of the OAKLAND MUNICIPAL EMPLOYEES’ RETIREMENT … · Microsoft Word - OMERS 20110421 Agenda.doc...

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- - - ORDER OF BUSINESS - - -

1. Action to approve the meeting minutes of the March 1, 2011 special board meeting.

2. Action on an oral presentation and recommendation from the City Attorney regarding legal opinion on whether charter amendment is required to annuitize OMERS plan.

3. Action on a report and recommendation from staff regarding draft Request for Proposals (RFP) for group annuity consulting services.

4. Action on a report from staff regarding details of administrative expenses previously reported on the FY 2010 auditor’s report.

5. Action on a report and recommendation from staff regarding 2011-12 administrative budget.

6. Action on an informational report from staff regarding OMERS administrative expenses through March 31, 2011.

7. Action on an informational report from staff and Finance Director regarding the resolution, recommendation and requirement (if any) for funding the OMERS fund.

8. Action on a report and recommendation from staff regarding expiration of service contract with Bartel Associates, OMERS Actuary, on June 30, 2011.

9. Action on a report and recommendation from staff regarding draft version of 2-year OMERS Annual Report through FY 2009 and FY 2010.

10. Informational report from President Russell regarding evaluation of CALAPRS 2011 General Assembly.

11. Open Forum.

12. Future Scheduling.

Thursday, April 21, 2011 - 2:00 pm One Frank H. Ogawa Plaza, Hearing Room 3

Oakland, California 94612

SPECIAL MEETING of the BOARD OF ADMINISTRATION of the OAKLAND MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM (“OMERS”)

Retirement Systems 150 Frank H. Ogawa Plaza Oakland, California 94612

All persons wishing to address the Board must complete a speaker's card, stating their name and the agenda item (including "Open Forum") they wish to address. The Board may take action on items not on the agenda only if findings pursuant to the Sunshine Ordinance and Brown Act are made that the matter is urgent or an emergency. Presentations are limited to three minutes. Oakland Municipal Employees’ Retirement Board meetings are held in wheelchair accessible facilities. Contact Retirement Systems, 150 Frank Ogawa Plaza, Suite 3332 or call (510) 238-7295 for additional information.

RETIREMENT BOARD MEMBERS

William C. Russell President, Elected Member

Carl E. Gilmore Vice President, Bank Rep

Appointed Member

James E. Hill Insurance Rep, Appointed Member

Courtney A. Ruby City Auditor, Member

Joseph T. Yew, Jr. City Treasurer, Member

Vacant Elected Member

Vacant Elected Member

AGENDA

Table 1

OAKLAND MUNICIPAL EMPLOYEES RETIREMENT SYSTEMSummary of Proposed Administrative Budget

FY 11/12

Administrative BudgetStaff Salaries (a) $209,426Audit (Macias) 25,000 Actuary (Bartel) 25,000 Board Travel Expenditures 35,000Staff Training 6,000Annual Report 5,000 Miscellaneous Expenditures (b) 7,500

Total Administrative Budget $312,926

Additional Operating CostsTrustee/ Custodial Fee (BNY‐Mellon) 6,000 Measurement/Evaluation Fee (PCA) 13,500

Total Additional Operating Costs 19,500

Total Operating Budget $332,426

(a) Additional detail on Table 3(b) Additional detail on Table 2

Table 2

OAKLAND MUNICIPAL EMPLOYEES RETIREMENT SYSTEMMiscellaneous Expenditures

FY 11/12

Miscellaneous Expenditures (b)Stationery and Supplies $1,000Telephone 500 IT Support 500 Service Contracts for Machinery (Xerox/ Printer) 500 Equipment/ Software 1,500 Commercial Transportation (Board Parking) 1,000 Membership ‐ Association Dues 250 Periodicals/ Registration/ Tuition 1,500 Postage and Mailing 1,000 Printing and Duplication Services 500 Total Miscellaneous Expenditures $7,500

Table 3

OAKLAND MUNICIPAL EMPLOYEES RETIREMENT SYSTEM

Proposed Administrative Salaries

FY 11/12

Total Percentage SalaryEmployee Positions Salaries (a) Benefits (b) Labor Allocation Allocation

Yvonne Hudson Human Resources Manager 142,841$ 87,689$ 230,530$ 30% 69,159$ Sandra Tong Accountant II 70,099 43,033 113,132 30% 33,940 Teir Jenkins Retirement System Accountant 92,067 56,519 148,586 30% 44,576 Carol Kolenda Retirement Benefits Representative 62,314 38,254 100,568 20% 20,114 David Low Administrative Assistant II 55,441 34,035 89,477 20% 17,895 Tracy Chriss City Attorney 147,117 90,314 237,431 10% 23,743

Subtotal Staff Cost Subtotal Staff Cost 569,878$ 349,845$ 919,724$ 209,426$

(a) Includes mandated furlough days.(b) Estimate at 58.32 for FY 2011‐2012. Preliminary estimate. Final budget rates have not been approved yet.

