
8
or
9
The
Handbook
will
work
on
earlier
versions
of
Acrobat
Reader
(5
‐7)
with
some
features
disabled
and
a
few
differences
in
appearance.
NOTE: Most new computer systems include Acrobat Reader 9, however, if you don’t have a copy installed on your computer you may download a free copy of Acrobat Reader 9 here: http://get.adobe.com/reader/
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Contents Section
1
Section
2
Section
3
Section
4
Introduction
1.1
Purpose
of
Handbook
County
Employees
Retirement
Law
(CERL)
or
“’37
Act”
2.1
Introduction
2.2
Overview
of
County
Employees’
Retirement
Law
2.3
Financial
Overview
Financial
Statements
as
reported
to
the
State
Controller
as
published
for
2003
–
2004
(http://www.sco.ca.gov)
2.4
Comprehensive
Annual
Financial
Report
(CAFR)
State
Association
of
County
Retirement
Systems
(SACRS)
3.1
Oral
History
of
SACRS
3.1.1
John
Descamp
3.1.2
H.
B.
Alvord
3.2
What
is
SACRS?
3.3
SACRS
Bylaws
Role
of
the
Trustee
4.1
Overview
‐
Your
Fiduciary
Duties
and
Ethics
4.2
Role
of
Trustee
4.3
Local
Agency
Ethics
4.4
Conflict
of
Interest
4.5
Your
Constituents
4.6
Prudent
Expert
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294
Contents Section
5
Section
6
Section
7
Retirement
Benefits
Administration
5.1
General
Information
5.2
Service
Retirement
Benefits
5.3
Disability
Retirement
Benefits
5.4
Cost‐of‐Living
Provisions
5.5
Survivor’s
Benefits
5.6
Reciprocity
Advisory
Relationships
6.1
Advisory
Relationships
6.2
Actuary
6.2.1
Role
of
the
Actuary
6.2.2
Actuarially
Speaking
6.3
Attorney
to
the
Board
6.4
Auditor
6.5
Board
Medical
Advisor
6.6
Custodian
Bank
6.7
Hearing
Officer
6.8
Investment
Consultant
6.9
Investment
Management
Pension
Plan
Staff
7.1
Pension
Plan
Staff
‐
Overview
7.2
Roles
of
Staff
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Contents Section
8
Section
9
Section
10
Section
11
Actuarial
Methods
and
Assumptions
8.1
Actuarial
Handbook
for
Trustees
(Arizona
State
Retirement
System)
8.2
Actuarial
Assumptions
8.3
Actuarial
Methods
and
Assumptions
8.4
GFOA
Recommended
Practices
Investment
Basics
9.1
Asset
Allocation
9.2
Developing
an
Investment
Policy
Financial
Management
of
the
Pension
10.1
Investment
Performance
10.2
Monitoring
Performance
Appendix
11.1
County
Employees
Retirement
Law
11.2
Glossary
of
California
Retirement
System
Terminology
11.3
Glossary
of
Investment
Terms
11.4
Proposition
162
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1. Introduction
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294
1.1‐1
INTRODUCTION
Congratulations
on
your
new
role
as
a
Retirement
Board
Trustee
of
a
1937
Act
Retirement
System.
The
State
Association
of
County
Retirement
Systems
(SACRS)
has
created
this
New
Trustee
Handbook
to
educate
trustees
on
the
fundamentals
of
their
duties.
It
is
intended
to
provide
trustees
with
an
introduction
and
overview
of
their
new
responsibilities.
The
handbook’s
purpose
is
not
to
answer
every
question
or
provide
everything
a
trustee
will
ever
need
to
know.
Nor
replace
legal
advice
offered
by
your
counsel,
or
for
specific
investment
advice
offered
by
your
consultant.
We
present
this
handbook
as
an
introduction
and
overview
to
the
fundamentals
for
pension
trustees.
Hopefully,
this
will
be
the
first
handbook
every
trustee
reads
and
uses
as
the
basis
for
further
education.
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294
1.1‐2
INTRODUCTION
Another
purpose
of
this
handbook
is
to
introduce
SACRS
to
you.
We
hope
you
find
this
handbook
educational
and
a
handy
reference
tool.
SACRS
looks
forward
to
working
with
you
and
supporting
your
continuing
education
to
make
your
job
easier
and
more
fulfilling.
There
are
many
resources
listed
throughout
this
handbook
that
we
know
you’ll
find
useful
as
you
grow
into
your
role
as
a
pension
trustee.
As
you
gain
more
knowledge
and
exposure
to
the
SACRS
organization,
you
will
discover
that
although
the
twenty
SACRS
systems
are
under
the
same
government
code
(CERL),
every
system
thinks
and
acts
a
little
different
from
each
other
in
matters
of
policy
and
operations.
This
diversity
of
approaches
and
ideas
is
what
makes
SACRS
such
a
great
and
dynamic
organization.
In
the
next
section
we
provide
you
information
on
our
history
and
purpose.
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2. County Employees Retirement Act Retirement Act
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294
2.1‐1
INTRODUCTION
This
information
is
presented
to
generally
familiarize
you
with
the
“’37
Act”
and
retirement
systems
governed
by
the
act.
In
some
instances
information
presented
is
described
in
general
terms
and
is
not
intended
or
suggested
to
be
definitive,
specific
or
complete
and
may
not
be
current
for
some
of
the
’37
Act
systems.
Please
consider
this
a
general overview
and
basic
introduction
and
intended
to
serve
as
an
overview
for
individuals
such
as
trustees,
plan
administrators,
members
of
board
of
supervisors,
legislators,
labor
and
management
representatives,
plan
participants
and
other
interested
parties,
who
are,
to
varying
degrees,
familiar
with
the
County
Employees’
Retirement
Law
of
1937
(CERL)
“the
’37
Act”
and
retirement
systems
enacted
pursuant
to
its
provisions.
The
’37
Act
is
a
very
dynamic
piece
of
legislation.
Each
year,
legislation
is
introduced
that
has
direct
impact
on
the
operations
of
the
systems.
There
are
other
activities
such
as
court
cases
and
initiatives
that
can
fundamentally
alter
the
operations
of
the
systems.
One
example
was
the
approval
by
the
California
voters
of
the
“California
Pension
Protection
Act
of
1992”
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294
Modi8ications at the State Level (Legislature) Modi8ications at the local level (Board of Retirement) Original CERL (1937 ACT) Page
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Modi8ications at the local level (Board of Supervisors) 2.2‐1
CERL
OVERVIEW
COUNTY
RETIREMENT
SYSTEMS
Initial
Authorization
The
Legislature
initially
authorized
a
retirement
system
for
county
employees
with
the
enactment
of
the
County
Employees’
Retirement
Law
of
1919.
This
law
was
replaced
by
the
’37
Act
and,
was
eventually
repealed
in
1947.
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2.2‐2
CERL
OVERVIEW
COUNTY
RETIREMENT
SYSTEMS
Existing
Law
Under
existing
law,
a
county
may
provide
retirement
benefits
to
its
employees
in
three
ways:
Establish
an
independent
system;
or
Contract
with
the
California
Public
Employees’
Retirement
System
(CalPERS),
i.e.
37
California
counties
currently
are
under
contract;
or
Establish
a
system
under
the
CERL
“37
Act”
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2.2‐3
CERL
OVERVIEW
Independent
Systems
Article
XI,
Section
1
of
the
California
State
Constitution
authorizes
general
law
counties
to
provide
for
the
number,
compensation,
tenure
and
appointment
of
employees.
In
addition,
Article
XI,
Sections
4
and
6,
authorizes
charter
counties
and
charter
cities
to
establish
independent
retirement
systems
if
their
charters
so
provide.
Two
general
law
counties
(San
Luis
Obispo
and
Trinity)
and
one
city
and
county
(San
Francisco)
currently
are
independent
systems.
Trinity
County
also
is
a
contracting
agency
with
Cal
PERS
for
providing
benefits
to
its
“safety”
members.
CalPERS
In
1939,
the
Legislature
authorized
employees
of
counties
(and
other
state
public
agencies)
to
join
CalPERS
at
the
individual
county’s
option.
Currently,
there
are
37
counties
that
participate
in
CalPERS.
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2.2‐4
CERL
OVERVIEW
The
CERL
Systems
The
1937
Act
provides
for
retirement
systems
for
county
and
special
district
employees
in
those
counties
adopting
its
provisions.
All
changes,
additions,
or
deletions
to
retirement
systems
established
under
this
law
require
action
by
the
State
Legislature.
Twenty
counties
operate
retirement
systems
under
the
provisions
of
the
CERL.
The
twenty
counties
are:
Alameda,
Contra
Costa,
Fresno,
Imperial,
Kern,
Los
Angeles,
Marin,
Mendocino,
Merced,
Orange,
Sacramento,
San
Bernardino,
San
Diego,
San
Joaquin,
San
Mateo,
Santa
Barbara,
Sonoma,
Stanislaus,
Tulare
and
Ventura.
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CALIFORNIA
COUNTY
RETIREMENT
SYSTEMS
BY
TYPE
MADERA
Page
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2.2‐5
CERL
OVERVIEW The
CERL
Systems
Los
Angeles,
in
1938,
was
the
first
county
to
adopt
the
CERL
provisions.
Imperial
was
the
last,
establishing
its
system
in
1951.
Most
of
the
county
systems
were
created
during
the
mid
1940’s.
Because
all
permanent
county
employees
are
members
of
the
county’s
retirement
system,
the
memberships
of
the
systems
parallel
the
size
of
the
sponsoring
counties.
Los
Angeles
has
the
largest
system
with
in
excess
of
151,400
members
and
beneficiaries,
while
Mendocino
has
the
smallest
system
with
slightly
more
than
2,300
members.
Taken
all
together,
as
of
June
of
2009,
the
’37
Act
systems
have
in
excess
of
420,000
members
and
represent
$99.4
billion
in
assets.
These
systems
together
constitute
the
third
largest
public
employees
“system”
in
the
state,
ranking
behind
the
Public
Employees’
Retirement
System
(CalPERS)
and
the
State
Teachers’
Retirement
System
(CalSTRS).
Section
2.3
provides
financial
details
on
each
of
the
twenty
systems.
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294
2.2‐6
CERL
OVERVIEW Stated
Purpose
The
CERL
was
enacted
to
recognize
a
public
obligation
to
county
and
district
employees
who
become
incapacitated
by
age
or
long
service
in
public
employment
and
its
accompanying
physical
disabilities.
The
CERL
accomplishes
this
purpose
by
making
provisions
for
retirement
compensation
and
death
benefits
as
additional
elements
of
compensation
for
services
provided
to
the
employer
and
the
public.
Additionally,
the
CERL
provides
a
means
by
which
public
employees
who
become
incapacitated
may
be
replaced
by
more
capable
employees
to
the
betterment
of
public
service
without
prejudice
and
without
inflicting
a
hardship
upon
the
employees
removed.
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19
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294
2.2‐7
CERL
OVERVIEW Complexity
of
the
CERL
Although
the
’37
Act
as
originally
written
was
intended
to
be
a
system
of
benefits
applicable
to
all
systems
enacted
pursuant
to
its
provisions,
through
legislative
constitutional
amendments,
legislative
statutory
amendments
and
ambiguous
language
subjected
to
a
multitude
of
interpretations
by
boards,
administrators,
legal
advisors
and
courts,
the
administration
of
CERL
systems
has
become
complex,
complicated
and
difficult.
The
CERL
is
now
replete
with
many
unique
provisions
which
are
stated
to
be
only
applicable
in
counties
of
a
certain
“class”
as
determined
by
population.
Section
3.2
shows
a
list
of
SACRS
county
members
and
their
classes.
Page
20
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294
2.2‐8
CERL
OVERVIEW
Complexity
of
the
CERL
It
is
also
replete
with
provisions
which
are
only
applicable
in
certain
counties
if
specifically
adopted
by
the
board
of
supervisors
or
the
board
of
retirement
or
both.
With
the
passage
of
recent
legislation,
all
new
benefits
require
an
actuarial
study
be
conducted
to
determine
the
present
and
future
costs
of
implementing
the
benefit.
Further,
the
action
to
adopt
the
benefit
must
be
done
in
public
session
during
a
Retirement
Board
meeting
and
cannot
be
a
consent
item.
These
provisions
enable
counties
to
provide
levels
of
benefits
to
members
which
are
appropriate
for
county
resources
and
acceptable
politically.
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21
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294
2.2‐9
CERL
OVERVIEW
Complexity
of
the
CERL
These
reasons
aside,
without
intimate
knowledge
of
the
specific
system’s
history
with
respect
to
population
size
and
past
actions
of
the
board
of
supervisors
and
the
board
of
retirement,
and
without
a
system’s
plan
summary
description,
it
is
virtually
impossible
for
a
reader
of
the
CERL
to
determine,
with
reasonable
certainty,
the
benefits
of
a
particular
CERL
system.
Further
complications
arise
out
of
the
authority
of
the
retirement
boards
to
adopt
provisions
and
make
regulations
for
specific
activities
that
are
not
apparent
in
the
CERL
itself.
Page
22
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294
2.2‐9
CERL
OVERVIEW
Establishing
A
System
The
CERL
provides
two
methods
by
which
a
county
may
establish
a
retirement
system.
The
system
may
be
created
by
4/5ths
vote
of
the
county
Board
of
Supervisors
or
by
majority
vote
of
the
electors
in
a
County
special
or
general
election.
4/5 Af8irmative Majority Vote by County Af8irmative Vote Board of by Electors in Supervisors County Election NEW 1937 ACT COUNTY SYSTEM Page
23
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294
2.2‐10
CERL
OVERVIEW
Establishing
a
System
Once
a
county
elects
to
come
under
the
CERL,
the
Act’s
provisions
become
operative
on
either
the
following
January
1st
or
July
1st,
but
no
sooner
than
60
days
after
the
appropriate
election.
A
system
established
pursuant
to
the
CERL
supersedes
any
previous
established
county
retirement
system.
Page
24
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294
2.2‐11
CERL
OVERVIEW
Board
of
Retirement
Each
county
implementing
the
37
Act
has
a
board
of
retirement
which
is
charged
with
managing
the
system.
These
boards
make
administrative
regulations.
If
the
boards
have
declared
themselves
to
be
independent
agencies,
then
these
regulations
are
not
required
to
be
approved
by
the
county
board
of
supervisors
before
implementation.
These
boards
of
retirement
must
have
nine
members
and,
in
systems
that
have
law
enforcement
and
fire
suppression
members,
one
alternative
safety
member,
each
serving
a
term
of
three
years.
Page
25
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294
2.2‐12
CERL
OVERVIEW
Board
of
Retirement
Composition
of
each
board
is
determined
by
statute
as
follows:
1 County
Treasurer
4 Qualified
Members
not
in
any
way
connected
with
county
government,
except
one
may
be
a
county
supervisor.
These
four
positions
are
appointed
by
the
board
of
supervisors
2 General
Members
of
the
retirement
association
as
elected
by
the
general
members.
1 Safety
Member
(and
one
alternate
safety
member
in
counties
where
the
board
of
retirement
has
adopted
the
necessary
code
sections)
of
the
retirement
association
elected
by
the
safety
members.
1 Retired
Member
(and
one
alternate
retiree
member
in
counties
where
the
board
of
retirement
has
adopted
the
necessary
code
sections)
elected
by
its
retired
members.
Standard Board Composition 1 1 1 2 Treasurer 4 Appointed by BOS Elected by General Members Elected by Safety Members Elected by Retired Members Page
26
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294
2.2‐13
CERL
OVERVIEW
Board
of
Investments
In
any
county
in
which
the
assets
of
the
retirement
system
exceed
eight
hundred
million
dollars
($800,000,000),
the
board
of
supervisors
may,
by
resolution,
establish
a
Board
of
Investments
which
shall
be
responsible
for
all
investments
of
the
retirement
system.
The
composition
and
terms
of
office
are
basically
the
same
as
the
board
of
retirement
except
appointed
members
of
the
board
must
have
significant
experience
in
institutional
investing.
Currently,
only
Los
Angeles
County
Employees’
Retirement
Association
has
a
board
of
investments.
Page
27
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294
2.2‐14
CERL
OVERVIEW
Administrative
Costs
and
Personnel
Under
specific
code
sections
unique
to
retirement
systems,
boards
of
retirement
have
the
ability
to
have
administrative,
technical
and
clerical
staff
appointed
by
the
respective
board
of
retirement
or
board
of
investment.
When
the
staff
is
appointed
by
the
board,
the
cost
of
administration
is
taken
from
the
investment
earnings
of
the
system.
The
maximum
administrative
expenditure
(excluding
costs
of
investments
and
attorneys)
is
statutorily
set
at
.18
percent
of
system
assets.
Page
28
of
294
2.2‐15
CERL
OVERVIEW
Administrative
Costs
and
Personnel
System
personnel
are
county
employees
and
are
subject
to
civil
service
or
merit
system
rules
of
the
county
in
which
the
retirement
system
is
located.
A
board‐appointed
administrator,
a
chief
financial
officer
and
assistant
administrator,
however,
may
not
be
subject
civil
service
or
merit
system
rules
but
may
serve
at
the
pleasure
of
the
board.
Several
systems
have
been
moving
to
exempt
more
of
their
staff
from
the
county
employment
status.
This
requires
unique
government
code
sections.
In
all
cases,
personnel
salaries
are
included
in
the
salary
ordinance
or
resolution
adopted
by
the
board
of
supervisors
for
compensation
of
county
officers
and
employees.
Page
29
of
294
2.2‐15
CERL
OVERVIEW
Funding
Funding
of
benefits
is
provided
from
three
sources:
1)
INVESTMENT
INCOME
2)
EMPLOYEE
CONTRIBUTIONS
3)
COUNTY
AND
SPECIAL
DISTRICT
(EMPLOYER)
CONTRIBUTIONS
Employers Employees Earnings BENEFITS Page
30
of
294
2.2‐16
CERL
OVERVIEW
Investment
Income
Investment
income
generally
refers
to
the
earnings
derived
from
the
investment
of
the
system’s
assets
and
consists
of
interest,
dividends,
rentals
and
capital
appreciation.
Investment
earnings
are
usually
expressed
as
a
percentage
of
the
amount
invested.
Because
of
this,
the
manner
in
which
the
value
of
these
assets
is
reported
can
have
a
significant
impact
on
the
reported
yield.
That
is,
there
are
two
common
methods
for
reporting
the
value
of
assets:
(1)
The
book
value,
or
the
value
of
the
asset
based
upon
its
original
purchase
price
or
acquisition
cost,
and
(2)
The
market
value,
or
the
assets’
current
value.
Page
31
of
294
2.2‐17
CERL
OVERVIEW
Investment
Income
There
are
two
methods
for
valuing
assets:
market
value
and
book
value.
Market
value
is
generally
considered
the
more
accurate
of
the
two.
All
systems
under
the
CERL
now
use
market
value
to
value
assets.
Assets
used
to
be
reported
at
book
value
which
had
the
advantage
of
being
simpler
and
more
stable.
Page
32
of
294
2.2‐18
CERL
OVERVIEW
Investment
Income
Prior
to
June
5,
1984,
investment
of
assets
were
limited
and
controlled
pursuant
to
Government
Code
Sections
31595
through
31595.6,
and
by
Sections
1372
of
the
California
State
Financial
Code.
Listed
below
are
the
authorized
investments
allowed
at
that
time.
They
are
included
here
as
an
illustration
of
how
far
investment
strategies
have
evolved
in
the
past
25
years:
1
Securities
which
were
legal
for
savings
bank
investments
2
Deposits
and
interest
in
banks
(if
secured
or
collateralized
at
110%)
3
Deposits
in
savings
and
loan
associations
(if
secured
or
collateralized
at
110%)
4
5
6
Registered
warrants
of
municipalities
Real
property
leased
to
counties
in
the
state
Deeds
of
trust
and
mortgages
(not
to
exceed
25%
of
all
funds
invested)
7
Real
property
or
improvements
if
acquired
for
sale
or
lease
to
a
county
board
of
education
8
Bonds
issued
pursuant
to
the
Improvement
Bond
Act
of
1915
9
The
purchase
of
the
right
to
receive
rent
from
leases
of
real
property
to
a
railroad
company
10
Common
stocks
(not
to
exceed
25%
of
the
fund’s
assets,
subject
to
restrictions)
11
Preferred
stocks
(not
to
exceed
5%
of
the
fund’s
assets,
accumulative
with
common
stocks)
12
Mutual
funds
(not
to
exceed
25%
of
the
fund’s
assets,
accumulated
with
common
stock
holdings)
13
Real
estate
and
leases
for
business
or
residential
purposes
(not
to
exceed
10%
of
the
fund’s
assets
and
must
have
been
approved
by
a
unanimous
vote
of
the
retirement
board)
14
Bonds,
debentures,
and
notes
legal
for
investment
in
savings
banks
in
the
state
of
New
York
or
Massachusetts
or
in
securities
in
which
commercial
banks
were
authorized
to
invest
their
funds.
Page
33
of
294
2.2‐19
CERL
OVERVIEW
Investment
Income
Proposition
21
On
June
5,
1984,
California
voters
approved
Proposition
21,
a
legislative
constitutional
amendment
that
significantly
altered
the
constitutional
limitations
on
investments
by
public
employee
retirement
funds.
Amendments
to
CERL
were
enacted
on
September
30,
1984,
to
reflect
the
changes
approved
by
the
passage
of
Proposition
21.
These
amendments,
which
were
enacted
in
Assembly
Bill
No.
3508,
Chaptered
1738,
Statutes
of
1984,
replaced
the
restrictions
on
CERL
funds
investments
with
more
flexible
guidelines.
These
guidelines
are
primarily
stated
in
Government
Code
Section
31595
as
follows:
“Except
as
otherwise
expressly
restricted
by
the
California
Constitution
and
by
law,
the
board
may,
in
its
discretion,
invest
or
delegate
the
authority
to
invest
the
assets
of
the
fund
through
the
purchase,
holding,
or
sale
of
any
form
or
type
of
investment,
financial
instrument,
or
financial
transaction
when
prudent
in
the
informed
opinion
of
the
board.”
Proposition 21 Page
34
of
294
2.2‐20
CERL
OVERVIEW
Actuarial
Evaluations Government
Code
Section
7507
requires
counties
to
secure
the
services
of
an
enrolled
actuary
to
provide
actuarial
evaluations
of
future
annual
costs
before
authorizing
increases
in
public
retirement
plan
benefits.
Section
31453
of
the
CERL
requires
that
an
actuarial
valuation
be
made
at
least
every
three
years
to
cover
the
mortality,
service,
compensation,
and
experience
of
the
members
and
beneficiaries,
and
to
evaluate
the
assets
and
liabilities
of
the
retirement
fund.
On
the
basis
of
the
investigation,
valuation,
and
recommendations
of
the
actuary,
the
board
of
retirement
must
adopt
an
assumed
rate
of
return
on
the
system’s
investments
for
purposes
of
determining
the
level
of
required
contributions
and
must
recommend
to
the
board
of
supervisors
such
changes
in
the
rates
of
interest
applied
to
employee
accounts,
the
rates
of
contributions
on
members,
and
changes
in
county
and
district
appropriations
as
are
necessary
to
fund
the
system.
INVESTIGATION VALUATION RECOMMENDATIONS Page
35
of
294
ADOPTED ASSUMED RATE OF RETURN 2.2‐21
CERL
OVERVIEW
Employee
Contributions
With
recent
exceptions
for
“new”
employees
hired
into
specific
tiers
of
the
Government
Code,
retirement
systems
established
pursuant
to
the
CERL
are
contributory.
This
means
that
a
portion
of
the
cost
of
the
benefits
to
be
derived
is
paid
directly
by
the
employees
in
the
form
of
a
deduction
from
each
payroll
cycle.
The
contributions
made
by
the
members
are
held
in
reserve
and
credited
with
interest
to
purchase
an
annuity
at
the
time
of
retirement.
These
contributions
are
known
as
“basic”
contributions.
Page
36
of
294
2.2‐22
CERL
OVERVIEW
Employee
Contributions
The
CERL
specifies
that
certain
basic
rates
of
contributions
be
dependent
upon
the
basic
benefit
formula
adopted.
Those
rates
are
set
by
the
actuary
to
provide
for
an
average
annuity
at
a
specified
age
as
a
percent
of
final
compensation
(the
highest
compensation
earned
by
a
member
over
a
specified
period
of
time.)
Basic
rate
formulas
may
be
established
under
the
CERL
to
provide
an
average
annuity
at
specified
ages
equal
to
fractions
of
final
compensation
for
each
year
of
service.
Page
37
of
294
2.2‐23
CERL
OVERVIEW
Employee
Contributions
For
the
defined
benefit
plans,
generally
only
three
things
affect
the
employee
basic
rate:
1) Interest
assumption.
Used
to
discount
the
value
of
the
basic
benefit
at
retirement
to
present
date.
The
interest
rate
includes
two
components:
the
anticipated
future
rate
of
inflation
and
the
“real”
rate
of
return,
which
is
the
investment
earnings
in
excess
of
inflation.
The
higher
the
interest
assumption
–
whether
due
to
inflation
or
real
returns
–
the
bigger
the
discount
and
the
lower
the
employee
contribution
rate.
The
inflation
component
also
affects
future
salaries
as
noted
below.
2) Mortality
after
service
retirement.
Projected
future
costs
of
service
retirement
are
directly
related
to
the
number
of
years
for
which
payments
are
to
be
made.
Longer
life
expectancies
tend
to
increase
employee
contribution
rates.
3) Salary
scale.
Like
the
interest
assumption,
the
salary
scale
includes
two
components:
the
anticipated
future
rate
of
inflation
and
the
“real”
rate
of
salary
increases,
which
are
salary
increases
in
excess
of
inflation.
This
means
that
a
higher
inflation
assumption
will
increase
both
the
interest
assumption
and
the
salary
scale
assumption.
The
higher
the
salary
scale
assumption,
the
higher
the
projected
future
final
compensation
for
retiring
members,
and
the
higher
the
employee
contribution.
Page
38
of
294
2.2‐24
CERL
OVERVIEW
Employee
Contributions
In
addition
to
funding
the
basic
annuity,
employee
contributions
are
needed
to
fund
annual
cost‐of‐living
increases.
This
projected
cost
is
considered
by
the
actuary
in
determining
appropriate
employee
rates.
Unlike
the
basic
rate,
the
cost‐of‐living
rate
is
affected
by
future
experience,
i.e.
future
service
and
disability
retirements,
withdrawals,
deaths
before
retirement,
etc.
In
many
counties,
contributions
are
a
flat
percentage
of
the
employee’s
entire
salary.
However,
if
the
benefit
formula
is
integrated
with
Social
Security
benefits,
the
employee
contributions
may
be
set
at
different
rates
on
portions
of
the
employee’s
earnings
above
and
below
the
Social
Security
integration
level.
Typically,
two‐thirds
of
the
rate
is
applied
below
the
Social
Security
integration
level,
the
full
rate
is
applied
to
the
excess.
Page
39
of
294
2.2‐25
CERL
OVERVIEW
Employee
Contributions
After
projecting
the
income
from
retirement
system
investments
and
employee
contributions,
the
system’s
actuary
determines
the
amount
of
employer
contributions
necessary
to
properly
fund
the
system.
The
actuary
first
projects
the
level
and
timing
of
benefit
payments
and
then
recalculates
the
difference
between
the
employer
contributions,
which
are
dependent
upon
five
factors:
(1)
The
basic
design
of
the
plan
(2)
Funding
method
used
(3)
Actuarial
assumptions
used
by
the
plan
actuary
in
conjunction
with
the
funding
method
(4)
Experience
of
the
plan
relative
to
actuarial
assumptions
of
actuary
(5)
Maturity
status
of
active
employees,
i.e.
average
age
and
service.
Basic Design of the Plan Active Employee Status Funding Method Plan Experience Actuarial Assumptions Page
40
of
294
2.2‐26
CERL
OVERVIEW
Basic
Design
of
the
Plan All
systems
under
the
CERL
provide
their
members
with
income
from
(1)
Service
retirement
(2)
Non‐service
connected
disability
(3)
Service‐connected
disability
(4)
Cost‐of‐living
increases
(5)
Death
and
survivor
benefits
Page
41
of
294
2.2‐27
CERL
OVERVIEW
Basic
Design
of
the
Plan Employee
contribution
rates,
as
stated
earlier,
are
calculated
only
with
consideration
of
providing
annuity
payments
at
specific
ages
of
retirement,
and
in
consideration
of
subsequent
cost‐of‐living
increases
on
all
continuing
benefits
of
the
annuity.
All
other
costs
of
the
system
are
borne
by
the
employer,
i.e.
the
county
and
member
districts.
Therefore,
the
greater
the
benefit
provided
to
members
and/or
survivors,
the
greater
the
current
and
projected
liability
of
the
employer.
Also,
the
earlier
the
benefit
is
provided,
the
greater
is
the
current
and
projected
liability
to
the
employer.
The
retirement
benefits,
once
vested,
become
contractual
obligations
of
the
counties
and
must
be
paid.
Page
42
of
294
2.2‐28
CERL
OVERVIEW
Basic
Design
of
the
Plan Funding
Method
To
determine
the
level
of
required
contributions,
the
system’s
actuary
must
determine
the
value
of
all
future
benefits,
and
then
allocate
that
value
to
the
members’
years
of
service
to
determine
both
the
cost
for
the
current
year
(the
“normal
cost”)
and
the
liability
for
past
service
(the
“accrued
liability”).
The
level
of
system
assets
is
an
important
part
of
this
process
as
well.
This
allocation
is
done
using
a
“funding
method”
which
is
adopted
by
the
board
as
part
of
the
system’s
funding
policy.
There
are
three
general
types
of
funding
methods
which
may
be
used.
The Three Kinds of Basic Plan Design Page
43
of
294
2.2‐29
CERL
OVERVIEW
Basic
Design
of
the
Plan ‐ Aggregate
Cost
Method The
aggregate
cost
method
assumes
that
all
past
and
future
benefits,
which
are
not
covered
by
current
assets,
will
be
funded
as
a
level
percentage
of
salary
over
the
future
working
lifetimes
of
the
active
members.
The
future
working
lifetime
is
typically
about
15
years.
That
percentage
of
salaries
is
the
normal
cost
rate
for
the
year,
and
makes
up
the
entire
contribution
requirement
for
the
year.
There
is
no
unfunded
accrued
liability
under
the
aggregate
cost
method.
Page
44
of
294
2.2‐30
CERL
OVERVIEW
Basic
Design
of
the
Plan ‐ Projected
Unit
Credit
Method The
projected
unit
credit
method
determines
the
normal
cost
for
each
year
of
service
as
the
value
of
the
benefit
earned
during
that
year,
but
based
on
salaries
“projected”
to
retirement
age.
Similarly,
the
accrued
liability
is
the
value
of
benefits
for
service
up
to
the
valuation
date,
but
again
based
on
projected
salaries,
not
current
salaries.
If
the
accrued
liability
is
greater
than
the
system
assets,
the
difference
is
the
unfunded
accrued
liability.
The
contribution
requirement
for
the
year
is
in
two
parts:
the
normal
cost,
plus
an
additional
payment
to
fund
or
“amortize”
the
unfunded
accrued
liability
(if
any).
Page
45
of
294
2.2‐31
CERL
OVERVIEW
Basic
Design
of
the
Plan ‐ Entry
Age
Method The
entry
age
normal
method
starts
by
determining
what
percentage
of
salary
would
be
needed
to
fund
the
member’s
benefit,
assuming
that
the
percentage
is
paid
from
hire
(entry
age”)
to
retirement
age.
That
percentage
is
the
normal
cost.
The
accrued
liability
is
just
the
value
today
of
the
normal
cost
for
all
past
years.
Just
with
the
projected
unit
credit,
the
contribution
requirement
for
the
year
is
in
two
parts:
the
normal
cost,
plus
an
additional
payment
to
amortize
any
unfunded
accrued
liability.
Page
46
of
294
2.2‐32
CERL
OVERVIEW
Basic
Design
of
the
Plan ‐ Comparison
Compared
to
the
projected
unit
credit
method,
the
normal
cost
under
the
entry
age
normal
method
is
higher
in
the
early
years
of
service,
and
lower
in
the
later
years.
The
accrued
liability
is
always
larger
under
the
entry
age
normal
method
than
under
the
projected
unit
credit
method.
For
the
projected
unit
credit
and
entry
age
normal
methods,
part
of
the
system’s
funding
policy
is
to
set
an
amortization
period.
That
is,
to
decide
how
fast
to
fund
any
unfunded
accrued
liability.
Historically,
most
systems
have
used
amortization
periods
of
20
to
30
years.
For
such
systems,
generally
the
total
contribution
requirement
will
be
lowest
using
the
projected
unit
credit
method,
the
highest
using
the
aggregate
method,
with
the
entry
age
normal
method
in
the
middle.
At
this
time,
all
but
one
’37
Act
system
use
the
entry
age
normal
method,
while
that
system
utilizes
the
projected
unit
credit
method.
Page
47
of
294
2.2‐33
CERL
OVERVIEW
Actuarial
Assumptions
The
system
actuary
is
required
at
least
every
three
years
to
perform
an
evaluation
of
the
system
and
to
recommend
to
the
boards
of
retirement
the
adoption
of
an
assumed
rate
of
investment
return
and
an
assumed
rate
of
salary
increases.
The
higher
the
assumed
rate
of
investment
return,
the
lower
the
required
employee
and
employer
contributions.
Similarly,
because
retirement
benefits
and
amounts
are
calculated
based
upon
final
compensation.
And
therefore
are
reflected
in
service/salary
scales
(percentage
increase
by
years
of
service
which
is
use
in
projecting
salaries),
these
projected
salaries
are
in
turn
used
for
estimating
the
amounts
of
pension
payable
at
retirement.
They
are
also
used
for
estimating
the
projected
liability
on
account
of
other
occurrences,
i.e.
disability,
death
and
withdrawal
activities
of
the
plan.
Page
48
of
294
2.2‐34
CERL
OVERVIEW
Experience
of
the
Plan In
determining
projected
liabilities
and
assets
necessary
to
fund
the
system,
the
actuary
analyzes
the
experience
of
the
system
to
determine
the
probabilities
of
members
leaving
the
system
because
of
non‐vested
withdrawal,
death,
disability
retirement,
service
retirement,
and
vested
termination.
These
probabilities
depend
on
other
events.
For
example
there
is
more
workforce
turnover,
there
are
delayed
retirements,
etc.
Page
49
of
294
2.2‐35
CERL
OVERVIEW
Average
Age
and
Service Generally,
the
younger
the
age
of
the
member
at
entry,
the
greater
the
number
of
years
of
service
toward
retirement
and
the
longer
the
employee
and
the
employer
will
have
to
contribute
to
the
system
in
order
to
finance
his/her
future
benefits.
Page
50
of
294
2.2‐36
CERL
OVERVIEW
Source
of
Funds
Employer
contributions
to
the
fund
are
usually
provided
from
the
county
general
funds
which
sources
include
property
tax
revenues,
various
state
and/or
federal
subventions
and
special
funds
such
as
enterprise
funds.
Page
51
of
294
2.2‐37
CERL
OVERVIEW
Acknowledgement
Special Thank You A Special Thanks and Acknowledgement to Mr. John R. Descamp, CEO – Retired Sacramento CERS, Who wrote the original version of section 2‐2 in October 1999 Page
52
of
294
2.3
FINANCIAL
OVERVIEW
Financial
Statements
for
37
Act
Counties
Click
on
a
county
system
below
to
display
the
financial
statement
as
reported
to
the
State
Controller.
Alameda
CERA
Contra
Costa
CERA
Fresno
CERA
Imperial
CERA
Kern
CERA
Los
Angeles
CERA
Marin
CERA
Mendocino
CERA
Merced
CERA
Orange
CERS
Sacramento
CERS
San
Bernardino
CERA
San
Diego
CERA
San
Joaquin
CERA
San
Mateo
Santa
Barbara
CERA
Sonoma
CERA
Tulare
CERA
Ventura
CERA
Page
53
of
294
2.4
CAFR
Comprehensive
Annual
Financial
Reports
for
37
Act
Counties
Click
on
a
county
system
below
to
open
the
system’s
website
to
view
it’s
CAFR.
Alameda
CERA
Contra
Costa
CERA
Fresno
CERA
Imperial
CERA
Kern
CERA
Los
Angeles
CERA
Marin
CERA
Mendocino
CERA
Merced
CERA
Orange
CERS
Sacramento
CERS
San
Bernardino
CERA
San
Diego
CERA
San
Joaquin
CERA
San
Mateo
Santa
Barbara
CERA
Sonoma
CERA
Tulare
CERA
Ventura
CERA
Page
54
of
294
3. History of SACRS SACRS
Page
55
of
294
3.1
HISTORY
OF
SACRS
Introduction
This
section
provides
the
history
of
SACRS
as
related
by
John
Descamp,
former
Retirement
Administrator
of
the
Sacramento
County
Employees’
Retirement
System,
and
a
letter
from
former
Los
Angeles
County
Treasurer
HB
Alvord.
Page
56
of
294
3.1.1‐1
SACRS
HISTORY
Letter
from
John
Descamp
SACRS
NOVEMBER
1993
TRAINING
To
Attendees:
Quite
a
long
time
ago,
1978
in
fact,
I
attended
my
first
semi‐annual
conference
of
what
was
then
the
"State
Association
Of
County
Retirement
Administrators"
later
changed
to
"State
Association
of
County
Retirement
Systems"
(SACRS).
I
attended
with
my
boss,
Mr.
Frank
Skiba,
who
served
as
a
"Retirement
Officer"
for
Sacramento
County.
He,
in
turn,
attended
with
his
boss,
Jack
Depew,
Sacramento
County
Treasurer.
I
served
as
an
"Administrative
Trainee."
My
relationships
with
Frank
and
Jack
were
cordial
and,
from
day
one,
I
learned
a
lot
about
the
pension
business
from
both.
Three
years
later
I
became
the
County's
Retirement
Officer.