Table 1

OAKLAND MUNICIPAL EMPLOYEESʹ RETIREMENT SYSTEMAdministrative Budget Expense to DateFiscal Year End as of March 31, 2011

Approved Fiscal Year to date (3/31/2011)Budget Actual Remaining Percent Remaining

Staff Salaries $212,377 $200,093 $12,284 5.8%

Operation & Maintenance CostBoard Travel Expenditures $35,000 3,767 $31,233 89.2%Staff Training 6,000 ‐ 6,000 100.0%Accounting & Auditing 25,000 20,265 4,735 18.9%Actuary ( Bartel ) 25,000 15,813 9,188 36.8%Annual Report 5,000 ‐ 5,000 100.0%Miscellaneous Expenditures 7,500 1,040 6,460.20 86.1%O&M Cost 103,500 40,885 62,615 60.5%Total Administrative Budget $315,877 $240,978 $74,899 23.7%

Additional Operating Costs (a)Trustee/ Custodial Fee (Bank of NY) $6,000 2,560 $3,440 57.3%Measurement/Evaluation Fee (PCA) $15,000 6,750 $8,250 55.0%

Highmark 7,100 1,881 $5,219 73.5%Total Additional Operating Costs $28,100 $11,191 $16,909 60.2%

Total Operating Budget $343,977 $252,169 $91,808 26.7%

Table 2

OAKLAND MUNICIPAL EMPLOYEESʹ RETIREMENT SYSTEM

Cash in Treasury (Fund 7120)As of March 31, 2011

FY 2010/2011

Cash in Treasury as of 6/30/10 (a) $45,086

AdditionsIncoming Wires $900,000Death Refunds 3,268Misc. Receipts 60

Total additions: $903,328

Deductions:Pension payments (July 1 - February 28, 2011) (b) (353,424) Expenses to date (see Table 1) (252,169) Previous year accruals on June 10 pension payments (47,322) Previous year accruals on investment managers fee (6,856) Previous year accounts payable (3,722)

Total deductions (663,493)

Cash in Treasury as of 3/31/2011 284,921$

(a) As reported in OMER June 30, 2010 Audited Financal Statements.(b) The amount does not include March 2011 pension payments, which payable on April 1, 2011

Table 3

Oakland Municipal Employees' Retirement SystemCensus

As of March 31, 2011

COMPOSITION City Health TOTAL

MembershipRetiree 16 2 18Beneficiary 16 4 20

Total Membership 32 6 38

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OMERS

OAKLAND MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM

(RECOMMENDED METHOD FOR DETERMINATION OF CONTRIBUTION RATES)

The July 1, 2009 Unfunded Actuarial Liability, for pensions based on service both before and after July 1, 1939, will be amortized in level payments over a closed 6-year period. Each subsequent year’s actuarial gains and losses will also be amortized in level payments over closed 6-year periods. In addition, the total contribution amount may not be less than the amount required to maintain the fund balance at the level necessary to pay benefits and administrative expenses during the contribution year. Calculations will be based on the Entry Age Normal Actuarial Cost Method. o:\clients\city of oakland\omers\2009\reports\ba oaklandomers 10-05-27 recommended contribution method.doc

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DRAFT

INTRODUCTION

Group Annuity Consulting Services

REQUEST FOR PROPOSALS

Submittal Due Date – ________________, 2011

OAKLAND MUNICIPAL EMPLOYEES RETIREMENT SYSTEM

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The Oakland Municipal Employees’ Retirement System (OMERS) is a closed single employer defined benefit plan which was created pursuant to Article XX of the City Charter. The system covers the City’s non-uniformed employees hired prior to September 1970 who have not elected to transfer to the California Public Employees’ Retirement System (CalPERS). The OMERS Plan provides its members a service retirement allowance that is calculated on a basis that takes into account the final three years average compensation, age, and the number of years of service. In addition, the System provides disability, death and survivors benefits for the members. Upon the retiree’s death, payments are continued to the retiree’s eligible spouse at a level of 50%. The plan provides an automatic cost of living adjustment of 3% per year. The OMERS membership as of December 31, 2010 is 40, including 18 retirees, 16 beneficiaries, and 6 Alameda County Health Department transferees. Pursuant to Article XX of the Oakland City Charter, the OMERS Board of Administration has exclusive control of the administration and investment of the OMERS fund. Based on the most recent actuarial study dated July 1, 2010, the OMERS fund is 86.4% funded. The OMERS investment portfolio value as of December 31, 2010 is $5,006,246. The OMERS is governed by a board of seven trustees composed of the City Treasurer, the City Auditor, three members elected by the retired and deferred membership of the System, and Mayor appointed representatives of a local life insurance company and a local bank. Trustees receive no compensation. The Board currently meets on the last Thursday of every other month at Oakland City Hall. PURPOSE Through this Request for Proposals, the Oakland Municipal Employees Retirement System Board is seeking a qualified consultant to research and provide the pros and cons of annuities for the OMERS members, provide consulting services to the OMERS Board identify and evaluate qualified insurance carriers who offer annuity produces, prepare the necessary document to solicit the information required, and make recommendations to the Board. The successful vendor will also be retained to assist with the transition if a decision is made to annuitize. The goal of the OMERS Board is to establish a contract that will be effective for this single project only. The period of this contract will be from ___________, 2011 through _______________, 2011. The OMERS Board may at its option, extend the contract for an additional period, based on any outstanding work required at the end of the initial contract period. The OMERS Board and the Department of Human Resources Management are responsible for the overall administration of the contract for the requested services and the Request for Proposals process. SCOPE OF WORK

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See Attachment C for the detailed Scope of Work. CONSULTANT RECORDS The selected consultant must maintain auditable records, documents and papers for inspection by authorized City and Agency staff. Before approving a contract, the selected consultant may be required to undergo an audit evaluation to verify proper accounting and financial procedures.

The consultant must agree that any information, whether proprietary or not, made known to or discovered by it during the performance of or in connection with this RFP will be kept confidential and not be disclosed to any other person. The consultant agrees to immediately notify the City, in writing, if it is requested to disclose any information made known to or discovered by it during the performance of or in connection with this RFP. ADDITIONAL REQUIREMENTS FOR PROPOSALS Other general information to be provided includes: 1. The consultant’s name, home office address, address of the office to provide the services

under the contract, name of contact person and telephone number. 2. General description of the organization, including size, number of employees,

organization, affiliates, type of organization (franchise, corporation, partnership, etc.) and other relevant descriptive material.

3. Resumes of the key staff and office location that will work on this project if your firm is

selected. 4. What incentives are provided to attract and retain top quality employees at your firm? 5. Three to five references who will comment on the past performance of your organization.