Then,
in
1986,
the
Sacramento
County
Retirement
Board
took
a
major
step
to
separate
retirement
system
administration
from
the
Treasurer's
office.
I
was
fortunate
to
be
appointed
the
Sacramento
County
Employees'
Retirement
System
Administrator.
We
even
had
legislation
passed
to
formally
create
the
position
of
“chief
retirement
administrator”
who
serves
at
the
pleasure
of
the
Board
and
is
not
afforded
Civil
Service
protection.
I
have
very
positively
evolved
in
Sacramento
County
and
retirement
system
service.
Similarly,
since
1978,
I
have
been
fortunate
to
also
see
and
help
SACRS
evolve,
in
my
view
very
positively,
from
an
association
primarily
of
1937
Act
county
treasurers
and
very
few
non‐treasurer
administrators,
to
an
association
with
considerably
broader
representation.
This
is
the
SACRS
we
now
know.
Page
57
of
294
3.1.1‐2
SACRS
HISTORY
Letter
from
John
Descamp
Continued…
I
believe
it
important,
however,
for
our
SACRS
members
who
know
little
or
less
than
I
about
the
Association
to
have
some
sense
about
how
the
Association
started,
progressed,
evolved,
etc.,
and
to
give
a
bit
of
recognition
to
those
responsible.
For
this
purpose
I
called
upon
one
of
our
own,
former
Sacramento
County
Treasurer,
Los
Angeles
County
Treasurer,
and
former
SACRS
officer,
H.B.
Alvord,
to
recollect
for
us
his
thoughts
on
SACRS
and
his
experience
with
the
association.
H.B.
has
done
so
and
the
attached
letter
from
him
dated
September
28,
1992,
is
for
your
reading.
Thanks
to
H.B
and
to
all
of
you.
Let’s
work
together
to
help
SACRS
and
all
of
us
continue
to
progress.
‐
JOHN
R.
DESCAMP
Page
58
of
294
3.1.2‐1
SACRS
HISTORY
Letter
from
HB
Alvord
September
28,
1992
John
R.
Descamp
Retirement
Administrator
Sacramento
County
Employees'
Retirement
System
Dear
John:
This
letter
is
to
respond
to
your
request
for
information
relative
to
how
the
SACRS
organization
evolved.
Much
of
what
I
write
below
is
based
on
what
I
have
been
told
over
the
years,
as
I
do
not
have
any
first‐hand
knowledge
prior
to
my
becoming
involved
in
1967.
In
advance,
I
should
tell
you
that
typing
is
not
my
strongest
skill.
The
Legislature,
I
am
told,
passed
the
original
1937
Retirement
Act
at
the
instigation
of
Los
Angeles
County,
the
first
county
to
adopt
the
act,
which
it
did
in
1938.
Other
counties
voted
to
adopt
the
Act
in
the
1940's
and
1950's,
though
I
don't
know
in
what
order.
To
find
that
out,
I
think
one
would
have
to
poll
all
20
counties.
I
believe
Sacramento
came
in
1941.
Stan
Fontez
(Joe
Coffrini's
predecessor)
told
me
over
the
phone
a
couple
of
weeks
ago
that
Marin
was
one
of
the
later
counties
to
join
in
the
mid
to
late
1950's.
My
spies
tell
me
that
among
the
prime
movers
in
getting
the
1937
Act
off
and
running
were
Howard
Byram,
Los
Angeles
County
Treasurer
from
the
early
1930's
until
his
retirement
in
1961,
a
Judge
Deasy,
a
former
LA
County
Counsel
Office
attorney,
and
Edward,
"Ned"
Gaylord,
Deputy
County
Counsel
in
the
LA
County
Counsel's
Office
from
1939
until
retirement
in
1973.
Page
59
of
294
3.1.2‐2
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
Indeed,
I
have
been
told
by
several
people
in
the
LA
County
Counsel's
Office
that
Ned
Gaylord
had
written
most
of
the
Act
himself.
In
talking
to
Mr.
Gaylord
on
the
telephone
earlier
this
month,
I
learned
that
while
he
wrote
many
of
the
Act's
amendments
from
the
start
of
his
career
with
LA.
County
until
retirement,
he
was
not
involved
in
writing
the
original
Act
itself.
He
was
in
the
Legislative
County's
Office
at
the
time.
Mr.
Gaylord
is
still
living
in
Southern
California
and
is
believed
to
be
in
his
90's.
Starting
sometime
in
the
late
1960's,
Joe
Kase
of
San
Diego
County
Counsel's
Office
for
many
years
wrote
most
of
the
amendments
to
the
Law
proposed
by
the
Retirement
Administrator's
group.
We
are
all
aware
that
the
Act
has
been
amended
several
times
per
year
in
almost
every
year
since
1938,
so
it
is
a
far
different
Act
today
than
it
was
at
origin.
It
allows
a
much
wider
choice
of
benefit
levels
and
a
much
wider
range
of
retirement
policies
available
to
the
employing
counties
and
Special
Districts
than
at
origin.
I
have
sensed
a
less
paternalistic
tone
to
the
Act
in
recent
years,
especially
with
the
advent
of
the
no‐contribution
by
employees
option
in
the
early
1980's.
Some
have
compared
the
Act
to
a
cafeteria
or
Smorgasbord.
It
is
my
belief
that
the
original
Act
designated
the
county
treasurer
as
the
Retirement
Systems'
Administrator
with
the
authority
to
make
investments
subject
to
the
approval
of
the
members
of
the
Retirement
Board,
and
the
county
treasurer
was
also
made
a
member
of
the
governing
boards.
Originally,
the
boards
had
five
members:
two
elected
employee
members,
two
members
of
the
general
public
appointed
by
the
Board
of
Supervisors,
and
the
treasurer.
The
treasurer
also
had
responsibility
for
the
custody
and
safekeeping
of
investments
as
well
as
responsibility
for
administration
of
the
system.
Page
60
of
294
3.1.2‐3
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
As
the
county
treasurers,
administrators
of
each
county
retirement
system
which
adopted
the
1937
Act,
already
had
an
active
association
and
meetings
of
their
own,
it
was
not
un‐natural
that
those
1937
Act
treasurers,
already
knowing
and
cooperating
with
each
other
in
matters
of
common
interest,
would
start
a
separate
group
of
their
own‐as
retirement
administrators,
to
pursue
their
common
interests
in
1937
Act
retirement
administration.
I
don't
know
that
it
happened
this
way,
but
I
can't
imagine
it
was
much
different.
As
instigator
of
the
1937
Act
and
the
largest
county,
the
L.A.
County
Counsel
and
Treasurer
took
the
lead.
I
have
been
told
by
several
sources
that
for
many
years,
starting
I
don't
know
when,
but
probably
in
the
mid
to
late
1940's,
Howard
Byram,
L.A.
County
Treasurer,
invited
the
other
1937
Act
treasurers
to
L.A.
where
they
met
in
the
cafeteria
of
the
county
building
to
discuss
common
problems.
In
those
days
there
were
no
associate
members
or
board
members
in
the
"Association."
It
was
described
as
a
"shirt‐sleeved
working
session."
Howard
Byram
was
the
undisputed
leader
of
the
group
which
called
itself
"Retirement
Administrators”.
Eventually
other
county
treasures
suggested
that
meeting
be
held
in
places
other
than
Los
Angeles
County's
cafeteria.
AI
Sagehom,
San
Mateo
County
Treasurer,
was;
I
am
told,
a
leader
in
this
movement
which
led
to
the
meetings'
location
being
moved
from
place
to
place
among
the
various
'37
Act
Counties.
Page
61
of
294
3.1.2‐4
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
Stan
Fontez
recalls
that
Sagehom
became
President
of
the
group
in
the
late
1950's
or
when
Byram
retired
in
1971.
Shortly
thereafter,
Harold
J.
Ostly
became
L.A
County
Treasurer
and
from
the
very
start
took
an
extremely
active
role
in
retirement
administration.
I
don't
know
exactly
when
he
became
President
of
the
Retirement
Administrators,
but
I
know
he
had
been
President
for
several
years
when
I
first
attended,
representing
Sacramento
County
in
1967.
By
that
time
a
few
treasurers
had
started
to
bring
their
#1
retirement
administration
deputies
and
some
even
sent
the
main
retirement
deputy
and
did
not
attend
themselves.
At
the
first
meeting
I
attended,
an
elected
employee
board
member
attended
with
me,
but
she
was
one
of
very
few.
At
that
meeting,
the
total
attendance
was
46.
This
figure
included
representative
from
two
actuarial
firms
and
one
or
two
county
counsel
representatives.
Eighteen
counties
were
represented.
Joe
Kase
of
San
Diego
was
present
and
in
all
the
earlier
meetings
I
attended.
He
was
the
key
attorney
present
and
wrote
most
of
the
amendments
which
the
retirement
administrators
had
proposed.
Most
of
the
time
of
the
earlier
meetings
I
attended
was
spent
on,
"How
do
you
solve
this
retirement
administration
problem
in
your
county,"
the
entire
group
taking
part
in
the
discussion.
By
that
time
also,
and
apparently
starting
a
few
years
earlier,
Ostly
or
the
Host
Treasurer
had
arranged
for
the
hosting
of
a
lunch
or
a
dinner
during
the
meeting
on
a
comparatively
modest
basis,
with
bankers
who
already
had
relations
with
the
treasurers.
Page
62
of
294
3.1.2‐5
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
During
those
years
there
were
no
regular
dues
and
to
the
best
of
my
recollection,
no
written
constitution
or
by‐laws.
When
minimal
expenses
were
incurred,
Ostly
asked
each
county
to
contribute
$10
or
$15
to
the
group,
which
covered
all
expenses
for
a
year
or
two.
Harold
Ostly
took
a
very
active
role
in
moving
the
group
to
more
political
action,
not
only
to
facilitate
improved
administration,
but
to
improve
benefits.
Ostly
personally
went
often
to
Sacramento
to
lobby
for
the
Association's
position,
whether
it
was
for
better
benefits
or
improved
administration
potential.
Ostly
had
his
retirement
staff
write
an
analysis
of
each
bill
on
retirement
with
a
Yea
or
Nay
recommendation
which
he
distributed
to
each
'37
Act
County.
When
I
was
with
L.A.
County
the
retirement
staff
of
L.A.
County
continued
that
practice
and
Ed
Martin,
Chief
of
the
Retirement
Division,
took
over
the
lobbying
duties.
When
he
retired
(in
1979
or
80?)
the
lobbying
effort,
for
a
variety
of
reasons,
slowed
down.
I
know
that
I
didn't
go
to
Sacramento
nearly
as
often
as
Ostly
or
Ed
Martin
had.
In
addition,
the
Association,
(and
by
this
time
it
was
called
the
Retirement
Administrators'
Association),
with
essential
help
from
San
Diego
County,
printed
1937
Act
Law
books
every
year
or
two
for
use
by
administrators,
staff
and
counsel.
In
the
1960's
permissive
legislation
sponsored
by
safety
members
state‐
wide
brought
greater
benefits
and
higher
contributions
from
safety
members
and
safety
member
representation
on
the
retirement
boards,
including
an
alternate
safety
member,
for
the
boards.
An
additional
public
member
appointed
by
the
board
of
supervisors
was
added
at
the
same
time
to
provide
balance.
Page
63
of
294
3.1.2‐6
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
In
1966,
a
State
Constitutional
Amendment
was
passed
by
the
voters
mandating
the
legislature
to
pass
enabling
legislation
permitting
public
retirement
funds
to
invest
in
common
stock
to
a
maximum
of
25
%
for
the
fund,
based
on
cost.
Previously
investments
were
all
in
some
sort
of
fixed
income.
The
new
law
gave
stock
brokers
and
investment
advisors
an
interest
in
public
retirement
funds
in
California,
resulting
in
additional
attendance
at
our
meeting.
Los
Angeles
County
moved
into
stock
investments
as
soon
as
it
was
legal
in
1967.
Sacramento
County
followed
in
1968
(Feb.).
Most,
but
not
all
other
'37
Act
counties
followed
over
time.
In
the
meantime,
attendance
at
retirement
administrator
meetings
grew
with
more
board
members
attending
our
meetings
and
greater
hosting
participation
by
bankers
and
an
occasional
investment
broker.
In
about
1969
or
1970
a
written
constitution
was
instituted
for
the
Association
that
provided
for
one
vote
per
county
on
all
issues
with
the
treasurer
or
his
proxy
having
the
voting
power.
The
latter
provision
was
controversial
at
the
time
and
grew
more
so
as
attendance
by
board
members
continued
to
grow.
In
the
early
1970's
further
legislation
provided
for
representation
for
retirees
on
the
retirement
boards
plus
an
additional
public
member,
which
brought
retirement
board
membership
to
nine
plus
one
alternate.
Page
64
of
294
3.1.2‐7
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
At
about
the
same
time,
at
an
Association
meeting
held
at
Coronado,
the
host
treasurer,
Delavan
Dickson
of
San
Diego,
went
"all‐out"
in
requesting
and
getting
increased
hosting
participation
by
financial
community
people
for
lunches,
dinners
and
other
events
to
entertain
attendees.
From
then
on,
hosted
events
of
entertainment,
lunches,
dinners,
breakfasts,
golf
tournaments,
et.
al.
became
(until
recently)
an
increasingly
important
part
of
the
meeting
helping
to
bring
still
greater
attendance.
Also
bringing
greater
attendance
was
the
ever
increasing
money
growth
of
the
various
retirement
systems
providing
greater
marketing
opportunities
for
all
manner
of
vendors.
Even
greater
vendor
participation
was
engendered
by
the
passage
of
the
Prudent
Man
Law
for
public
pension
funds
in
California
in
1984.
In
the
meantime,
greater
attendance
by
board
members
and
greater
participation
by
them
beginning
in
the
early
1970's
brought
changes,
one
of
which
was
less
domination
of
the
Association
by
the
treasurers.
The
adoption
of
permissive
legislation
to
allow
retirement
boards
to
adopt
their
own
budgets,
in
lieu
of
having
retirement
administration
expense
as
part
of
the
county
treasurers'
budgets,
and
to
allow
the
boards
to
appoint
a
retirement
administrator
separate
from
the
treasurer
was
a
further
step
in
this
direction.
While
two
or
three
counties
(Alameda
&
San
Bernardino)
had
adopted
this
prior
to
1978,
the
passage
of
Proposition
13
that
year
gave
additional
incentive
to
taking
any
expense
possible
off
the
counties'
budgets.
Page
65
of
294
3.1.2‐8
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
All
this
forced
a
change
in
the
Association's
Bylaws
and
Constitution
to
allow
for
a
greater
role
by
retirement
board
members
and
especially
for
non‐treasurer
retirement
administrators
appointed
by
various
retirement
boards
to
administer
their
systems.
I
left
out
saying
that
Stan
Fontez
of
Marin
was
President
for
two
or
three
years,
replacing
Hal
Ostly,
because
of
the
latter's
ill‐health.
(Ostly
retired
in
1974
and
died,
I
believe
in
1976.)
I
think
Stan
retired
in
1975
and
I
took
over
from
him,
serving
four
or
five
years.
We
did
not
have
set
terms
in
those
days,
but
in
my
case,
I
stepped
down
because
I
didn't
think
the
L.A.
County
Treasurer
had
a
permanent
right
to
the
job
(I
moved
to
LA
February
3,
1975)
plus
the
press
of
other
business
and
frankly
was
a
bit
tired
of
the
flak
from
a
few
who
didn't
like
programs
I
arranged.
Certainly
we
did
not
have
as
good
an
organization
as
we
do
now.
The
late
Bob
Branch
of
Ventura
County
succeeded
me
and
I
think
stayed
on
for
three
or
four
more
years.
I
believe
it
was
after
that
a
change
in
the
Bylaws
provided
for
a
set
term
for
the
various
officers.
I
think
you
are
more
aware
than
I
of
what
has
happened
over
the
Past
few
years
so
I
won't
go
into
that.
To
sum
up,
the
key
word
seems
to
me
to
be
GROWTH
‐
Growth
from
a
small
"shirt
sleeved
working
session"
to
what
you
have
today
because
of
growth
of
assets,
growth
of
the
retirement
boards
from
five
to
seven
and
then
to
nine
members,
growth
of
investment
options,
growth
in
the
complexity
of
the
governing
laws,
and
probably
growth
in
a
lot
of
other
ways.
Page
66
of
294
3.1.2‐8
SACRS
HISTORY
Letter
from
HB
Alvord
Continued…
Another
factor
is
the
slow
evolvement
of
the
organization
from
a
small
group
of
county
treasurers
acting
in
their
role
as
retirement
administrators
discussing
administrative
problems
to
the
much
larger
organization
involved
in
every
phase
of
the
complicated
subject
of
retirement.
In
the
early
days
of
the
'37
Act,
the
treasurer,
as
the
designated
retirement
administrator
and
the
only
board
member
(of
five)
who
was
on
the
job
in
the
office
every
day
working
on
retirement
matters,
tended
to
be
the
key
figure
on
the
board
in
our
organization.
It
was
inevitable
however,
that
with
the
changes
cited
above,
the
role
of
everyone
would
change,
including
that
of
the
treasurers.
I
can
tell
you
from
personal
experience
that
it
is
a
lot
easier
to
get
your
points
across
and
objectives
accomplished
working
with
a
five
member
board
than
with
one
of
nine
members.
I
don't
recall
having
the
privilege
of
being
the
dominant
or
key
figure
anyplace.
When
I
came
on
board
in
Sacramento,
Larry
Heringer,
a
dominant
personality
if
ever
there
was
one,
had
been
Board
Chairman
from
inception
in
1941
and
continued
in
that
capacity
until
his
death
in
the
late
1970's.
While
he
tended
to
dominate
the
board
meetings,
we
worked
very
well
together
as
a
team
and
had
a
great
personal
regard
for
each
other.
Retirement
administration
certainly
has
provided
marvelous
career
opportunities
for
those
of
us
fortunate
enough
to
be
involved.
I
feel
privileged
indeed,
even
now
in
retirement,
to
have
been
a
part
of
SACRS
and
its
evolving
predecessor
organization
for
the
past
25
years.
Hope
this
helps!
As
Ever,
H.B.ALVORD
Page
67
of
294
3.2‐1
WHAT
IS
SACRS
Introduction
In
the
late
1930’s
and
the
1940’s,
individual
counties
established
retirement
systems
by
the
adoption
of
an
ordinance,
accepting
the
provisions
of
the
County
Employees
Retirement
Law
(CERL)
of
1937.
The
CERL,
or
1937
Act,
governs
the
benefits
and
administration
of
these
county
retirement
systems.
Over
time,
twenty
California
counties
opted
to
adopt
such
an
ordinance.
The
counties
of
the
State
of
California
are
classified
according
to
their
population.
The
twenty
county
members
of
SACRS
have
the
following
classes:
CLASS
1st
2nd
3rd
4th
7th
8th
9th
10th
12th
13th
14th
15th
16th
18th
19th
20th
21st
25th
32nd
34th
COUNTY
Los
Angeles
Orange
San
Diego
Alameda
San
Bernardino
Sacramento
Contra
Costa
San
Mateo
Fresno
Ventura
Kern
San
Joaquin
Santa
Barbara
Marin
Sonoma
Stanislaus
Tulare
Merced
Imperial
Mendocino
Page
68
of
294
3.2‐2
WHAT
IS
SACRS
Introduction
Continued
During
the
early
years,
the
individual
retirement
systems
were
isolated.
The
County
Treasurers,
through
their
association,
worked
on
legislation
affecting
the
retirement
systems.
In
the
early
1970’s,
a
wider
confederation
was
formed
and,
as
time
went
on,
these
counties
banded
together
into
the
State
Association
of
County
Retirement
Systems
(SACRS).
The
constitution
of
SACRS
states
that
the
purpose
of
SACRS
is
to
provide
forums
for
disseminating
knowledge
of,
and
developing
expertise
in,
the
1937
Act
retirement
systems;
and
further,
that
the
Association
foster
and
take
an
active
role
in
the
legislative
process
as
it
affects
SACRS
retirement
systems.
SACRS
now
meets
twice
a
year
with
all
20
counties
participating
through
attendance
by
Trustees,
Treasurers,
Administrators,
and
staff.
Education
and
legislation
are
the
principle
focus
of
these
meetings,
particularly
education
in
the
areas
of
investment
and
fiduciary
responsibility.
Page
69
of
294
3.2‐3
WHAT
IS
SACRS
Education
SACRS
provides
education
to
its
membership
through
semi‐annual
conferences
and
educational
symposiums.
The
SACRS
Education
and
Program
Committees
work
together
to
develop
each
conference’s
agenda
and
sessions.
Conference
programs
are
developed
to
encompass
a
wide
range
of
topics
that
will
assist
administrators,
trustees,
and
affiliate
members
with
their
knowledge
of
all
areas
of
investing
for
or
running
a
public
pension
plan.
Conferences
also
provide
breakout
sessions
so
that
members
have
an
opportunity
to
meet
with
their
counterparts
in
other
37
Act
Systems
and
to
discuss
current
issues.
Education
symposiums
are
held
whenever
the
SACRS
Board
of
Directors
determines
a
pressing
issue
that
is
driving
the
need
for
a
meeting
in
which
experts
can
present
information
to
assist
retirement
systems.
Recently
SACRS,
in
conjunction
with
UC
Berkeley,
developed
and
now
offers
a
Public
Pension
Management
Program.
The
program
provides
education
to
members
on
areas
of
investments.
Page
70
of
294
3.2‐3
WHAT
IS
SACRS
Education
Continued
SACRS
also
provides
a
Trustee
Handbook
to
new
37
Act
Trustees
which
gives
them
information
on
all
aspects
of
37
Act
pension
plans
and
their
fiduciary
responsibilities.
SACRS CONFERENCE SCHEDULE 2009-2012
SPRING 2009
May 12-15
Hyatt Regency
Embarcadero Center
San Francisco, CA
FALL 2010
November 9-12
Sheraton Universal
Universal City, CA
SPRING 2012
May 7-11
The Resort at Squaw Creek
Lake Tahoe, CA
FALL 2009
November 10-13
The Westin
South Coast Plaza
Costa Mesa, CA
SPRING 2011
May 10-13
Fess Parker’s
Doubletree Resort
Santa Barbara, CA
FALL 2012
November 12-16
Renaissance Hollywood Hotel
Hollywood, CA
SPRING 2010
May 11-14
Marriott Newport Beach
Hotel and Spa
Newport Beach, CA
FALL 2011
November 8-11
The Westin
South Coast Plaza
Costa Mesa, CA
Page
71
of
294
3.2‐4
WHAT
IS
SACRS
Communication
One
of
the
goals
of
SACRS
is
to
distribute
information
regarding
current
issues
affecting
public
pension
plans
to
the
37
Act
Systems.
SACRS
will
often
survey
the
systems
in
order
to
establish
a
stance
or
official
position
when
needed.
SACRS
also
provides
communication
in
support
of
our
retirement
plans.
In
addition
to
the
vast
amount
of
information
provided
at
conferences
and
symposiums,
SACRS
also
provides
legislative
updates
and
communication
to
members
regarding
any
current
topics
through
the
SACRS
Magazine.
Articles
from
the
SACRS
President,
Secretary,
and
other
experts
provide
the
most
up
to
date
information
about
what’s
happening
in
the
areas
of
pension,
health,
and
investments
for
retirement
plans.
Recent SACRS Magazine Articles “The OPEB Challenge – Mapping a Comprehensive Strategy for Public Employers” “Transition Management in Times of Market Volatility” The Generative Value of It‐Driven Wellmess Programs” “Be Prudent‐Don’t Panic!” Page
72
of
294 3.2‐5
WHAT
IS
SACRS
Legislation
The
SACRS
Legislative
Committee
is
a
15‐member
Committee
comprised
of
system
Administrators,
legal
counsel,
Trustees,
an
actuary,
and
a
non‐
voting
lobbyist.
Each
year
the
Committee
solicits,
reviews,
and
helps
draft
legislation
and
facilitates
introduction
of
that
legislation
on
behalf
of
the
20
California
Retirement
Systems
operating
under
the
1937
Act.
SACRS
legislative
staff,
volunteers,
and
lobbyists
work
together
through
the
SACRS
Legislative
Committee
to
guide
the
legislation
through
the
California
legislative
process.
The
Committee
meets
monthly
in
a
public
setting
to
review,
discuss
and
analyze
the
progress
of
the
introduced
legislation,
as
well
as
monitor
other
public
pension
legislation
introduced
in
the
California
Senate
and
Assembly.
The
Committee
makes
two
presentations
to
the
general
membership
at
the
semi‐annual
SACRS
conferences
to
update
the
progress
and
results
of
the
current
legislation
session.
Page
73
of
294
3.2‐6
WHAT
IS
SACRS
Board
of
Directors
The
SACRS
officers,
upon
being
elected,
comprise
the
Board.
They
include
the
President,
the
Vice‐President,
the
Secretary,
the
Treasurer,
and
the
immediate
Past‐President.
The
officers
are
elected
by
majority
vote
of
the
quorum
of
delegates
for
the
37
Act
systems.
The
officers
remain
in
office
for
a
term
of
one
year.
For
more
information
on
the
officers’
roles
and
the
election
process,
see
Article
VI
–
Officers
section
of
the
enclosed
SACRS
By‐
Laws.
Page
74
of
294
3.2‐7
WHAT
IS
SACRS
SACRS
Committees
The
SACRS
Committees
are
assigned
specific
roles
in
support
of
the
SACRS
Mission
and
the
Board
of
Directors.
Below
is
a
list
of
the
current
committees:
• Legislative
Committee:
Responsible
for
the
legislative
activities
of
SACRS.
• Bylaws
Committee:
Responsible
for
the
maintenance
of
the
Articles
of
Incorporation
and
the
Bylaws.
• Program
Committee:
Responsible
for
the
program
of
two
annual
SACRS
Conferences.
• Audit
Committee:
Responsible
for
SACRS
audits.
• Credentials
Committee:
Responsible
for
verifying
designated
voting
delegates
at
all
meetings
where
a
delegate
vote
is
conducted.
For more information on SACRS Committees, see Article X – Powers of Committees section of the SACRS By­Laws. • Affiliate
Membership
Committee:
Responsible
for
providing
counsel
and
advice
to
the
Board
regarding
educational
activities.
• Education
Committee:
Responsible
for
the
educational
activities
of
SACRS.
• Resolutions
Committee:
Responsible
for
analyzing
proposed
resolutions
and
making
recommendations
for
adoption,
rejection,
or
amendment
prior
to
consideration
by
the
delegates.
Page
75
of
294
3.2‐8
WHAT
IS
SACRS
Except
for
the
Board
of
Investment
in
Los
Angeles
County
(which
has
jurisdiction
over
investments
and
funding
matters)
the
management
of
each
county
retirement
system
is
vested
in
the
Board
of
Retirement,
consisting
of
nine
trustees.
Four
are
elected
by
their
peers
for
3‐year
terms
(2
general
members,
1
safety
member,
and
1
retired
member
of
the
plan);
four
public
members
are
appointed
to
3‐year
terms
by
the
Board
of
Supervisors;
and
one
is
the
County
Treasurer.
Standard Board Composition 1 Treasurer (1) 1 1 Appointed by BOS (4) 2 4 Elected by General Members (2) Elected by Safety Members (1) Elected by Retired Members (1) Some
Boards
have
an
alternate
safety
member
and/or
alternate
retired
member
and/or
alternate
appointed
member.
The
Boards
of
Retirement,
or
Board
of
Investment
for
Los
Angeles
County,
have
fiduciary
responsibility
for
and
control
of
the
investment
of
the
employees'
retirement
fund.
Page
76
of
294
3.3‐1
SACRS
BY‐LAWS
Section
3.3
breaks
down
the
SACRS
by‐laws
by
article.
Page
77
of
294
3.3‐2
SACRS
BYLAWS
–
Article
1
ARTICLE
I
‐
NAME,
MISSION,
PURPOSES
AND
GENERAL
POLICY
Section
1.
Name
The
name
of
this
corporation
is
State
Association
of
County
Retirement
Systems
(“SACRS”).
Section
2.
Mission.
The
mission
of
this
organization
shall
be
to
serve
the
1937
Act
Retirement
Systems
by
exchanging
information,
providing
education
and
analyzing
legislation.
Section
3.
General
Purpose.
SACRS
is
a
nonprofit
public
benefit
corporation
and
is
not
organized
for
the
private
gain
of
any
person.
It
is
organized
under
the
California
Nonprofit
Public
Benefit
Corporation
Law
for
public
purposes.
Section
4.
Specific
Purpose.
The
specific
and
primary
purposes
of
SACRS
are
to
provide
forums
for
disseminating
knowledge
of
and
developing
expertise
in
the
operation
of
county
retirement
systems
existing
under
the
County
Employees
Retirement
Law
of
1937
as
set
forth
in
California
Government
Code
section
31450
et.
seq.,
and
to
foster
and
take
an
active
role
in
the
legislative
process
as
it
affects
county
retirement
systems.
Section
5.
Limitations.
SACRS
is
organized
exclusively
for
purposes
within
the
meaning
of
Section
501(c)(4)
of
the
Internal
Revenue
Code
of
1986,
as
amended
(the
“Code”),
or
the
corresponding
provisions
of
any
future
United
States
Internal
Revenue
Law.
Notwithstanding
any
other
provision
of
these
Bylaws,
SACRS
shall
not,
except
to
an
insubstantial
degree,
engage
in
any
activities
or
exercise
any
powers
that
are
not
in
furtherance
of
the
purposes
of
SACRS,
and
SACRS
shall
not
carry
on
any
other
activities
not
permitted
to
be
carried
on
by
a
corporation
exempt
from
federal
income
tax
under
Section
501(c)(4)
of
the
Code
or
the
corresponding
provisions
of
any
future
United
States
Internal
Revenue
Law.
Section
6.
Private
Benefit.
All
of
SACRS’
property
is
irrevocably
dedicated
to
social
welfare
purposes.
No
part
of
the
net
earnings
of
SACRS
shall
inure
to
the
benefit
of
any
of
its
Directors,
or
any
other
person
or
individual.
Page
78
of
294
3.3‐3
SACRS
BYLAWS
–
Article
2
ARTICLE
II
‐
OFFICES
Section
1.
Offices.
The
principal
office
for
the
transaction
of
the
business,
activities
and
affairs
of
SACRS
is
located
in
Sacramento,
California.
The
Board
of
Directors
of
SACRS
(the
“Board”)
may
change
the
principal
office
from
one
location
to
another.
Section
2.
Branch
Offices.
Branch
or
subordinate
offices
may
be
established
at
any
time
by
the
Board
at
any
place
or
places.
Page
79
of
294
3.3‐4
SACRS
BYLAWS
–
Article
3
ARTICLE
III
–
MEMBERSHIP
Section
1.
Membership.
SACRS
shall
be
composed
of
regular,
associate,
nonprofit
and
affiliate
members
as
hereinafter
defined.
Regular
Membership.
Regular
membership
shall
be
extended
to
all
duly
elected
or
appointed
members
of
Boards
of
Retirement
and
Investments
operating
under
the
County
Employees
Retirement
Law
of
1937,
California
Government
Code
31450
et
seq.
Regular
membership
shall
also
be
extended
to
the
Administrator
of
a
system
operating
under
the
County
Employees
Retirement
Law
of
1937
when
said
Administrator
is
employed
by
and
reports
directly
to
the
Retirement
Board
of
the
Member
county.
Associate
Membership.
Associate
membership
shall
be
extended
to
(i)
the
staff
of
County
Retirement
and/or
Investment
Boards;
(ii)
those
staff
of
the
County
Treasurer
whose
specific
duties
are
retirement
related;
and
(iii)
legal
counsel
advising
County
Retirement
and
Investment
Boards.
Nonprofit
Membership.
Nonprofit
organizations
having
an
active
interest
in
the
purpose
of
SACRS
may
be
extended
nonprofit
membership
upon
(i)
the
appropriate
letter
of
application
approved
by
the
majority
vote
of
the
Board,
and
(ii)
payment
of
the
annual
Nonprofit
membership
dues
as
set
forth
under
Article
III,
Sections
5
and
6
herein.
Nonprofit
members
will
be
comprised
of
two
distinct
tiers
as
follows:
(i)
Nonprofit
Retirement
Systems
‐
defined
as
public
retirement
systems
not
eligible
for
regular
membership;
and
(ii)
Nonprofit
Organizations
‐
defined
as
nonprofit
organization
other
than
public
retirement
systems.
Page
80
of
294
3.3‐5
SACRS
BYLAWS
–
Article
3
Continued
Affiliate
Membership.
Affiliate
membership
may
be
extended
to
a
retirement‐
related
business
or
institutional
investment‐related
company
or
firm
on
a
first
come,
first
served
basis
as
follows:
(i)
submission
of
an
appropriate
letter
of
application
approved
by
a
majority
vote
of
the
Board;
and
(ii)
payment
of
the
annual
Affiliate
membership
dues
as
set
forth
under
Article
III,
Sections
5
and
6
herein.
Past
Presidents.
Past
Presidents
who
are
no
longer
eligible
for
regular
membership
under
Article
III,
Section
1(a),
and
who
are
not
eligible
for
associate
or
affiliate
membership
under
Article
III,
Section
1(b)
and
(d),
shall
be
afforded
lifetime
membership
and
the
privileges
of
membership
held
in
the
name
of
SACRS;
and
shall
have
their
annual
regular
membership
dues
as
defined
in
Article
III,
Section
5(a)
and
conference
registration
fees
waived
by
SACRS.
Section
2.
Rights
of
Regular
Membership.
Regular
member
County
Retirement
Systems
shall
have
the
right
to
vote,
as
set
forth
in
these
Bylaws,
on
the
election
of
the
officers/Directors,
on
the
disposition
of
all
or
substantially
all
of
the
corporation’s
assets,
on
any
merger
and
its
principal
terms
and
any
amendment
of
those
terms,
and
on
any
election
to
dissolve
the
corporation.
In
addition,
the
regular
member
County
Retirement
Systems
shall
have
all
rights
afforded
members
under
the
California
Nonprofit
Public
Benefit
Corporation
Law.
Section
3.
Rights
of
Associate
and
Affiliate
Membership.
Associate
and
affiliate
members
shall
be
accorded
all
the
rights
and
privileges
to
which
any
regular
member
is
entitled
except
as
specifically
restricted
in
the
Articles
of
Incorporation
and
these
Bylaws.
Associate
and
affiliate
members
are
not
entitled
to
vote.
All
associate
and
affiliate
memberships
shall
be
held
in
the
name
of
the
County
Retirement
System,
organization
or
firm.
Membership
shall
not
be
personal
to
an
individual.
Affiliate
member
organizations
must
designate
two
(2)
representatives
by
name,
on
their
Letter
of
Application.
Only
the
Affiliate’s
two
(2)
designated
representatives
shall
be
afforded
registration
at
SACRS
meetings
unless
specific
exceptions
are
made
by
a
majority
vote
of
the
Board.
Page
81
of
294
3.3‐6
SACRS
BYLAWS
–
Article
3
Continued
Section
4.
Rights
of
Nonprofit
Membership.
Nonprofit
Retirement
Systems
may
have
up
to
ten
(10)
delegates
attend
the
regular
meetings,
and
Nonprofit
Organizations
may
have
up
to
two
(2)
delegates
attend
the
regular
meetings.
Nonprofit
members
are
not
entitled
to
vote.
Section
5.
Membership
Dues
and
Fees.
Regular
Members.
Regular
member
County
Retirement
Systems
shall
pay
annual
dues
as
approved
by
the
organization’s
delegates
at
any
noticed
meeting.
This
fee
shall,
in
addition
to
a
regular
membership,
entitle
the
member
systems
to
an
annual
associate
membership
under
Article
III,
Section
1(b)
herein.
Nonprofit
Members.
Nonprofit
members
shall
pay
annual
dues
in
any
amount
determined
by
the
Board.
Affiliates.
Affiliate
members
shall
pay
annual
dues
in
any
amount
determined
by
the
Board.
Registration.
Registration
fees
for
meetings
may
be
charged
to
all
members
in
addition
to
annual
dues.
Section
6.
Payment
of
Annual
Dues.
Annual
dues
are
due
and
payable
July
1
and
are
delinquent
July
31
of
each
year.
Registration
fees
are
due
at
the
discretion
of
the
Board.
Page
82
of
294
3.3‐7
SACRS
BYLAWS
–
Article
4
ARTICLE
IV
–
DELEGATES
Section
1.
Delegates.
Regular
member
County
Retirement
Systems
shall
be
entitled
to
one
(1)
voting
delegate.
The
delegate
shall
be
designated
in
writing
by
the
County
Retirement
Board
and
shall
be
a
regular
member
from
the
member
County
Retirement
System
consistent
with
Article
III,
Section
1(a)
herein.
Section
2.
Alternate
Delegates.
Alternate
delegates
may
be
designated
in
writing
by
the
member
County
Retirement
Board.
All
alternates
shall
be
regular
members
consistent
with
Article
III,
Section
1(a)
herein.
Section
3.
Credentials.
Credentials
for
the
delegates
who
are
voting
participants
shall
be
filed
with
the
Credentials
Committee
in
writing
prior
to
any
meeting
of
SACRS
at
which
voting
will
take
place.
Credentials
shall
include
the
names
of
the
member
County
Retirement
System,
the
delegate
and
alternate
delegates,
if
any,
consistent
with
Section
IV,
Sections
1
and
2
of
these
Bylaws.
Page
83
of
294
3.3‐8
SACRS
BYLAWS
–
Article
5
ARTICLE
V
‐
MEMBER
MEETINGS
Section
1.
Regular
Meetings.
The
membership
shall
meet
to
conduct
SACRS
business
once
in
the
Spring
and
once
in
the
Fall
of
each
calendar
year.
These
meetings
shall
be
referred
to
as
regular
meetings.
Section
2.
Special
Meetings.
Special
meetings
of
the
membership
may
be
called
by
(i)
a
resolution
of
the
membership
at
a
meeting;
or
(ii)
a
majority
vote
of
the
Board.
Section
3.
Site
Selection
for
Meetings.
The
meeting
sites
shall
be
designated
by
the
Board.
Section
4.
Agenda
for
Business
Meetings.
The
Board
shall
be
responsible
for
the
final
agenda
of
all
SACRS
meetings.
The
business
meeting
agendas
shall
be
mailed
by
first‐class
postage
or
provided
by
Electronic
Transmission
(as
defined
in
Section
2
of
Article
XVII)
to
all
members
no
later
than
ten
(10)
days
prior
to
any
meeting.
Section
5.
Quorum.
The
presence
of
eleven
(11)
credentialed
delegates
shall
constitute
a
quorum
for
the
transaction
of
business
at
all
SACRS
meetings.
If,
however,
the
attendance
at
any
SACRS
meeting,
whether
in
person
or
by
proxy,
is
less
than
one‐third
(1/3)
of
the
voting
power,
the
members
may
vote
only
on
those
matters
specified
in
the
meeting
agenda
described
in
Article
V,
Section
4
herein.
Meetings
may
be
restricted
to
regular
members
only
by
a
majority
vote
of
the
quorum
present.
Section
6.
Voting.
Voting
at
meetings
of
SACRS
shall
be
the
exclusive
privilege
of
the
delegates
or
alternate
delegates.
Voting
delegates
or
alternate
delegates
must
have
proper
credentials
on
file
consistent
with
Article
IV,
Section
3
herein
prior
to
voting.
Each
delegate
or
alternate
delegate
may
cast
one
(1)
vote
on
each
matter
submitted
to
vote
of
the
members.
Voting
shall
be
by
open
roll‐call.
A
simple
majority
vote
of
the
quorum
present
shall
pass
all
issues
considered
by
the
regular
membership
unless
otherwise
specified
in
the
Articles
of
Incorporation
or
these
Bylaws.
A
roll‐call
vote
of
delegates
and
alternate
delegates
shall
decide
any
voice
vote
in
doubt
by
the
regular
members
present.
Page
84
of
294
3.3‐9
SACRS
BYLAWS
–
Article
5
Continued
Section
7.
Proxy.
A
delegate
may
issue
his
or
her
proxy
to
an
alternate
delegate
from
the
same
member
County
Retirement
System.
All
proxies
must
be
in
writing,
signed
and
filed
with
the
Credentials
Committee
prior
to
voting.
Section
8.
Procedures.
All
meetings
of
SACRS
shall
be
governed
by
Robert’s
Rules
of
Order
unless
other
rules
are
specifically
provided
herein.
The
rules
shall
be
interpreted
at
meetings,
as
necessary,
by
a
parliamentarian
appointed
by
the
President
prior
to
the
first
order
of
business.
Section
9.
Resolutions.
Any
regular,
associate
or
non‐profit
member
may
submit
resolutions
for
consideration
by
the
regular
membership
at
any
meetings.
Submission
of
resolutions
shall
be
made
in
writing
and
sent
by
certified
mail
to
the
President
at
least
thirty
(30)
days
prior
to
any
meeting
of
SACRS
at
which
the
proposed
resolution
is
to
be
considered
for
a
vote.
The
President
shall
provide
a
sufficient
number
of
legible
copies
of
the
proposed
resolutions
to
allow
delegates
and
alternate
delegates
to
receive
one
(1)
copy
each
before
voting.
Additional
copies
shall
be
made
available
to
the
membership
at
meetings.
Any
resolution
not
so
submitted
shall
first,
in
order
to
be
considered
by
the
membership,
obtain
a
consent
vote
for
introduction
of
two‐thirds
(2/3)
of
the
voting
delegates
or
alternate
delegates
present
at
the
session
at
which
such
resolution
is
to
be
offered
from
the
floor.
The
member
requesting
such
consent
shall
have
a
sufficient
number
of
legible
copies
of
such
proposed
resolution
available,
so
that
the
delegates
and
alternate
delegates
present
may
receive
one
(1)
copy
each
thereof
before
any
vote
is
taken.
The
foregoing
shall
not
bar
the
introduction
of
resolutions
formulated
by
and
originating
with
the
President,
or
the
Board,
or
at
the
request
of
a
majority
of
the
members
of
the
Board,
or
by
any
standing
committee.
Section
10.
Travel
Expenses.
The
travel
expenses
incurred
by
officers
and
committee
members
may
be
reimbursed
according
to
the
current
SACRS
travel
policy.
Page
85
of
294
3.3‐10
SACRS
BYLAWS
–
Article
6
ARTICLE
VI
–
OFFICERS
Section
1.
Officers.
The
officers
of
SACRS,
upon
being
elected,
shall
comprise
the
Board.
The
officers
of
SACRS
shall
be
the
President,
the
Vice‐President,
the
Secretary,
the
Treasurer,
and
the
immediate
Past
President.
Section
2.
Election,
Qualification
and
Term
of
Office.
The
officers
of
SACRS
shall
be
regular
members
of
SACRS.
The
officers
shall
be
elected
by
a
majority
vote
of
the
quorum
of
delegates
and
alternate
delegates
present
at
the
first
meeting
in
each
calendar
year
and
shall
hold
office
for
one
(1)
year
and
until
a
successor
is
elected.
Section
3.
Resignation
of
Officers.
Any
officer
may
resign
at
any
time
by
giving
written
notice
to
the
Board
or
to
the
President
or
Secretary
of
SACRS.
Any
such
resignation
shall
take
effect
at
the
date
of
receipt
of
such
notice
or
at
any
later
date
specified
therein,
and,
unless
otherwise
specified
therein,
the
acceptance
of
such
resignation
shall
not
be
necessary
to
make
it
effective.
The
provisions
of
this
Section
3
shall
be
superseded
by
any
conflicting
terms
of
a
contract
which
has
been
approved
or
ratified
by
the
Board
relating
to
the
employment
of
any
officer
of
SACRS
Section
4.
Officer
Elections.
Any
regular
member
may
submit
nominations
for
the
election
of
officers
to
the
Nominating
Committee,
provided
the
Nominating
Committee
receives
those
nominations
prior
to
February
1
of
each
calendar
year.
Nominations
shall
not
be
accepted
from
the
floor
on
the
day
of
the
election.
Prior
to
March
1
and
subsequent
to
verification
of
interest,
the
Nominating
Committee
shall
report
its
recommended
ballot
to
each
regular
member
County
Retirement
System.
Page
86
of
294
3.3‐11
SACRS
BYLAWS
–
Article
6
Continued
The
board
of
any
regular
member
County
Retirement
System
may
submit
write‐in
candidates
to
be
included
in
the
Nominating
Committee’s
final
ballot,
provided
the
Nominating
Committee
receives
those
write‐in
candidates
prior
to
March
25.
The
Nominating
Committee
will
report
a
final
ballot
to
each
regular
member
County
Retirement
System
prior
to
April
1
The
administrator
of
each
regular
member
County
Retirement
System
shall
be
responsible
for
communicating
the
Nominating
Committee’s
recommended
ballot
and
final
ballot
to
each
trustee
and
placing
the
election
of
SACRS
officers
on
his
or
her
board
agenda.
The
administrator
shall
acknowledge
the
completion
of
these
responsibilities
with
the
Nominating
Committee.
Officer
elections
shall
take
place
during
the
first
regular
meeting
of
each
calendar
year.
The
election
shall
be
conducted
by
an
open
roll
call
vote,
and
shall
conform
with
Article
V,
Section
6
and
7
of
these
Bylaws.
Newly
elected
officers
shall
assume
their
duties
at
the
conclusion
of
the
meeting
at
which
they
are
elected,
with
the
exception
of
the
office
of
Treasurer.
The
incumbent
Treasurer
shall
co‐serve
with
the
newly
elected
Treasurer
through
the
completion
of
the
current
fiscal
year.
Section
5.
President.
The
President
shall
be
the
Chief
Executive
Officer
of
SACRS
and
shall
preside
over
all
membership
meetings
and
Board
meetings.
The
President
shall
appoint
committee
members
and
serve
as
an
ex‐officio
member
of
all
committees
with
the
exception
of
the
Nominating
Committee.
The
President
shall
be
responsible
for
the
general
administration
of
SACRS
in
the
absence
of
the
membership.
Section
6.
Vice‐President.
The
Vice‐President
shall,
in
the
absence
or
inability
of
the
President,
perform
the
duties
of
the
President.
Page
87
of
294
3.3‐12
SACRS
BYLAWS
–
Article
6
Continued
Section
7.
Secretary
The
Secretary
shall
keep,
prepare
and
publish
prior
to
the
next
immediate
regular
meeting
an
accurate
record
of
the
proceedings
of
all
SACRS
meetings
defined
under
Article
V
herein.
In
addition,
the
Secretary
shall
prepare
and
maintain
a
current
list
of
members
in
good
standing.
Section
8.
Treasurer.
The
Treasurer
shall
be
the
Chief
Financial
Officer
of
SACRS.
The
Treasurer
shall
act
as
custodian
of
all
funds
and
financial
records
of
SACRS;
collect,
deposit
and
disperse
funds
consistent
with
SACRS
direction;
prepare
and
present
a
written
detailed
financial
report
at
each
meeting
of
SACRS.
Section
9.
Immediate
Past
President.
The
immediate
Past
President,
while
he
or
she
is
a
regular
member
of
SACRS,
shall
also
be
a
member
of
the
Board.
In
the
event
the
immediate
Past
President
is
unable
to
serve
on
the
Board,
the
most
recent
Past
President
who
qualifies
shall
serve
as
a
member
of
the
Board...
Page
88
of
294
3.3‐13
SACRS
BYLAWS
–
Article
7
ARTICLE
VII
‐
BOARD
ADVISORS
Section
1.
Chair
of
Affiliate
Committee.
The
Chair
of
the
Affiliate
Membership
Committee
shall
serve
as
a
non‐voting
advisor
and/or
consultant
to
the
Board
for
educational
(not
legislative)
purposes.
Section
2.
Vice
Chair
of
Affiliate
Committee.
The
Vice
Chair
of
the
Affiliate
Membership
Committee
shall,
in
the
absence
or
inability
of
the
Chair
of
the
Affiliate
Committee,
perform
the
duties
of
the
Chair.
Section
3.
Members
of
the
Board.
Neither
the
Chair
nor
the
Vice
Chair
of
the
Affiliate
Membership
Committee
is
a
member
of
the
Board.
Page
89
of
294
3.3‐14
SACRS
BYLAWS
–
Article
8
ARTICLE
VIII
‐
BOARD
OF
DIRECTORS
Section
1.
General
Powers.
Subject
to
limitations
of
the
Articles
of
Incorporation
and
these
Bylaws,
the
activities
and
affairs
of
SACRS
shall
be
conducted
and
all
corporate
powers
shall
be
exercised
by
or
under
the
direction
of
the
Board.
The
Board
may
delegate
the
management
of
the
activities
of
SACRS
to
any
person,
persons,
management
company,
or
committees
however
composed,
provided
that
the
activities
and
affairs
of
SACRS
shall
be
managed
and
all
corporate
powers
shall
be
exercised
under
the
ultimate
direction
of
the
Board.
Section
2.
Special
Powers.
Without
prejudice
to
such
general
powers,
but
subject
to
the
same
limitations,
it
is
hereby
expressly
declared
that
the
Board
shall
have
the
following
powers
in
addition
to
the
other
powers
enumerated
in
these
Bylaws:
To
select
and
remove
all
the
agents
and
employees
of
SACRS,
prescribe
powers
and
duties
for
them
as
may
not
be
inconsistent
with
law,
the
Articles
of
Incorporation
or
these
Bylaws,
fix
their
compensation,
and
require
from
them
security
for
faithful
service.
To
conduct,
manage,
and
control
the
affairs
and
activities
of
SACRS
and
to
make
such
rules
and
regulations
that
are
not
inconsistent
with
the
law,
the
Articles
of
Incorporation,
or
these
Bylaws,
as
they
may
deem
best,
including,
but
not
limited
to,
executing
all
motions,
resolutions,
association
positions
and/or
direction
passed
on
by
the
membership
at
any
meeting.
To
borrow
money
and
incur
indebtedness
for
the
purposes
of
SACRS,
and
to
cause
to
be
executed
and
delivered,
in
SACRS’
name,
promissory
notes,
bond,
debentures,
deeds
of
trust,
mortgages,
pledges,
hypothecations,
or
other
evidence
of
debt
and
securities.
To
change
the
principal
office
or
the
principal
business
office
of
SACRS
in
Sacramento
County,
California,
from
one
location
to
another.
To
adopt,
make,
and
use
a
corporate
seal
and
to
alter
the
form
of
the
seal
from
time
to
time,
as
determined
by
the
Board.
To
accept
on
behalf
of
SACRS
any
contribution,
gift,
bequest,
or
devise
for
the
social
welfare
purposes
of
SACRS.
To
report
to
the
regular
membership,
in
writing,
as
soon
as
possible,
all
actions
taken
by
the
Board
under
this
Article
VIII.
Page
90
of
294
3.3‐15
SACRS
BYLAWS
–
Article
8
Continued
Section
3.
Term.
The
Directors,
as
the
officers
of
SACRS,
shall
hold
office
for
one
(1)
year
and
until
a
successor
Director
has
been
designated
and
qualified.
Section
4.
Vacancies.
Vacancies
on
the
Board
shall
exist
in
the
event
of:
the
death,
resignation
or
removal
of
any
Director;
the
declaration
by
resolution
of
the
Board
of
a
vacancy
in
the
office
of
a
Director
who
has
been
(i)
declared
of
unsound
mind
by
a
final
order
of
a
court;
(ii)
convicted
of
a
felony;
(iii)
found
by
a
final
order
of
judgment
of
any
court
to
have
breached
any
duty
arising
under
Article
3
of
the
California
Nonprofit
Public
Benefit
Corporations
Law;
or
(iv)
the
Director
has
been
absent
without
good
cause,
as
determined
by
the
remaining
Directors,
from
regular
Board
meetings
for
either
two
(2)
consecutive
meetings
or
four
(4)
meetings
in
any
one
twelve
(12)
month
period;
and
the
vote
of
a
majority
of
the
delegates
or
alternate
delegates
to
remove
the
Director(s).
Except
for
a
vacancy
created
by
the
removal
of
a
Director
by
the
delegates
and
alternate
delegates,
when
vacancies
occur
on
the
Board
such
vacancies
may
be
filled
by
approval
of
the
Board
or,
if
the
number
of
Directors
then
in
office
is
less
than
a
quorum,
by
the
affirmative
vote
of
a
majority
of
the
Directors
then
in
office
at
a
meeting
held
pursuant
to
these
Bylaws,
or
a
sole
remaining
Director.
The
delegates
and
alternate
delegates
may
fill
any
vacancy
not
filled
by
the
Directors.
A
person
elected
to
fill
a
vacancy
as
provided
by
this
Section
shall
hold
office
for
the
remaining
term
of
the
vacating
Director,
or
until
his
or
her
death,
resignation
or
removal
from
office.
Section
5.
Resignation
of
Directors.
Except
as
provided
below,
any
Director
may
resign
effective
upon
giving
written
notice
to
the
Board,
unless
the
notice
specifies
a
later
time
for
the
effectiveness
of
such
resignation.
If
the
resignation
is
effective
at
a
future
time,
a
successor
may
be
appointed
by
the
Board
before
such
time,
to
take
office
when
the
resignation
becomes
effective
and
for
the
remaining
term
of
the
vacating
Director.
Except
on
notice
to
the
California
Attorney
General,
no
Director
may
resign
if
the
corporation
would
be
left
without
a
duly
elected
Director.
Page
91
of
294
3.3‐16
SACRS
BYLAWS
–
Article
8
Continued
Section
6.
Conflicts
of
Interest.
All
Directors
of
the
Board
shall
comply
with
the
disclosure
requirements
of
California
Corporation
Code
Section
5234
concerning
transactions
between
SACRS
and
any
other
entity
in
which
a
Director
is
an
officer
or
director;
and
SACRS
will
make
no
loan
of
money
or
other
property,
or
guarantee
the
obligation,
of
any
Director
or
officer,
except
as
authorized
by
California
Corporation
Code
Section
5236.
Section
7.
Compensation/Travel
Policy.
Directors
shall
serve
without
compensation
except
that
they
shall
be
allowed
reasonable
advancement
or
reimbursement
for
food
and
beverage,
transportation,
and
lodging
expenses
incurred
in
the
performance
of
their
regular
duties
as
specified
in
these
Bylaws.
Section
8.
Non‐Liability
of
Directors.
The
Directors
shall
not
be
personally
liable
for
the
debts,
liabilities,
or
other
obligations
of
SACRS.
Section
9.
Insurance
for
Corporate
Agents.
The
Board
may
adopt
a
resolution
authorizing
the
purchase
and
maintenance
of
insurance
on
behalf
of
any
agent
of
SACRS
(including
a
Director,
officer,
employee
or
other
agent)
against
any
liability
other
than
for
violating
provisions
of
law
relating
to
self‐dealing
(Section
5233
of
the
California
Nonprofit
Public
Benefit
Corporation
Law)
asserted
against
or
incurred
by
the
agent
in
such
capacity
or
arising
out
of
the
agent's
status
as
such,
whether
or
not
SACRS
would
have
the
power
to
indemnify
the
agent
against
such
liability
under
the
provisions
of
Section
5238
of
the
California
Nonprofit
Public
Benefit
Corporation
Law.
Page
92
of
294
3.3‐17
SACRS
BYLAWS
–
Article
9
ARTICLE
IX
‐
MEETINGS
OF
THE
BOARD
OF
DIRECTORS
Section
1.
Place
of
Meeting.
All
meetings
of
the
Board
shall
be
held
at
SACRS’
office
or
at
such
other
place
as
may
be
designated
for
that
purpose
in
the
notice
of
the
meeting
or,
if
not
stated
in
the
notice
or
there
is
no
notice,
at
such
place
as
may
be
designated
in
the
Bylaws
or
by
resolution
of
the
Board.
Section
2.
Annual
Meeting.
Immediately
following
the
election
of
the
officers
at
the
first
meeting
of
the
calendar
year,
the
Board
shall
hold
a
general
meeting
for
the
purposes
of
conducting
any
business
or
transactions
as
shall
come
before
the
meeting.
Other
general
meetings
of
the
Board
may
be
held
without
notice
at
such
time
and
place
as
the
Board
may
fix
from
time
to
time.
Section
3.
Special
Meetings.
Special
meetings
of
the
Board
for
any
purpose
or
purposes
may
be
called
by
the
President,
the
Secretary,
or
any
two
(2)
or
more
Directors.
Section
4.
Notice
of
Meetings.
Written
notice
of
the
time
and
place
of
any
special
meeting
shall
be
delivered
personally
to
each
Director
or
sent
to
each
Director
by
mail
or
other
form
of
written
communication,
charges
prepaid,
addressed
to
the
Director
either
at
his
or
her
address
as
it
is
shown
on
the
records
or,
if
not
readily
ascertainable,
to
the
place
in
which
the
Director
meets
as
a
regular
member
of
a
County
Retirement
System.
Such
notice,
if
mailed,
shall
be
sent
at
least
four
(4)
days
prior
to
the
time
of
holding
the
meeting.
Said
notice
shall
specify
the
purpose
of
the
special
meeting
of
the
Board.
In
addition,
telephone
(including
a
voice
messaging
system
or
other
system
or
technology
designed
to
record
and
communicate
messages,
either
directly
to
the
Director
or
to
a
person
at
the
Director’s
office
who
would
reasonably
be
expected
to
communicate
that
notice
promptly
to
the
Director),
Electronic
Transmission,
or
other
similar
means
of
communication
may
be
used
to
provide
such
notice.
If
given
personally,
or
by
telephone,
Electronic
Transmission,
or
other
similar
means
of
communication,
such
notice
shall
be
provided
at
least
forty‐eight
(48)
hours
prior
to
the
meeting.
Page
93
of
294
3.3‐18
SACRS
BYLAWS
–
Article
9
Continued
Notice
of
the
time
and
place
of
holding
an
adjourned
meeting
need
not
be
given
to
absent
Directors
if
the
time
and
place
of
the
next
meeting
are
fixed
at
the
meeting
adjourned
and
if
such
adjourned
meeting
is
held
no
more
than
twenty‐
four
(24)
hours
from
the
time
of
the
original
meeting.
Notice
shall
be
given
of
any
adjourned
regular
or
special
meeting
to
Directors
absent
from
the
original
meeting
if
the
adjourned
meeting
is
held
more
than
twenty‐four
(24)
hours
from
the
time
of
the
original
meeting.
Section
5.
Meeting
by
Telephone
or
Other
Telecommunications
Equipment.
Any
Board
meeting
may
be
held
by
conference
telephone,
video
screen
communication,
or
other
communications
equipment.
Participation
in
a
meeting
under
this
Section
5
shall
constitute
presence
in
person
at
the
meeting
if
both
the
following
apply:
Each
member
participating
in
the
meeting
can
communicate
concurrently
with
all
other
members;
and
Each
member
is
provided
the
means
of
participating
in
all
matters
before
the
Board,
including
the
capacity
to
propose,
or
to
interpose
an
objection
to,
a
specific
action
to
be
taken
by
the
Board.
Section
6.
Validation
of
Meeting.
The
transactions
of
the
Board
at
any
meeting,
however
called
or
noticed,
or
wherever
held,
shall
be
as
valid
as
though
the
meeting
had
been
duly
held
after
proper
call
and
notice
if
a
quorum
is
present
and
if,
either
before
or
after
the
meeting,
each
voting
Director
not
present
signs
a
written
waiver
of
notice
or
consent
to
the
holding
of
such
meeting,
or
an
approval
of
the
minutes
thereof.
All
such
waivers,
consents
or
approvals
shall
be
filed
with
the
corporate
records
and
made
a
part
of
the
minutes
of
the
meeting.
Section
7.
Waiver
of
Notice.
Notice
of
a
meeting
need
not
be
given
to
any
Director
who
signs
a
waiver
of
notice
or
a
written
consent
to
holding
the
meeting
or
an
approval
of
the
minutes
thereof,
whether
before
or
after
the
meeting,
or
who
attends
the
meeting
without
protesting,
prior
thereto
or
at
its
commencement,
the
lack
of
notice.
All
such
waivers,
consents
and
approvals
shall
be
filed
with
the
corporate
records
or
made
a
part
of
the
minutes
of
the
meeting.
Page
94
of
294
3.3‐19
SACRS
BYLAWS
–
Article
9
Continued
Section
8.
Quorum.
At
all
meetings
of
the
Board,
a
majority
of
the
Directors
present
in
person
or
pursuant
to
Section
5
of
this
Article
IX
shall
be
necessary
and
sufficient
to
constitute
a
quorum,
except
to
adjourn
as
provided
in
Section
11
of
this
Article
IX.
A
meeting,
at
which
a
quorum
is
initially
present,
may
continue
to
transact
business
notwithstanding
the
withdrawal
of
Directors
as
long
as
the
action
is
approved
by
at
least
a
majority
of
the
required
quorum
for
the
meeting.
Section
9.
Majority
Action
as
Board
Action.
Every
act
or
decision
done
or
made
by
a
majority
of
the
Directors
present
at
a
meeting
duly
held
at
which
a
quorum
is
present
is
the
act
of
the
Board,
unless
the
Articles
of
Incorporation
or
Bylaws
of
SACRS,
or
provisions
of
the
California
Nonprofit
Public
Benefit
Corporation
Law,
particularly
those
provisions
relating
to
appointment
of
committees
(Section
5212),
approval
of
contracts
or
transactions
in
which
a
Director
has
a
material
financial
interest
(Section
5233)
and
indemnification
of
Directors
(Section
5238(e)),
require
a
greater
percentage
or
different
voting
rules
for
approval
of
a
matter
by
the
Board.
Section
10.
Prohibition
Against
Voting
by
Proxy.
Directors
may
not
vote
by
proxy.
Section
11.
Adjournment
A
majority
of
the
Directors
present,
whether
or
not
a
quorum
is
present,
may
adjourn
any
meeting
to
another
time
and
place.
Notice
of
the
time
and
place
of
holding
an
adjourned
meeting
need
not
be
given
to
absent
Directors
if
the
time
and
place
is
fixed
at
the
meeting
adjourned,
except
that
if
the
meeting
is
adjourned
for
more
than
twenty‐four
(24)
hours,
notice
of
the
adjournment
to
another
time
and
place
shall
be
given
prior
to
the
time
of
the
adjourned
meeting
to
the
Directors
who
were
not
present
at
the
time
of
the
adjournment.
Page
95
of
294
3.3‐20
SACRS
BYLAWS
–
Article
10
ARTICLE
X
‐
POWERS
OF
COMMITTEES
Section
1.
Powers
of
Committees.
The
committees
described
in
these
Bylaws
shall
have
the
authority
described
herein,
and
any
additional
authority
of
the
Board
to
the
extent
provided
in
a
Board
resolution.
Notwithstanding
the
preceding
sentence,
no
committee
may
do
the
following:
Take
any
final
action
on
any
matter
that,
under
the
California
Nonprofit
Corporation
Law,
also
requires
approval
of
the
members
or
approval
of
a
majority
of
all
members;
Fill
vacancies
on
the
Board
or
any
committee
of
the
Board;
Fix
compensation
of
the
Directors
for
serving
on
the
Board
or
on
any
committee
of
the
Board;
Amend
or
repeal
Bylaws
or
adopt
new
Bylaws;
Amend
or
repeal
any
resolution
of
the
Board
that
by
its
express
terms
cannot
be
amended
or
repealed
by
a
committee;
Create
any
other
committees
of
the
Board
or
appoint
the
members
of
committees
of
the
Board;
and
Expend
corporate
funds
to
support
a
nominee
for
Director
if
more
people
have
been
nominated
for
Director
than
can
be
elected
Section
2.
Ratification
of
Committee
Activities.
All
activities
and
actions
of
the
committees
shall
be
reported
to
and
ratified
by
the
full
Board
at
a
duly
scheduled
Board
meeting
Page
96
of
294
3.3‐21
SACRS
BYLAWS
–
Article
11
ARTICLE
XI
‐
STANDING
COMMITTEES
Section
1.
Legislative
Committee.
The
Legislative
Committee
shall
be
comprised
of
not
less
than
three
(3)
members
but
not
more
than
thirteen
(13)
members.
The
Legislative
Committee
Chair
shall
be
appointed
by
the
President,
with
Board
approval.
The
Legislative
Committee
membership
shall
be
appointed
annually
by
the
President,
with
Board
approval,
from
names
submitted
from
the
Legislative
Committee
Chair,
and
shall
be
seated
by
September
1st.
The
President
may
remove
Legislative
Committee
members
who
miss
twenty‐five
percent
(25%)
or
more
of
the
Legislative
Committee
meetings
in
any
given
year.
The
Legislative
Committee
shall
be
responsible
for
the
legislative
activities
of
SACRS.
Section
2.
Nominating
Committee.
The
Nominating
Committee
shall
consist
of
the
following
five
(5)
members:
(i)
the
immediate
Past
President
of
SACRS;
(ii)
one
(1)
member
of
the
Program
Committee
appointed
by
the
Program
Committee
Chair;
(iii)
one
(1)
member
of
the
Legislative
Committee
appointed
by
the
Legislative
Committee
Chair;
(iv)
one
(1)
member
of
the
Bylaws
Committee
appointed
by
the
Bylaws
Committee
Chair;
and
(v)
one
(1)
member
of
the
Education
Committee
appointed
by
the
Education
Committee
Chair.
The
Program
Committee,
Legislative
Committee,
Bylaws
Committee
and
Education
Committee
Chairs
shall
appoint
members
to
the
Nominating
Committee,
as
previously
specified,
no
later
than
ninety
(90)
days
prior
to
the
second
business
meeting
of
SACRS
each
calendar
year.
The
immediate
Past
President
shall
serve
as
the
Nominating
Committee
Chair.
The
Nominating
Committee
shall
be
responsible
for
ascertaining
the
availability
and
interest
of
regular
members
to
serve
as
Directors
and
officers
of
SACRS.
Section
3.
Bylaws
Committee.
The
Bylaws
Committee
shall
be
comprised
of
not
less
than
three
(3)
members,
with
at
least
one
(1)
regular
trustee
member,
at
least
one
(1)
regular
administrative
member,
and
one
(1)
of
whom
may
be
an
associate
member.
The
president
shall
appoint
the
Bylaws
Committee
Chair,
with
Board
approval.
The
Bylaws
Committee
shall
be
comprised
of
appointees
selected
from
names
submitted
by
the
Bylaws
Committee
Chair,
with
Board
approval,
within
forty‐five
(45)
days
after
the
President
takes
office.
The
Bylaws
Committee
shall
be
responsible
for
the
maintenance
of
the
Articles
of
Incorporation
and
the
Bylaws.
Page
97
of
294
3.3‐22
SACRS
BYLAWS
–
Article
11
Continued
Section
4.
Program
Committee
The
Program
Committee
shall
be
comprised
of
not
less
than
four
(4)
members
but
not
more
than
eighteen
(18)
members
from
names
submitted
by
the
Program
Committee
Chair,
with
Board
approval,
and
shall
include
the
Education
Committee
Chair
and
Vice
Chair
and
the
Affiliate
Committee
Chair
and
Vice
Chair.
The
President
shall
fill
mid‐term
vacancies
and
shall
appoint
the
Program
Committee
Chair,
with
the
approval
of
the
Board,
within
forty‐five
(45)
days
of
taking
office.
The
Program
Committee
Chair
shall
serve
a
one
(1)
year
term
that
expires
on
the
last
day
of
the
Spring
regular
meeting.
The
President
may
remove
Program
Committee
members
missing
twenty‐five
percent
(25%)
or
more
of
the
Program
Committee
meetings
in
any
given
year.
The
Program
Committee
shall
be
responsible
for
the
program
of
the
two
(2)
annual
SACRS
conferences.
Section
5.
Audit
Committee.
The
Audit
Committee
shall
be
comprised
of
not
less
than
two
(2)
regular
members
selected
from
names
submitted
by
the
Audit
Committee
Chair,
with
Board
approval,
within
forty‐five
(45)
days
of
the
President
taking
office.
The
President
shall
appoint
the
Audit
Committee
Chair,
with
Board
approval.
Audit
Committee
members
shall
have
auditing
experience;
shall
not
receive,
directly
or
indirectly,
any
consulting,
advisory,
or
other
compensatory
fees
from
SACRS;
and
shall
not
be
from
the
same
County
as
SACRS’
Treasurer.
The
Audit
Committee
shall
be
responsible
for
SACRS’
audits,
and
its
duties
shall
include,
but
shall
not
be
limited
to,
the
following:
Assisting
the
Board
in
choosing
an
independent
auditor
and
recommending
termination
of
the
auditor,
if
necessary;
Negotiating
the
auditor’s
compensation;
Conferring
with
the
auditor
regarding
SACRS’
financial
affairs;
and
Reviewing
and
accepting
or
rejecting
the
audit.
If
SACRS
establishes
a
finance
committee,
a
majority
of
the
members
of
the
Audit
Committee
may
not
concurrently
serve
as
members
of
the
finance
committee,
and
the
Chair
of
the
Audit
Committee
may
not
serve
on
the
finance
committee.
Section
6.
Credentials
Committee.
The
Credentials
Committee
shall
be
comprised
of
SACRS’
Secretary
as
the
Chair
and
SACRS’
Treasurer
who
shall
verify
designated
voting
delegates
at
all
meetings
where
a
delegate
vote
is
conducted.
Page
98
of
294
3.3‐23
SACRS
BYLAWS
–
Article
11
Continued
Section
7.
Affiliate
Membership
Committee.
The
Affiliate
Membership
Committee
shall
be
comprised
of
nine
(9)
affiliate
member
delegates,
selected
from
names
submitted
by
the
Affiliate
Committee
Chair,
with
Board
approval,
to
serve
three
(3)‐year
terms
on
a
staggered
basis.
If
a
committee
member
becomes
ineligible
to
serve
or
resigns,
a
successor
may
be
appointed
by
the
Board
for
the
remaining
term
of
the
outgoing
member.
The
Committee
shall
provide
counsel
and
advice
to
the
Board
regarding
educational
(not
legislative)
activities,
and
shall
represent
the
Affiliate
membership.
Section
8.
Education
Committee
The
Education
Committee
shall
be
comprised
of
at
least
three
(3)
but
not
more
than
nine
(9)
members
appointed
by
the
Education
Committee
Chair,
with
Board
approval.
Such
appointments
shall
be
made
within
forty‐five
(45)
days
of
the
President
taking
office.
The
President
shall
appoint
the
Education
Committee
Chair,
with
Board
approval.
The
President
may
remove
Education
Committee
members
who
miss
twenty‐five
percent
(25%)
or
more
of
the
Education
Committee
meetings
in
any
given
year.
The
Education
Committee
shall
be
responsible
for
the
educational
activities
of
SACRS.
Section
9.
Resolutions
Committee.
The
President
may
appoint
a
Resolutions
Committee,
comprised
of
regular
members,
to
analyze
proposed
resolutions
and
make
recommendations
for
adoption,
rejection
or
amendment
prior
to
consideration
by
the
delegates
and
alternate
delegates.
Section
10.
Meetings
and
Action
of
Committees.
Meetings
and
action
of
committees
shall
be
governed
by,
noticed,
held
and
taken
in
accordance
with
the
provisions
of
these
Bylaws
concerning
meetings
of
the
Board,
with
such
changes
in
the
context
of
such
Bylaw
provisions
as
are
necessary
to
substitute
the
committee
and
its
members
for
the
Board
and
its
members,
except
that
the
time
for
regular
meetings
and
special
meetings
of
committees
may
be
fixed
by
the
Board
or
the
committee.
Minutes
of
each
meeting
shall
be
kept
and
shall
be
filed
with
the
corporate
records.
The
Board
may
also
adopt
rules
and
regulations
pertaining
to
the
conduct
of
meetings
of
committees
to
the
extent
that
such
rules
and
regulations
are
not
inconsistent
with
the
provisions
of
these
Bylaws.
Any
expenditure
of
SACRS
funds
by
a
committee
shall
require
prior
approval
of
the
Board.
Page
99
of
294
3.3‐24
SACRS
BYLAWS
–
Article
12
ARTICLE
XII
‐
CORPORATE
RECORDS
AND
SEAL
Section
1.
Maintenance
of
Corporate
Records.
SACRS
shall
keep
at
its
principal
office
in
the
State
of
California:
Minutes
of
all
meetings
of
the
Board
and
the
committees,
indicating
the
time
and
place
of
holding
such
meetings,
whether
regular
or
special,
how
called,
the
notice
given,
and
the
names
of
those
present
and
the
proceedings
thereof;
Adequate
and
correct
books
and
records
of
account,
including
accounts
of
its
properties
and
business
transactions
and
accounts
of
its
assets,
liabilities,
receipts,
disbursements,
gains
and
losses;
and
A
copy
of
SACRS’
Articles
of
Incorporation
and
Bylaws,
as
amended
to
date,
which
shall
be
open
to
inspection
at
all
reasonable
times
during
office
hours.
Section
2.
Corporate
Seal.
The
Board
may
adopt,
use,
and
at
will
alter,
a
corporate
seal.
Such
seal
shall
be
kept
at
the
principal
office
of
SACRS.
Failure
to
affix
the
seal
to
SACRS
instruments,
however,
shall
not
affect
the
validity
of
any
such
instrument.
Section
3.
Inspection
Rights.
Every
Director
and
member
shall
have
the
right
at
any
reasonable
time
to
inspect
and
copy
all
books,
records,
and
documents
of
every
kind
and
to
inspect
the
physical
properties
of
SACRS.
Section
4.
Right
to
Copy
and
Make
Extracts.
Any
inspection
under
the
provisions
of
this
Article
may
be
made
in
person
or
by
agent
or
attorney
and
the
right
to
inspection
includes
the
right
to
copy
and
make
extracts.
Page
100
of
294
3.3‐25
SACRS
BYLAWS
–
Article
13
ARTICLE
XIII
‐
FISCAL
YEAR
AND
ANNUAL
AUDIT
Section
1.
Fiscal
Year.
The
fiscal
year
of
SACRS
shall
be
July
1
through
June
30.
Section
2.
Annual
Audit.
There
shall
be
an
annual
audit
of
SACRS.
Page
101
of
294
3.3‐26
SACRS
BYLAWS
–
Article
14
ARTICLE
XIV
–
INDEMNIFICATION
Section
1.
Indemnification.
SACRS
may,
to
the
maximum
extent
permitted
under
the
Nonprofit
Public
Benefit
Corporations
Law
and
general
California
Corporation
Law,
as
now
or
hereafter
in
effect,
indemnify
each
person
who
is
or
was
a
Director
or
officer
of
SACRS
against
expenses,
judgments,
fines,
settlements,
and
other
amounts
actually
and
reasonably
incurred
in
connection
with
any
proceeding
arising
against
any
one
or
more
of
them,
based
on
their
conduct
as
Directors
or
officers,
or
by
reason
of
the
fact
that
any
one
or
more
of
them
is
or
was
a
Director
or
officer
of
SACRS.
“Proceeding”
means
any
threatened,
pending,
or
completed
action
or
proceeding
whether
civil,
criminal,
administrative
or
investigative;
and
“expenses”
includes
without
limitation
attorney’s
fees
and
any
expenses
of
establishing
a
right
to
receive
indemnification
from
SACRS.
Page
102
of
294
3.3‐27
SACRS
BYLAWS
–
Article
15
ARTICLE
XV
‐
WINDING
UP
AND
DISSOLUTION
Section
1.
Irrevocable
Dedication
The
property
of
SACRS
is
irrevocably
dedicated
to
social
welfare
purposes.
Upon
the
winding
up
and
dissolution
of
SACRS,
its
assets
remaining
after
payment
or
adequate
provision
for
payments
of
all
debts
and
obligations
of
SACRS
shall
be
distributed
in
accordance
with
the
plan
of
liquidation
to
an
organization
which
is
organized
and
operated
exclusively
for
social
welfare
purposes
and
exempt
from
federal
income
tax
under
Section
501(c)(4)
of
the
Code,
as
the
Board
may
select.