If your firm has experience with public defined contribution plans, particularly 457(b) Deferred Compensation Plans, include them with your reference.

Technical Proposal Information: 1. How many years has your firm provided consulting services to governmental defined benefits plans? 2. How many governmental agencies with defined benefits plans does your firm have as

clients? 3. What are your firm’s consulting specialties, strengths and limitations? What services, if

any, does your firm offer to clients in addition to defined benefits plan consulting services?

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4. Describe your firm’s auditing and analysis philosophy and practices as they relate to evaluating the client’s current plan structure.

5. Attach two sample reports summarizing the facts, findings and recommendations of a

plan evaluation. 6. Attach a sample of the RFP tool used solicit and evaluate proposal candidates for an

annuity product 7. Provide a proposed detailed description of how you would approach the scope of services

detailed in Attachment C, including timeline for the completion of the requested services.

8. Required Schedules (Attachment B)

a) Schedule C-1: Declaration of Compliance with ADA

b) Schedule D: Ownership, Ethnicity & Gender Questionnaire

c) Schedule E: Project Consultant Team. To be completed by prime consultant only d) Schedule N: Declaration of Compliance/Living Wage Ordinance

e) Schedule N-1: Equal Benefits – Declaration of Nondiscrimination

f) Schedule O: Campaign Contribution Limitations and Reporting

g) Schedule Q: Insurance Requirements - Professional and Specialized Services

h) Schedule M, Parts A & B: Independent Consultant Questionnaire

i) Schedule U: Compliance Commitment Agreement

j) The Exit Report and Affidavit (ERA)

k) Schedule V: Affidavit of Non-Disciplinary or Investigatory Action

Fee Proposal: Fee quotations will be part of the evaluation criteria. The reasonableness of fee proposals will be considered by the Selection Committee. The final selection will be based on the

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determination of the best overall qualified firm to perform the requested services. The Deferred Compensation Committee is not obligated to select the organization with the lowest fee proposal to perform these professional services, however, as noted above, it is a consideration. Please include a fee proposal based on the following: Flat rate charges for completing the tasks described in the Scope of Work. Please specify in

detail on what the rates are based.

SUBMITTAL REQUIREMENTS All interested parties are encouraged to carefully review the RFP submission requirements information contained in this document. Omission or non-conformance of any terms, conditions or requirements may result in disqualification. To be considered, twelve (10) copies of your proposal and one electronic PDF copy must be received at the following address no later than 4:30 p.m. on Friday, ___________________. Proposals may not be transmitted by facsimile. Oakland Municipal Employees Retirement System City of Oakland Department of Human Resources Management Retirement Office 150 Frank Ogawa Plaza, Suite #3332 Oakland, CA 94612 Attn: Yvonne Hudson-Harmon, HR Manager Once a final award is made, all RFP responses, except financial and proprietary information, become a matter of public record and shall be regarded by the City as public records. The City shall not in any way be liable or responsible for the disclosure of any such records or portions thereof if the disclosure is made pursuant to a request under the Public Records Act or the City of Oakland Sunshine Ordinance.

EVALUATION OF PROPOSALS Proposals will be reviewed by the OMERS Board. Firms will be evaluated based on their relative rankings in each area of the proposal. All firms submitting proposals may not be invited to an interview if, in the opinion of the Board an organization does not have a reasonable chance of being selected at the completion of the proposal review stage. Final selection will be based on the following: 1. Proposal

2. Interview

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Criteria: The following specific criteria will be used in evaluating and rating the proposals:

1. Overall quality of the proposal including responsiveness and conformance to RFP requirements for content and format;

2. Quality and appropriateness of proposed project approach and organization, the

knowledge and experience in working with specific legal codes, regulations. 3. Fees

4. Other Considerations - This includes the general impression of the Selection

Committee, the overall clarity of the proposal and conformance of the proposal to the instructions.

Proposal evaluation shall be based solely on the information provided in the proposal submittal package and review of references. Be sure to include all relevant information and evidence of your organization's record of performance and ability to perform the work. EVALUATION OF INTERVIEWS: The length of the interview will be approximately 60 minutes. Provider presentations will not exceed 45 minutes followed by a question and answer session of approximately 15 minutes. Interviews will be evaluated as follows: 1. Presentation

This includes content of presentation and effectiveness of communications including the communications of technical concepts to a lay audience. The primary personnel must play a prominent role in the presentation.

2. Project Approach

This includes the approach to the required services. . 3. Questions and Answers

Questions will address technical knowledge and experience, communications skills, the ability to interact with the OMERS Board and staff and commitment of key personnel to the account.

References – As part of the selection process, at the discretion of the Deferred Compensation Committee, following or prior to the oral presentation and interview, references may be checked for all or some of the respondents.

Scoring 1. Responsiveness – A Pass/Fail evaluation will be applied to the determination of

responsiveness relative to meeting the requirements of this RFP.

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2. Methodology and Approach (30 points) – Methods of data collection must be clear

and appropriate to specific data sources to include the internal payment/financial structures of the City. The proposer must identify any potential problems and discuss alternatives for dealing with them. A work plan showing the scheduling of tasks for conducting the study shall also be included.

3. Cost – (20 points) An evaluation will be made of (a) reasonableness (i.e., does the

proposed pricing accurately reflect the bidder’s effort to meet requirements and objectives?); (b) realism (i.e., is the proposed cost appropriate to the nature of the services to be provided?); and (c) affordability (i.e., the ability of the City to finance the services).

4. Capacity – (30 points) Capacity to perform the work will be evaluated based on

factors that may include but may not be limited to, knowledge of the content of the work in terms of required tasks; familiarity with the difficulties, uncertainties, and risks associated with the work and knowledge of the staff qualifications necessary to the performance of the work. Furthermore, to the extent possible, bidders will be evaluated based on a demonstrated capacity to work quickly, efficiently, reliably, and with the ability to demonstrate confidence in their product.

5. Relevant Experience (20 points) – Proposals will be evaluated on the basis of relevant

experience determined by review of prior work and reviews of submitted work products. An evaluation will be made of the number and outcome of completed studies, experience working with diverse community business groups, as well as the credentials, experience, skill level and diversity of the proposed key personnel. Previous experience in conducting studies in urban centers similar to the City of Oakland, professional credentials, composition and structure of the team, compliance with City contracting participation goals, performance record, and the capacity to effectively work with a diverse business community, elected and appointed City officials, City staff, and representative trade groups and organizations will also be evaluated.

6. Additional Preference Points –In addition to the two (2) preference points earned for

meeting the required 20% minimum participation, up to an additional three (3) preference points may be earned as follows:

o Proposals that include participation over and above the 20% minimum, in equal percentages of local business and small local business participation, and in increments of 10% (up to 30%), will earn up to three (3) additional preference points.

o Proposals that include additional participation over and above the 20% minimum and in increments of 10% (up to 30%) with small local business participation, will earn up to three additional preferences points.

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THE NEGOTIATION PROCESS 1. The contract amount will be a lump sum, not-to-exceed amount, to be established based on

the tasks listed.

2. The selected consultant will be required to maintain auditable records, documents, and papers for inspection by authorized local, state and federal representatives. Therefore, the consultant may be required to undergo an evaluation to demonstrate that the firm uses recognized accounting and financial procedures as defined by the City Auditor.

3. The OMRES Board may request further information from the consultant. 4. The OMERS Board may require the consultant to submit technical information or other

revisions to the consultant’s qualifications as may result from negotiations. 5. The RFP does not commit the OMERS Board to pay any cost incurred in the preparation of

the proposal. 6. The Fair Political Practices Act and/or California Government Code Section 1090, among

other statutes and regulations may prohibit the OMERS Board from contracting with a service provider if the service provider or an employee, officer or director of the service providers’ firm, or any immediate family thereof, or any sub Consultant or consultant of the service provider, is serving as a public official, elected official, employee, member of the Deferred Compensation Committee who will award or influence the awarding of the contract or otherwise participate in the making of the contract. The making of a contract includes actions that are preliminary or preparatory to the selection of a Consultant such as, but not limited to, involvement in the reasoning, planning and/or drafting of solicitations for bids and Request For Proposals, feasibility studies, master plans or preliminary discussions or negotiations.

THE OMER BOARD RESERVATION OF RIGHTS The OMERS Board expressly reserves the right to: 1. Accept or reject any or all proposals received; 2. Cancel or change this RFP in part or in its entirety;

3. Waive or correct any defect or ambiguity in the RFP;

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4. Issue subsequent Request for Proposals; 5. Postpone opening of Proposals for its own convenience; 6. Modify (prior to submission deadline for proposals) all or any portion of the selection

procedures, including deadlines for accepting responses, the specifications or requirements for the services to be provided under this RFP, or the requirements for contents or form of the proposals;

7. Approve or disapprove of the use of particular sub-consultants; 8. Negotiate with any or all or none of the respondents; 9. Solicit best and final offers from all or some of the respondents; 10. Execute a contract with one or more respondents; 11. Procure services specified in the RFP by any other means; 12. Accept other than the lowest offer; 13. Waive informalities and irregularities in proposals; 14. Determine that no project will be pursued; 15. Have additional written or oral information in support of the proposal or to clarify any

aspect of the proposal; 16. Inspect the premises of the consulting firm; 17. Have and retain all copies of proposals or information submitted to support a proposal; 18. Require the selected consultant to participate in negotiations on the terms and conditions

of a contract and to submit revisions, including price revisions, that may result from such negotiations; and

19. Check references. GENERAL INFORMATION All interested parties are encouraged to carefully review the RFP submission requirements information contained in this document. Omission or non-conformance of any terms, conditions or requirements may result in disqualification. To be considered, ten (10) copies of your proposal and one electronic PDF copy must be received at: Oakland Municipal Employees Retirement System

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City of Oakland Department of Human Resources Management Retirement Office 150 Frank Ogawa Plaza, Suite #3332 Oakland, CA 94612 Attn: Yvonne Hudson-Harmon, HR Manager no later than 4:30 p.m. on Friday, __________, 2011. Proposals may not be transmitted by facsimile. 1. The Project Manager is Yvonne Hudson-Harmon, HR Manager, Retirement and Benefits,

Office of Personnel Resource Management. Contact information includes e-mail address [email protected], office (510) 238-2913.

2. The prime consultant or principal joint venture partner selected for this project shall

obtain or provide proof of having a current City of Oakland Business Tax Certificate. 3. Prime consultants located outside the City of Oakland are encouraged to consider a Joint

Venture or Mentor Protégé Relationship with an Oakland certified for profit or not for profit local or small local entity. Joint ventures will be required to conform to the pertinent laws governing the creation of such business arrangements.

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Will be updated with current requirements. Note: If you have any questions or concerns regarding the policies and procedures requirements please contact the Project Manager, Yvonne Hudson at the contact information above.

Attachment A - Council Policies and Procedures

a) Disabled Access and Non-Discrimination Consultant shall make its goods, services, and facilities accessible to people with disabilities and shall verify compliance with the Americans with Disabilities Act by executing Schedule C-1 (“Declaration of Compliance with the Americans with Disabilities Act,”) attached hereto and incorporated herein.

b) Local and Small Local Business Enterprise Program City of Oakland’s Local and Small Local Business Enterprise Program describes the objectives, goals and policies of the city regarding the participation of certified for profit or not for profit local or small local entities in the City’s contracts and purchasing opportunities.