In
any
event,
no
assets
shall
be
distributed
to
any
organization
if
any
part
of
the
net
earnings
of
such
organization
inures
to
the
benefit
of
any
private
person
or
individual,
or
if
the
organization
carries
on
any
other
activities
not
permitted
to
be
carried
on
by
a
corporation
exempt
from
federal
income
tax
under
Section
501(c)(4)
of
the
Code
or
the
corresponding
provisions
of
any
future
United
States
Internal
Revenue
Law.
Page
103
of
294
3.3‐28
SACRS
BYLAWS
–
Article
16
ARTICLE
XVI
–
AMENDMENTS
Section
1.
Amendment
of
Articles
of
Incorporation
and
Bylaws.
Amendments
to
the
Articles
of
Incorporation
and
Bylaws
may
be
proposed
by
the
Board
or
any
regular
member
of
SACRS
or
by
any
standing
committee.
Proposed
amendments
shall
be
submitted
in
writing
by
certified
mail
to
the
President
at
least
sixty
(60)
days
before
any
meeting
of
SACRS.
The
President
shall
submit
the
proposed
amendments
to
the
membership
at
least
thirty
(30)
days
before
any
meeting
of
SACRS.
A
two‐thirds
(2/3)
vote
of
a
quorum
present
at
any
meeting
of
SACRS
is
required
to
adopt
an
amendment.
Section
2.
Certain
Amendments.
Notwithstanding
Section
1
of
this
Article
XVI,
SACRS
shall
not
amend
its
Articles
of
Incorporation
to
alter
any
statement
which
appears
in
the
original
Articles
of
Incorporation
relating
to
the
name
and
address
of
its
initial
agent,
except
to
correct
an
error
in
such
statement
or
to
delete
such
statement
after
SACRS
has
filed
a
"Statement
of
Information"
pursuant
to
Section
6210
of
the
California
Nonprofit
Corporation
Law.
Page
104
of
294
3.3‐29
SACRS
BYLAWS
–
Article
17
ARTICLE
XVII
‐
CONSTRUCTION
AND
DEFINITIONS
Section
1.
Construction
and
Definitions.
Except
as
provided
in
these
Bylaws
and/or
unless
the
context
requires
otherwise,
the
general
provisions,
rules
of
construction,
and
definitions
of
the
California
Nonprofit
Corporation
Law
shall
govern
the
construction
of
these
Bylaws.
Without
limiting
the
generality
of
the
above,
the
singular
number
includes
the
plural,
the
plural
number
includes
the
singular,
and
the
term
“person”
includes
both
SACRS
and
the
natural
person.
Section
2.
Electronic
Transmission.
Notice
given
by
SACRS
by
Electronic
Transmission
shall
be
valid
only
if:
delivered
by
(i)
facsimile
telecommunication
or
electronic
mail
when
directed
to
the
facsimile
number
or
electronic
mail
address,
respectively,
for
that
recipient
on
record
with
SACRS;
(ii)
posting
on
an
electronic
message
board
or
network
that
SACRS
has
designated
for
those
communications,
together
with
a
separate
notice
to
the
recipient
of
the
posting,
which
transmission
shall
be
validly
delivered
on
the
later
of
the
posting
or
delivery
of
the
separate
notice
of
it;
or
(iii)
other
means
of
electronic
communications;
to
a
recipient
who
has
provided
an
unrevoked
consent
to
the
use
of
those
means
of
transmission
for
communications;
and
that
creates
a
record
that
is
capable
of
retention,
retrieval,
and
review,
and
that
may
thereafter
be
rendered
into
clearly
legible
tangible
form.
Notwithstanding
the
foregoing,
an
Electronic
Transmission
by
SACRS
to
a
recipient
is
not
authorized
unless,
in
addition
to
satisfying
the
requirements
of
this
Section
2,
the
transmission
satisfies
the
requirements
applicable
to
consumer
consent
to
electronic
record
as
set
forth
in
the
Electronic
Signatures
in
Global
and
National
Commerce
Act
(15
United
States
Code
Section
7001(c)(1)).
Notice
shall
not
be
given
by
Electronic
Transmission
by
SACRS
after
either
of
the
following:
(i)
SACRS
is
unable
to
deliver
two
(2)
consecutive
notices
to
the
recipient
by
that
means,
or
(ii)
the
inability
so
to
deliver
the
notices
to
the
recipient
becomes
known
to
the
Secretary
or
any
other
person
responsible
for
the
giving
of
the
notice.
Page
105
of
294
4. Role of the Trustee Trustee
Page
106
of
294
4.1‐1
Your
Fiduciary
Duty
and
Ethics
A
fiduciary
is
someone
who
is
legally
required
to
exercise
a
certain
duty
of
care
when
acting
on
behalf
of,
or
in
the
interest
of,
another.
This
duty
of
care,
known
as
your
fiduciary
duty,
is
a
significant
ethical
and
legal
principle
that
all
trustees
must
understand
and
follow.
In
basic
terms,
being
a
fiduciary
is
all
about
trust.
It
means
you
control
assets
that
are
for
the
benefit
of
others.
Your
specific
duties
and
standard
of
care
are
in
the
laws,
regulations,
and
court
decisions
that
apply
to
your
plan.
As
a
pension
trustee,
you
have
accepted
control
of
your
participants’
plan.
In
doing
so,
you
have
become
a
fiduciary,
agreeing
(you
are
required)
to
discharge
your
trust
duties
solely
in
the
interests
of
your
plan’s
participants
for
the
exclusive
purpose
of
providing
benefits
and
defraying
reasonable
plan
administrative
expenses.
Page
107
of
294
4.1‐2
Your
Fiduciary
Duty
and
Ethics
Furthermore,
you
have
accepted
control
of
your
plan’s
assets
and
the
overall
administration
of
the
plan
itself.
Therefore,
your
fiduciary
duties
apply
to
investments
and
to
other
aspects
of
your
plan’s
operations.
For
example,
you
are
the
fiduciary
for
benefit
administration
and
disability
determinations.
You
and
your
fellow
trustees
are
the
ones
ultimately
responsible
for
seeing
that
the
plan
operates
in
accordance
with
its
governing
documents
and
does
not
violate
any
local,
state,
or
federal
laws.
Although
staff
members
and
consultants
may
have
delegated
to
them
the
day‐to‐day
responsibility
for
plan
administration
and
investment
activities,
their
performance
of
certain
fiduciary
roles
do
not
permit
you
to
avoid
your
trust
duties.
You
cannot
simply
rely
on
them
as
a
means
of
satisfying
your
obligations
as
a
trustee:
You
act
as
a
fiduciary
for
your
plan
when
you
hire
staff
members
and
consultants,
and
your
fiduciary
duties
include
the
active
monitoring
and
review
of
their
performance.
Page
108
of
294
4.1‐3
Your
Fiduciary
Duty
and
Ethics
In
carrying
out
all
of
these
duties,
you
must
exercise
the
highest
standards
of
care,
such
as
acting
for
the
exclusive
benefit
of
the
plan
participants.
In
addition,
other
specific
rules
of
conduct
often
govern
the
activities
of
trustees,
whether
these
activities
involve
the
exercise
of
a
specific
duty
or
deal
with
some
other
action
that
relates
to
the
conduct
of
public
officials
in
general.
These
rules
are
often
contained
in
codes
of
ethics
and
must
be
closely
followed.
Laws
of
fiduciary
responsibility
vary
from
state
to
state.
They
sometimes
are
similar
to
the
standard
set
forth
in
the
federal
law
known
as
ERISA
(Employee
Retirement
Income
Security
Act).
ERISA
does
not
apply
to
governmental
plans,
but
the
spirit
of
the
ERISA
standards
is
typically
mirrored
in
these
state
and
local
laws
and
regulations.
Court
decisions
and
attorney
general
options
may
also
influence
fiduciary
obligations
in
your
state.
Page
109
of
294
4.1‐4
Your
Fiduciary
Duty
and
Ethics
You
must
take
your
fiduciary
duties
seriously.
There
can
be
dire
consequences
for
violations.
Trustees
can
be
held
liable
(and
even
prosecuted
if
they
allegedly
engage
in
criminal
activity)
for
breaches
of
their
fiduciary
duties.
The
same
is
true
for
codes
of
ethics.
Fiduciary
Duties
mean
you
have
a
duty
to
put
another
person’s
interests
before
your
own
or
those
of
anybody
else.
And,
you
have
an
obligation
to
conduct
yourself
carefully.
Generally,
pension
experts
divide
fiduciary
duties
for
pension
plan
trustees
into
three
broad
categories:
• Duty
of
loyalty
–
the
obligation
to
act
for
the
exclusive
benefit
of
the
plan
participants;
• Duty
of
prudence
–
the
obligation
to
act
prudently
in
exercising
power
or
discretion
over
the
interests
that
are
the
subject
of
the
fiduciary
relationship;
and,
• Duty
of
care
–
the
responsibility
to
administer
the
pension
plan
efficiently
and
properly.
Page
110
of
294
4.1‐5
Your
Fiduciary
Duty
and
Ethics
These
duties
provide
essential
guidance,
like
a
road
map,
to
point
trustees
in
the
right
direction.
However,
always
keep
in
mind
that
your
fiduciary
responsibility
is
ultimately
a
legal
responsibility.
In
fact,
it
is
one
of
the
strictest
legal
duties
you
will
find
anywhere
in
law.
Remember,
there
is
also
an
important
fourth
duty
that
a
fiduciary
has:
the
duty
to
ask
questions.
Be
sure
that
you
ask
your
legal
counsel
and
executive
staff
to
give
you
those
specific
fiduciary
rules
governing
your
plan.
If
you
are
unclear
about
any
of
them,
ask
for
help!
Page
111
of
294
4.1‐6
Your
Fiduciary
Duty
and
Ethics
You
will
often
hear
the
duty
of
loyalty
commonly
called
the
Exclusive
Benefit
Rule
This
means
that
a
fiduciary’s
loyalty
is
exclusively
to
plan
participants
and
no
one
else.
In
short,
you
must
put
the
participants’
interests
above
your
own
interests
and
those
of
any
third
parties,
such
as
employers,
other
political
bodies,
or
taxpayers.
Page
112
of
294
4.1‐7
Your
Fiduciary
Duty
and
Ethics
Exclusive
Benefit
Rule
In
addition,
as
a
fiduciary,
you
must
impartially
consider
the
needs
of
all
plan
participants
regardless
of
any
individual
(such
as
the
governor)
or
constituents
(such
as
retirees)
that
were
instrumental
in
your
election
or
appointment
to
the
pension
board.
This
may
not
make
you
popular
with
certain
constituents,
but
it
will
keep
you
out
of
trouble.
The
exclusive
benefit
rule
also
prohibits
you
from
engaging
in
acts
that
would
present
a
conflict
between
your
personal
interests
and
the
interests
of
the
plan
participants.
This
is
called
self‐dealing.
For
Example…
For
example,
if
you
are
involved
in
a
decision
to
authorize
the
pension
plan
to
sell
to,
purchase
from,
or
otherwise
make
a
deal
with
you,
a
conflict
is
present.
This
is
because
the
question
would
inevitably
arise:
whose
interests
–
yours
or
that
of
the
plan’s
participants
–
would
you
favor
in
reaching
a
decision
on
the
matter?
Page
113
of
294
4.1‐8
Your
Fiduciary
Duty
and
Ethics
Exclusive
Benefit
Rule
This
duty
not
to
do
business
with
the
plan
is
one
of
a
trustee’s
most
fundamental
duties.
Furthermore,
a
breach
of
this
fiduciary
trust
can
occur
whether
or
not
you
realize
a
financial
benefit
from
self‐dealing.
Therefore,
you
must
be
extremely
careful
to
avoid
all
potential
conflicts
of
interest.
For
example,
participating
in
a
decision
that
does
not
directly
benefit
you,
but
favors
a
friend
or
family
member,
could
present
a
conflict
of
interest
or
the
appearance
of
impropriety.
Finally,
be
diligent
in
considering
who
benefits
from
a
course
of
action.
If
the
board
is
set
to
decide
an
issue
in
which
you
have
an
unavoidable
conflict
of
interest,
you
may
want
to
inform
the
other
board
members
what
that
conflict
is,
or
could
appear
to
be,
and
then
abstain
from
participating
when
the
board
deliberates
on
the
matter.
If
you
are
unsure
whether
a
conflict
is
present,
ask
your
executive
director
or
legal
counsel
for
guidance.
Page
114
of
294
4.1‐9
Your
Fiduciary
Duty
and
Ethics
Duty
of
Prudence
Prudence
(that
is,
being
prudent)
means
to
exercise
sound
judgment,
make
common‐sense
decisions,
and
act
with
care.
Indeed,
prudence
is
one
of
the
so‐called
Seven
Holy
Virtues
and
is
associated
with
wisdom.
Simply
stated,
it
is
a
legal
standard
that
allows
a
court
to
compare
a
trustee’s
conduct
against
the
conduct
of
others
in
similar
circumstances.
The
comparison
permits
the
court
to
determine
whether
the
trustee
acted
prudently
in
a
particular
situation.
Page
115
of
294
4.1‐10
Your
Fiduciary
Duty
and
Ethics
Duty
of
Prudence
As
fiduciaries,
trustees
have
a
duty
to
be
prudent,
particularly
when
it
comes
to
handling
the
plan
assets.
You
must
make
decisions
on
behalf
of
the
plan
in
the
same
careful
manner
that
you
would
use
in
making
your
own
personal
retirement
decisions.
The
duty
of
prudence
ultimately
focuses
not
on
the
outcome
on
the
investment
decision
but
rather
on
the
way
in
which
it
was
made.
One
of
several
standards
generally
governs
this
decision‐making
process.
All
of
them
are
variations
on
the
same
theme:
What
would
a
prudent
(1)
person,
(2)
investor,
or
(3)
expert
do
in
the
same
or
similar
situation?
Prudent Expert Prudent Investor Prudent Person Page
116
of
294
4.1‐11
Your
Fiduciary
Duty
and
Ethics
Prudent
Person
(Man)
Rule
This
is
the
traditional
rule
and
it
requires
trustees
to
evaluate
each
investment
independently,
rather
than
as
part
of
a
whole
investment
portfolio.
Consequently,
because
this
rule
takes
a
more
narrow,
investment‐by‐investment
view,
it
results
in
less
speculation
and
less
risk
in
making
decisions.
Trustees
must
judge
each
investment
on
its
own
merits.
For
example,
suppose
the
trustees
make
an
investment
that
fits
within
the
plan’s
overall
investment
strategy.
Nevertheless,
if
the
investment,
standing
alone,
is
a
poor
one
and
produces
a
loss,
the
trustees
could
be
held
liable.
The
emphasis
on
the
prudent
person
rule
is
therefore,
strongly
weighted
toward
preserving
the
trust’s
assets.
In
some
cases,
certain
investment
categories
may
be
viewed
as
too
risky
or
intrinsically
speculative
and,
therefore,
prohibited.
In
some
jurisdictions,
the
legislature
has
enacted
legal
lists
of
types
or
amounts
of
permitted
investments.
Page
117
of
294
4.1‐12
Your
Fiduciary
Duty
and
Ethics
Duty
of
Care
The
duty
of
care
is
actually
another
form
of
the
duty
of
prudence.
However,
in
this
instance,
it
applies
to
plan
administration
and
operations
beyond
investment
decision
making.
Under
this
duty,
the
board
must,
in
conjunction
with
staff,
develop,
adopt,
and
implement
policies
and
procedures
for
the
administration
of
the
retirement
plan.
To
fulfill
this
duty,
a
trustee
must
actively
participate
in
the
plan’s
management.
This
means,
for
example,
attending
board
meetings,
reading
reports
and
minutes,
and
reviewing
staff
activities
and
the
performance
of
consultants.
If
you
lack
the
time
do
this,
then
you
will
fail
to
uphold
the
duty
of
care
that
you,
as
a
fiduciary,
owe
your
plan.
There
are
certain
elements
of
the
exercise
of
the
duty
of
care
that
can
keep
you
out
of
trouble.
Due
diligence
is
one.
This
element
involves
the
process
of
checking
and
verifying
information,
as
well
as
ensuring
that
sufficient
analysis
has
been
conducted
before
making
key
decisions,
including
selection
of
consultants,
benefits
administration,
hiring
the
plan’s
chief
executive,
determining
information
technology
(IT)
systems,
etc.
In
short,
due
diligence
is
the
duty
to
act
on
an
informed
basis.
Page
118
of
294
4.1‐13
Your
Fiduciary
Duty
and
Ethics
Duty
of
Care
Another
element
of
satisfying
your
duty
of
care
is
following
the
law
and
spirit
of
the
plan’s
governing
statutes,
rules,
and
policies.
This
is
particularly
important
for
the
administration
of
plan
benefits,
whereby,
several
laws
and
regulations
apply
to
benefit
eligibility,
calculations,
and
limits.
Failing
to
ensure
that
these
are
observed
can
have
serious
consequences
for
plan
participants
and
can
influence
the
plan’s
ability
to
maintain
its
tax‐qualified
status
under
the
Internal
Revenue
Code
(IRC).
Having
a
well‐written
set
of
operating
procedures
and
diligently
following
them
is
an
important
way
in
which
you
can
fulfill
the
overall
duty
of
care.
Such
procedures
would
include
establishing
effective
protocols
to
maintain
and
protect
adequate
records
and
keeping
appropriate
information
confidential.
Conducting
regular
audits
and
knowing
when
to
pursue
appropriate
legal
action
are
also
important
aspects
of
this
duty.
In
summary,
when
fulfilling
your
fiduciary
duties
of
loyalty,
prudence,
and
care,
be
sure
to
remember
your
duty
to
ask
questions.
Find
out
the
specifics
of
the
fiduciary
duties
that
your
plan’s
laws,
rules,
and
policies
impose
on
you
as
a
trustee.
Page
119
of
294
4.1‐14
Your
Fiduciary
Duty
and
Ethics
Ethics
and
Codes
of
Conduct
Living
up
to
a
code
of
ethics
goes
hand‐in‐hand
with
being
a
fiduciary.
Ethics
policies,
like
fiduciary
rules,
provide
the
framework
for
what
is
permissible
as
well
as
prohibited
behavior
by
pension
trustees.
Because
ethics
laws
vary
from
jurisdiction
to
jurisdiction,
it
is
best
to
check
with
your
legal
counsel
or
executive
staff
on
the
specific
ethics
policies
that
apply
to
your
board.
However,
the
primary
focus
of
most
codes
tends
to
be
on
personal
conduct
and
conflicts
of
interest.
Financial
disclosure
rules
and
reporting
are
also
typically
part
of
any
ethics
process.
In
addition
to
the
rules
that
mirror
the
fiduciary
duty
of
loyalty,
particularly
the
exclusive
benefit
rule
and
the
rule
against
self‐dealing,
common
categories
of
activities
that
ethics
policies
tend
to
cover
include
the
following.
Page
120
of
294
4.1‐15
Your
Fiduciary
Duty
and
Ethics
Ex
Parte
Communications
Ex
parte
is
a
Latin
phrase
that
essentially
means
without
the
other
party.
Typically
used
in
legal
proceedings
or
settings
in
which
judgments
are
made,
the
term
refers
to
a
situation
in
which
only
one
party
or
side
appears
before
a
decision
maker.
Broadly
defined,
an
ex
parte
contact
for
trustees
is
any
written
or
verbal
communication
that
occurs
outside
of
a
regular
public
meeting
between
an
official
with
decision‐making
authority
(trustee)
and
some
of
the
interested
parties
to
a
subject
matter
to
be
acted
on
by
the
pension
board.
Such
ex
parte
communications
are
generally
prohibited
for
pension
trustees
and
senior
executive
staff.
This
is
because
it
is
important
that
trustees,
as
well
as
those
charged
with
a
public
trust,
be
seen
by
the
public
as
being
fair
and
impartial
in
their
decision‐making
duties.
Restricting
ex
parte
communications
helps
preserve
the
integrity
of
the
process
by
preventing
any
impropriety
or
use
of
off‐the‐record
information
that
is
not
fully
disclosed
to
all
involved.
Page
121
of
294
4.1‐16
Your
Fiduciary
Duty
and
Ethics
Ex
Parte
Communications
In
addition,
the
ex
parte
rule
ensures
that
all
parties
involved
have
a
fair
shot
and
an
equal
say
in
the
matter
pending
before
the
board.
After
all,
meeting
with
only
the
supporters
of
a
particular
position
and
not
their
opponents
can
result
in
a
one‐sided
view
of
the
matter.
Remember,
your
duty
of
loyalty
is
to
the
plan
and
all
its
beneficiaries,
not
to
just
one
constituency
group.
It
is
also
important
to
remember
ex
parte
restrictions
when
hiring
consultants,
awarding
contracts,
and
selecting
investments.
You
must
not
initiate
contacts
outside
the
boardroom
with
any
party
who
has
a
financial
interest
in
the
transaction
or
an
officer
or
employee
of
that
party
without
proper
notice
and
disclosure.
Such
parties
include
providers
who
are
bidding
to
provide
the
plan
with
services,
such
as
IT
or
investment
management.
Page
122
of
294
4.1‐17
Your
Fiduciary
Duty
and
Ethics
Gifts
and
Travel
As
a
new
trustee,
you
may
suddenly
find
that
you
have
a
lot
of
new
friends.
They
may
want
to
give
you
tickets
to
sporting
events
or
the
theater,
offer
to
take
you
golfing,
treat
you
to
dinner,
or
bestow
on
you
gifts
both
large
and
small.
Gifts
may
be
permissible,
depending
on
the
ethics
rules
governing
pension
trustees
in
your
jurisdiction.
In
addition
to
tickets
to
certain
events,
meals,
and
other
forms
of
entertainment,
a
gift
can
include
money,
real
or
personal
property,
a
service,
loan,
or
even
promise
of
a
job
down
the
road.
It
if
is
given
and
accepted
without
the
giver
getting
back
anything
of
equal
or
greater
value,
it
will
likely
qualify
as
a
gift
subject
to
ethics
codes
in
most
jurisdictions.
Sometimes
gifts
can
be
accepted
as
long
as
they
are
fully
disclosed
to
the
pension
board
or
an
oversight
agency.
Some
jurisdictions
place
a
dollar
limit
on
gifts
so
that
a
trustee
may
be
able
to
accept
a
gift
less
than
the
designated
amount,
say
$50,
without
disclosure
but
may
have
to
disclose
larger
gifts
in
a
disclosure
statement
or
a
report
filed
with
the
proper
agency
or
official.
Other
jurisdictions
may
simply
prohibit
gifts
of
any
kind
or
amount
under
any
circumstances
except
for
family
members
and
long‐
time
friends.
Page
123
of
294
4.1‐18
Your
Fiduciary
Duty
and
Ethics
Gifts
and
Travel
The
rules
and
circumstances
surrounding
gifts
can
be
confusing.
To
avoid
any
doubt
about
what
is
or
is
not
allowed,
it
is
your
responsibility
to
learn
the
rules.
Take
time
to
check
with
your
plan’s
legal
counsel
or
the
ethics
agency
that
governs
your
plan
to
avoid
any
appearance
of
impropriety.
Travel
is
another
matter
that
is
typically
subject
to
ethics
rules.
Pension
trustees
often
have
the
opportunity
to
attend
educational
conferences
dealing
with
matters
relevant
to
their
plans.
Many
pension
plans
have
educational
policies
in
place.
Frequently,
travel
to
conferences
and
educational
seminars
is
permitted,
but
must
be
approved
in
advance.
Some
boards
place
limits
on
the
number
of
travel
requests
allowed
each
year.
Others
have
rules
governing
how
many
trustees
can
attend
a
conference
or
the
total
amount
each
trustee
can
spend
during
the
year
on
educational
conference
attendance.
Check
with
your
staff
to
find
out
about
the
policy
for
attending
educational
conferences.
In
addition,
keep
in
mind
that
if
your
travel
is
paid
by
an
event
sponsor
or
someone
other
than
your
plan,
then
it
may
constitute
a
gift
and
be
subject
to
the
ethics
restrictions.
This
will
also
be
true
if
travel
is
offered
to
your
spouse
to
accompany
you.
Page
124
of
294
4.1‐19
Your
Fiduciary
Duty
and
Ethics
Gifts
and
Travel
Public
pension
boards
are
increasingly
requiring
their
consultants
to
adhere
to
ethics
policies
to
ensure
that
the
investment
advice
is
fair
and
impartial.
This
trend
responds
to
findings
by
the
Securities
and
Exchange
Commission
(SEC)
that
one‐half
of
the
consultants
it
studied
also
provided
services
and
products
to
pension
plan
advisory
clients,
money
managers,
and
mutual
funds.
In
other
words,
consultants
and
others
who
advise
plan
trustees
often
have
business
dealings
with
money
managers
they
recommend
to
the
plans.
Further,
the
SEC
found
that
these
consultants
often
have
affiliates
or
subsidiaries
of
their
own
that
also
provide
services
to
pension
plans
but
may
not
disclose
those
relationships
and
the
potential
conflict
of
interests.
Page
125
of
294
4.1‐20
Your
Fiduciary
Duty
and
Ethics
Liability
As
a
fiduciary
you
are
individually
liable
and
can
be
held
personally
responsible
for
breaches
of
your
fiduciary
duty.
By
personal
liability,
we
mean
that
your
money
and
property
could
be
at
risk.
In
addition,
state
and
local
ethics
laws
can
also
impose
liability.
Therefore,
it
is
important
to
remember
that
violations
of
the
governing
authority’s
laws
can
result
in
civil
or
criminal
penalties
or
both.
You
can
be
punished
with
imprisonment,
fines,
or
both.
Lawsuits
against
public
pension
plan
trustees
are
not
common,
but
they
do
occur.
Page
126
of
294
4.1‐21
Your
Fiduciary
Duty
and
Ethics
Liability
Ethics
investigations
that
involve
individual
trustees
also
happen.
These
investigations
are
personally
painful
and
reflect
badly
on
the
board
and
your
plan.
In
recent
years,
the
trend
has
been
for
pension
boards
to
purchase
fiduciary
liability
insurance
to
protect
the
plan,
board
members,
and
executive
staff
members
from
liability
that
could
arise
from
various
breaches
of
fiduciary
duty.
This
is
more
common
for
boards
that
have
authority
over
investment
decisions.
However,
recent
surveys
suggest
that
less
than
a
majority
of
public
plans
have
purchased
such
policies.
Furthermore,
even
when
such
a
policy
is
in
effect,
it
is
important
for
trustees
to
understand
that
dishonest,
fraudulent,
criminal,
or
malicious
acts
are
likely
excluded
from
coverage,
as
are
instances
of
self‐dealing.
Your
legal
counsel
and
executive
staff
can
explain
what
protections
against
liability
are
in
place
for
board
trustees.
This
is
an
essential
discussion
you
must
have.
Page
127
of
294
4.2‐1
Role
of
the
Trustee
Introduction
Like
many
of
your
fellow
trustees,
your
decision
to
seek
a
position
on
your
plan’s
board
may
have
been
due
to
your
interest
in
a
particular
issue
or
a
desire
to
see
that
some
problem
was
more
effectively
addressed
by
your
plan.
Or
you
might
have
been
drafted
by
your
employee
organization
or
others
to
become
a
trustee.
Whatever
your
role,
however,
however
and
whatever
the
reasons
that
led
you
to
become
a
trustee,
you
must
be
prepared
to
handle
a
variety
of
duties
–
some
of
which
may
be
completely
new
to
you.
There
is
a
lot
to
learn
at
first,
but
remember
you
are
not
alone.
It
can
be
a
daunting
challenge
but
just
keep
in
mind
that
many
resources
are
available
to
help
prepare
you
to
become
an
effective
trustee.
Page
128
of
294
4.2‐2
Role
of
the
Trustee
Trustees
Wear
Many
Hats
As
a
trustee
you
have
multiple
constituencies
and
a
variety
of
duties
and
responsibilities.
You
represent
all
of
these
constituents,
regardless
of
who
selected
or
elected
you
to
serve
as
a
trustee.
You
ultimately
represent
them
all.
Your
overriding
responsibility
is
to
the
pension
plan
as
a
whole.
The
many
roles
that
a
public
pension
trustee
must
play,
as
well
as
the
time
requirements
they
impose
on
you,
will
likely
be
much
greater
than
you
had
anticipated.
Here
are
some
of
the
many
hats
you
may
have
to
wear
as
a
trustee.
Fiduciary Visionary Investor Advocate Administrator Judge Shareholder Page
129
of
294
4.2‐3
Role
of
the
Trustee
Trustees
Wear
Many
Hats
Fiduciary
A
serious
legal
duty
to
be
responsible
for
safekeeping
the
retirement
assets
of
your
plan’s
participants
and
for
managing
these
assets
for
the
participants’
benefit.
You
always
wear
this
hat,
no
matter
what
else
you
may
be
doing.
Pension
Benefits
Administrator
Although
your
board
lacks
the
authority
to
actually
set
benefit
formulas,
you
must
ensure
the
resulting
benefits
are
administered
in
an
efficient,
legal,
and
timely
manner.
Investor
Your
plan
also
needs
enough
money
to
pay
those
benefits
that
you
are
administering.
In
most
plans
the
trustees,
therefore,
decide
how
to
invest
the
assets
of
the
plan
by
developing
the
overall
investment
strategy.
Page
130
of
294
4.2‐4
Role
of
the
Trustee
Trustees
Wear
Many
Hats
Shareholder
Consider
yourself
a
shareholder
in
the
companies
whose
stocks
the
plan
buys.
Investment
performance
can
depend
in
large
part
on
the
behavior
of
a
company’s
management.
Therefore,
you
may
also
become
involved
in
corporate
governance.
Personnel
Manager
Pension
boards
can
spend
considerable
time
reviewing
proposals.
They
also
interview
and
hire
consultants
for
several
services,
including
an
array
of
money
managers
and
investment
advisors,
actuaries,
and
outside
legal
counsel.
You
may
also
hire
some
of
the
top
executive
staff
members
of
your
pension
plan.
Judge
You
may
act
as
a
judge
when
considering
applications
for
disability
benefits.
You
many
also
hear
appeals
of
benefit
determinations
made
by
staff
with
which
plan
members
have
disagreed.
In
such
instances,
you
effectively
serve
as
a
judge
and
issue
rulings
on
these
cases.
Page
131
of
294
4.2‐5
Role
of
the
Trustee
Trustees
Wear
Many
Hats
Health
Benefits
Administrator
If
your
plan
administers
health
care
benefits,
which
some
plans
do,
then
it
could
be
your
job
to
help
select
health
insurance
plans
for
your
participants.
This
process
also
could
include
deciding
on
the
nature
of
benefits
to
be
offered,
as
well
as
premiums,
co‐pays,
and
other
terms
of
coverage.
Advocate
As
a
trustee
you
represent
the
pension
plan
before
elected
officials,
taxpayers,
and
constituency
groups.
And
as
a
fiduciary,
a
trustee
must
always
be
prepared
to
defend
the
plan,
particularly
if
there
is
controversy
over
benefit
levels,
investment
policy,
or
fund
solvency.
Visionary
Pension
plans
are
in
business
for
the
long
haul.
One
of
your
most
important
responsibilities
is
to
ensure
that
your
plan
can
pay
out
promised
benefits
and
provide
the
best
form
of
retirement
security
for
future
generations.
Page
132
of
294
4.3‐1
Local
Agency
Ethics
Public
Officials
–
elected
or
appointed
–
wield
the
power
of
government
and
serve
as
stewards
of
both
the
public’s
resources
and
trust.
For
these
reasons,
the
public
holds
public
officials
to
high
standards
of
ethical
conduct.
On
the
following
pages
are
listed
the
relevant
code
sections
of
ethical
issues
that
apply
to
trustees
who
serve
as
fiduciaries
on
public
pension
boards
in
California.
Statute
code
sections
are
provided
as
search
tools
for
additional
information.
Page
133
of
294
4.3‐2
Local
Agency
Ethics
Laws
Relating
to
Personal
Financial
Gain
Bribery
(Penal
Code,
Section
68)
Bribery
involves
payment
or
receipt
of
anything
of
value
as
consideration
to
alter
the
outcome
of
any
manner
that
might
come
before
a
public
official.
Conflicts
of
Interest
under
the
Political
Reform
Act
(Gov.
Code
section
8100
et
seq.)
Material
Financial
Effect
(Gov.
Code
Section
87100,
87103)
A
government
official
is
prohibited
from
making,
participating
in,
or
in
any
way
attempting
to
use
his/her
official
position
to
influence
a
governmental
decision
if
it
is
reasonably
foreseeable
that
the
decision
will
have
a
material
financial
effect
on
the
official
or
the
official’s
immediate
family.
Page
134
of
294
4.3‐3
Local
Agency
Ethics
Laws
Relating
to
Personal
Financial
Gain
Public
Official
–
for
purposes
of
the
Political
Reform
Act,
includes
every
member,
officer,
employee
or
consultant
of
any
state
or
local
government
agency.
Recusal
and
Leave
the
Room
Rule
(Gov.
Code
Section
87105)
A
government
official
who
has
a
conflict
of
interest
under
the
Political
Reform
Act.
Page
135
of
294
4.3‐4
Local
Agency
Ethics
Contractual
Conflicts
of
Interest
(Gov.
Code
Section
1090)
Conflicts
of
Interest
in
Campaign
Contributions
(Gov.
Code
Section
84308)
Conflicts
of
Interest
when
Leaving
Office
(Gov.
Code
Section
87406.3)
Page
136
of
294
4.3‐5
Local
Agency
Ethics
Receipt
of
Gifts
(Gov.
Code
Sections
86203,
89503,
89506)
Honoraria
Ban
(Gov.
Code
Section
89502)
Misuse
of
Public
Funds
(Penal
Code
Section
424,
Gov.
Code
Section
8314)
Prohibition
Against
Gifts
of
Public
Funds
(Cal.
Const.
Art
XVI,
Section
6)
Mass
Mailing
Restrictions
(Gov.
Code
Section
89001)
Page
137
of
294
4.3‐6
Local
Agency
Ethics
Government
Transparency
Laws
Economic
Interest
Disclosure
Under
the
Political
Reform
Act
(Gov.
Code
Section
87200)
The
Ralph
M.
Brown
Act
(Gov.
Code
Section
54950
et
seq.)
Public
Records
Act
(Gov.
Code
Section
6250)
The
meetings
of
public
bodies
must
be
open
and
public.
Actions
taken
in
secret
are
prohibited
except
as
expressly
authorized
by
law.
Any
actions
taken
in
violation
of
the
open
meetings
laws
are
void.
Page
138
of
294
4.3‐7
Local
Agency
Ethics
Laws
Relating
to
Fair
Processes
Common
Law
Bias
Prohibitions
If
a
public
official
cannot
exercise
his/her
duties
without
“disinterested
diligence”
for
the
benefit
of
the
public,
he/she
has
conflict
and
should
not
participate
in
the
action
or
decision.
(American
Canyon
Fire
Protection
Dist.
V.
County
of
Napa
(1983)
141
Cal.App.3d
100,
103‐104)
Due
Process
Requirements
Due
process
is
a
constitutional
right
to
fair
treatment
in
adjudicatory
decision‐making
situations.
Doctrine
of
Incompatible
Public
Offices
This
doctrine
prevents
a
person
from
holding
two
public
offices
simultaneously
if
incompatibility
exists
between
the
offices.
Competitive
Bidding
Requirements
for
Public
Contracts
(Pub.
Contract
Code
Section
20120)
Anti‐Nepotism
Policies
Government
officials
are
generally
disqualified
from
participating
in
decisions
that
affect
family
members
Page
139
of
294
4.4‐1
Conflict
of
Interest
Source: SACRS FIDUCIARY OBLIGATIONS AND CONFLICTS OF INTEREST OF BOARD OF COUNTY RETIREMENTS SYSTEMS May 4, 1994 Virginia L Gibson; Baker & McKenzie The
board
members
of
a
county
retirement
system
are
entrusted
with
the
preservation
and
investment
of
the
county's
retirement
assets
and
the
administration
of
the
retirement
system
itself.
The
board
members
serve
in
the
same
position
with
respect
to
county
retirement
assets
that
a
trustee
does
with
respect
to
a
trust.
Accordingly,
the
law
imposes
a
number
of
significant
fiduciary
obligations
on
board
members,
which
are
designed
to
steer
the
board
members
through
the
myriad
conflicts
of
interest
that
they
are
faced
with
in
their
day‐to‐day
duties.
These
rules
and
the
conflicts
they
are
designed
to
address
are
the
subject
of
this
outline.
Page
140
of
294
4.4‐2
Conflict
of
Interest
County
retirement
funds
represent
a
significant
pool
of
assets
and
an
equally
large
source
of
temptation
for
politicians,
revenue‐hungry
counties
and
local
governments,
and
even
the
State
of
California
itself.
The
voters
of
the
State
of
California
recognized
this
in
enacting
Proposition
162
in
the
November
1992
ballot.
Proposition
162
states,
for
example,
that
The
People
of
the
State
of
California∙
hereby
find
and
declare
as
follows...
To
protect
the
financial
security
of
retired
Californians,
politicians
must
be
prevented
from
meddling
or
looting
pension
funds...
to
protect
pension
systems,
retirement
board
trustees
must
be
free
from
political
meddling
and
intimidation
...
the
People
must
act
now
to
shield
the
pension
funds
of
this
state
from
abuse,
plunder
and
political
corruption
...the
People
of
the
State
of
California
hereby
declare
that
their
purpose
and
intent
in
enacting
this
measure
is
as
follows...
to
ensure
that
the
assets
of
public
pension
systems
are
used
exclusively
for
the
purpose
of
efficiently
and
promptly
providing
benefits
and
services
to
participants
of
these
systems,
and
not
for
other
purposes
...
to
give
the
sole
and
exclusive
power
over
the
management
and
investment
of
public
pension
funds
to
the
retirement
boards
elected
or
appointed
for
that
purpose,
to
strictly
limit
the
Legislature's
power
over
funds,
and
to
prohibit
the
Governor
or
any
executive
or
legislative
body
of
any
political
subdivision
of
the
state
from
tampering
with
public
pension
funds.