There is a twenty percent (20%) minimum participation requirement for all professional services contracts valued at one hundred thousand dollars ($100,000.00) or more. Compliance may be achieved at a rate of ten percent (10%) local and an additional 10% small local certified business participation. The requirement may be satisfied by a certified prime and/or sub-Consultants (s) or a small local certified business might meet the twenty percent requirement. The City of Oakland’s Office of the City Administrator, Contract Compliance & Employment Services Division must certify a business before a proposal is submitted in order to earn credit toward meeting the twenty percent requirement. The twenty percent local business participation requirement will be considered a material term of every proposal. Proposals that fail to meet the 20% minimum will be deemed non-responsive. Schedule-E- Project Consultant Team must be submitted with the proposal.

If a consultant is able to develop a Joint Venture or “Mentor-Protégé” relationship with an Oakland certified for profit or not for profit entity, the Mentor-Protégé or Joint Venture partners will enjoy the benefit of credits against the participation requirement. In order to earn credits, the Agreement must be submitted to Contract Compliance and Employment Services at least three weeks before the proposal due date. Joint Venture Applications and examples of the basic elements of a City approved Mentor Protégé Agreement are available upon request to the project manager.

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For tracking and reporting purposes only, the consultant team is asked to show the percentage and dollar amount of Minority Business Enterprise/ Women Business Enterprise (MBE/WBE) participation on all sub-consultant listings. Consultant teams are asked to provide data regarding the racial, ethnic, and gender make up of listed sub-consultants and be prepared to provide documentation that demonstrates the methodology used to select all sub-consultants. The City Administrator will track MBE/WBE utilization to ensure the absence of unlawful discrimination on the basis of race or gender, and will make periodic reports to the City Council concerning such utilization. The City will report any discrimination in contracting to the appropriate Federal and State agencies, and will take appropriate action against consultants that are found to be engaging in discriminatory acts or practices up to and including termination or debarment of the responsible entity.

c) Living Wage Ordinance (LWO)

This Agreement is subject to the Oakland Living Wage Ordinance which requires that nothing less than a prescribed minimum level of compensation (a living wage) be paid to employees of service Consultants (consultants) of the City and employees of City Financial Assistant Recipients (CFARs) (Ord. 12050 § 1, 1998). The Ordinance also requires submission of the Declaration of Compliance attached and incorporated herein as Schedule-N and made part of this Agreement, and, unless specific exemptions apply or a waiver is granted, the consultant must comply as follows:

Minimum compensation – Said employees shall be paid an initial hourly wage

rate of $9.90 with health benefits or $11.39 without health benefits. Effective July 1st of each year, contractor shall pay adjusted wage rates.

Health benefits – Said full-time and part-time employees paid at the lower

living wage rate shall be provided health benefits of at least $1.49 per hour. Consultant shall provide proof that health benefits are in effect for those employees no later than 30 days after execution of the contract or receipt of City financial assistance.

Compensated days off – Said employees shall be entitled to twelve

compensated days off per year for sick leave, vacation or personal necessity at the employee's request, and ten uncompensated days off per year for sick leave. Employees shall accrue one compensated day off per month of full time employment. Part-time employees shall accrue compensated days off in increments proportional to that accrued by full-time employees. The employees shall be eligible to use accrued days off after the first six months of employment or consistent with company policy, whichever is sooner. Paid holidays, consistent with established employer policy, may be counted toward provision of the required 12 compensated days off. Ten uncompensated days off shall be made available, as needed, for personal or immediate family illness after the employee has exhausted his or her accrued compensated days off for that year.

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Federal Earned Income Credit (EIC) – To inform employees that he/she may be eligible for EIC and shall provide forms to apply for advance EIC payments to eligible employees. There are several websites and other sources available to you. Web sites include but are not limited to: (1) http://www.irs.gov for current guidelines as prescribed by the Internal Revenue Service and (2) the 2005 Earned Income Tax Outreach Kit www.cbpp.or/eic/2005.

Consultant shall provide to all employees and to the Office of Contract

Compliance, written notice of its obligation to eligible employees under the City’s Living Wage requirements. Said notice shall be posted prominently in communal areas of the work site(s) and shall include the above-referenced information.

Consultant shall provide all written notices and forms required above in

English, Spanish or other languages spoken by a significant number of employees within 30 days of employment.

Consultant shall maintain a listing of the name, address, hire date, occupation

classification, rate of pay and benefits for each of its employees. Consultant shall provide a copy of said list to the Office of Contract Compliance, on a quarterly basis, by March 31, June 30, September 30 and December 31 for the applicable compliance period. Failure to provide said list within five days of the due date will result in liquidated damages of five hundred dollars ($500.00) for each day that the list remains outstanding. Consultant shall maintain employee payroll and related records for a period of four (4) years after expiration of the compliance period.

Consultant shall require sub consultants that provide services under or related to

this Agreement to comply with the above Living Wage provisions. Consultant shall include the above-referenced sections in its subcontracts. Copies of said subcontracts shall be submitted to the Contract Compliance & Employment Services Division.

d) Equal Benefits Ordinance (EBO)

This Agreement is subject to the Equal Benefits Ordinance of Chapter 2.232.010 of the Oakland Municipal Code and its implementing regulations. The purpose of this Ordinance is to protect and further the public, health, safety, convenience, comfort, property and general welfare by requiring that public funds be expended in a manner so as to prohibit discrimination in the provision of employee benefits by City Consultants (consultants) between employees with spouses and employees with domestic partners, and/or between domestic partners and spouses of such employees. (Ord. 12394 (part), 2001) The following entities are subject to the Equal Benefits Ordinance: Entities which enter into a "contract" with the City for an amount of twenty-five thousand dollars ($25,000.00) or more for public works or improvements to be performed, or for

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goods or services to be purchased or grants to be provided at the expense of the City or to be paid out of moneys deposited in the treasury or out of trust moneys under the control of or collected by the city; and Entities which enter into a "property contract" pursuant to Section 2.32.020(D) with the City in an amount of twenty-five thousand dollars ($25,000.00) or more for the exclusive use of or occupancy (1) of real property owned or controlled by the city or (2) of real property owned by others for the city’s use or occupancy, for a term exceeding twenty-nine (29) days in any calendar year. The Ordinance shall only apply to those portions of a Consultant’s operations that occur (1) within the city; (2) on real property outside the city if the property is owned by the city or if the city has a right to occupy the property, and if the contract’s presence at that location is connected to a contract with the city; and (3) elsewhere in the United States where work related to a city contract is being performed. The requirements of this chapter shall not apply to subcontracts or sub Consultants. The Equal Benefits Ordinance requires among other things, submission of the attached and incorporated herein as Schedule N-1 – Equal Benefits-Declaration of Nondiscrimination and documentation supporting compliance. Compliance must be verified before a contract is executed.

e) Non-Discrimination/Equal Employment Practices Consultant shall not discriminate or permit discrimination against any person or group of persons in any manner prohibited by federal, state or local laws. During the performance of this Agreement, Consultant agrees as follows:

Consultant and consultant’s sub consultants, if any, shall not discriminate against

any employee or applicant for employment because of age, marital status, religion, gender, sexual preference, race, creed, color, national origin, Acquired-Immune Deficiency Syndrome (AIDS), AIDS-Related Complex (ARC) or disability. This nondiscrimination policy shall include, but not be limited to, the following: employment, upgrading, failure to promote, demotion or transfer, recruitment advertising, layoffs, termination, rates of pay or other forms of compensation, and selection for training, including apprenticeship.

Consultant and consultant’s sub-consultants shall state in all solicitations or

advertisements for employees placed by or on behalf of consultant that all qualified applicants will receive consideration for employment without regard to age, marital status, religion, gender, sexual preference, race, creed, color, national origin, Acquired-Immune Deficiency Syndrome (AIDS), AIDS-Related Complex (ARC) or disability.

If applicable, consultant will send to each labor union or representative of workers

with whom Consultant has a collective bargaining agreement or contract or understanding, a notice advising the labor union or workers’ representative of

_________________________________________________________________ 15

Consultant’s commitments under this nondiscrimination clause and shall post copies of the notice in conspicuous places available to employees and applicants for employment.

Consultant shall submit information concerning the ownership, ethnicity and

gender, by completing Schedule D as mentioned earlier. Schedule E (“Project Consultant Team”), is also attached and incorporated herein and made a part of this Agreement.

All affirmative action efforts of consultants are subject to tracking by the City.

This information or data shall be used for statistical purposes only. All Consultants are required to provide data regarding the make-up of their sub Consultants and agents who will perform City contracts, including the race and gender of each employee and/or Consultant and his or her job title or function and the methodology used by Consultant to hire and/or contract with the individual or entity in question.

In the recruitment of sub Consultants, the City of Oakland requires all

Consultants to undertake nondiscriminatory and equal outreach efforts, which include outreach to minorities and women-owned businesses as well as other segments of Oakland’s business community. The City Administrator will track the City’s MBE/WBE utilization to ensure the absence of unlawful discrimination on the basis of age, marital status, religion, gender, sexual preference, race, creed, color, national origin, Acquired-Immune Deficiency Syndrome (AIDS), AIDS-Related Complex (ARC) or disability.

In the use of such recruitment, hiring and retention of employees or sub

Consultants, the City of Oakland requires all Consultants to undertake nondiscriminatory and equal outreach efforts which include outreach to minorities and women as well as other segments of Oakland’s business community.

f) City of Oakland Campaign Contribution Limits (Campaign Reform Act) This Agreement is subject to the Campaign Reform Act of Chapter 3.12 of the

Oakland Municipal Code and its implementing regulations. The Act prohibits consultants that are doing business or seeking to do business with the City of Oakland from making campaign contributions to Oakland candidates between commencement of negotiations and either180 days after completion of, or termination of, contract negotiations. If this Agreement requires council approval, consultant must sign and date an Acknowledgment of Campaign Contribution Limits Form attached as Schedule-O.

g) Nuclear Free Zone Disclosure

Consultant represents, pursuant to the “Nuclear Free Zone Disclosure Form” – Schedule-P that consultant is in compliance with the City of Oakland’s restrictions on doing business with service providers considered nuclear weapons makers.

_________________________________________________________________ 16

h) Insurance Requirement Schedule Q summarizes insurance requirements relative to this project.

i) Conflict of Interest/Confidentiality/City-Consultant Relationship

Consultant shall avoid all conflicts of interest and respect its relationship with the City by maintaining confidentiality of materials deemed confidential by law. Consultant specifically agrees to the following:

Consultant covenants that it presently has no interest, and shall not have any

interest, direct or indirect, which would conflict in any manner with the performance of services required under this RFP. Without limitation, the Consultant represents to and agrees with the City or Agency that no conflict of interest is created between providing the City or Agency services hereunder and any interest Consultant may have with respect to any other person or entity (including but not limited to any federal or state regulatory agency) which has any interest adverse or potentially adverse to the City or Agency.

Consultant further agrees that Consultant shall not, without prior written

consent of the City Administrator, perform any services for any person other than the City Administrator relating to the study referred to in this RFP.

The consultant understands and agrees to successfully provide the services

requested by this RFP. In addition, every communication between Consultant and the City or its special counsel shall be considered to be a confidential communication between client and lawyer (see California Evidence Code Section 952), and the confidential work product of the City Administrator, City Attorney and the City’s special counsel, respectively, and therefore shall be held in strict confidence. All reports, analysis, maps, diagrams or any documents prepared or assisted in the preparation of or by the Consultant, shall be considered to be prepared pursuant to said lawyer-client relationship. All of the above mentioned documents are also considered the work product of the City Administrator and shall not be communicated to any person except as specifically authorized in writing signed by the City Administrator and City Attorney.