Page
141
of
294
4.4‐3
Conflict
of
Interest
These
are
strong
words,
and
they
contain
several
important
points.
First,
they
show
a
general
public
awareness
of
the
temptation
that
retirement
funds
represent
and
the
potential
that
exists
for
misappropriating
and
diverting
these
funds
to
inappropriate
uses,
especially
in
times
of
financial
crisis.
Second,
they
show
that
the
public
expects
boards
of
retirement
to
zealously
protect
the
retirement
assets
and
to
stand
firm
against
political
pressure
to
use
retirement
funds
for
purposes
other
than
providing
retirement
benefits.
Finally,
they
show
that
the
public
is
concerned
about
abuses
of
retirement
assets,
which
means
that
increased
scrutiny
is
likely
to
be
focusing
on
retirement
boards
and
individual
board
members
by
the
Attorney
General's
office,
by
the
IRS,
and
by
members
of
the
press.
The
rules
governing
fiduciary
obligations
and
conflicts
of
interest
of
boards
of
retirement
are
contained
in
the
California
Constitution,
the
California
Government
Code
and,
to
a
lesser
extent,
in
the
Internal
Revenue
Code
and
ERISA.
Page
142
of
294
4.4‐4
Conflict
of
Interest
Proposition
162
added
a
number
of
provisions
to
the
California
Constitution
which
are
designed
to
strengthen
the
position
of
boards
of
retirement
vis‐a‐vis state
and
local
government,
and
the
Constitution
now
contains
a
broad
range
of
provisions
dealing
with
county
and
other
public
retirement
boards.
These
provisions
supersede
all
other
state
laws.
They
give
each
board
exclusive
fiduciary
responsibility
over
its
retirement
assets,
require
the
board
to
administer
the
pension
system
"in
a
manner
that
will
assure
prompt
delivery
of
benefits
and
related
services
to
the
participants
and
their
beneficiaries"
and
require
the
board
to
ensure
that
assets
are
held
exclusively
for
the
purpose
of
providing
retirement
benefits
and
defraying
reasonable
expenses
of
administration.
The
Constitution
also
requires
board
members
to
discharge
their
duties
solely
in
the
interest
of
and
for
the
exclusive
purpose
of
(i)
Providing
Retirement
Benefits,
(ii)
Minimizing
employer
contributions,
and
(iii) Defraying
reasonable
administrative
expenses
of
the
retirement
system,
but
the
duty
to
participants
and
beneficiaries
takes
precedence
over
all
other
duties.
Board
members
must
act
with
the
care,
skill,
prudence,
and
diligence
of
a
prudent
person
who
is
familiar
with
the
administration
of
a
retirement
system.
Finally,
the
Constitution
makes
it
clear
that
only
the
retirement
board
has
the
authority
to
provide
for
actuarial
services
in
order
to
determine
whether
the
retirement
system
is
overfunded
or
underfunded.
This
prevents,
for
example,
a
local
government
from
interfering
in
the
actuarial
assumptions
that
the
retirement
board
uses
in
order
to
lower
its
obligation
to
the
retirement
system.
Page
143
of
294
4.4‐5
Conflict
of
Interest
The
provisions
of
the
Constitution
are
supplemented
by
provisions
in
the
California
Government
Code
which
also
provide
for
penalties
if
the
rules
are
broken.
The
Government
Code
contains
detailed
provisions
governing
conflicts
of
interest
of
board
members.
These
provisions
prohibit
board
members
from
being
financially
interested
in
any
contract
that
they
make
in
an
official
capacity,
from
engaging
in
any
activity
for
compensation
that
is
in
conflict
with
board
duties,
and
from
using
their
positions
to
influence
a
decision
in
which
they
have
a
financial
or
personal
interest.
The
Internal
Revenue
Code
("Code")
is
relevant
also,
because
many
county
retirement
systems
derive
their
tax‐exempt
status
from
Code
section
401(a).
As
a
condition
to
receiving
this
tax‐exempt
status,
the
Code
imposes
a
number
of
conditions,
including
a
requirement
that
the
retirement
systems
must
use
their
assets
for
the
"exclusive
benefit"
of
the
retirement
plan
beneficiaries.
Over
the
years
this
exclusive
benefit
rule
has
been
interpreted
and
extended
by
the
Internal
Revenue
Service
("IRS")
to
require
retirement
plan
fiduciaries
to
consider
only
the
financial
interests
of
plan
beneficiaries
in
discharging
their
fiduciary
duties
(as
opposed
to
any
other
nonfinancial
considerations
which
might
nonetheless
benefit
the
beneficiaries,
such
as
investing
in
certain
projects
that
are
designed
to
improve
the
quality
of
life
of
citizens
in
general
within
a
county).
Page
144
of
294
4.4‐6
Conflict
of
Interest
The
IRS
has
also
in
some
cases
interpreted
the
exclusive
benefit
rule
in
light
of
the
precedents
that
have
been
developed
under
the
Employee
Retirement
Income
Security
Act
of
1974
(‐ERISA‐).
ERISA
is
the
primary
statute
governing
private
pension
plans,
and
contains
detailed
rules
about
fiduciary
duties,
obligations
and
conflicts
of
interest.
A
great
deal
of
case
law
has
built
up
around
ERISA,
and
as
a
result
ERISA
often
provides
precedents
where
they
are
lacking
in
other
areas
of
trust
and
fiduciary
law.
Accordingly,
the
IRS
in
interpreting
the
exclusive
benefit
rule
has
incorporated
some
of
the
developments
of
case
law
and
rulings
under
ERISA.
This
phenomenon
of
"creeping
ERISA"
makes
it
necessary
to
sometimes
consult
ERISA's
rules
even
when
ERISA
is
not
directly
applicable.
Thus,
even
in
the
case
of
a
county
retirement
system
which
is
not
subject
to
ERISA,
ERISA
can
provide
guidance
which
is
sometimes
indirectly
applicable
and
often
useful.
Page
145
of
294
4.4‐7
Conflict
of
Interest
The
most
common
situations
where
conflicts
of
interest
arise
and
where
the
rules
of
fiduciary
conduct
are
likely
to
be
broken
by
county
retirement
boards
are
as
follows:
1:
Service
Providers
Selecting
and
retaining
service
providers,
such
as
investment
managers,
consultants,
legal
advisors
and
others,
raises
issues
of
prudence
and
loyalty.
For
example,
board
members
must
act
prudently
in
selecting
service
providers
who
are
best
able
to
serve
the
retirement
system,
and
must
act
in
the
best
interests
of
the
retirement
system
by
selecting
providers
based
on
their
performance
rather
than
any
personal
or
financial
connection
that
the
board
members
have
with
the
service
providers.
Thus,
selecting
a
service
provider
because
he
or
she
is
a
friend
or
because
he
or
she
is
providing
financial
benefit
to
a
board
member
would
be
a
violation
of
the
board
members'
fiduciary
duties.
Page
146
of
294
4.4‐8
Conflict
of
Interest
2:
Social
Investing
and
Economically
Targeted
Investments
("ETIs")
Selecting
investments
based
on
their
social
benefit
or
based
on
criteria
other
than
purely
financial
concerns,
raises
issues
of
prudence,
duty
of
loyalty
and
diversification.
Board
members
must
be
sure
that
the
primary
purpose
for
selecting
an
investment
is
its
ability
to
perform
financially.
Boards
must
also
be
sure
that
investments
are
not
too
concentrated
in
one
geographic
area,
so
that
the
retirement
system
diversifies
its
financial
risk.
In
some
cases,
however,
economically
targeted
investments
can
work
if
the
primary
financial
and
diversification
concerns
are
satisfied.
Many
boards
are
either
in
the
process
of
developing
or
have
already
adopted
ETI
guidelines
governing
when
an
ETI
will
be
deemed
an
acceptable
investment.
Page
147
of
294
4.4‐9
Conflict
of
Interest
3.
Board
Members
with
Dual
Responsibilities
Serving
in
dual
roles
raises
issues
of
conflicts
of
interest
and
incompatibility
of
office
under
the
Government
Code.
Board
members
who
serve
in
dual
roles,
for
example
as
both
board
members
and
county
officials,
must
be
careful
to
separate
their
duties
to
the
retirement
system
and
their
duties
to
their
other
employer.
While
acting
as
board
members,
the
members
must
act
in
the
best
interests
of
the
retirement
system
notwithstanding
their
duties
to
the
county
or
other
employer.
If
the
duties
toward
the
other
employer
conflict
with
board
duties,
board
members
must
consider
abstaining
on
votes
when
conflicts
of
interest
arise.
Page
148
of
294
4.4‐10
Conflict
of
Interest
4.
Campaign
Contributions
Board
members
in
political
office
who
solicit
campaign
contributions
for
their
own
political
campaigns
from
service
providers
to
the
retirement
system
raise
duty
of
loyalty
in
conflict
of
interest
issues.
Soliciting
campaign
contributions
not
only
raises
the
appearance
of
impropriety,
but
it
can
create
a
conflict
of
interest
in
that
if
a
service
provider
complies
with
the
request,
board
members'
judgment
in
deciding
whether
to
retain
the
service
provider
could
become
biased.
Also,
the
service
provider
may
believe
that
providing
campaign
contributions
is
a
substitute
for
doing
the
best
job
that
he
or
she
can
for
the
retirement
system.
Page
149
of
294
4.4‐11
Conflict
of
Interest
5.
Board
Member
Expenses
Excessive
board
member
expenses
raise
issues
of
duty
of
loyalty,
and
conflict
with
the
duty
to
minimize
employer
contributions
to
the
retirement
system
and
to
defray
reasonable
expenses.
Page
150
of
294
4.4‐12
Conflict
of
Interest
6.
Actuarial
Assumptions
or
Funding
Methods
Under
the
California
Constitution,
board
members
have
sole
responsibility
for
providing
for
actuarial
services
for
the
retirement
system.
There
is
often
political
pressure
to
use
actuarial
assumptions
that
reduce
the
county's
obligation
to
pay
into
the
retirement
system.
Board
members
should
exercise
care,
since
their
primary
duty
is
to
ensure
that
the
retirement
system
is
adequately
funded
to
provide
benefits
for
the
participants.
Again,
issues
of
prudence
and
duty
of
loyalty
are
at
stake.
Page
151
of
294
4.4‐13
Conflict
of
Interest
7.
Pension
Obligation
Bonds
When
counties
decide
to
make
up
pension
underfunding
through
the
issuance
of
pension
obligation
bonds,
there
is
often
pressure
on
the
board
to
freeze
its
actuarial
assumptions
or
otherwise
make
commitments
to
ease
the
bond
underwriting.
Again,
duty
of
loyalty
and
prudence
require
the
board
to
put
the
retirement
system's
interests
first,
and
not
commit
to
policies
that
could
impair
the
adequacy
of
the
retirement
system
assets.
Page
152
of
294
4.4‐14
Conflict
of
Interest
8.
Loans
and
Investments
for
the
Benefit
of
the
County
Prudence
and
the
duty
of
loyalty
require
any
proposed
loans
to
the
county
or
investments
that
benefit
the
county
to
be
evaluated
on
the
same
basis
as
other
investments,
despite
any
pressures
to
give
favorable
treatment
to
the
county.
Page
153
of
294
4.4‐15
Conflict
of
Interest
9.
Spiking
The
temptation
for
board
members
to
use
their
superior
understanding
of
the
retirement
system
to
manipulate
their
compensation
in
the
final
years
of
employment
so
that
they
receive
a
higher
pension
raises
issues
of
duty
of
loyalty,
and
also
creates
the
appearance
of
impropriety
which
should
be
avoided.
The
risks
involved
in
violating
the
fiduciary
obligations
imposed
on
board
members
range
from
the
loss
of
tax‐exempt
status
for
the
entire
retirement
system,
which
could
have
catastrophic
financial
consequences,
to
removal
of
board
members
by
action
of
the
Attorney
General.
Extreme
violations
could
even
result
in
criminal
sanctions.
Finally,
board
members
should
bear
in
mind
that
even
borderline
or
"grey
area"
activities
can
result
in
extremely
damaging
negative
publicity.
Page
154
of
294
4.5‐1
Your
Constituents
A
Constituent
is
a
person
or
group
of
interest
you
represent
in
your
role
as
a
plan
trustee.
Although
you
should
certainly
listen
closely
to
your
specific
constituents,
you
should
also
be
aware
of
the
concerns
of
others
with
interests
in
the
plan.
RETIREES ACTIVE EMPLOYERS Page
155
of
294
MEDIA 4.5‐2
Your
Constituents
Active
Workers
Pension
Plans
typically
administer
benefits
for
several
classes
of
workers
employed
by
the
plan
sponsor.
All
active
employees
have
the
same
question
when
it
comes
to
their
retirement
plan:
Will
it
provide
me
with
an
adequate
income
that
I
can
count
on
when
I
retire,
at
a
price
I
can
afford
to
pay
today?
Because
benefit
formulas
and
employee
contribution
rates
tend
to
be
fixed,
they
are
unlikely
to
be
active
employees’
most
pressing
concern
when
it
comes
to
retirement
benefits.
Instead,
other
benefit
changes
are
probably
going
to
be
of
more
interest,
and
these
are
also
where
you
as
a
trustee
may
have
a
role
to
play.
For
instance,
the
plan’s
retirement
ages
will
always
be
of
great
interest
to
active
workers.
Changes
in
these
ages
are
increasingly
the
focus
of
attention
as
labor
markets
continue
to
change.
Other
issues
affecting
retirement
benefits
that
are
typically
of
great
interest
to
active
employees
include
changes
to
the
average
salary
component
of
the
benefit
formula.
Also,
any
considerable
modifications
in
the
overall
benefits
delivery
system
will
spark
interest
from
active
workers.
Page
156
of
294
4.5‐3
Your
Constituents
Retirees
Retirees
and
the
organizations
that
represent
them
may
be
the
constituency
you
hear
from
the
most.
This
is
predictable
because
retirees
are
already
receiving
pension
payments.
They
are
keenly
aware
of
their
pension
benefits
because
they
receive
them
every
month.
Retirees
also
tend
to
have
more
time
to
become
involved
in
matters
involving
their
pension
benefits
and
retiree
health
care
benefits,
when
those
are
offered.
Remember,
because
retirees
are
on
a
fixed
income,
any
change
in
their
monthly
income
and/or
expenses
can
be
painful.
Retirees
will
be
particularly
interested
in
your
staff
and
its
ability
to
get
retirement
benefits
processed
in
an
accurate
and
timely
manner.
Your
plan’s
publications
should
be
easy
for
retirees
to
understand,
particularly
the
materials
about
benefits.
The
nature
of
your
educational
programs
will
also
be
of
concern
to
them.
Retirees
will
also
be
interested
in
your
investments
and
their
performance
levels
because
over
two‐thirds
of
all
public
retiree
benefit
payments
on
average
come
from
investment
returns.
Page
157
of
294
4.5‐4
Your
Constituents
Employers
Although
the
focus
of
active
and
retired
plan
participants
is
on
benefits,
one
of
the
employers’
chief
interests
is
likely
to
be
the
contribution
rate
to
the
plan.
In
other
words,
how
much
is
it
and
how
much
does
it
vary
from
year
to
year?
In
a
DB
plan,
the
employer
contributions,
when
combined
with
employee
contributions
and
investment
earnings,
are
insufficient
to
pay
future
retirement
benefits,
there
will
be
a
shortfall.
The
technical
term
for
a
shortfall
is
unfunded
liability,
something
the
employer
must
address.
A
shortfall
can
lead
to
an
increase
in
the
overall
employer
contribution
rate,
which
makes
employers
unhappy.
When
dealing
with
the
employer
as
a
constituent,
remember
that,
although
the
employer
may
be
the
plan’s
sponsor,
the
plan
itself,
and
the
decisions
that
you
must
make
as
a
trustee
of
the
plan,
must
always
be
directed
exclusively
for
the
benefit
of
the
plan’s
participants.
Page
158
of
294
4.5‐5
Your
Constituents
The
Media
The
media
come
in
many
shapes
and
sizes.
Pension
plans
often
find
themselves
a
topic
of
comment
in
all
of
these
venues.
There
is
one
important
policy
issue
to
address
when
it
comes
to
media
relations
and
that
every
new
trustee
should
learn:
Who
among
plan
officials
is
allowed
to
talk
with
reporter?
Who
is
prohibited
from
talking
to
reporters?
Experienced
trustees
have
mixed
views
of
the
press.
Although
the
media
can
be
helpful
in
setting
the
record
straight
when
plan’s
critics
are
propagating
misinformation,
reporters
can
ask
uninformed
questions
about
things
over
which
you
have
no
control.
However,
the
press
often
provides
the
primary
means
by
which
your
pension
plan
is
viewed
and
judged
by
the
public.
The
press
is
also
one
of
the
chief
sources
of
information
about
your
plan
for
your
constituents.
Page
159
of
294
4.6‐1
Prudent
Expert
TEN
RESOLVES
FOR
THE
PRUDENT
FIDUCIARY
In
order
to
maximize
the
potential
for
our
plan
to
achieve
investment
success,
I
will
do
the
following:
1
Identify
the
most
appropriate
planning
horizon
when
constructing
the
investment
portfolio
for
our
plan
2
Recognize
that
managing
the
risk
of
the
portfolio
is
more
effectively
achieved
by
property
structuring
the
investments
instead
of
continually
hiring
and
firing
managers
3
Adequately
diversify
the
portfolio
in
recognition
of
the
new
globally
integrated
economic
environment
4
Resist
the
temptation
to
make
decisions
that
will
have
an
impact
on
future
return
predicated
upon
the
returns
most
recently
achieved
by
the
asset
classes
5
Decide
what
is
best
for
our
portfolio
rather
than
being
influenced
by
the
actions
others
are
taking
as
they
supervise
their
portfolios
6
Recognize
that
to
invest
in
long
bonds,
stocks
and
equity
real
estate
requires
successfully
enduring
the
bear
markets
as
well
as
the
bull
markets
7
Adopt
policies
in
the
long‐term
best
interest
of
the
portfolio
in
the
aggregate
rather
than
by
being
unduly
influenced
by
any
one
portfolio
component
8
Increase
my
understanding
of
the
historical
risk/reward
tradeoffs
in
order
that
our
fund
may
benefit
from
an
insightful
exploitation
of
risk
9
Recognize
the
importance
of
the
income
component
of
long
term
total
return
10
Preserve
objectivity
in
the
process
of
making
decisions
about
investments
Page
160
of
294
5. Retirement Benefits Administration Page
161
of
294
5.1‐1
General
Information
Generally
speaking,
membership
is
mandatory
for
all
permanent
employees
for
all
the
CERL
systems.
Not
all
systems
include
permanent
part‐time
employees
in
retirement
system
membership,
and
the
retirement
board
in
its
regulations
may
exclude
temporary,
seasonal
and
intermittent
employees
from
its
membership.
Systems
established
pursuant
to
the
CERL
(with
the
noted
exception
of
LACERA’s
General
Plan
F
and
Safety
Plan
F),
offer
defined
benefit
plans.
Under
a
defined
benefit
plan,
the
sponsoring
governmental
entity
undertakes
to
provide
a
stipulated
set
of
benefits,
as
articulated
in
a
benefit
formula,
to
employees
who
meet
certain
age
and
service
requirements.
Page
162
of
294
5.1‐2
General
Information
Benefits
provided
include:
service
retirement,
non
service‐connected
disability
retirement
and
service‐connected
disability
retirement;
active
and
retired
member
death
and
survivor’s
benefits;
and
funded
and/or
ad
hoc
cost‐of‐living
adjustments.
Benefits
provided
are
expressed
as
a
percentage
of
the
employee’s
final
compensation
during
a
one‐year
or
three‐year
consecutive
period
in
which
earnings
were
at
their
highest.
This
is
described
as
a
final
average
salary
formula.
The
period
length
is
made
part
of
the
plan
provisions
and
is
set
by
resolution
of
the
board
of
supervisors.
Some
systems
under
the
CERL
are
integrated
with
Social
Security.
The
combination
provides
not
only
a
retirement
allowance
from
the
county
retirement
system,
but
also
Social
Security
benefits
upon
meeting
certain
criteria
and
minimum
quarters
of
coverage.
The
combination
of
retirement
incomes
from
both
systems
is
designed
to
provide
a
replacement
percentage
of
pre‐retirement
income.
Page
163
of
294
5.2‐1
Service
Retirement
Benefits
Overall
Benefit
Level
Service
retirement
formulas
are
commonly
referred
to
according
to
the
section
in
CERL
in
which
they
are
described.
E.g.
Sections
31676.1;
31676.11;
31676.12;
31676.13;
31676.14;
31676.15,
or
formulas
pertaining
to
the
sections
such
as
“2%
at
55”;
for
general
members.
Safety
sections
are
31664;
31664.1;
31664.2,
or
formulas
pertaining
to
the
sections
such
as
“3%
at
50”.
Percentages
are
based
on
age
at
retirement
and
increase
with
each
quarter
of
a
year
up
to
a
maximum
benefit
level.
It
happens
that
for
the
general
member
formulas,
the
higher
the
decimal
number
of
the
code
section,
the
higher
the
overall
percentage
of
final
compensation
payable
per
quarter
year
of
service
retirement.
Maximum
Benefit
Level
Percentages
of
final
compensation
provided
within
each
benefit
formula
are
higher
at
increments
of
quarter‐years
of
age
requirement,
until
reaching
an
age
at
which
the
percentage
is
maximized
(age
62
or
65
for
general
members;
age
50
or
55
for
safety
members).
Page
164
of
294
5.2‐2
Service
Retirement
Benefits
Each
county
retirement
system
adopts
the
benefit
formula(s)
approved
by
the
board
of
supervisors.
That
formula
remains
in
effect
for
new
members
until
another
benefit
formula
is
adopted.
The
terms
of
a
retirement
plan
cannot
be
changed
with
respect
to
present
members
unless
the
change
is
necessary
to
protect
the
integrity
of
the
system
or
is
accompanied
by
comparable
new
advantages
to
the
members.
The
boards
of
supervisors
of
most
counties
have
adopted
at
least
two
or
three
formulas
for
their
existing
general
memberships.
Refer
to
your
plan
documents,
such
as
the
CAFR,
or
consult
with
your
Executive
Director
for
the
benefit
formulas
adopted
by
your
system.
Page
165
of
294
5.3‐1
Disability
Retirement
Benefits
One
purpose
of
the
CERL
is
to
recognize
a
public
obligation
to
employees
who
become
incapacitated
and
are
no
longer
able
to
work
due
to
advanced
age
or
longevity
of
service;
and
to
provide
a
means
by
which
public
employees
who
become
incapacitated
may
be
replaced
without
prejudice
and
without
inflicting
a
hardship
upon
the
employees
removed
from
service.
To
promote
this
objective,
the
CERL
provides
for
disability
retirement
when
either
general
or
safety
employees
are
permanently
incapacitated
by
injury
or
disease.
There
are
two
kinds
of
disability
retirement:
1)
nonservice‐connected
disability,
and
2)
service‐connected
disability.
(Article
10.
Disability
Retirement,
Sections
31720‐31683)
Page
166
of
294
5.3‐2
Disability
Retirement
Benefits
Eligibility
for
disability
benefits
is
usually
first
determined
by
your
staff.
However,
plan
participants
typically
have
access
to
an
appeal
process
that
may
ultimately
put
disability
decisions
before
you
and
the
other
trustees.
For
trustees,
reaching
fair
and
equitable
decisions
in
such
cases
can
be
difficult.
The
manner
in
which
these
cases
is
handled,
who
presents
information
about
them,
in
what
setting,
and
the
privacy
issues
surrounding
medical
records,
are
just
a
few
of
the
challenges
that
may
confront
you
as
a
trustee.
Disability
benefit
issues
often
require
more
of
your
attention
than
you
think.
Familiarize
yourself
with
your
plan’s
disability
standards
and
formal
process.
Page
167
of
294
5.3‐3
Disability
Retirement
Benefits
Service‐Connected
Disability
There
is
no
age
or
service
requirement
for
service‐connected
disability
retirement.
A
member
must
prove,
with
a
preponderance
of
the
evidence,
that
he/she
has
a
permanent
disability
that
renders
him/her
incapable
of
performing
the
substantial
portion
of
his/her
duties
as
listed
in
the
position
class
specification
for
which
he/she
was
employed
and
that
the
disability
is
a
result
of
injury
or
disease
arising
out
of
and
in
the
course
of
the
member’s
employment
and
that
such
employment
contributed
substantially
to
such
incapacity.
Generally,
the
service‐connected
disability
monthly
allowance
amount
is
equal
to
one‐half
of
the
member’s
average
final
compensation.
However,
if
a
member’s
allowance
would
have
been
higher
had
they
retired
for
regular
service,
the
benefit
will
be
equal
to
the
service
retirement
allowance.
The
retirement
systems
may
consider
up
to
one‐half
of
final
compensation
as
non‐taxable
income
as
the
benefit
is
based
on
the
same
nature
as
a
workmen’s
compensation
benefit.
Page
168
of
294
5.3‐4
Disability
Retirement
Benefits
Nonservice‐Connected
Disability
Pursuant
to
section
31727,
the
normal
benefit
for
general
members
is
the
product
of
1.5
percent
of
final
compensation
multiplied
by
the
number
of
years
of
credit
service,
if
the
product
is
equal
to
or
greater
than
one‐third
of
final
compensation.
If
the
product
is
less
than
one‐third
of
final
compensation,
the
normal
benefit
is
the
product
of
1.5
percent
of
final
compensation
multiplied
by
the
number
of
years
which
would
be
creditable
to
the
member
were
his/her
service
to
continue
until
attainment
of
age
65,
but
in
such
case
the
allowance
may
not
exceed
one‐third
of
final
compensation.
For
safety
members,
the
1.5
percent
referred
to
above
is
1.8
percent,
and
the
age
is
55
instead
is
65.
For
section
31727.7,
the
normal
benefit
is
in
accordance
with
a
graduated
scale
corresponding
to
the
number
of
years
of
credited
service.
Page
169
of
294
5.4‐1
Cost‐of‐Living
Provisions
Various
post‐retirement
adjustments
are
provided
under
the
CERL.
In
general,
these
provide
for
an
annual
adjustment
in
retirement
allowance
for
retired
members
and
future
retired
members
and
beneficiaries,
equal
to
the
change
in
the
Consumer
Price
Index
(CPI).
These
changes
may
not
exceed
a
fixed
percentage
established
by
the
county
board
of
supervisors
for
the
area
in
which
the
county
seat
is
situated.
If
the
index
is
in
excess
of
this
fixed
percentage,
the
excess
is
accumulated
and
applied
to
future
adjustments.
Under
no
circumstances
may
the
allowance
be
reduced
below
that
initially
paid
to
the
retiree
on
the
effective
day
of
retirement.
(Article
16.5
Cost‐of
Living
Adjustment,
sections
31870‐31874.6;
Article
16.6,
section
31681.8
Cost‐of‐Living
Payments;
adoption
of
section;
section
31739.5
Cost‐of
Living
payments;
applicability
of
provisions)
Page
170
of
294
5.5‐1
Survivor’s
Benefits
Upon
the
death
of
a
member
while
an
active
employee
or
as
a
retiree,
certain
benefits
may
become
payable
to
a
surviving
spouse
or
minor
children
or
to
whomever
may
be
designated
beneficiary.
These
benefits
may
be
in
the
form
of
a
lump
sum
payment
or
continuing
periodic
payment
or
both.
Lifetime
continuing
payments
are
calculated
as
a
percentage
of
the
member’s
final
compensation.
Page
171
of
294
5.6‐1
Reciprocity
Reciprocal
retirement
benefits
are
provided
to
members
who
are
entitled
to
retirement
rights
and
benefits
from
two
or
more
retirement
systems
established
pursuant
to
the
CERL
and
the
Public
Employees’
Retirement
System.
This
is
to
encourage
career
public
service.
Essentially,
reciprocity
allows
members
portability
and
enables
them
to
preserve
and
enhance
their
total
system
benefits.
Generally,
the
member’s
contribution
rate
will
be
based
on
the
age
of
entry
into
the
first
system,
thereby
giving
the
member
a
rate
advantage.
The
service
credit
earned
in
one
system
may
be
used
to
meet
the
minimum
requirements
for
vesting
and/or
retirement
eligibility
in
another
system.
And,
the
highest
final
compensation
will
be
used
by
both
systems
to
compute
the
benefit
allowance.
Refer
to
your
system’s
Member
Handbook,
web‐site,
and/or
other
appropriate
documentation
for
more
information
on
all
areas
of
benefits.
Page
172
of
294
6. Advisory Relationships
Page
173
of
294
6.1‐1
Advisory
Relationships
There
are
number
of
key
individuals
that
are
available
to
assist
Pension
Trustees
as
they
perform
their
fiduciary
responsibilities.
This
section
will
present
each
one
and
a
description
of
what
you
should
expect
from
each
one
of
them.
Page
174
of
294
6.2‐1
Actuary
An
actuary
is
a
person
trained
in
mathematics,
statistics
and
legal
accounting
methods
who
uses
knowledge
of
the
demographics
and
economics
to
help
defined
benefit
pension
plans
determine
how
much
needs
to
be
contributed
each
year
for
a
plan
to
provide
all
the
promised
retirement
benefits
to
current
employees,
retirees
and
their
beneficiaries.
The
Actuary
employs
life
expectancy
table
projections,
financial
projections
and
related
data
of
the
pension
plan
to
predict
funding.
The
actuary
must
figure
what
level
of
contributions
the
employee
and/or
the
employer
must
make
when
combined
with
expected
investment
income,
to
provide
adequate
funding
to
meet
the
plan’s
benefits
over
the
long
term.
Page
175
of
294
6.2.1‐1
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
SOURCE: “Role of the Actuary” by Drew James, FSA INTRODUCTION
The
actuary
has
traditionally
held
a
somewhat
mysterious
role.
He
or
she
gathers
financial
and
census
data,
then
goes
off
to
stir
it
into
a
concoction
of
magic
formulas
and
strange
assumptions
to
produce
a
prediction
of
the
future.
Actually,
this
shroud
of
mystery
generally
comes
not
so
much
from
the
process
the
actuary
follows,
but
his
or
her
inability
to
communicate
it.
This
paper
is
another
attempt
to
lift
the
mysterious
shroud
and
expose
the
pension
actuary's
methods
to
the
light
of
day.
Page
176
of
294
6.2.1‐2
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
RESPONSIBILITY
OF
THE
ACTUARY
A
retirement
system
is
a
long‐term
proposition.
It
contains
promises
that
extend
many
decades
into
the
future.
A
trustee
of
the
system
(or
a
member,
or
the
employer
sponsor)
needs
to
be
sure
that
someone
understands
what
this
promise
will
cost
and
how
to
structure
a
solid
financial
plan
to
pay
for
it.
As
we
watch
the
ebbs
and
flows
of
government
finance,
it
doesn't
take
long
to
realize
that
we
cannot
risk
waiting
until
these
promises
become
due
before
seeking
out
the
money
we'll
need
to
pay
for
them.
The actuary's primary responsibility is to structure such a
financial plan and to monitor its performance. The
actuary
cannot
do
this
in
a
vacuum.
The
board
of
trustees
carries
the
ultimate
fiduciary
responsibility
to
ensure
that
the
financial
plan
is
sound
and
that
it
succeeds
in
practice.
The
actuary
must
effectively
communicate
the
financial
plan
to
the
trustees
and
support
a
strong
understanding
of
how
their
decisions
may
impact
its
operation.
This
financial
plan
is
more
commonly
referred
to
as
an actuarial funding method. Page
177
of
294
6.2.1‐3
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
STRUCTURING
THE
ACTUARIAL
FUNDING
METHOD
In
order
to
structure
the
actuarial
funding
method,
the
actuary
needs
a
way
to
calculate
long
term
costs.
A
simplified
pension
plan
example
may
help
to
illustrate
why.
Let's
assume
we
have
a
group
of
100
thirty‐year‐old
employees
for
whom
we
want
to
make
a
future
"pension"
promise.
Suppose
we
will
give
each
employee
a
one‐time
check
for
$1,000
when
(and
if)
they
live
to
age
65.
We
have
some
choices.
We
can
either:
1.
Wait
35
years
and
seek
out
the
money
we'll
need
at
that
time;
or
2.
Put
a
little
away
each
year
so
that
we
will
have
accumulated
enough
to
payoff
these
people
by
the
end
of
35
years
The
first
choice
is
risky.
Who
knows
what
one's
financial
situation
will
be
in
35
years?
We
could
find
ourselves
with
an
immediate
debt
of
as
much
as
$100,000
without
the
means
to
pay.
Let's
assume
we
take
the
second
choice
‐
to
pay
off
the
debt
a
little
each
year,
using
what
amounts
to
an
actuarial
funding
method!
Page
178
of
294
6.2.1‐4
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
In
order
to
implement
our
actuarial
funding
method,
we
need
to
answer
two
questions:
Question
#1
How
much
money
will
we
ultimately
need
to
payoff
this
promise
‐
that
is,
how
many
of
the
100
will
live
to
age
65?
Question
#2
What
can
we
earn
on
the
money
we
put
away
(i.e.,
invest)
each
year?
According
to
our
actuarial
tables,
we
expect
94
of
these
people
will
be
alive
at
age
65.
This
means
we
can
expect
to
ultimately
pay
$94,000
in
pensions.
Let's
say
our
actuary
tells
us
that
according
to
our
investment
plan,
we
can
expect
to
earn
8%
per
year
on
average
over
the
35‐year
period.
All
we
need
is
an
amortization
table
to
tell
us
that,
if
we
invest
$546
at
the
end
of
each
of
the
next
35
years
and
earn
8%
per
year
on
our
investment,
we
will
have
accumulated
$94,085
by
the
end
of
35
years.
Now,
$546
per
year
is
much
easier
to
budget
for
than
$94,000
at
one
time.
Our
actuary
tells
us
that
the
$546
contribution
is
called
our
normal cost. We
now
have
a
solid
financial
plan
to
meet
our
promise.
Page
179
of
294
6.2.1‐5
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
MONITORING
THE
PERFORMANCE
OF
ACTUARIAL
FUNDING
Suppose
our
plan
has
been
in
place
for
15
years
and
we
have
diligently
put
away
$546,
each
year.
There
are
now
99
people
left
from
our
original
group
(which
our
actuary
tells
us
is
what
we
expected).
But,
we
discover
that,
to
date,
our
pension
fund
(which
now
totals
$13,720)
has
only
earned
7%
rather
than
our
expected
8%.
Nonetheless,
our
actuary
tells
us
that
we
can
still
expect
an
8%
investment
return
in
the
future.
If
we
would
have
earned
8%
over
the
last
15
years,
we
would
have
accumulated
$14,825.
Our
actuary
tells
us
that
this
$14,825
"target
assets"
is
called
our
actuarial accrued liability. Our
actuary
reports
to
us
that
"the
funding
ratio
is
92.5%
($13,720
divided
by
$14,825)
and
we
have
an
unfunded actuarial accrued liability of
$1,105
($14,825
‐
$13,720)."
As
a
result,
we
need
to
make
additional
contributions
to
avoid
a
funding
shortfall.
Here's
why.
If
over
the
next
20
years
we
earn
8%
on
investments,
our
fund
of
$13,720
will
grow
to
$63,948
and
our
annual
$546
normal
cost
contributions
will
accumulate
to
$24,986,
leaving
us
a
shortfall
of
$5,066
($94.000
‐
$24,986
‐
$63,948).
Our
actuary
says
that
we
must
make
$111
annual
contributions to the unfunded actuarial accrued liability, which will
accumulate
to
$5,080
by
the
end
of
our
remaining
20
year
funding
period
and
payoff
our
unfunded
liability.
Our
total
future
contribution
is
now
$657
($546
+
$111)
per
year.
Page
180
of
294
6.2.1‐6
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
Note
that
other
events
could
also
have
led
to
an
unfunded
actuarial
accrued
liability
and
an
increase
in
our
required
annual
contributions,
such
as:
•
Discovering
that
after
15
years
all
100
of
our
original
people
were
still
alive,
upping
our
expected
payout
to
$95,000;
or
•
Granting
an
increase
in
the
$1,000
benefit
to
$1,100.
This
would
increase
our
original
expected
payout
to
$103,400.
We
rely
on
our
actuary's
communication
skills
to
help
us
understand
the
causes
of
this
$5,066
actuarial loss
and
why
our
contribution
needs
to
increase
by
$111.
Once
he
or
she
explains
this
to
us,
we
understand
the
importance
of
having
our
actuary
come
in
each
year
to
do
an
actuarial valuation, to
report
on
our
funding
progress
and
to
recommend
''fine
tuning"
adjustments
to
the
annual
contributions
that
will
keep
our
funding
on
track.
Page
181
of
294
6.2.1‐7
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
ENTER
THE
COMPLICATIONS
Over
the
years
our
simplified
pension
plan
grows
more
complex:
•
Our
group
is
comprised
of
many
thousands
of
employees
and
retirees
at
varying
ages
•
Employees
also
contribute
to
the
plan
•
Pension
benefits
are
paid
monthly
and
are
based
upon
an
employee's
salary
and
years
of
employment
•
The
benefits,
once
payable,
will
increase
annually
with
cost
of
living
•
The
benefits
are
optionally
available
at
retirement
ages
earlier
than
65
•
Death,
disability,
and
termination
benefits
are
added
Page
182
of
294
6.2.1‐8
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
Fortunately,
our
actuary
is
equipped
to
handle
each
new
layer
of
complexity
by
expanding
his
or
her
formulas
and
adding
new
assumptions.
Our
actuary
also
brings
us
a
range
of
acceptable
actuarial
funding
methods
that
allow
our
contributions
to
be
expressed
as
a
percentage
of
our
total
employees'
payroll
and
to
vary
how
we
pay
off
unfunded
actuarial
accrued
liabilities.
But
the
basic
actuarial
funding
process
remains
the
same:
1.
Calculate
the
funding
target
(e.g.,
the
$94,000
in
our
example);
2.
Determine
a
periodic
contribution
to
get
to
the
target
(e.g.,
our
$546
annual
normal
cost);
and
3.
Review
the
process
periodically
to
see
if
it
is
on
track
(calculate
the
funding
ratio,
the
unfunded
liability
and
any
required
changes
in
the
periodic
contribution).
Page
183
of
294
6.2.1‐9
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
FROM
ACTUARY
TO
ADVISOR
The
actuary's
expertise
should
serve
a
broader
role
than
merely
a
calculator.
His
or
her
training
allows
the
actuary
to
provide
trustees
valuable
insight
on
the
funding
and
general
financial
implications
of:
•
Benefit
modifications
•
Human
resource
actions,
such
as
layoffs
or
early
retirement
incentives
•
Alternative
financing
arrangements,
such
as
pension
obligation
bonds
•
Asset
allocation
decisions
•
Asset/liability
and
cash
flow
management;
and
•
Legal
compliance
issues
The
list
can
go
on
and
on
depending
upon
the
experience
of
the
actuary
and
his
or
her
span
of
professional
training.
Page
184
of
294
6.2.1‐10
Actuary:
The
Role
of
the
Actuary
(Drew
James,
FSA)
CONCLUSION
It
is
not
surprising
that
the
actuary
is
looked
upon
as
the
cornerstone
which
supports
the
financial
integrity
of
the
retirement
system.
His
or
her
judgment
will
be
critical
to
its
long‐term
financial
survival.
It
is
essential
that
the
trustees
obtain
a
high
level
of
confidence
in
the
actuary's
judgment
and
his
or
her
technical
and
technological
capabilities.
It
is
the
actuary's
responsibility
to
clearly
communicate
the
full
implications
of
the
funding
decisions
made
by
the
trustees,
and
to
serve
as
a
general
resource
on
any
matter
which
could
have
a
lasting
financial
impact
on
the
retirement
system.
Page
185
of
294
6.2.2‐1
Actuary:
Actuarially
Speaking
“Actuarially
Speaking”
by
Grant
Boyken
Section
6.2.2
is
written
by
Grant
Boyken
and
further
explains
the
important
role
of
the
Actuary
and
his
methods
and
responsibilities.
Please
click
on
the
picture
below
to
open
this
section.
Page
186
of
294
6.3‐1
Attorney
for
the
Board
Historically,
the
district
attorney
or
the
county
counsel
is
the
attorney
for
the
board.
In
recent
years,
the
boards
of
retirement
have
elected
to
secure
legal
services
of
an
attorney
in
private
practice
when
the
board
determines,
after
consultation
with
the
county
counsel,
that
county
counsel
cannot
provide
the
board
with
legal
services
due
to
a
conflict
of
interest
or
other
compelling
reason.
This
provision
notwithstanding,
the
board
may
employ
an
attorney
in
private
practice
in
carrying
out
its
investment
powers
and
duties.
It
is
not
unusual
for
boards
to
hire
specialized
attorneys
in
the
fields
of
disability,
fiduciary
counsel,
real
estate
and
hedge
fund
contracting.
Some
of
the
larger
systems
have
hired
attorneys
as
part
of
their
staff.
Page
187
of
294
6.4‐1
Auditor
By
definition
an
auditor
is
the
person
appointed
to
conduct
an
examination
of
the
records,
to
form
an
opinion
about
the
authenticity
and
correctness
of
such
records,
by
verifying
the
correctness
and
reliability
of
the
recorded
transactions
from
the
evidences
available,
opinion
and
inference
reachable
based
on
his
expertise.
Page
188
of
294
6.5‐1
Board
Medical
Advisor
The
county
health
officer
or
designee
advises
the
board
on
medical
matters.
The
board
may
also
secure
such
medical,
investigatory
and
other
service
and
advice
as
is
necessary
to
make
determinations
on
applications
for
disability
retirement
or
continuing
disability
of
members
previously
retired
for
disability.
Page
189
of
294
6.6‐1
Custodian
Bank
A
custodian
bank,
or
simply
custodian,
is
a
financial
institution
responsible
for
safeguarding
a
firm's
or
individual's
financial
assets.
The
role
of
a
custodian
in
such
a
case
would
be
the
following:
• to
hold
in
safekeeping
assets
such
as
equities
and
bonds,
• arrange
settlement
of
any
purchases
and
sales
of
such
securities,
• collect
information
on
and
income
from
such
assets
(dividends
in
the
case
of
equities
and
interest
in
the
case
of
bonds),
• provide
information
on
the
underlying
companies
and
their
annual
general
meetings,
• manage
cash
transactions,
• perform
foreign
exchange
transactions
where
required,
and
• provide
regular
reporting
on
all
their
activities
to
their
clients.
Page
190
of
294
6.6‐2
Custodian
Bank
Custodian
banks
are
often
referred
to
as
global
custodians
if
they
hold
assets
for
their
clients
in
multiple
jurisdictions
around
the
world,
using
their
own
local
branches
or
other
local
custodian
banks
in
each
market
to
hold
accounts
for
their
underlying
clients.
Assets
held
in
such
a
manner
are
typically
owned
by
pension
funds.
Page
191
of
294
6.7‐1
Hearing
Officer
Whenever,
in
order
to
make
a
determination
concerning
a
disability
retirement
application,
it
is
necessary
to
have
a
hearing,
the
board
may
appoint
either
one
of
its
members,
or
a
member
of
the
State
Bar
of
California,
to
serve
as
a
referee.
Upon
receiving
the
proposed
findings
of
fact
and
recommendations
of
the
referee,
the
board
has
several
options
which
may
include:
approve
and
adopt
the
proposed
findings
and
recommendations;
require
a
transcript
or
summary
of
all
testimony,
plus
all
other
evidence
considered
by
the
referee;
or
refer
the
matter
back
with
or
without
instructions;
or
set
the
matter
for
hearing
before
itself.
Page
192
of
294
6.8‐1
Investment
Consultant
An
Investment
Consultant
provides
investment
advice.
The
(independent)
investment
consultant
is
different
from
a
broker
or
broker
consultant
in
that
the
consultant
is
typically
paid
a
flat
fee,
an
hourly
fee
for
services,
or
–
less
frequently
–
a
percentage
of
the
assets,
while
a
broker
is
paid
on
transactions.
The
investment
consultant
differs
from
the
investment
manager
in
that
the
consultant
does
not
actually
invest
the
funds,
while
the
investment
manager
does.
The
consultant
can
be
an
individual
or
a
firm.
The
advice
provided
generally
includes
analysis
of
portfolio
constraints,
setting
performance
objectives,
counsel
for
asset
allocation,
and
services
to
evaluate,
select
and
monitor
investment
managers.
Most
plans
have
investment
consultants
who
are
part
of
the
client's
investment
strategy
for
a
long
period
of
time.
The
consultant
actively
monitors
the
client's
investments
and
continues
to
work
with
the
client
as
goals
change
over
time.
Page
193
of
294
6.8‐2
Investment
Consultant
Important
considerations
for
an
investment
consultant
include:
• The
fund's
fiduciaries
(Board
and
Staff),
the
investment
consultant
and
the
investment
manager(s)
form
a
team,
each
contributing
expertise
in
the
cooperative
quest
to
add
value
to
the
plan's
portfolio
from
investment
operations.
• The
improvement
in
added
return
and
reduced
expenses
from
following
in
Investment
consultant's
recommendations
often
more
than
pays
for
the
added
fees
and
expenses.
• Calculating
investment
returns
and
portfolio
characteristics
is
a
place
to
begin
when
evaluating
an
investment
manager.
The
consultant
is
evaluating
an
enterprise
that
is
people‐intensive
and
must
also
allocate
time
to
meet
with
those
players
who
will
most
Influence
the
achievement
of
return.
• The
increasing
use
of
index
funds,
benchmark
portfolios,
futures
and
options
has
resulted
in
part
from
the
consulting
industry's
push
for
better
"mousetraps."
Page
194
of
294
6.8‐3
Investment
Consultant
History
In
the
pre‐ERISA
years
of
the
1950s
and
1960s,
most
representatives
of
plan
sponsors
delegated
the
management
of
their
pension
plan
portfolio
to
the
trust
department
of
the
local
bank.
The
trust
officer
supervising
the
account
counseled
the
sponsor
on
the
asset
mix
and
the
selection
of
the
individual
bonds
and
stock
positions
to
be
placed
in
the
portfolio.
The
sponsor
was
content
to
meet
all
his
or
her
investment
management
needs
through
one
professional
organization.
The
trust
officer
served
in
the
role
of
investment counselor in
the
full
sense
of
the
term.
Had
it
not
been
for
a
combination
of
relatively
poor
investment
returns
and
the
banks'
overdependence
on
a
narrow
set
of
investment
classes,
single
"balanced
manager”
relationships
would
be
more
prevalent
today.
Page
195
of
294
6.8‐4
History
Investment
Consultant
In
the
1970s,
plan
sponsors
‐
seeking
broader
diversification
and
improved
performance
‐
lifted
their
horizons
toward
other
management
alternatives.
Sponsors
who
wanted
to
replace
their
managers
or
to
add
managers
needed
to
increase
their
understanding
of
the
other
classes
of
investments
available.
They
also
needed
counsel
as
to
how
to
best
weight
their
portfolios
among
a
broad
set
of
investment
opportunities.
In
such
a
demanding
environment,
the
investment consulting industry
was
born.
Adding
impetus
to
this
need
outside
advice
was
the
passage
of
ERISA
in
September
1974
with
its
requirement
that
the
courses
of
action
pursued
by
fiduciaries
of
(corporate)
employee
benefit
plans
must
be
performed
at
the
standard
of
a
"prudent
expert."
Investment
consultants
come
in
all
sizes,
shapes
and
forms.
The
individual
or
firm
can
be
fully
independent
or
affiliated
with
an
actuarial
or
brokerage
firm.
The
consultant
may
be
a
subsidiary
of
a
larger
financial
services
firm.
In
addition
to
investment
consulting
specialists,
to
a
lesser
degree
contract
administrators,
attorneys,
and
accountants
are
often
involved
in
consulting
activities,
particularly
among
the
smallest
plans.
Many
securities
brokers
also
provide
consulting
services
to
the
smaller
plans.
Page
196
of
294
6.8‐5
Investment
Consultant
Services Offered by Consultants:
• Analysis
of
plan
constraints
• A
plan
review
process
to
identify
needs
and
objectives,
and
to
recommend
appropriate
policy
and
strategy
• Setting
investment
goals
and
objectives
• Development
of
policy
and
strategy
• Development
of
managerial
guidelines
• Counsel
for
asset
allocation
• Evaluation,
selection
and
monitoring
of
manager
• Measurement
of
performance
and
analysis
of
return
attribution
• Selection
of
master
trustee/custodian
banks
Specific
consulting
assignments,
either
one‐time
or
continuing
include
the
following:
• Evaluation
of
specialty
strategies
and/or
products
• Analysis
of
portfolio
transactions/audit
services
• Design
of
benchmark
portfolios
• Creation
of
software
products
• Other
specialized
studies.
Some
larger
firms
also
offer
continuing
educational
opportunities
through
seminars
and
the
regular
dissemination
of
proprietary
research
data.
Thus
the
principals
of
the
client
funds
can
avail
themselves
of
as
much,
or
as
little,
of
the
input
offered
by
their
consultant.
Page
197
of
294
6.8‐6
Investment
Consultant
Types
of
Consulting
Firms
Large
and
medium
sized
employee
benefit
plans
($50
million
and
above)
often
seek
consultants
who
offer
a
broad
range
of
services.
These
providers
of
"one‐stop
shopping"
service
generally
are
regional
or
national
in
scope,
have
significant
research
and
data
analysis
capabilities,
and
offer
a
broad
menu
of
consulting
services.
At
the
other
end
of
the
spectrum
are
the
"one
person
consulting
shops"
and
the
smaller
"boutique"
firms.
Many
of
these
consultants
either
target
a
specialized
set
of
clients
or
limit
their
consulting
to
limited
geographic
area.
They
may
generate
their
own
analytical
software
support
or
purchase
what
they
need
from
a
firm
that
maintains
a
large
database.
With
the
proliferation
of
smaller
defined
contribution
plans,
including
sizable
self‐
directed
IRA
rollover
accounts,
the
larger
securities
brokerage
firms
are
internally
organizing
and
training
their
brokers
in
consulting
to
exploit
the
growing
needs
of
these
smaller
clients.
Page
198
of
294
6.8‐7
Investment
Consultant
The
Functions
of
the
Consultant
A
consultant
can
enhance
potential
return
by
restructuring
the
investment
management
program.
The
restructuring
process
may
create
a
similar
or
preferred
risk
posture
while
also
reducing
expenses.
The
increasing
use
of
index
funds,
benchmark
portfolios,
futures
and
options
has
resulted
in
part
from
the
consulting
industry's
search
for
better
"mousetraps."
The
following
question
is
often
raised:
If
the
consultant
is
so
smart,
why
isn't
he
or
she
managing
money?
Perhaps
the
consultant
would
be
if
he
or
she
chose
to
concentrate
the
intensity
of
his
or
her
efforts
on
portfolio
management.
But
the
resources
the
consultant
provides
to
his
or
her
clients
result
from
a
different
discipline
than
the
buy/sell
selection
process.
The
consultant's
counsel
is
more
multidisciplinary
and
multi
asset
in
nature
than
the
typical
investment
manager's.
The
consultant
cultivates
a
broader
“macro”
perspective.
Page
199
of
294
6.8‐8
Investment
Consultant
The
Functions
of
the
Consultant
To
succeed,
the
investment
manager
must
by
competitive
necessity
concentrate
on
microanalyses
within
his
or
her
specialized
area
of
the
market
(like
looking
at
particular
investments
–
particular
bonds,
stocks
or
real
estate
properties).
If
the
consultant
is
to
process
information
efficiently,
then
the
consultant
does
not
have
the
luxury
of
also
researching
individual
investments.
Thus
the
fund's
fiduciaries,
the
investment
consultant
and
the
investment
manager(s),
together
form
a
team,
each
contributing
expertise
in
the
cooperative
quest
to
add
value
to
the
plan's
portfolio
from
investment
operations.
Page
200
of
294
6.8‐9
Investment
Consultant
The
Functions
of
the
Consultant
How
the
consultant
is
structurally
positioned
to
serve
the
fund
is
important
if
his
or
her
contribution
is
to
be
fully
exploited
in
the
process
of
decision
making.
The
consultant
can
be
"called
alongside"
to
assist
the
named
fiduciaries
(often
serving
as
a
co‐fiduciary)
in
the
discharge
of
their
investment‐related
responsibilities;
retained
as
an
"extension"
of
the
in‐
house
investment
staff
to
enhance
their
technical
resourcefulness;
or
hired
on
a
specific
assignment
basis,
ad
hoc
or
continuing,
to
assure
the
supervising
group
that
their
specific
investment
responsibilities
are
professionally
addressed.
The
investment
consultant
is
engaged
in
a
delicate
balancing
act.
The
investment
consultant's
first
priority
is
to
his
or
her
clients;
they
have
the
first
call
on
the
consultant's
time.
To
serve
clients
resourcefully,
however,
the
consultant
must
also
spend
time
evaluating
newly
emerging
strategies
and
technologies
and
hundreds
of
managers.
Not
only
is
the
consultant
selling
his
or
her
expertise,
but
the
consultant
is
also
selling
his
or
her
time.
Thus
management
of
time
is
a
continuing
challenge.
Page
201
of
294
6.8‐10
Investment
Consultant
The
Functions
of
the
Consultant
The
investment
consultant’s
retainer
or
project
fee
is
often
a
small
percentage
of
the
investment
managers’
asset‐based
fees.
A
number
of
the
larger
investment
consulting
organizations
have
chosen
in
recent
years
to
enter
the
more
profitable
money
management
business
by
creating
commingled
investment
funds
on
which
they
share
revenue
with
underlying
mangers
(that
they
retain).
The
consultants
have
transitioned
to
providing
investment
management
services
by
leveraging
both
their
knowledge
of
investment
managers
and
their
access
to
their
own
consulting
clients,
who
are
the
most
logical
prospects
to
whom
to
sell
their
new
commingled
vehicles.
A
consultant
who
also
provides
investment
management
services
runs
the
risk
of
being
perceived
by
clients
as
having
lost
the
objectivity
of
a
third
party.
Such
consultants
maintain
that,
with
the
proper
internal
safeguards,
they
can
fold
in
various
collateral
business
activities
without
compromising
the
integrity
of
their
primary
consulting
business.
Page
202
of
294
6.8‐11
Investment
Consultant
The
Functions
of
the
Consultant
With
consulting
organizations
moving
into
the
business
of
investment
management,
and
large
multi‐asset
class
investment
management
organizations
providing
one‐stop
shopping"
opportunities,
we
may
be
returning
to
some
degree
to
the
single,
balanced
manager
arrangement.
Although
this
limited
relationship
of
decision
making
did
not
work
well
in
the
1950s
and
1960s,
it
may
work
somewhat
better
now
because
of
the
expanded
resources
of
the
"new"
balanced
managers.
Global,
multi
asset,
tactical
asset
allocation,
passive
and
passive‐plus/active
management
choices
are
now
all
available
under
one
management
umbrella.
This
new
breed
of
balanced
manager
–
whether
the
consulting
firm
that
evolves
into
the
money
management
business
or
the
money
management
firm
that
has
broadly
diversified
its
menu
of
services
–
is
emerging
as
competition
in
providing
investment
counseling
services
to
employee
benefit
plans.
Page
203
of
294
6.8‐12
Investment
Consultant
The
Functions
of
the
Consultant
To
manage
his
or
her
time
efficiently,
the
consultant
must
absorb,
process
and
evaluate
a
great
deal
of
information
speedily
and
insightfully.
With
the
recent
proliferation
of
investment
management
firms,
products
and
strategies,
a
consulting
firm
engaged
in
manager
search
activities
must
either
build
its
own
investment
manager
database
or
pay
for
the
access
to
a
third‐party
existing
one.
Such
a
reference
database
is
only
the
beginning.
Then
the
consultant
must
somehow
determine
whether
a
candidate
manager
can
perpetuate
past
success.
There
is
no
substitute
for
"kicking
the
tires"
of
a
candidate
firm
through
onsite
visits.
These
are
time
consuming
but
very
helpful.
The
consultant
ultimately
must
assess
the
philosophy,
vision,
discipline
and
management
skills
of
the
leadership
of
a
candidate
firm
for
its
leadership
that
controls
the
destiny
of
the
underlying
organization.
Page
204
of
294
6.9‐1
Investment
Management
The
rest
of
Section
6.9
is
a
reprint
from
a
recent
Wikipedia
compilation.
Investment
management
is
the
professional
management
of
various
securities
(stocks,
bonds)
and
“real”
assets
(e.g.,
real
estate),
to
meet
specified
investment
goals
for
the
benefit
of
the
investors.
Page
205
of
294
6.9‐2
Investment
Management
The
provision
of
‘Investment
management
services’
includes
elements
of
financial
analysis,
asset
selection,
stock
selection,
plan
implementation
and
ongoing
monitoring
of
investments.
Investment
Manager
refers
to
both
a
firm
that
provides
investment
management
services
and
an
individual
who
directs
fund
management
decisions.
Page
206
of
294
6.9‐3
Investment
Management
Industry
scope
The
business
of
investment
management
has
several
facets,
including
the
employment
of
professional
fund
managers,
research
(of
individual
assets
and
asset
classes),
trading,
settlement,
marketing,
internal
auditing,
and
the
preparation
of
reports
for
clients.
The
largest
investment
managers
are
firms
that
exhibit
all
the
complexity
their
size
demands.
Apart
from
the
people
who
bring
in
the
money
(marketers)
and
the
people
who
direct
investment
(the
portfolio
managers),
there
are
compliance
staff
(to
ensure
accord
with
legislative
and
regulatory
constraints),
internal
auditors
of
various
kinds
(to
examine
internal
systems
and
controls),
financial
controllers
(to
account
for
the
institutions'
own
money
and
costs),
computer
experts,
and
"back
office"
employees
(to
track
and
record
transactions
and
fund
valuations
for
up
to
thousands
of
clients
per
institution).
Page
207
of
294
6.9‐4
Investment
Management
Key
problems
of
running
such
businesses
Key
problems
include:
•
Revenue
is
directly
linked
to
market
valuations,
so
a
major
fall
in
asset
prices
causes
a
precipitous
decline
in
revenues
relative
to
costs;
•
Strong
relative
investment
performance
is
difficult
to
sustain,
and
clients
may
not
be
patient
during
times
of
poor
performance;
•
Successful
portfolio
managers
are
expensive
and
may
be
hired
away
by
competitors;
•
Above‐average
fund
performance
appears
to
depend
on
the
unique
skills
of
the
fund
manager;
however,
clients
often
hesitate
to
stake
their
investments
on
the
ability
of
one
individual‐
they
would
rather
see
firm‐wide
success,
attributable
to
a
single
philosophy
and
internal
discipline;
Analyst
and
portfolio
managers
who
generate
above‐average
returns
often
become
sufficiently
wealthy
that
they
retire
to
manage
their
personal
portfolios.
Many
successful
investment
firms
split
off
physically
and
psychologically
from
banks
and
insurance
companies.
That
is,
the
best
performance
and
also
the
most
dynamic
business
strategies
have
often
come
from
independent
investment
management
firms.
•
Page
208
of
294
6.9‐5
Investment
Management
Philosophy,
process
and
people
The
3‐P's
(Philosophy,
Process
and
People)
are
often
used
to
describe
an
investment
manager
explain
why
the
manager
claims
to
be
able
to
produce
above
average
results.
Philosophy
refers
to
the
over‐arching
beliefs
of
the
investment
organization.
For
example:
(i)
Does
the
manager
buy
growth
or
value
shares
(and
why)?
(ii)
Do
they
believe
in
market
timing
(and
on
what
evidence)?
(iii)
Do
they
rely
on
external
research
or
do
they
employ
a
research
team?
It
is
helpful
if
any
and
all
of
such
fundamental
beliefs
are
supported
by
proof‐
statements.
Process
refers
to
the
way
in
which
the
overall
philosophy
is
implemented.
For
example:
(i)
What
universe
of
assets
is
explored
before
particular
assets
are
chosen
as
suitable
investments?
(ii)
How
does
the
manager
decide
what
to
buy
and
when?
(iii)
How
does
the
manager
decide
what
to
sell
and
when?
(iv)
Who
makes
the
decisions
–
a
single
manager
or
a
committee?
(v)
What
controls
are
in
place
to
ensure
that
a
rogue
fund
(one
very
different
from
others
and
from
what
is
intended)
cannot
arise?
People
refers
to
the
staff,
especially
the
portfolio
managers.
The
questions
are:
Who
are
they?
How
are
they
selected?
How
old
are
they?
Who
reports
to
whom?
How
deep
is
the
team
(and
do
all
the
members
understand
the
philosophy
and
process
they
are
supposed
to
be
using)?
And
most
important
of
all,
How
long
has
the
team
been
working
together?
This
last
question
is
vital
because
whatever
performance
record
was
presented
at
the
start
of
the
relationship
with
the
client
may
or
may
not
relate
to
(have
been
produced
by)
a
team
that
is
still
in
place.
If
the
team
has
changed
greatly
(high
staff
turnover
or
changes
to
the
team),
then
arguably
the
performance
record
is
completely
unrelated
to
the
existing
team
(of
fund
managers).
Page
209
of
294
6.9‐6
Investment
Management
Asset
allocation
The
most
frequently
used
asset
classes
divisions
are
stocks,
bonds
and
real‐
estate.
Others
that
are
also
used
are
private
equity
and
commodities.
Some
consider
hedge
funds
and
currencies
to
be
additional
asset
classes.
There
are
investment
managers
who
specialize
in
each
of
the
above.
Allocating
funds
among
individual
securities
within
each
asset
class
–
and
sometimes
among
these
asset
classes
–
is
what
investment
management
firms
are
paid
for.
Asset
classes
exhibit
different
market
dynamics,
and
different
interaction
effects;
thus,
the
allocation
of
monies
among
asset
classes
will
have
a
significant
effect
on
the
performance
of
the
fund.
The
skill
of
a
successful
investment
manager
resides
in
constructing
a
portfolio
of
individual
holdings
to
outperform
certain
benchmarks
(e.g.,
the
peer
group
of
competing
funds,
bond
and
stock
indices).
Those
managers
with
mandates
to
allocate
between
asset
classes
–
balanced
managers
and
tactical
allocation
managers
–
are
judged
on
their
success
in
their
asset
allocation
choices.
Page
210
of
294
6.9‐7
Investment
Management
Long‐term
returns
It
is
important
to
look
at
the
evidence
on
the
long‐term
returns
to
different
assets,
and
to
holding
period
returns
(the
returns
that
accrue
on
average
over
different
lengths
of
investment).
For
example,
over
very
long
holding
periods
(e.g.
10+
years)
in
most
countries
over
most
periods,
equities
have
generated
higher
returns
than
bonds,
and
bonds
have
generated
higher
returns
than
cash.
According
to
financial
theory,
this
is
because
equities
are
riskier
(more
volatile)
than
bonds,
which
are
themselves
more
risky
than
cash.
Page
211
of
294
6.9‐8
Investment
Management
Investment
styles
There
are
a
range
of
different
styles
of
equity
fund
management
that
an
investment
manager
can
implement:
growth,
value,
market
neutral,
small
capitalization,
indexed,
etc.
Each
of
these
approaches
has
its
distinctive
features,
adherents
and,
in
any
particular
financial
environment,
distinctive
risk
characteristics.
Clients
often
attempt
to
attain
diversification
by
retaining
investment
managers
with
different
styles
to
complement
each
other.
Page
212
of
294
6.9‐9
Investment
Management
Risk‐adjusted
performance
measurement
Portfolio
normal
return
may
be
evaluated
using
factor
models.
The
first
model,
proposed
by
Jensen
(1968),
relies
on
the
CAPM
and
explains
portfolio
normal
returns
with
the
market
index
as
the
only
factor.
It
quickly
becomes
clear,
however,
that
one
factor
is
not
enough
to
explain
the
returns
and
that
other
factors
have
to
be
considered.
Multi‐factor
models
were
developed
as
an
alternative
to
the
CAPM,
allowing
a
better
description
of
portfolio
risks
and
an
accurate
evaluation
of
managers’
performance.
For
example,
Fama
and
French
(1993)
have
highlighted
two
important
factors
that
characterize
a
company's
risk
in
addition
to
market
risk.
These
factors
are
the
book‐to‐market
ratio
and
the
company's
size
as
measured
by
its
market
capitalization.
Fama
and
French
therefore
proposed
a
three‐factor
model
to
describe
portfolio
normal
returns
(Fama‐
French
three‐factor
model).
Carhart
(1997)
proposed
to
add
momentum
as
a
fourth
factor
to
allow
the
persistence
of
the
returns
to
be
taken
into
account.
Also
of
interest
for
performance
measurement
is
Sharpe’s
(1992)
style
analysis
model,
in
which
factors
are
style
indices.
This
model
allows
a
custom
benchmark
for
each
portfolio
to
be
developed,
using
the
linear
combination
of
style
indices
that
best
replicate
portfolio
style
allocation,
and
leads
to
an
accurate
evaluation
of
portfolio
alpha.
Page
213
of
294
6.9‐10
Investment
Management
Further
Reading
David
Swensen,
"Pioneering
Portfolio
Management:
An
Unconventional
Approach
to
Institutional
Investment,"
New
York,
NY:
The
Free
Press,
May
2000.
Rex
A.
Sinquefeld
and
Roger
G.
Ibbotson,
Annual
Yearbooks
dealing
with
Stocks,
Bonds,
Bills
and
Inflation
(relevant
to
long
term
returns
to
US
financial
assets).
Harry
Markowitz,
Portfolio
Selection:
Efficient
Diversification
of
Investments,
New
Haven:
Yale
University
Press
S.N.
Levine,
The
Investment
Managers
Handbook,
Irwin
Professional
Publishing
(May
1980),
ISBN
0‐87094‐207‐7.
V.
Le
Sourd,
2007,
“Performance
Measurement
for
Traditional
Investment
–
Literature
Survey”,
EDHEC
Publication.
Page
214
of
294
7. Pension Plan Staff Page
215
of
294
7.1‐1
Pension
Plan
Staff
Overview
Your
pension
plan
staff
is
there
to
make
your
job
as
a
trustee
easier.
One
of
the
best
ways
to
ensure
that
this
happens
is
to
clearly
understand
the
role
that
staff
members
and
consultants
play
–
the
areas
where
they
have
decision‐making
responsibility
and
the
areas
where
they
don’t.
Nearly
every
plan
has
an
executive
officer
who
is
the
plan’s
chief
administrator.
This
person
ensures
that
things
run
efficiently
by
answering
the
following
types
of
questions:
• Are
there
enough
resources
to
ensure
that
retirement
applications
are
processed
timely
and
that
retirement
benefits
are
determined
correctly?
• Are
the
pensions
being
paid
on
time?
• Are
plan
contributions
from
employers
collected
when
due?
• Are
the
collected
funds
handled
properly?
• What
other
benefits
are
being
provided
–
death,
disability,
health?
• Are
all
benefit
types
provided
in
a
timely
and
accurate
manner
to
those
who
are
eligible?
Page
216
of
294
7.1‐2
Pension
Plan
Staff
Overview
Your
executive
officer’s
job
is
to
see
that
the
answer
to
all
of
these
questions
is
yes.
If
it
is
not,
then
this
person
must
explain
to
the
board
what
will
be
done
to
correct
these
problems.
This
person
will
have
the
most
contact
with
the
board
members.
He
or
she
is
the
main
link
between
you
and
the
rest
of
the
staff
members,
consultants,
and
plan
participants.
Remember
that
the
executive
officer
was
hired
by,
works
for,
and
reports
to
the
board.
Page
217
of
294
7.1‐3
Pension
Plan
Staff
One
of
your
first
tasks
as
a
new
trustee
is
meeting
with
your
plan’s
executive
officer
and
other
executive
staff,
all
of
who
should
be
excellent
resources.
This
is
the
time
for
them
to
brief
you
on
the
aspects
of
your
retirement
plan.
To
help
you
prepare
for
your
role
as
a
trustee,
have
the
staff
members
address
the
following
topics.
Page
218
of
294
7.1‐4
Pension
Plan
Staff
Board
Basics
–
How
many
board
members
are
there?
How
long
do
they
serve?
How
are
they
selected?
How
often
does
the
board
meet?
Are
materials
provided
to
the
board
before
the
meeting?
What
are
the
board
meeting
rules
and
procedures?
Board
Policies/Bylaws
–
Staff
should
provide
you
with
your
board’s
current
policies
or
bylaws.
How
often
are
these
policies
reviewed?
What
is
the
process
for
recommending
and
executing
changes?
Staff
Statistics
–
How
many
staff
members
are
there,
and
what
are
their
responsibilities?
How
many
consultants
are
there,
and
what
are
their
areas
of
expertise?
What
are
the
guidelines
for
selecting
consultants?
Benefits
Summary
and
Recipients
–
How
many
active
and
retired
participants
are
in
your
plan?
How
does
the
defined
benefit
formula
work?
What
are
the
vesting
requirements?
What
are
the
benefit
eligibility
criteria?
Does
the
plan
provide
disability,
survivor,
and
death
benefits?
Does
the
plan
administer
health
benefits?
Investments
–
Are
the
investments
managed
in
house,
by
external
money
managers,
or
in
combination?
What
are
the
total
plan
assets,
and
what
do
you
need
to
know
about
how
they
are
invested?
How
involved
is
the
board
with
investment‐related
decisions?
Disclosure
–
Are
you
required
to
file
annual
disclosure
reports?
You
may
be
required
to
file
disclosure
reports
on
meals,
travel,
or
any
activities.
Page
219
of
294
7.2‐1
Roles
of
the
Staff
Executive
Officer
of
the
System
The
executive
officer
(Administrator,
Director,
Executive
Director,
Executive
Secretary,
etc.)
is
responsible
for
the
internal
administration
of
the
retirement
system.
The
executive
officer’s
role
also
involves
external
contact
with
the
membership,
employee
organizations,
the
governmental
employer,
civic
and
taxpayer
organizations
the
legislative
body
and
the
public
at
large.
In
relationships
with
these
entities,
the
executive
officer
serves
as
the
board's
representative.
The
executive
officer
is
responsible
for
the
implementation
of
the
provisions
of
the
retirement
statutes
in
accordance
with
the
policies
and
other
duties
as
prescribed
by
the
board.
A
mutual
understanding
between
the
board
members
and
the
executive
officer
of
their
individual
responsibilities
results
in
the
efficient
and
effective
operation
of
the
retirement
system.
Experienced
administrators
recommend
that
their
powers
and
responsibilities
not
be
minutely
defined;
however,
the
board
should
decide
and
adopt
a
resolution
regarding
the
administrator's
functions
and
responsibilities
to
prevent
friction
and
misunderstanding.
Page
220
of
294
7.2‐2
Roles
of
the
Staff
Executive
Officer
of
the
System
Generally,
the
responsibilities
of
the
executive
officer
of
a
retirement
system
include:
a.
Determining
the
accuracy
and
timeliness
of
all
payments
due
the
retirement
system.
b.
Accounting
for
and
depositing
all
payments
made
to
the
retirement
System
c.
Making
payment
and
distribution
of
moneys
as
authorized
by
the
board.
d.
Answering
all
correspondence
on
the
rights
and
benefits
of
members
and
employers.
e.
Certifying
applications
for
benefits
to
the
board
for
approval
or
confirmation.
f.
Assisting
the
committees
of
the
board
in
the
discharge
of
their
functions.
g.
Compiling
information
on
investments
for
presentation
to
the
board.
h.
Keeping
records,
files,
and
documents
belonging
to
the
board.
i.
Maintaining
proper
communication
and
relations
with
other
departments
and
organizations.
j.
Representing
the
board
before
the
legislative
body.
k.
Liaison
with
legal,
medical,
investment,
and
actuarial
professionals
Page
221
of
294
7.2‐3
Roles
of
the
Staff
Executive
Officer
of
the
System
The
executive
officer
is
generally
given
the
authority
to
employ
office
personnel
and
to
fix
their
salaries
within
the
limits
for
each
job
classification.
The
board
usually
approves
any
revisions
to
the
schedule
and
any
positions
added
to
the
staff.
The
executive
officer
must
be
able
to
detect
and
report
any
unfavorable
conditions,
problems
or
trends
affecting
the
system
and
to
take
or
recommend
proper
remedial
action.
The
executive
officer
must
also
keep
informed
regarding
any
significant
national
and
local
trends
influencing
pension
policies,
all
federal
and
state
legislation
impacting
retirement
systems,
and
their
contributors
and
pensioners,
the
sentiment
of
civic
and
taxpayer
organizations,
the
interest
and
activities
of
employee
organizations,
and
the
fiscal
and
personnel
policies
of
governmental
units
covered
by
the
retirement
system.
Any
significant
changes
in
these
areas
should
be
reported
promptly
to
the
board.
Page
222
of
294
7.2‐4
Roles
of
the
Staff
Executive
Officer
of
the
System
The
executive
officer
must
make
known
the
policies
and
standards
of
the
board
to
the
various
organizations
concerned
with
the
operation
of
the
system.
Constant
contact
must
be
maintained
with
these
organizations.
The
importance
of
communicating
effectively
in
this
area
must
not
be
underestimated.
In
order
to
perform
the
duties
of
the
office,
the
executive
officer
must
have
training
and
experience
in
the
management
of
a
retirement
system.
Retirement
administration
requires
specialized
knowledge
and
training
in
accounting,
investment
administration,
actuarial
science,
and
legal
compliance
requirements.
The
executive
officer
must
also
be
skilled
in
communications
and
public
relations.
To
these
general
qualifications
must
be
added
an
increasingly
important
requirement,
that
of
experience
in
the
administrative
phase
of
a
retirement
program.
The
progress
and
development
of
a
retirement
system
will
be
limited
if
its
executive
officer
is
not
familiar
with
the
operations
of
the
program
and
with
the
intricate
mechanisms
which
make
the
system
function.
Page
223
of
294
7.2‐5
Roles
of
the
Staff
Assistant
Executive
Officer
In
a
small
system,
an
assistant
executive
officer
may
be
given
the
responsibility
for
the
routine
internal
operations
of
the
program.
As
the
system
increases
in
size,
the
duties
given
to
the
assistant
executive
officer
may
narrow
and
become
more
specialized
resulting
in
several
assistant
executive
officers
with
specialized
areas
of
responsibility
or
the
position
may
continue
its
broad
function
with
assistants
being
appointed
to
direct
specialized
functions.
The
assistant
executive
officer
also
serves
as
an
understudy
to
the
chief
executive
officer,
allowing
the
assistant
the
opportunity
to
grow
in
understanding
of
the
total
functioning
of
the
administration
of
the
retirement
system.
The
assistant
executive
officer
must
support
and
assist
the
executive
officer
and
also
provide
the
staff
with
the
support
necessary
to
fulfill
their
responsibilities.
Page
224
of
294
7.2‐6
Roles
of
the
Staff
Member
Services
‐
Membership
The
plan
document
specifies
the
employees
of
the
governmental
unit
(County
and
other
Participating
Employers)
eligible
for
coverage
in
the
retirement
system.
The
member
section
of
the
office
is
responsible
for
enrolling
such
employees
covered
by
the
system
and
maintaining
appropriate
individual
records.
The
staff
of
the
section
must
work
closely
with
the
contact
person
for
each
employer
covered
by
the
system
to
be
sure
that
all
employer
staff
are
well‐informed
regarding
the
technical
requirements
for
coverage
by
the
retirement
system.
Each
employer
included
in
the
retirement
system
is
responsible
for
seeing
that
only
eligible
employees
are
reported
as
members
of
the
system
and
that
members
no
longer
eligible
for
credit
for
their
current
employment
are
removed
from
the
retirement
reports.
The
membership
section
must
maintain
accurate
records
of
members
currently
working
in
positions
covered
by
the
retirement
system.