Attachment B – Required Schedules NEED TO CONFIRM IF ALL OF THE SCHEDULES ARE

REQUIRED FOR THIS TYPE OF CONTRACT

_________________________________________________________________ 17

DRAFT

ATTACHMENT C – SCOPE OF WORK Part I:

• Prepare a report outlining factors for the OMERS Board to consider in reaching its decision as to whether or not to annuitize including.

Identify viable insurance companies and obtain initial quotes

Prepare analysis of initial quotes including

o Financial status of insurers: claims-paying ability, solvency, etc. o Administrative capabilities of insurers

Identify and discuss administrative issues including:

o Member communications o Transition responsibilities of OMERS staff o Plan design changes necessary to accommodate annuitization o Process for locking in annuity rates and decisions and coordination necessary

Prepare schedule of steps in annuitization process, including estimated time frames

Part 2: If the Retirement Board reaches a decision to annuitize, support the annuitization process including:

Obtain and analyze final insurer quotes

Make recommendations regarding choice of insurer

Provide support for OMERS staff during the annuity purchase process and transition period

Document entire annuity selection and placement process

Oakland Municipal Employees' Retirement System

April 21, 2011

List of Possible Group Annuity

Consulting Services

Possible Firms to Receive RFP for Group Annuity Consulting Services

Dietrich & Associates, Inc. Al W. Dietrich Vice President [email protected] Dietrich & Associates, Inc. 10014 North Dale Mabry Hwy Suite 101 Tampa, FL 33618 phone: (813) 374-8833 fax: (813) 374-8836 www.dietrichassociates.com BCG Terminal Funding – send to both Austin and LA contacts Austin Operations Office

Patrick McLean - ext. 12 [email protected]

Phone: 800-832-7742 Fax: 512-499-8903

Mailing Address P.O. Box 5546 Austin, TX 78763

Delivery Address 3355 Bee Cave Road, Suite 603 Austin, Texas 78746

Western Region (Offices in Los Angeles, CA and Boise, ID)

Sean F. O'Flaherty, CRPS [email protected]

Phone: 800-566-0046, ext. 402 Fax: 512-499-8903

The Hyas Group

Jayson Davidson, CFA Managing Partner Phone: (971) 634-1501 Cell: (503) 360-3510 www.hyasgroup.com [email protected] Mailing Address: 108 NW 9th Avenue Suite 203 Portland, OR 97209

Special OMERS Board Meeting March 1, 2011

Page 1 of 4

D R A F T

D R A F T

A SPECIAL MEETING OF THE BOARD of Administration of the Oakland Municipal Employees’ Retirement System (“OMERS”) was held Tuesday, March 1, 2011 in One Frank H. Ogawa Plaza, Hearing Room 3, Oakland, California.

Board Members Present: • William C. Russell, President • Joseph T. Yew, Jr., Ex-Officio • Courtney Ruby, Ex-Officio • James E. Hill, Member

Board Members Absent: • Carl E. Gilmore, Vice President • Vacant x2

Additional Attendees: • Yvonne Hudson-Harmon, Teir Jenkins, David Low, Staff Members • Tracy Chriss, Deputy City Attorney • Marilyn Oliver, Bartel Associates Meeting was called to order at 2:04 pm.

1. Approval of minutes from the January 27, 2011 Board Meeting – Member Ruby made a motion to approve the meeting minutes of the January 27, 2011 Board meeting, second by member Yew. Referring to the previous agenda item where member Ruby participated in discussion regarding the audit report, President Russell asked if it is possible for the OMERS system to obtain fraud insurance. Member Yew said Risk Management could be asked to investigate the matter. Staff was directed make inquiries on this matter. Also, President Russell asked if OMERS could ask the City for reimbursement for wrongful payments made by the City. Yvonne Hudson-Harmon said mechanisms are in place in matters of pension overpayments made to members or beneficiaries. President Russell asked staff to provide a report that he can present his question at an upcoming conference. Member Ruby asked staff for clarification regarding funds recovery in the event of staff oversight. Ms. Hudson-Harmon explained the procedures in place where requests for reimbursements are applicable and are made by staff for reimbursement.

President Russell further discussed the previous agenda item regarding Tracy Chriss’ response to the questions regarding who would be responsible for funding the OMERS system in the event OMERS decided to fund the system by use of annuities for the members but, at some later point, the firm managing the annuities went out of business. President Russell said he believed that City would again become the responsible party in this scenario to fund the system. Ms. Chriss said her comments on the previous agenda item was as a reminder of what the previous OMERS board member Henry Cotten had felt about the use of annuities to fund the remaining OMERS member pension benefits.

Member Hill said the January 27, 2011 minutes incorrectly reflected his attendance and asked the minutes to be corrected to show he was not in attendance. Motion passed with the correction that Member Hill was not present.

GILMORE – Absent / RUSSELL – Y / YEW – Y / RUBY – Y / HILL – Y ( AYES: 4 / NOES: 0 / ABSENT: 1 /ABSTAIN: 0 )

2. Review of benefits overpayment to deceased OMERS beneficiaries and new overpayment procedures – Ms. Hudson-Harmon said she met with the City of Oakland Finance Department’s collection department and created a plan for pursuing OMERS members who received benefits


Page 2 of 4

D R A F T

D R A F T

overpayment. She explained the process where overpaid OMERS members and beneficiaries would be systematically communicated with by collections in an attempt to collect overpaid benefits. President Russell asked if a death benefit hold process for disputed overpayments was in place. Ms. Hudson-Harmon explained that a hold process is presently in place in these instances. She said manual control of this process is available to staff. President Russell asked the status of reports where “no further action to date” is stated at the bottom of the active reports. Ms. Hudson-Harmon said those reports were generated prior to staff having knowledge of the City of Oakland’s collection department as an additional step that could be taken.. Member Ruby made a motion to approve the report from staff, second by member Hill. Motion passed.