Reports
required
from
the
employer
in
order
to
maintain
individual
member
records
may
include
financial
reports
of
salary
and/or
contributions,
continued
coverage
by
the
retirement
system,
and
employment
termination.
The
accuracy
of
the
employer
reports
is
vital
for
the
system
to
be
able
to
rely
on
the
data
in
the
system
records
for
calculating
liabilities,
forecasting
cash
flows
and
providing
accurate
information
to
individual
members.
Page
225
of
294
7.2‐7
Roles
of
the
Staff
Member
Services
‐
Membership
This
section
is
responsible
for
providing
needed
information
to
members
prior
to
retirement.
Most
retirement
systems
periodically
update
the
membership
on
the
credited
service
and/or
contributions
reported
by
the
employer
to
the
retirement
system.
Such
a
disclosure
statement
allows
each
member
to
audit
the
information
provided
by
his
or
her
employer.
Any
errors
that
may
have
occurred
can
be
promptly
corrected.
Members
leaving
employment
covered
by
the
retirement
system
should
be
fully
informed
of
the
benefits
to
which
they
are
entitled.
It
is
the
responsibility
of
the
retirement
system
staff
to
inform
terminating
members
of
any
future
benefits
they
may
be
forfeiting
by
electing
lump‐
sum
refunds.
Those
members
approaching
retirement
will
also
need
detailed
information
on
the
benefits
they
can
expect
once
they
have
terminated
their
employment.
Staff
assigned
to
benefits
counseling
should
be
well
trained
and
experienced.
The
issues
that
must
be
addressed
may
be
complicated
‐
for
example,
retirement
benefits
may
be
integrated
with
social
security
or
workers'
compensation
plans.
Changes
in
federal
and
state
tax
laws
have
added
to
the
complexity
of
issues
that
must
be
faced
at
retirement.
Page
226
of
294
7.2‐8
Roles
of
the
Staff
Member
Services
‐
Membership
Information
provided
to
members
planning
for
retirement
must
be
accurate.
In
some
instances
‐
especially
in
the
areas
of
legal
and
complex
tax
matters
‐
the
member
should
be
referred
to
professionals
qualified
in
those
areas
in
order
to
avoid
any
liability
for
incorrect
information
provided
by
the
retirement
system.
Some
retirement
systems
have
expanded
from
providing
benefit
information
prior
to
retirement
to
include
other
areas
of
preretirement
counseling.
Financial
planning,
estate
planning,
taxes,
aging,
and
lifestyle
adjustment
counseling
in
addition
to
benefit
counseling
are
made
available
to
members
several
years
before
actual
retirement
in
order
to
smooth
the
transition
from
active
employment
to
retirement.
Providing
services
to
active
members
requires
a
group
of
expert
staff
at
the
retirement
office.
The
personnel
must
work
in
close
cooperation
with
all
segments
of
the
retirement
office,
but
especially
with
the
membership
and
member
services
section.
Services
such
as
benefit
counseling
and
advising
participating
units
on
deductions,
financial
reporting
and
the
eligibility
and
enrollment
of
employees
require
in‐depth
knowledge
of
those
areas.
Page
227
of
294
7.2‐9
Roles
of
the
Staff
Member
Services
‐
Claims and Retired Payroll Section The
amount
of
the
benefit
paid
because
of
retirement,
death,
or
refund
may
be
calculated
by
a
claims
or
retiree
payroll
division.
The
volume
of
payments
and
the
total
expenditures
authorized
by
this
section
require
competent,
well
trained
employees.
Staff
must
be
fully
cognizant
of
the
laws,
rules
and
regulations
affecting
all
payments.
Accuracy
in
all
of
these
calculations
is
vital.
The
design
of
the
systems
used
by
this
division
must
separate:
1)
Preparation
and
calculation
of
any
payment,
2)
Verification
and
approval
of
the
payment,
and
3)
The
disbursement
function.
Staff
in
larger
systems
will
have
specialized
jobs
to
perform
allowing
for
tight
internal
control
over
each
function.
In
smaller
systems,
however,
the
work
may
be
performed
by
a
few
people,
each
receiving
help
when
necessary
to
meet
a
deadline.
Greater
care
must
be
taken
in
these
smaller
systems
to
assure
adequate
segregation
of
duties
within
this
section.
Page
228
of
294
7.2‐10
Roles
of
the
Staff
Member
Services
‐
Program Services Divisions
The
reason
for
the
existence
of
a
retirement
system
is
to
pay
retirement
benefits
and
to
accumulate
data
and
funds
to
fulfill
that
purpose.
The
system
may
be
assigned
other
responsibilities
such
as
health
insurance
programs,
which
it
must
administer.
Each
program
area
will
require
staff
with
specialized
knowledge
of
the
laws
and
regulations
governing
that
particular
program.
Page
229
of
294
7.2‐11
Roles
of
the
Staff
Fiscal
Services
Accounting and Financial Reporting
The
accounting
system
must
be
designed
to
effectively
identify
and
record
valid
transactions
on
a
timely
basis
so
that
proper
disclosure
of
the
transaction
can
be
presented
in
the
financial
statements.
The
integrity
and
validity
of
the
fiscal
data
compiled
by
this
section
are
dependent
upon
the
development
and
design
of
the
accounting
system
and
upon
the
competence
and
accuracy
of
the
employees
who
work
in
this
section.
The
person
in
charge
of
the
accounting
division
(sometimes
called
the
controller)
must
be
a
well‐trained
and
qualified
accountant.
Other
staff
must
have
adequate
training
in
accounting
to
assure
that
accounting
data
is
accumulated
in
accordance
with
the
system
design
and
that
accounting
reports
are
prepared
correctly
and
accurately.
The
accounting
division
is
responsible
for
recording
all
receipts
and
disbursements,
and
for
maintaining
financial
records
and
retirement
system
accounts.
The
division
prepares
interim
reports
on
a
periodic
basis.
These
reports
should
include
Summary
of
receipts,
disbursements,
retirements,
changes
in
membership
and
any
other
reports
needed
by
the
retirement
system
administration
and
board
members
Page
230
of
294
7.2‐12
Roles
of
the
Staff
Fiscal
Services
Budgeting The
design
of
the
budgeting
system
must
provide
for
both
planning
and
control.
Mature
retirement
systems
must
plan
for
cash
flow.
All
systems
need
to
synchronize
cash
flow
and
investment
strategies.
The
majority
of
retirement
system
expenditures
‐
the
benefit
payments
‐
are
fixed
charges
over
which
management
has
little
control.
Administrative
expenses,
however,
need
to
be
authorized
and
controlled
through
the
budgetary
process.
Page
231
of
294
7.2‐13
Roles
of
the
Staff
Fiscal
Services
Internal Auditor The
internal
auditor
is
responsible
directly
to
management
(and
not
to
the
controller)
to
insure
that
the
administration's
objectives
and
the
control
systems
are
being
carried
out
properly.
The
primary
objective
of
the
internal
auditor
is
to
assist
the
executive
officer.
The
internal
auditor
recommends
to
management
changes
in
procedure
that
will
improve
the
efficiency
and
control
of
the
system.
However,
the
internal
auditor
is
expected
to
be
objective
in
appraising
the
effectiveness
of
the
accounting
and
other
operating
controls
within
the
retirement
system
which
have
been
developed
and
maintained
by
management.
The
objectivity
of
the
internal
auditor
is
enhanced
when
he
or
she
has
direct
access
to
the
audit
committee
of
the
board
of
trustees.
Page
232
of
294
7.2‐14
Roles
of
the
Staff
Member
Services
‐
Fiscal Services
Investment Section Retirement
systems
may
manage
all
or
part
of
the
investment
portfolio
using
employees
of
the
system.
This
is
called
"in‐house"
investing.
In‐house
investing
requires
staff
similar
to
that
of
an
outside
investment
manager.
Retirement
systems
that
have
all
or
part
of
the
investment
portfolio
managed
externally
will
need
to
employ
staff
to
oversee
investment
activities.
The
investment
section
assists
the
executive
officer
in
the
formulation
of
investment
recommendations
made
to
the
investment
committee
or
the
board.
The
investment
staff
then
implements
the
approved
portfolio
strategy.
The
staff
coordinates
communication
between
the
system
and
the
investment
managers
and
investment
consultants.
The
investment
section
is
charged
with
maintaining
accurate
current
and
historical
investment
records.
This
section
also
serves
as
an
internal
liaison
with
the
accounting
section
and
with
other
operating
groups
within
the
retirement
system.
Page
233
of
294
7.2‐15
Roles
of
the
Staff
Member
Services
‐
Fiscal Services
Investment Section The
investment
staff
may
prepare
quarterly
performance
reports
on
investment
managers
for
the
executive
officer
and
the
board,
particularly
highlighting
unsatisfactory
performance
results.
If
such
a
report
is
prepared
by
an
investment
consultant,
the
investment
staff
reviews
and
analyzes
the
report.
The
section
monitors
trade
clearing
activities
of
the
investment
managers
for
compliance
with
any
board
brokerage
policies.
It
will
also
work
with
the
master
custodian
to
monitor
performance
of any
securities
lending
program
and
any
repurchase
agreements,
on
tax
reclaims,
on
foreign
investments
and
on
the
management
of
cash
and
short‐term
investments.
Retirement
systems
with
real
estate,
venture
capital
and/or
private
placement
will
need
to
employ
investment
staff
or
consultants
to
monitor
the
market
value
of
the
properties
to
verify
commission
invoices,
and
to
review
budgets,
lease
proposals
and
cash
flow.
Such
a
staff
serves
as
a
liaison
with
the
accounting
department
of
the
managers
of
these
investments.
This
section
also
provides
technical
assistance
to
the
executive
officer
and
the
board
on
proposed
additions
to
the
investments
of
the
system.
Page
234
of
294
7.2‐16
Roles
of
the
Staff
Member
Services
‐
Fiscal Services
Computer Operations Manual
procedures
are
adequate
to
handle
accounts
and
benefit
checks
in
only
the
smallest
systems.
The
number
of
transactions
becomes
overwhelming
as
membership,
retirement
rolls
and
investments
increase
in
size.
The
data
processing
function
is
important
to
virtually
all
areas
of
retirement
system
activities
and
should
be
set
up
in
the
system's
structure
as
a
service
unit
for
the
whole
organization.
Data
processing
is
extremely
valuable
in
reducing
the
accounting
and
record‐keeping
job
to
manageable
proportions.
It
is
equally
important
in
the
areas
of
investment,
actuarial
studies
and
management
reports.
Correspondence
in
today's
office
is
almost
entirely
prepared
utilizing
the
computers
word
processing
capabilities.
Frequently,
representatives
from
all
sections
using
the
data
processing
function
form
a
user
group
or
steering
committee
to
enhance
the
management
of
the
computer
information
systems.
Page
235
of
294
7.2‐17
Roles
of
the
Staff
Member
Services
‐
Fiscal Services
Computer Operations Some
retirement
systems
participate
satisfactorily
with
the
central
computer
system
of
the
county
that
services
numerous
agencies
and
departments.
Other
systems
hire
computer
service
bureaus
to
perform
the
necessary
data
processing
functions.
In
both
instances,
the
retirement
system
can
take
advantage
of
data
processing
expertise
that
would
not
otherwise
be
available
without
excessive
costs,
and
will
also
have
a
system
available
that
has
the
capacity
to
handle
peak
data
entry
and
processing
demands.
This
type
of
computer
system
works
best
when
the
data
processing
operation
consists
mainly
of
repetitive
programs
used
regularly
with
little
modification.
Larger
retirement
systems
have
found
it
both
feasible
and
cost
effective
to
bring
the
data
processing
function
"in‐house".
This
allows
the
greatest
flexibility
for
scheduling
system
processing
needs.
Specialized
programs
can
be
developed
for
system
and
management
needs
and
modifications
of
existing
programs
can
be
more
easily
made.
Page
236
of
294
7.2‐18
Roles
of
the
Staff
Member
Services
‐
Fiscal Services
Computer Operations The
area
of
computer
operations
has
grown
to
include
management
information
systems,
incorporating
specialized
reports
and
statistics.
Record
management
systems
are
now
using
the
computer
to
track
and
retrieve
physical
records
and
original
documents
needed
by
several
different
sections
of
the
retirement
system
staff.
Document
imaging
technology
stores
information
from
paper
records
directly
on
the
computer
allowing
users
to
directly
access
the
information
through
computer
terminals.
The
purchase
of
computer
hardware
and
the
development,
installation
and
implementation
of
computer
systems
require
a
substantial
commitment
of
the
system's
resources,
both
in
personnel
and
money.
Therefore,
a
strategic
plan
must
be
developed
that
outlines
the
retirement
system’s
information
technology
goals,
develops
a
tactical
long‐range
budget,
and
provides
detailed
operational
planning
for
undertaking
a
particular
action.
Such
a
plan
will
provide
better
access
to
information
that
is
available
in
a
format
best
suited
to
the
users
and
a
better
use
of
system
funds.
Planning
will
result
in
smoother
meshing
of
components,
avoidance
of
costly
corrective
maintenance,
and
an
effective
proactive
response
to
unexpected
events
that
affect
the
system.
Page
237
of
294
7.2‐19
Roles
of
the
Staff
Member
Services
‐
Fiscal Services
Management Support Services The
management
support
services
section
provides
services
that
allow
system
managers
to
perform
their
assigned
duties
or
specialized
functions
efficiently.
The
services
support
section
may
provide
administrative,
clerical,
and
transcription
services
for
the
entire
office.
Statistics,
research,
and
special
projects
done
by
this
section
provide
managers
with
information
needed
to
make
high‐level
decisions
concerning
the
system’s
operations.
The
management
support
services
group
can
include
human
resources
(personnel)
staff
and
building
administration,
which
may
oversee
security
and
management
of
the
physical
facilities.
Purchasing
and
supply
management
functions
will
also
be
found
in
this
group
if
they
are
not
already
part
of
the
fiscal
services
section.
Records
management
is
an
integral
part
of
the
management
support
services.
This
group
is
charged
with
maintaining
the
membership
files
either
physically
or
on
a
record
management
information
system.
The
communications,
publications,
and
public
relations
section
must
work
closely
with
all
segments
of
the
retirement
office.
This
group
keeps
all
employers
abreast
of
the
retirement
system's
requirements
for
deductions,
financial
reporting,
eligibility,
and
enrollment
of
employees,
etc.
The
membership
and
employers
must
be
fully
informed
of
rights
and
benefits
available
to
the
retirement
system.
Page
238
of
294
8. Actuarial Methods & Assumptions Page
239
of
294
8.1‐1
Actuarial
Handbook
for
Trustees
Arizona
State
Retirement
System
Actuarial
Handbook
for
Trustees
The
enclosed
handbook
was
written
for
the
trustees
of
the
Arizona
State
Retirement
System
and
covers
most
aspects
of
the
Actuary
and
his
role
in
a
pension
fund’s
operations
and
planning.
Important
topics
covered
include:
What
is
an
Actuary?
What
can
Actuaries
do
for
pension
plans?
What
are
Actuarial
Cost
Methods?
What
are
Actuarial
Assumptions?
What
is
an
Actuarial
Experience
Study?
How
can
an
Actuary
help
with
Plan
Administration?
What
are
Actuarial
Forecasts?
How
can
an
Actuary
Help
with
Plan
Design?
In
addition,
you
will
find
a
glossary
of
terms
at
the
end
of
the
Actuarial
Handbook.
The
Handbook
will
open
in
a
new
window
by
clicking
in
this
box.
Page
240
of
294
8.2‐1
Actuarial
Assumptions
Article
by
Brian
Murphy
The
enclosed
article
by
Brian
Murphy
appeared
in
the
July
2009
issue
of
“Benefits
and
Compensation
Digest”
and
includes
important
information
on
Economic
Assumptions
Payroll
Growth
Assumptions
Demographic
Assumptions
Retirement
Assumption
Death
After
Retirement
Unfunded
Liabilities
with
Time
Lag
The
Article
will
open
in
a
new
window
by
clicking
in
this
box.
Page
241
of
294
8.3‐1
Actuarial
Methods
and
Assumptions
In
establishing
a
retirement
plan,
a
public
employer
is
promising
to
pay
benefits
that
will
come
due
in
the
future.
Generally
these
benefits
can
be
paid
in
one
of
two
ways:
either
"pay‐as‐you‐go",
or
through
some
form
of
reserve
funding.
Under
the
"pay‐as‐you‐go"
method,
the
monies
required
to
pay
retirement
benefits
are
obtained
when
the
benefits
come
due
to
current
retirees.
This
approach
invariably
results
in
contribution
rates,
which
increase,
as
a
percent
of
active
member
payroll,
over
time.
Under
a
reserve
funding
method,
contributions
are
made
toward
the
present
value
of
the
benefits
being
earned
by
active
employees.
Those
contributions,
together
with
investment
income,
are
intended
to
accumulate
sufficient
assets
to
cover
the
benefit
obligations
by
the
time
employees
retire.
Under
a
reserve
funding
approach,
contribution
rates
are
often
expected
to
be
a
level
or
declining
percent
of
payroll
over
time.
Page
242
of
294
8.3‐2
Actuarial
Methods
and
Assumptions
Actuarial
Valuation
Methods
When
funds
for
employee
benefits
are
accumulated
on
a
reserve‐funding
basis,
actuarial
valuations
are
used
to
compute
the
contributions
required
to
fund
the
long‐term
value
of
the
benefits.
Using
assumptions
about
employee
demographics,
rates
of
investment
return,
and
increases
in
employee
compensation,
the
actuary
calculates
the
contributions
necessary
for
the
orderly
accumulation
of
assets
needed
to
pay
benefits
when
due.
Page
243
of
294
8.3‐3
Actuarial
Methods
and
Assumptions
Actuarial
Valuation
Methods
Actuaries
use
different
actuarial
methods
to
calculate
the
contributions
required
to
fund
the
plan.
A
prior
survey
conducted
by
the
GFOA
indicated
that
four
funding
methods
were
commonly
used
by
public
retirement
plans:
Entry
Age
Aggregate
Frozen
Entry
Age
Projected
Unit
Credit
Although
all
of
the
above
methods
will
result
in
sufficient
assets
becoming
available
to
meet
benefit
payments
over
the
long
run,
the
different
methods
are
likely
to
result
in
different
patterns
of
contributions
over
the
intermediate
period.
Page
244
of
294
8.3‐4
Actuarial
Methods
and
Assumptions
Actuarial
Valuation
Methods
These
may
be
important
to
an
employer,
since
some
patterns
offer
greater
consistency
in
contributions
from
year
to
year.
The
majority
of
the
PPCC
respondents
used
the
entry
age
actuarial
method.
66
percent
of
the
respondent
systems
used
the
entry
age
method,
nine
percent
used
the
projected
unit
credit
method,
seven
percent
used
the
aggregate
method,
seven
percent
used
the
frozen
entry
age
method,
and
the
remainder
used
various
other
actuarial
methods.
In
general,
respondents
administered
by
state
governments
were
somewhat
more
likely
to
use
the
entry
age
method
than
respondents
administered
by
local
governments.
Eighty‐two
percent
of
the
systems
administered
by
state
governments
used
the
entry
age
method,
compared
with
53
percent
of
the
local
systems.
It
is
also
interesting
to
note
that
11
percent
of
the
respondents
administered
by
local
governments
used
the
projected
unit
credit
method.
Page
245
of
294
8.3‐5
Actuarial
Methods
and
Assumptions
Actuarial
Valuation
Frequency
The
frequency
with
which
the
actuarial
valuations
are
conducted
is
important
to
the
proper
funding
of
a
retirement
plan.
Since
valuations
are
based
on
assumptions
which
may
change
over
time,
the
calculated
contributions
may
not
be
accurate
if
the
assumptions
are
not
periodically
updated.
The
majority
of
respondents
indicated
that
they
conducted
actuarial
valuations
annually.
78
percent
conducted
actuarial
valuations
every
year;
13
percent
every
two
years;
3
percent
every
three
years;
and
2
percent
every
four
or
more
years.
All
told,
91
percent
of
the
respondents
conducted
actuarial
valuations
at
least
every
two
years.
Smaller
systems,
systems
in
the
Northeast
and
West,
and
systems
administered
by
local
governments
were
somewhat
less
likely
to
conduct
annual
valuations
than
their
counterparts.
On
the
other
hand,
systems
serving
teachers
and
other
school
employees
were
somewhat
more
likely
to
perform
annual
valuations.
However,
these
differences
essentially
disappear
when
the
frequency
of
the
valuation
is
extended
to
two
years.
Page
246
of
294
8.3‐6
Actuarial
Methods
and
Assumptions
Actuarial
Assumptions
Regarding
Investment
Return
The
assumptions
used
by
actuaries
to
calculate
the
funding
requirements
of
the
PERS
play
an
important
role
in
determining
the
amount
of
the
computed
contributions.
Because
it
is
impossible
to
know
the
future,
a
variety
of
assumptions
must
be
made
concerning
rates
of
investment
return,
pay
increases,
withdrawal
from
employment,
and
mortality.
Of
these,
the
assumptions
regarding
investment
return
and
salary
increase
are
especially
critical,
since
even
small
changes
in
these
assumptions
can
result
in
large
changes
to
computed
contributions.
The
mean
actuarial
assumption
regarding
the
investment
rate
of
return
for
all
systems
was
7.76
percent.
As
asset
size
increases,
so
does
the
assumed
rate
of
return.
On
average,
systems
with
assets
of
less
than
$100
million
assumed
annual
returns
of
7.64
percent
while
systems
with
$10
billion
or
more
assumed
returns
of
7.91
percent.
It
is
interesting
to
note
that,
while
these
differences
are
statistically
significant,
they
are
also
very
narrow,
amounting
to
only
27
basis
points
on
average
between
the
larger
and
smaller
systems.
Page
247
of
294
8.3‐7
Actuarial
Methods
and
Assumptions
Actuarial
Assumptions
Regarding
Salary
Increase
In
addition
to
assumptions
about
the
long‐term
rates
of
return
on
investments,
systems
must
also
establish
assumptions
about
the
long‐term
rate
of
growth
in
employees'
salaries.
These
assumptions
usually
include
estimates
of
increases
due
to
merit
and
seniority
as
well
as
inflation,
although
the
survey
respondents
often
did
not
show
these
components
separately.
Assumed
salary
increases
(including
both
merit
and
inflationary
increases)
ranged
over
a
wide
scale,
with
two‐thirds
of
the
respondents
reporting
values
between'
5.0
and
7.0
percent.
Exhibit
IV‐4
shows
the
distribution
of
assumptions
regarding
salary
increases,
which
averaged
5.93
percent
for
all
systems.
As
with
investment
return,
the
values
for
the
smaller
systems
were
lower
than
for
the
larger
systems.
On
average,
respondent
systems
with
less
than
1,000
members
assumed
rates
of
salary
increase
of
5.89
percent,
while
systems
with
100,000
members
or
more
assumed
salary
increases
of
6.46
percent.
It
should
be
noted
that
these
figures
include
both
inflation
and
merit/step
increases.
Although
not
all
systems
disaggregated
their
salary
assumptions
into
these
various
Subcomponents,
the
analysis
of
the
systems
that
did
indicates
that
the
assumptions
about
inflation
averaged
5.01
percent.
Page
248
of
294
8.3‐8
Actuarial
Methods
and
Assumptions
Conclusions
The
majority
of
respondents
accumulated
the
monies
necessary
to
pay
retirement
benefits
through
a
reserve
funding
method
which,
in
most
cases,
was
based
on
the
entry
age
cost
method.
Actuarial
valuations
were
carried
out
frequently,
usually
on
an
annual
basis,
and
over
90
percent
of
the
respondents
performed
actuarial
valuations
at
least
every
two
years.
The
average
assumed
investment
rate
of
return
was
7.76
percent,
and
the
average
assumed
rate
of
total
salary
increase
was
5.93
percent.
The
average
assumed
rate
of
inflation
was
5.01
percent
for
the
respondents
who
reported
this
assumption
separately.
Page
249
of
294
8.4‐1
GFOA
Recommended
Practices
The
enclosed
information
is
an
excerpt
from
the
GFOA
(Government
Finance
Officers
Association)
web
site
and
describes
the
GFOA
recommended
best
practices
for
diligent
and
responsible
management
of
a
pension
fund
plan.
Click
here
to
open
the
article
in
a
new
window
Page
250
of
294
9. Investment Basics Page
251
of
294
9.1‐1
Asset
Allocation
What
is
Asset
Allocation?
“Asset
allocation”
is
the
analysis
that
investors
apply
in
deciding
how
to
distribute
investments
among
various
classes
of
investment
vehicles
(e.g.,
stocks,
bonds,
commodities,
real
estate,
alternatives,
etc).
The
choice
of
asset
class
weightings
has
a
major
impact
on
returns
in
times
when
the
different
assets
classes
have
significantly
different
results.
Asset
allocation
is
based
on
the
idea
that
different
asset
classes
will
perform
differently
in
different
periods
and
that
it
is
impossible
to
identify
the
best
and
worst
asset
classes
reliably
ahead
of
time.
Diversifying
assets
among
several
asset
classes
according
to
a
consistent
allocation
plan
helps
protect
investors
to
avoid
disastrous
performance
through
over‐
concentration.
Diversification
has
been
described
as
"the
only
free
lunch
you
will
find
in
the
investment
game."
Long
term
(strategic)
asset
allocation
involves
setting
asset
class
targets,
and
re‐balancing
to
those
targets
periodically.
Short
term
“tactical”
allocation
–
sometimes
referred
to
as
market
timing
–
attempts
to
move
allocation
to
asset
classes
up
or
down
depending
on
predictions
of
short
term
asset
class
returns.
While
short
term
allocation
has
its
proponents,
attempts
to
time
the
markets
short
term
can
easily
lead
to
worse
results
over
a
given
period
than
the
results
achieved
by
investors
who
consistently
adhere
to
their
predetermined
asset
allocation
plan
over
the
same
period.
Page
252
of
294
9.1‐2
Asset
Allocation
Long‐Term
Asset
Allocation
The
following
discussion
involves
long
term
asset
allocation.
Long
term
asset
allocation
is
typically
practiced
using
the
quantitative
tools
of
“mean
variance
optimization”,
which
is
an
application
of
“Modern
Portfolio
Theory”
or
MPT.
Those
who
consistently
practice
strategic
asset
allocation
believe
that
by
carefully
choosing
a
portfolio
of
different
assets,
an
investor
may
be
able
to
maximize
return
while
minimizing
risk.
Because
different
asset
classes
returns
over
any
given
investment
period
are
not
perfectly
correlated
with
each
other,
diversifying
assets
among
different
asset
classes
should
help
reduce
the
overall
risk
in
the
portfolio
(expressed
as
the
variability,
or
volatility,
of
returns)
for
a
given
level
of
expected
overall
return.
Having
a
mixture
of
different
asset
classes
in
a
portfolio
may
help
investors
meet
returns
goals
while
also
keeping
portfolio
risk
within
the
parameters
of
their
investment
policy
guidelines. Page
253
of
294
9.1‐2.2
Asset
Allocation
Long‐Term
Asset
Allocation The
“Markowitz
mean‐variance
optimization
model”
is
the
technical
name
for
this
asset
allocation
approach.
It
involves
making
assumptions
about
expected
total
return
for
asset
classes,
risk
(standard
deviation
around
the
expected
return)
of
each
asset
class,
and
correlations
between
the
various
asset
classes
(how
much
they
move
together)
The
outcome
of
the
model
is
a
series
of
possible
asset
mix
choices,
each
of
which
has
the
highest
expected
return
for
its
projected
risk.
(This
series
of
possible
mixes
is
known
as
the
“efficient
frontier”.)
There
can
be
no
guarantee
that
past
relationships
will
continue
in
the
future;
therefore,
the
above
aspect
of
the
model
is
generally
considered
one
of
the
"weak
links"
in
traditional
asset
allocation
strategies
that
have
been
derived
from
MPT.
Another
issue
with
the
model
is
that
seemingly
minor
errors
in
forecasting
may
lead
to
recommended
allocations
that
are
impractical
and
may
violate
"common
sense".
This
may
result
in
a
certain
amount
of
tweaking
of
assumptions
to
obtain
reasonable
results.
Page
254
of
294
9.1‐3
Asset
Allocation
How
Important
is
Asset
Allocation?
Academic
research
has
painstakingly
examined
the
importance
of
asset
allocation.
In
1986,
Brinson,
Hood,
and
Beebower
(BHB)
published
a
study
about
the
asset
allocation
of
91
large
pension
funds
measured
from
1974
to
1983.
The
authors
replaced
the
pension
funds'
stock,
bond,
and
cash
selections
with
corresponding
market
indexes.
The
indexed
quarterly
returns
were
found
to
be
higher
than
the
pension
plans’
aggregate
actual
quarterly
returns.
The
two
quarterly
return
series'
linear
correlation
was
measured
at
96.7%,
with
shared
variance
of
93.6%.
A
1991
follow‐up
study
by
Brinson,
Singer,
and
Beebower
measured
a
variance
of
91.5%.
The
key
lesson
of
these
studies
taken
together
was
that,
for
the
period
studied,
the
choice
of
which
asset
classes
to
invest
in
had
a
bigger
impact
on
the
volatility
of
the
funds
than
did
the
choice
of
any
particular
investment
manager.
Some
also
read
the
studies
to
mean
that
more
time
should
be
spent
on
asset
allocation
compared
to
seeking
active
management
(and
that
replacing
active
investment
management
choices
with
index
funds
might
make
sense.)
Later
papers
pointed
out
that
it
wasn’t
necessarily
the
effect
on
volatility
that
investors
cared
about,
but
rather
the
effect
on
returns.
While
asset
allocation
may
drive
the
market
sensitivity
of
returns,
excess
returns
(plus
or
minus)
delivered
by
investment
managers
still
have
a
major
impact
on
total
returns
achieved.
In
2000,
Ibbotson
and
Kaplan
used
5
asset
classes
in
their
study
"Does
Asset
Allocation
Policy
Explain
40,
90,
or
100
Percent
of
Performance?"
Their
conclusion
was
that
Asset
Allocation
determines
90%
of
risk
but
40%
of
the
difference
in
returns.
Page
255
of
294
9.1‐4
Asset
Allocation
Predictability
of
Manager
Out‐and
Under‐Performance
based
on
Historic
Results
McGuigan
described
an
examination
of
funds
that
were
in
the
top
quartile
of
performance
during
1983
to
1993.
During
the
second
measurement
period
of
1993
to
2003,
only
28.57%
of
the
funds
remained
in
the
top
quartile.
33.33%
of
the
funds
dropped
to
the
second
quartile.
The
rest
of
the
funds
dropped
to
the
third
or
fourth
quartile.
In
fact,
data
suggested
that
low
cost
was
a
more
reliable
indicator
of
performance.
Page
256
of
294
9.1‐5
Asset
Allocation
Using
Fees
to
Predict
Manager
Performance
Jack
Bogle
of
Vanguard
noted
that
an
examination
of
5
year
performance
data
of
large‐cap
blend
funds
revealed
that
funds
in
the
lowest
quartile
of
cost
had
the
best
performance,
and
that
funds
in
the
highest
quartile
of
cost
had
the
worst
performance.
Page
257
of
294
9.1‐6
Asset
Allocation
References
^
Gary
P.
Brinson,
L.
Randolph
Hood,
and
Gilbert
L.
Beebower,
Determinants
of
Portfolio
Performance,
The
Financial
Analysts
Journal,
July/August
1986.
^
Gary
P.
Brinson,
Brian
D.
Singer,
and
Gilbert
L.
Beebower,
Determinants
of
Portfolio
Performance
II:
An
Update,
The
Financial
Analysts
Journal,
47,
3
(1991)
^
William
Jahnke,
The
Asset
Allocation
Hoax,
Journal
of
Financial
Planning,
February
1997
^
Roger
G.
Ibbotson
and
Paul
D.
Kaplan,
Does
Asset
Allocation
Policy
Explain
40%,
90%,
or
100%
of
Performance?,
The
Financial
Analysts
Journal,
January/February
2000
^
Thomas
P.
McGuigan,
The
Difficulty
of
Selecting
Superior
Mutual
Fund
Performance,
Journal
of
Financial
Planning,
February
2006
^
James
Dean
Brown,
The
coefficient
of
determination,
Shiken:
JALT
Testing
&
Evaluation
SIG
Newsletter,
Volume
7,
No.
1,
March
2003
^
Meir
Statman,
The
93.6%
Question
of
Financial
Advisors,
Journal
of
Investing,
Spring
2000
^
L.
Randolph
Hood,
Response
to
Letter
to
the
Editor,
The
Financial
Analysts
Journal
62/1,
January/February
2006
^
L.
Randolph
Hood,
Determinants
of
Portfolio
Performance
‐
20
Years
Later,
The
Financial
Analysts
Journal
61/5
September/October
2005
^
Bekkers
Niels,
Doeswijk
Ronald
Q.
and
Lam
Trevin
W.,
[http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1368689
Strategic
Asset
Allocation:
Determining
the
Optimal
Portfolio
with
Ten
Asset
Classes],
Working
Paper
Series,
March
2009>
Page
258
of
294
9.2‐1
Developing
an
Investment
Policy
Investment
Policy
Statement
The
one
investment
that
can
minimize
the
potential
liability
that
a
fiduciary
faces
is
the
development
of
a
coherent,
comprehensive
and
realistic
investment
policy
statement.
Fiduciaries
must
assume
that
their
investment
decisions
will
be
examined
in
detail
in
the
future.
Without
proper
documentation,
it
is
easy
for
the
"Monday
morning
quarterback"
to
criticize
the
fiduciaries’
decision
and
judgment,
particularly
if
investment
performance
is
not
favorable.
Page
259
of
294
9.2‐2
Developing
an
Investment
Policy
Investment
Policy
Statement
In
preparing
the
investment
policy
statement,
the
Board
should
solicit
input
regarding
items
that
will
affect
the
plan
from
Staff
and
Consultant.
Items
that
will
affect
the
plan
include:
(a)
Time
horizon
of
commitment
to
investment
alternatives
(b)
Amount
of
expected
future
contributions
and
withdrawals,
(c)
Growth
of
participants,
(d)
Vesting
schedule,
(e)
Forfeitures,
(f)
Similar
details
that
will
affect
the
investment
decisions
and
commitments.
Page
260
of
294
9.2‐2
Developing
an
Investment
Policy
Investment
Policy
Statement
Components
(1‐5)
of
10
1.
The
type
of
plan
(defined
benefit,
defined
contribution,
profit
sharing,
etc.),
date
of
adoption,
and
number
of
employees
covered.
2.
The
current
dollar
value
of
the
assets
to
be
managed
and
assumptions
as
to
the
projected
cash
inflows
(from
contributions)
and
projected
outflows
(from
withdrawals)
over
the
ensuing
years
(e.g.,
3,
5
and
10
years).
3.
The
accrued
and
projected
liabilities
of
the
plan
which
may
change
the
funding
status
(over
or
underfunded)
as
the
plan's
assumptions
and/or
investment
performance
and
participant
demographics
change.
4.
The
stability
of
earnings
by
the
plan
sponsor
and
the
ability
of
the
sponsor
to
sustain
contributions.
5.
The
investment
objectives
the
plan
must
attain
in
order
to
meet
funding
objectives
and/or
the
overall
return
objective
for
plan
assets
(e.g.,
3%
over
Consumer
Price
Index).
Page
261
of
294
9.2‐2
Developing
an
Investment
Policy
Investment
Policy
Statement
Components
(6‐10)
of
10
6.
Asset
classes
appropriate
for
the
plan
(based
on
risk
tolerances,
correlations,
and
time
horizon)
and
permitted
by,
regulations.
7.
The
plan's
tolerance
for
risk
and
volatility
of
returns
consistent
with
the
plan's
funding
policy.
8.
The
percentage
mix
of
asset
classes
that
will
yield
the
highest
probability
of
meeting
long‐term
investment
objectives
without
exceeding
tolerances
for
short‐term
volatility.
9.
How
investment
decisions
will
be
made,
and
if
money
managers
will
be
hired,
how
they
will
be
selected.
10.
How
the
plan's
portfolio
performance
will
be
monitored
and
how
money
managers
will
be
supervised,
including
appropriate
benchmark
indices
(e.g.
S&P
500
Index
for
domestic
equity
managers).
Page
262
of
294
10. Financial Management of the Pension
Page
263
of
294
Investment
Performance
10.1‐1
Investment
Performance
is
the
return
on
an
investment
portfolio.
The
investment
portfolio
can
contain
a
single
asset
or
multiple
assets.
The
investment
performance
is
measured
over
a
specific
period
of
time
and
in
a
specific
currency.
Investors
often
distinguish
different
types
of
return.
One
is
the
distinction
between
the
total
return
and
the
price
return,
where
the
former
takes
into
account
income
(interest
and
dividends),
whereas
the
latter
only
takes
into
account
capital
appreciation.
Page
264
of
294
10.1‐2
Investment
Performance
Investment
Performance
Another
distinction
is
between
net
and
gross
return.
The
'pure'
net
return
to
the
investor
is
the
return
net
of
all
fees,
expenses,
and
taxes,
whereas
the
'pure'
gross
return
is
the
return
before
all
fees,
expenses,
and
taxes.
Various
variations
between
these
two
extremes
exist.
Which
return
one
looks
at
depends
on
what
one
is
trying
to
measure.
For
example,
if
one
wishes
to
measure
the
ability
of
an
investment
manager
to
add
value,
then
the
return
net
of
transaction
expenses,
but
gross
of
all
other
fees,
expenses,
and
taxes
is
an
appropriate
measure
to
look
at
since
fees,
expenses,
and
taxes
other
than
transaction
expenses
are
often
outside
the
control
of
the
investment
manager.
Another
important
distinction
is
between
the
money
(dollar)‐weighted
return
and
the
time‐weighted
return.
The
former
is
appropriate
if
the
manager
determines
the
timing
of
inflows
in
or
outflows
from
the
portfolio.
The
latter
is
appropriate
when
the
manager
is
not
responsible
for
the
timing
of
cash
inflows
into
and
cash
outflows
from
the
portfolio.
Page
265
of
294
10.2‐1
Monitoring
Performance
"In addition to any liability which he may have under any other provision of this part, a
fiduciary with respect to a plan shall be liable for a
breach of fiduciary responsibility of another fiduciary with respect to the same plan" (ERISA Sec 405(a)) A
fiduciary's
duties
do
not
end
with
the
development
of
an
investment
policy
statement
and
the
selection
of
appropriate
money
managers
to
implement
the
policy.
The
fiduciary
must
ensure
that
those
persons
charged
with
investment
responsibility
comply
with
the
provisions
of
the
plan's
investment
policy
statement.
Page
266
of
294
10.2‐2
Monitoring
Performance
Conducting
an
Analysis
–
1
of
3
Most
court
cases
arising
out
of
the
failure
of
the
fiduciary
to
supervise
properly
clearly
indicate
that
it
is
not
sufficient
for
a
fiduciary
to
merely
review
an
investment
report
from
the
money
manager.
The
analysis
must
go
deeper.
The
fiduciary
should
determine:
1.
Whether
the
plan
achieved
its
expected
return
and
investment
objectives.
This
is
the
most
critical
question
the
fiduciary
must
answer.
For
if
the
plan
has
not
reached
its
objectives,
the
plan
sponsor
may
be
faced
with
making
additional
unplanned
contributions
to
cover
shortfalls.
Or,
the
fiduciary
may
be
faced
with
unhappy
participants
who
question
the
fiduciary's
prudent
handling
of
their
retirement
assets.
In
either
case,
the
fiduciary
should
determine
whether
the
shortfall
was
a
result
of
underexposure
of
asset
classes
offering
greater
returns,
market
upheaval,
manager
performance,
high
administrative
and/or
investment
expenses,
or
a
combination
of
factors.
Page
267
of
294
10.2‐3
Monitoring
Performance
Conducting
an
Analysis
–
2
of
3
2.
Whether
the
manager
is
still
abiding
by
the
plan's
investment
policy
statement.
Specifically,
whether
restrictions
or
constraints
for
different
asset
classes
are
being
followed
and
whether
asset
allocation
restrictions
are
being
adhered
to.
This
is
one
point
in
the
supervisory
process
where
the
fiduciary
should
review
whether
the
portfolio
should
be
rebalanced
(e.g.
sell
equities
to
increase
fixed
income
exposure)
to
remain
aligned
with
the
allocation
agreed
upon
in
the
investment
policy
statement.
Page
268
of
294
10.2‐4
Monitoring
Performance
Conducting
an
Analysis
–
3
of
3
3.
What
contributed
to
the
total
return
of
the
portfolio?
A
number
of
components
make
up
total
return.
Each
should
be
isolated
to
determine
its
impact.
These
components
are:
a)
Performance
that
can
be
attributed
to
the
money
manager's
decisions.
In
other
words,
what
premium
above
the
S&P
SOO
did
the
equity
manager
earn?
Empirical
studies
have
shown
that
a
majority
of
managers
do
not
add
a
premium
and
actually
subtract
from
the
performance
that
could
have
been
achieved
by,
passive
management
(e.g.,
buying
an
index).
b)
Performance
that
can
be
attributed
to
the
fiduciary's
selection
of
money
managers.
How
does
the
managers’
performance
compare
with
managers
of
like
style
or
strategy,
and
also
with
managers
of
the
same
asset
class.
Page
269
of
294
10.2‐5
Monitoring
Performance
Terminating
a
Manager
In
monitoring
and
supervising
the
manager,
the
question
will
arise:
"Under
what
circumstances
should
a
manager
be
replaced?"
It
may
be
easier
to
answer
the
question
by
stating
when
it
may
not
be
appropriate.
Poor
short‐term
(two
‐
years
or
less)
performance
should
not
be
justification
in
and
of
itself.
Most
consultants
agree
that
a
manager
should
be
given
at
least
two
years
to
allow
for
the
manager's
performance
abilities
to
be
recognized.
In
addition,
the
fiduciary
should
not
expect
even
a
"star"
money
manager
to
hit
a
home
run
every
year.
Page
270
of
294
10.2‐6
Monitoring
Performance
Terminating
a
Manager
There
are
times
however
when
a
prudent
fiduciary
should
consider
firing
a
money
manager.
One
reason
would
be
a
change
in
the
manager's
investment
strategy
or
style.
No
fiduciary
should
entrust
assets
to
an
untested
strategy.
Also,
the
fiduciary
should
be
alert
for
the
manager
suffering
from
performance
anemia
and
who
may
initiate
changes
to
increase
returns
by
investing
in
the
latest
Wall
Street
fad.
This
adds
undue
risk
to
a
portfolio.
An
inexperienced
manager
suffering
from
poor
performance
may
try
to
redeem
his
or
her
record
by
taking
inordinate
risks
that
often
compound
investment
errors
and
further
degrade
performance.
Page
271
of
294
10.2‐7
Monitoring
Performance
Conclusion
Monitoring
money
manager
performance
goes
beyond
a
simple
review
of
manager‐provided
figures.
Changes
in
a
manager’s
style,
Staff,
and/or
changes
in
plan
objectives
may
necessitate
the
replacement
of
a
manager.
The
investment
policy
Statement
should
not
be
viewed
as
a
static
document
‐
circumstances
may
change
requiring
a
change
in
asset
mixes
and/or
managers.
Page
272
of
294
11. Appendix
Page
273
of
294
1937
Act
(County
Employees
Retirement
Law)
11.1‐1
CERL
in
Full
This
section
contains
the
most
recent
version
of
the
CERL.
As
you
have
learned
already
from
this
handbook,
the
CERL
changes
through
new
legislation
on
a
regular
basis.
CLICK HERE TO OPEN THE CERL Page
274
of
294
11.2
GLOSSARY
OF
RETIREMENT
SYSTEM
TERMINOLOGY
The
following
terms
are
used
throughout
the
retirement
systems
in
the
state
of
California
“Contribution
Holiday”
In
years
when
investment
returns
are
sufficiently
high,
government
employers
may
not
be
required
to
make
pension
contributions
(i.e.,
to
enjoy
a
“holiday”
from
contributions).
(CALAPRS)
115
Trust
Fund
Account
See
Voluntary
Employees’
Beneficiary
Association
(VEBA)
1937
Act
Counties
The
20
California
counties
which
had
their
own
county
retirement
systems
established
(separate
from
the
PERS
system)
by
the
1937
Act:
Alameda,
Contra
Costa,
Fresno,
Imperial,
Kern,
Los
Angeles,
Marin,
Mendocino,
Merced,
Orange,
Sacramento,
San
Bernardino,
San
Diego,
San
Joaquin,
San
Mateo,
Santa
Barbara,
Sonoma,
Stanislaus,
Tulare,
and
Ventura
Counties.
(CALAPRS)
401
(h)
account
Section
401(h)
of
the
IRS
Code
permits
a
pension
or
annuity
plan
to
provide
for
payment
of
benefits
for
sickness,
accident,
hospitalization
and
medical
expenses
for
retired
employees,
their
spouses
and
dependents.
Accordingly,
the
exclusive
method
for
providing
medical
benefits
in
a
pension
plan
(or
money
purchase
plan)
is
by
utilizing
a
section
401(h)
account.
(IRS)
419
(A)
Plan
A
welfare
benefit
plan
funded
through
trusts
to
which
many
unrelated
employers
contribute.
It
is
referred
to
as
a
multiple
employer
plan.
These
plans
are
often
structured
as
nondiscriminatory
VEBAs
or
taxable
trusts
and
offer
life
insurance
or
severance
benefits.
(IFEBC)
Page
275
of
294
Active
Member
A
member
of
a
pension
system
who
is
accruing
benefits
through
current
service.
(CALAPRS)
Active
Member
An
active
member
is
a
person
who
is
working
as
a
permanent
employee
for
the
plan
sponsor
or
an
outside
district
and
earning
service
credit
in
a
retirement
plan.
Active
members
also
include
members
on
authorized
leave
who
are
not
earning
service
credit
(CALAPRS)
Actuarial
Assumptions
Assumptions
made
about
certain
events
that
will
affect
pension
costs.
Assumptions
generally
can
be
broken
down
into
two
categories:
demographic
and
economic.
Demographic
assumptions
include
such
things
as
mortality,
disability
and
retirement
rates.
Economic
assumptions
include
investment
return,
salary
growth
and
inflation.
(IFEBC)
Actuarial
Assumed
Rate
of
Return:
The
assumed
rate
of
return
of
a
retirement
plan
is
one
of
the
factors
used
by
actuaries
to
estimate
the
cost
of
funding
a
defined
benefit
pension
plan.
(CALAPRS)
Actuarial
Cost
A
cost
is
characterized
as
actuarial
if
it
is
derived
through
the
use
of
present
values.
An
actuarial
cost
is
often
used
to
associate
the
costs
of
benefits
under
a
retirement
system
with
the
approximate
time
the
benefits
are
earned.
(IFEBC)
Actuary
A
person
professionally
trained
in
the
technical
and
mathematical
aspects
of
insurance,
pensions
and
related
fields.
The
actuary
estimates
how
much
money
must
be
contributed
to
a
pension
fund
each
year
in
order
to
support
the
benefits
that
will
become
payable
in
the
future.
(Insurance)
A
person
trained
in
the
insurance
field
who
determines
policy
rates,
reserves
and
dividends,
as
well
as
conducts
various
other
statistical
studies.
(IFEBC)
Page
276
of
294
Actuarial
Valuation
The
procedure
used
to
estimate
the
present
value
of
benefits
to
be
paid
under
a
plan
and
to
compute
the
amount
of
contributions
required
to
cover
the
normal
and
unfunded
costs
of
benefits.
(CALAPRS)
Adverse
Selection
The
tendency
of
an
individual
to
recognize
his
or
her
health
status
in
selecting
the
option
under
a
retirement
system
or
insurance
plan
that
tends
to
be
most
favorable
to
him
or
her
(and
more
costly
to
the
plan).
In
insurance
usage,
a
person
with
an
impaired
health
status
or
with
expected
medical
care
needs
applies
for
insurance
coverage
financially
favorable
to
himself
or
herself
and
detrimental
to
the
insurance
company.
Also
known
as
anti‐selection.
(IFEBC)
Annual
Required
Contribution
(ARC)
The
ARC
is
the
actuarially
determined
level
of
employer
contribution
that
would
be
required
on
a
sustained,
ongoing
basis
to
systematically
fund
the
normal
cost
and
to
amortize
the
Unfunded
Actuarial
Accrued
Liability
(UAAL)
attributed
to
past
service
over
a
period
not
to
exceed
thirty
years.
It
is
the
amount
needed
to
pay
benefits
as
they
come
due
plus
amortize
the
UAAL.
The
ARC
has
two
components:
Normal
cost
and
amortization
of
the
UAAL
for
both
active
employees
and
retirees.
If
an
employer
funds
less
(or
more)
than
the
ARC,
the
difference
is
a
liability
(or
asset)
known
as
the
net
obligation.
(CALAPRS)
Automatic
Enrollment
The
practice
of
enrolling
all
eligible
employees
in
a
plan
and
beginning
participant
deferrals
without
requiring
the
employees
to
submit
a
request
to
participate.
Plan
design
specifies
how
these
automatic
deferrals
will
be
invested.
Employees
who
do
not
want
to
make
contributions
to
the
plan
must
actively
file
a
request
to
be
excluded
from
the
plan.
Participants
can
generally
change
the
amount
of
pay
that
is
deferred
and
how
it
is
invested.
(IFEBC)
Page
277
of
294
Best
Practices
Superior
performance
by
an
organization
in
both
management
and
operational
processes.
(IFEBC)
California
Public
Employees’
Retirement
System
(CalPERS)
(Formerly
PERS)
The
retirement
system
established
under
the
Government
Code
of
the
State
of
California
for
State
employees,
classified
(non‐teaching)
school
employees,
and
employees
in
California
public
agencies
that
contract
with
CalPERS
for
retirement
and/or
health
coverage.
(CALAPRS)
California
State
Teachers’
Retirement
System
(CalSTRS)
The
retirement
system
founded
in
1912
for
teachers
in
the
State
of
California.
(CALAPRS)
Charter
City
A
city
whose
form
of
government
is
defined
by
a
charter
resulting
from
an
establishment
convention.
(CALAPRS)
Consolidated
Omnibus
Budget
Reconciliation
Act
of
1985
(COBRA)
A
federal
law
that
requires
employers
to
offer
health
insurance
coverage
to
certain
employees
and
their
dependents
for
a
limited
period
of
time
when
group
health
insurance
coverage
has
terminated.
(CALAPRS)
Contributions
Employer
Employer
contributions
are
monies
contributed
to
the
retirement
fund
by
the
sponsors
of
the
plan
for
all
plan
participants.
(CALAPRS)
Contributions
Member
Member
contributions
are
the
retirement
contributions
made
by
plan
members
who
participate
in
a
contributory
plan.
The
contribution
amount
is
calculated
by
multiplying
an
age‐based
percentage
rate
by
the
member's
compensation
earnable.
(CALAPRS)
Page
278
of
294
Deferred
Retirement
Option
Plan
(DROP)
An
arrangement
under
which
an
employee
retires,
but
elects
to
continue
to
work
for
the
employer
and
have
his
or
her
retirement
allowance
retained
by
the
retirement
fund.
The
retired
member
collects
compensation
from
the
employer
but
is
not
permitted
to
contribute
to
the
retirement
plan
and
no
additional
service
or
salary
credit
accrues.
The
monthly
retirement
allowance
retained
by
the
retirement
system
is
credited
to
the
retired
member’s
DROP
account.
The
account
earns
interest
(either
at
a
rate
stated
in
the
plan,
or
based
on
the
earnings
of
the
retirement
fund).
The
retired
member
may
continue
to
work
for
the
employer
for
only
a
limited
period
of
time
(commonly
5
years).
When
the
retired
member
leaves
employment,
the
amount
in
the
DROP
account
is
paid
to
the
retired
member,
including
accrued
interest.
The
retired
member
then
begins
to
receive
his
or
her
monthly
retirement
allowance.
(CALAPRS)
Defined
Benefit
Plan
(DB)
A
plan
designed
to
provide
eligible
participants
with
a
specified
benefit
at
retirement
based
upon
a
formula
which
includes
the
following
three
factors:
member's
age
at
retirement,
member's
length
of
credited
service
and
member's
final
compensation.
(CALAPRS)
Defined
Contribution
Plan
(DC)
A
defined
contribution
plan
is
a
retirement
plan
that
provides
an
individual
account
for
each
participant
and
benefits
that
are
based
solely
on
(1)
the
amount
contributed
to
the
participant's
account,
plus
(2)
any
income,
expenses,
gains/losses,
and
forfeitures
that
may
be
allocated
to
the
participant's
account.
(CALAPRS)
Discount
Rate
The
rate
at
which
the
US
Federal
Reserve
will
lend
short‐term
funds.
(CALAPRS)
Page
279
of
294
Early
Retirement
A
termination
of
employment
involving
the
payment
of
a
retirement
allowance
before
a
participant
is
eligible
for
normal
retirement.
The
retirement
allowance
payable
in
the
event
of
early
retirement
is
often
lower
than
the
accrued
portion
of
the
normal
retirement
allowance
(IFEBC)
Employee
Contributions
The
retirement
contributions
made
by
members
who
participate
in
a
contributory
plan.
The
contribution
amount
is
either
a
flat
percentage
of
salary
or
calculated
by
multiplying
an
age‐based
percentage
rate
by
the
member's
compensation
earnable.
See
contributions‐member,
contributions‐nontaxable,
contributions
taxable.
(CALAPRS)
Employer
Pick
Up
Pre‐tax
contributions
to
a
pension
system
permitted
by
IRC
§414(h))
which
allows
the
members’
contributions
to
be
made
“pre‐tax”
and
acts
like
it
reduces
the
participant‘s
salary
but
are
deemed
to
be
employer
contributions.
(CALAPRS)
Fully
Funded
A
specific
element
of
pension
cost
(for
example,
past
service
cost)
is
said
to
have
been
fully
funded
if
the
amount
of
the
cost
has
been
paid
in
full
to
a
funding
agency.
A
pension
plan
is
said
by
some
to
be
fully
funded
if
regular
payments
are
being
made
under
the
plan
to
a
funding
agency
to
cover
the
normal
cost
and
reasonably
rapid
amortization
of
the
past
service
cost.
(IFEBC)
Funding
Ratio
In
asset/liability
management,
the
market
value
of
assets
divided
by
the
present
value
of
present
and
future
liabilities.
If
the
ratio
exceeds
100%,
then
the
obligations
are
said
to
be
overfunded.
If
the
ratio
is
less
than
100%,
then
the
obligations
are
underfunded.
(CALAPRS)
Page
280
of
294
GASB
Statement
43
and
45
Encourages
adoption
of
professional
standards
in
financial
planning
and
accounting
including
clear
publication
of
financial
plans
and
other
information
according
to
uniform
standards
including:
the
cost
of
benefits
in
periods
when
the
related
services
are
received
by
the
employer,
information
about
the
actuarial
accrued
liabilities
for
promised
benefits
associated
with
past
services
and
whether
and
to
what
extent
those
benefits
have
been
funded
and
information
useful
in
assessing
potential
demands
on
the
employer’s
future
cash
flows.
(GASB)
General
Law
City
A
city
whose
form
of
government
is
defined
by
the
laws,
rules
and
regulations
of
the
state
in
which
it
resides.
(CALAPRS)
Government
Pension
Offset
(GPO)
A
reduction
in
the
spousal
Social
Security
benefits
to
a
person
who
receives
a
pension
from
a
retirement
system
that
is
not
coordinated
with
Social
Security.
The
reduction
may
result
in
no
Social
Security
benefit.
Also
known
as
the
“spousal
offset”.
(CALAPRS)
Governmental
Accounting
Standards
Board
(GASB)
GASB
establishes
and
improves
standards
of
state
and
local
governmental
accounting
and
financial
reporting
that
will
result
in
useful
information
for
users
of
financial
reports
and
guide
and
educate
the
public,
including
issuers,
auditors,
and
users
of
those
financial
reports.
(CALAPRS)
Health
Insurance
Protection
that
provides
payment
of
benefits
for
covered
sickness
or
injury.
Included
under
this
heading
are
various
types
of
insurance,
such
as
accident
insurance,
disability
income
insurance,
medical
expense
insurance,
and
accidental
death
and
dismemberment
insurance.
(IFEBC)
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281
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294
Health
Maintenance
Organization
(HMO)
A
type
of
health
care
provider
that
offers
to
its
members
an
agreed‐upon
set
of
basic
and
supplemental
health
services
at
specific
facilities
for
a
fixed
prepaid
premium.
Usually
there
are
no
claim
forms.
(CALAPRS)
Health
Reimbursement
Account
(HRA)
Health
Reimbursement
Accounts
(HRAs)
(or
Health
Reimbursement
Arrangements)
are
partially
self‐funded
medical
and
health
insurance
plans
with
special
tax
advantages.
Health
Savings
Account
(HSA)
Health
Savings
Accounts
(HSAs)
are
tax‐advantaged
health
savings
accounts
available
to
those
enrolled
in
a
High
Deductible
Health
Plan
(HDHP)
(CALAPRS)
Life
Expectancy
Length
of
time
a
person
of
a
given
age
is
expected
to
live.
The
period
is
a
statistical
average,
based
on
mortality
tables
showing
rate
of
death
at
each
age.
It
does
not
seek
to
predict
the
life
span
of
any
particular
individual.
(IFEBC)
Internal
Revenue
Code
(IRC)
The
body
of
law
governing
tax
collection
and
financial
organization
provided
for
under
Title
26
of
the
U.S.
Code
or
the
Internal
Revenue
Code.
(IRS)
Matching
Contributions
Made
by
an
employer
to
a
plan
on
an
employee’s
behalf
when
the
employee
makes
elective
or
non‐elective
contributions.
(IFEBC)
Medical
Inflation
Rate
The
rate
of
increase
of
medical
costs
based
on
time
period
comparisons
of
hypothetical
consumer
price
indices
designed
to
reflect
the
costs
of
medical
goods
and
services.
(CALAPRS)
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282
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294
Medicare
‐
Part
A
Medicare
Part
A
is
hospital
insurance
that
covers
inpatient
care
in
a
hospital
or
skilled
nursing
facility,
and
also
hospice
care.
Medicare
Part
A
insurance
is
automatic
and
free
for
eligible
retirees
who
are
fully
insured
under
Social
Security
and
have
applied
for
Social
Security
benefits,
or
who
have
paid
sufficient
Medicare
payroll
tax.
Members
who
are
not
fully
insured
pay
premiums
that
are
based
on
the
number
of
Social
Security
credits
they've
earned.
(CALAPRS)
Medicare
‐
Part
B
Medicare
Part
B
is
medical
insurance
that
covers
physician
services,
outpatient
hospital
care,
lab
and
x‐rays,
ambulance
charges,
and
some
other
services
not
covered
by
Medicare
Part
A.
Medicare
Part
B
coverage
is
voluntary
and
retirees
do
not
have
to
be
fully
insured
under
Social
Security
to
be
eligible.
Members
65
or
older
who
are
not
eligible
for
Part
A
coverage
may
elect
to
pay
a
flat
rate
for
Part
B
coverage.
(CALAPRS)
Medical
Reimbursement
Plan
An
employer
plan
that
reimburses
employees
for
medical
expenses
directly
from
employer
funds,
and
not
through
a
policy
of
health
or
accident
insurance.
(IFEBC)
Medical
Savings
Account
A
savings
account
that
can
be
used
to
pay
medical
expenses
not
covered
by
insurance
for
employees
of
small
businesses
or
self‐employed
individuals
who
are
covered
under
health
plans
with
high
deductibles.
Employers
with
small
group
MSAs
may
make
contributions
on
behalf
of
employees,
or
employees
may
make
the
entire
contribution.
(IFEBC)
Page
283
of
294
Medicare
‐
Supplement
Plan
A
Medicare
supplement
plan
is
an
indemnity
plan
for
individuals
who
are
enrolled
in
both
Part
A
and
Part
B
of
Medicare.
The
plan
supplements
Medicare
coverage
by:
paying
Medicare
Part
A
deductibles
and
co‐
payments,
as
well
as
Medicare
Part
B
deductibles
and
20%
of
Medicare‐
approved
amounts;
providing
coverage
for
certain
items
that
Medicare
does
not
cover,
such
as
some
prescription
drugs
and
care
while
traveling
outside
the
United
States.
(CALAPRS)
Medicare
‐
HMO
Plan
A
Medicare
HMO
plan
is
a
health
plan
offered
by
an
HMO
that
has
contracted
with
the
federal
government
to
provide
health
care
services
to
individuals
with
Medicare
Part
A
and
Part
B
coverage.
Plan
participants
agree
to
receive
all
services
from
plan
providers
—
and
Medicare,
in
turn,
pays
the
HMO
a
monthly
fee
for
each
enrolled
member.
(CALAPRS)
Member
Contributions
Member
contributions
are
the
retirement
contributions
made
by
members
who
participate
in
a
contributory
plan.
The
contribution
amount
is
a
flat
rate
or
is
calculated
by
multiplying
a
percentage
rate
by
the
member's
compensation
earnable.
See
also
Contributions‐taxable
and
Contributions
Nontaxable.
(CALAPRS)
National
Health
Insurance
Any
system
of
socialized
health
insurance
benefits,
covering
all
or
nearly
all
citizens,
established
by
federal
law,
administered
by
the
federal
government
and
supported
or
subsidized
by
taxation.
(IFEBC)
Nonqualified
Plan
An
employer‐sponsored
plan
that
does
not
meet
the
requirements
of
Section
401(a)
of
the
1986
Internal
Revenue
Code
and
that,
as
a
result,
suffers
distinct
disadvantages
from
a
tax
standpoint.
(IFEBC)
Page
284
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294
Normal
Cost
Computed
differently
under
different
funding
methods,
the
employers’
annual
normal
cost
represents
the
present
value
of
benefits
that
have
accrued
on
behalf
of
the
members
during
the
valuation
year.
(CALAPRS)
Other
Post‐Employment
Benefits
(OPEB)
OPEB
includes
post‐employment
healthcare,
as
well
as
other
forms
of
post‐
employment
benefits
(for
example,
life
insurance)
provided
separately
from
a
pension
plan.
(CALAPRS)
Pay‐As‐You‐Go
A
method
of
recognizing
the
costs
of
a
retirement
system
only
as
benefits
are
paid.
Also
known
as
the
current
disbursement
cost
method.
(CALAPRS)
Pension
Benefit
A
benefit
payable
as
an
annuity
to
a
participant
or
beneficiary
of
a
pension
plan.
(CALAPRS)
Postretirement
Benefits
All
forms
of
benefits,
other
than
retirement
income,
provided
by
an
employer
to
its
retirees.
(IFEBC)
Plan
Sponsor
The
agency
or
entities
that
establish
pension
plans,
including:
private
businesses
acting
for
their
employees;
state
and
local
agencies
operating
on
behalf
of
their
employees;
unions
acting
on
behalf
of
their
members;
and
individuals
representing
themselves.
(CALAPRS)
Pre‐Funding
A
method
of
funding
in
which
a
reserve
fund
is
accumulated
in
advance
of
paying
benefits.
This
is
the
alternative
to
“pay‐as‐you‐go”
funding.
(CALAPRS)
Page
285
of
294
Public
Employees’
Medical
and
Hospital
Care
Act
(PEMHCA)
California’s
Public
Employees’
Medical
and
Hospital
Care
Act
directs
the
administration
of
the
CalPERS
Health
Program.
It
is
part
of
the
California
Government
Code,
Section
22751
et
seq.
(CALAPRS)
Qualified
Plan
Commonly
refers
to
plans
established
under
Sections
401(k),
401(a)
or
403(b)
or
any
retirement
plan
that
meets
IRS
criteria
that
allow
employers
to
deduct
pension
costs
as
a
business
expense
and
defer
current
income
tax
on
its
earnings,
and
allow
employees
to
defer
income
tax
on
the
employer’s
contributions
and
savings
(IFEBC)
Reciprocal
Agreement
An
agreement
between
two
public
retirement
systems
on
coordination
of
benefit
(IFEBC)
Safety
Member
A
safety
member
is
a
permanent
employee
of
the
plan
sponsor
agency
working
full
time
such
as
a
firefighter
or
law
enforcement
officer.
(CALAPRS)
Self‐Funding
A
fully
noninsured
or
self‐insured
plan
is
one
in
which
no
insurance
company
or
service
plan
collects
premiums
and
assumes
risk.
In
a
sense,
the
employer
is
acting
as
an
insurance
company‐‐paying
claims
with
the
money
ordinarily
earmarked
for
premiums.
Regardless
of
the
specific
self‐
funding
technique
a
firm
chooses,
it
will
need
to
either
buy
its
administrative
services
(ASO)
outside
the
company
or
develop
them
in‐
house.
Hence,
self‐funded
arrangements
are
referenced
as
ASO
or
self‐
administered.
There
are
two
standard
self‐funding
techniques
that
companies
interested
in
this
approach
usually
evaluate
for
appropriateness
to
their
own
situation:
501(c)(9)
trust
and
disbursed
self‐funded
plan
(IFEBC)
Page
286
of
294
Service
Employment
taken
into
consideration
under
a
pension
plan.
Years
of
employment
before
the
inception
of
a
plan
constitute
an
employee’s
past
service;
years
thereafter
are
classified
in
relation
to
the
particular
actuarial
valuation
being
made
or
discussed.
Years
of
employment
(including
past
service)
prior
to
the
date
of
a
particular
valuation
constitute
prior
service;
years
of
employment
following
the
date
of
the
valuation
constitute
future
service;
a
year
of
employment
adjacent
to
the
date
of
the
valuation,
or
in
which
such
date
falls,
constitutes
current
service
(included
in
future
service).
(CALAPRS)
Service
Credit
Time,
denominated
in
pay
periods,
months,
or
other
measurement
periods
that
is
used
in
a
DB
plan
benefit
formula.
(CALAPRS)
Social
Security
Offset/Windfall
Penalty
In
1983
Congress
passed
legislation
stating
that
if
one
were
to
work
for
a
federal,
state
or
local
government
where
one
did
not
pay
social
security
taxes,
then
the
government
pension
one
receives
from
that
agency
may
reduce
a
large
portion
of
the
Social
Security
benefits
for
which
one
would
qualify.
There
has
been
some
remediation
of
this
issue
in
2004.
(CALAPRS)
Pension
Spiking
The
practice
of
increasing
a
member’s
retirement
allowance
(without
a
change
in
plan
benefits)
by
increasing
final
compensation,
or
including
various
non‐salary
items
(such
as
unused
vacation
pay,
mileage
pay,
uniform
allowance
or
other
allowances)
in
the
final
compensation
figure
used
in
the
member’s
retirement
benefit
calculations.
(CALAPRS)
Super‐Funded
A
condition
existing
when
the
actuarial
value
of
assets
exceeds
the
present
value
of
benefits.
When
this
condition
exists
on
a
given
valuation
date
for
a
given
plan,
employee
contributions
for
the
rate
year
covered
by
that
valuation
may
be
waived.
(CALAPRS)
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287
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294
Third‐Party
Administrator
The
party
to
an
employee
benefit
plan
that
may
collect
premiums,
pay
claims
and/or
provide
administrative
services.
Usually
an
out‐of‐house
professional
firm
providing
administrative
services
for
employee
benefit
plans.
(IFEBC)
Three‐Legged
Stool
Theory
that
a
combination
of
an
individual’s
savings,
Social
Security,
and
a
private
pension
will
provide
secure
retirement
income.
(IFEBC)
Unfunded
Actuarial
Accrued
Liability
(UAAL)
Unfunded
Actuarial
Accrued
Liability
is
the
portion
of
the
actuarial
Accrued
liability
not
currently
covered
by
plan
assets.
It
is
calculated
by
subtracting
the
Actuarial
Value
of
Assets
from
the
Actuarial
Accrued
Liability.
(CALAPRS)
Under‐Funded
If
accrued
liabilities
exceed
accrued
assets
(i.e.,
insufficient
assets
to
pay
all
benefits
that
have
accrued
to
participants)
the
plan
has
unfunded
liabilities
and
is
deemed
under‐funded.
(CALAPRS)
Unfunded
Actuarial
Accrued
Liability
(UAAL)
The
amount
by
which
actuarial
accrued
liability
exceeds
the
actuarial
value
of
assets.
The
present
value
of
benefits
earned
to
date
that
is
not
covered
by
plan
assets.
(CALAPRS)
Vested
Benefits
(Vested)
Benefits
to
which
an
employee
is
entitled
under
a
pension
plan
by
satisfying
age
and/or
service
requirements.
(CALAPRS)
Page
288
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294
Vesting
A
benefit
plan
provision
that
a
participant
will,
after
meeting
certain
requirements,
retain
a
right
to
the
benefits
he
or
she
has
accrued
(or
some
portion
of
them)
even
if
employment
under
that
plan
terminates
before
retirement,
except
if
the
member
withdraws
his
or
her
contributions.
Employee
contributions
are
always
fully
vested.
(CALAPRS)
Voluntary
Employees’
Beneficiary
Association
(VEBA)
As
defined
in
Section
50l(c)(9)
of
the
IRC,
a
separate
organization
“providing
for
the
payment
of
life,
sickness,
accident,
or
other
benefits
to
the
members...
or
their
dependents
or
designated
beneficiaries.”
Subject
to
specific
rules
and
limitations,
a
company
may
establish
a
VEBA
for
employees,
to
which
it
makes
tax‐deductible
contributions.
The
association
invests
and
accumulates
funds
for
the
purpose
of
paying
benefits
on
a
tax‐
exempt
basis.
(CALAPRS)
Page
289
of
294
Sources:
California
Association
of
Public
Retirement
Systems
(CALAPRS)
(Sometimes
seen
as:
CalAPRS,
CalAPRs)
CALAPRS
Glossary,
2006
Governmental
Accounting
Standards
Board
(GASB)
GASB
Summary,
2007
International
Foundation
for
Education,
Benefits,
Compensation
(IFEBC)
11th
Edition
Website:
http://www.ifebp.org/Resources/Glossary/
Page
290
of
294
11.3
GLOSSARY
OF
INVESTMENT
TERMS
CLICK
HERE
TO
OPEN
UP
THE
GLOSSARY
OF
INVESTMENT
TERMS
Page
291
of
294
11.4
PROP
162
Prop
162
Text
CALIFORNIA
CONSTITUTION
ARTICLE
16
PUBLIC
FINANCE
(Note: This is California Proposition 162, a constitutional amendment known as the California Pension Protection Act, approved by voters in 1992. The amendment grants the board of the state’s public employee retirement systems sole and exclusive authority over investment decisions and administration, and requires the board to administer the retirement system so as to assure prompt delivery of benefits to participants and beneficiaries. It also specifies that the delivery of benefits to participants and beneficiaries and the board’s duty to participants and beneficiaries takes precedence over any other duty.)
Page
292
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294
SEC.
17.
The
State
shall
not
in
any
manner
loan
its
credit,
nor
shall
it
subscribe
to,
or
be
interested
in
the
stock
of
any
company,
association,
or
corporation,
except
that
the
State
and
each
political
subdivision,
district,
municipality,
and
public
agency
thereof
is
hereby
authorized
to
acquire
and
hold
shares
of
the
capital
stock
of
any
mutual
water
company
or
corporation
when
the
stock
is
so
acquired
or
held
for
the
purpose
of
furnishing
a
supply
of
water
for
public,
municipal
or
governmental
purposes;
and
the
holding
of
the
stock
shall
entitle
the
holder
thereof
to
all
of
the
rights,
powers
and
privileges,
and
shall
subject
the
holder
to
the
obligations
and
liabilities
conferred
or
imposed
by
law
upon
other
holders
of
stock
in
the
mutual
water
company
or
corporation
in
which
the
stock
is
so
held.
Notwithstanding
any
other
provisions
of
law
or
this
Constitution
to
the
contrary,
the
retirement
board
of
a
public
pension
or
retirement
system
shall
have
plenary
authority
and
fiduciary
responsibility
for
investment
of
moneys
and
administration
of
the
system,
subject
to
all
of
the
following:
(a)
The
retirement
board
of
a
public
pension
or
retirement
system
shall
have
the
sole
and
exclusive
fiduciary
responsibility
over
the
assets
of
the
public
pension
or
retirement
system.
The
retirement
board
shall
also
have
sole
and
exclusive
responsibility
to
administer
the
system
in
a
manner
that
will
assure
prompt
delivery
of
benefits
and
related
services
to
the
participants
and
their
beneficiaries.
The
assets
of
a
public
pension
or
retirement
system
are
trust
funds
and
shall
be
held
for
the
exclusive
purposes
of
providing
benefits
to
participants
in
the
pension
or
retirement
system
and
their
beneficiaries
and
defraying
reasonable
expenses
of
administering
the
system.
(b)
The
members
of
the
retirement
board
of
a
public
pension
or
retirement
system
shall
discharge
their
duties
with
respect
to
the
system
solely
in
the
interest
of,
and
for
the
exclusive
purposes
of
providing
benefits
to,
participants
and
their
beneficiaries,
minimizing
employer
contributions
thereto,
and
defraying
reasonable
expenses
of
administering
the
system.
A
retirement
board's
duty
to
its
participants
and
their
beneficiaries
shall
take
precedence
over
any
other
duty.
(c)
The
members
of
the
retirement
board
of
a
public
pension
or
retirement
system
shall
discharge
their
duties
with
respect
to
the
system
with
the
care,
skill,
prudence,
and
diligence
under
the
circumstances
then
prevailing
that
a
prudent
person
acting
in
a
like
capacity
and
familiar
with
these
matters
would
use
in
the
conduct
of
an
enterprise
of
a
like
character
and
with
like
aims.
(d)
The
members
of
the
retirement
board
of
a
public
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pension
or
retirement
system
shall
diversify
the
investments
of
the
system
so
as
to
minimize
the
risk
of
loss
and
to
maximize
the
rate
of
return,
unless
under
the
circumstances
it
is
clearly
not
prudent
to
do
so.
(e)
The
retirement
board
of
a
public
pension
or
retirement
system,
consistent
with
the
exclusive
fiduciary
responsibilities
vested
in
it,
shall
have
the
sole
and
exclusive
power
to
provide
for
actuarial
services
in
order
to
assure
the
competency
of
the
assets
of
the
public
pension
or
retirement
system.
(f)
With
regard
to
the
retirement
board
of
a
public
pension
or
retirement
system
which
includes
in
its
composition
elected
employee
members,
the
number,
terms,
and
method
of
selection
or
removal
of
members
of
the
retirement
board
which
were
required
by
law
or
otherwise
in
effect
on
July
1,
1991,
shall
not
be
changed,
amended,
or
modified
by
the
Legislature
unless
the
change,
amendment,
or
modification
enacted
by
the
Legislature
is
ratified
by
a
majority
vote
of
the
electors
of
the
jurisdiction
in
which
the
participants
of
the
system
are
or
were,
prior
to
retirement,
employed.
(g)
The
Legislature
may
by
statute
continue
to
prohibit
certain
investments
by
a
retirement
board
where
it
is
in
the
public
interest
to
do
so,
and
provided
that
the
prohibition
satisfies
the
standards
of
fiduciary
care
and
loyalty
required
of
a
retirement
board
pursuant
to
this
section.
(h)
As
used
in
this
section,
the
term
"retirement
board"
shall
mean
the
board
of
administration,
board
of
trustees,
board
of
directors,
or
other
governing
body
or
board
of
a
public
employees'
pension
or
retirement
system;
provided,
however,
that
the
term
"retirement
board"
shall
not
be
interpreted
to
mean
or
include
a
governing
body
or
board
created
after
July
1,
1991
which
does
not
administer
pension
or
retirement
benefits,
or
the
elected
legislative
body
of
a
jurisdiction
which
employs
participants
in
a
public
employees'
pension
or
retirement
system. Page
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