3. Administrative Expenses Reported in FY 2010 audit report – Teir Jenkins reviewed the OMERS FY 2010 audit report section regarding administrative expenses at the request of Member Ruby. Mr. Jenkins said some of the salaries stated on the report were incorrectly allocated. Mr. Jenkins referred to the 2009 audit report where it was stated that “salaries of two system employees were erroneously charged to the Oakland General Fund and the Police and Fire Retirement Fund from Fiscal Year 2007-8. As a result the system made an adjustment of $18,000 to fiscal year 2008 to correct the error. Also, the system recorded the additional administrative expenses of $53,000 to properly reflect fiscal year 2008 expenses.” Mr. Jenkins cited the case of System Accountant Sandra Tong who transferred from the City’s accounting department to the PFRS and OMERS department. Mr. Jenkins generated a Journal voucher for this adjustment. Mr. Jenkins said that the OMERS system is such a small fund that every expense in the audit is considered material so the restatement of preceding year’s audit figures were required to accommodate adjustments to the apparent salary spikes in the OMERS budget. President Russell asked who decided on the salary allocation of the retirement system employees. Mr. Jenkins said the allocations are set through the Master File with the City of Oakland. Member Ruby asked Mr. Jenkins to clarify why the salaries were not normalized over the period. Mr. Jenkins reported that much of the misclassification dated back to 2006-7. Mr. Jenkins added that additional personnel salary expenses (i.e., the Director of Personnel and her executive assistant) were included and were subsequently removed. That affected the total to some degree as well. Member Ruby requested the details on the $286,686 and $377,366 administrative expenses for 2009 and 2010, respectively. Member Ruby made a motion to approve the report from staff, second by member Hill. Motion passed.


4. Staff presentation of the 2011-12 administrative budget – Teir Jenkins reviewed the details of the 2011-12 administrative budget. Member Yew said part of the Finance Director’s salary was connected to the OMERS administrative budget and asked why that salary was made part of the OMERS budget and why was it removed. Mr. Jenkins said the removal of the Finance Director’s salary was made by a vote of the OMERS board. Ms. Ruby said the board removed the Finance Director’s salary from the administrative budget because his salary was deemed not a reasonable charge to the OMERS budget. Mr. Yew asked what was the nature of his salary inclusion on the administrative budget. Ms. Chriss said his compensation was for his services with regard to payroll services provided to the OMERS members by his department. She said the OMERS board deemed the charge as inappropriate and removed it from the OMERS Administrative Budget. Mr. Jenkins said the current administrative budget will be submitted to the mayor’s office as the OMERS preliminary budget and this budget will be finalized at the April 2011 board meeting for final submission. Member Ruby made a motion to approve the 2011-12 OMERS administrative budget


Page 3 of 4

D R A F T

D R A F T

with the plan to further review it’s content and finalize the budget at the next meeting, second by member Hill. Motion passed.


5. 4th Quarter 2010 Investment Portfolio Performance Report – David Sancewich reported the details of the 4th Quarter 2010 investment portfolio performance by telephone. Mr. Sancewich reported that the 1-year portfolio performance was 12.8% return trailing the benchmark return rate by 0.1%. Mr. Sancewich gave detailed investment performance information for the equity and fixed income managers of the OMERS investment portfolio. Member Ruby made a motion to approve the investment portfolio performance report, second by member Yew. Motion passed.


6. OMERS plan administration alternatives – Ms. Hudson reviewed several plans being discussed by staff regarding the future administration of the OMERS plan as the membership shrinks down to less than 50 members. Ms. Hudson said staff inquired with Alameda County Employees’ Retirement Association (ACERA) and with the Police and Fire Retirement System (PFRS). Both systems felt integration of OMERS was not viable. Ms. Hudson said she discussed with The Hartford about annuitizing the remaining members of the OMERS plan but discovered that the Hartford does not offer an annuity product for this type anymore. Ms. Hudson brought Marilyn Oliver from Bartel Associates to provide additional actuary background regarding the use of annuities for this funding. President Russell asked if a timeline could be established to accommodate a possible need for Charter amendment. Ms. Chriss said she planned to discuss this agenda item in greater detail at the April 2011 OMERS board meeting but noted that her initial research shows that a Charter amendment may not be required to convert member benefits payments into annuities. Ms. Chriss said she will have more information at the April 2011 board meeting. Marilyn Oliver provided details about the setup and implementation costs of a possible conversion to annuities of the OMERS plan. She said her preliminary report does not utilize any actual quote from annuity provider. Ms. Chriss asked if investment of the OMERS funds with the City and its investments would be an considerable process. Member Yew said the City uses a risk-averse investment approach so rate of return is not desirable.

7. Review of presentation by staff of OMERS plan to the Finance and Management Committee – Teir Jenkins reported the presentation of the status of the OMERS plan previously made by staff to the Finance and Management Committee. President Russell asked if the $120,000 noted as the required contribution from the City is required to be made by the City to the OMERS fund. Member Ruby said the OMERS board approved this contribution through the approval of the 2010 OMERS actuary valuation. The payment to the system is expected. Marilyn Oliver clarified that the $120,000 being asked is based on a 6-year amortization schedule for the total unfunded actuarial liability of $743,000, which is a funding level of 86.4% as of July 1, 2010. Ms. Oliver said the original calculation for the contribution method provided by the City is not applicable because it was written to accommodate a system where member contributions were still being made. The OMERS board voted on an acceptable contribution formula for the plan to address this issue. Member Yew said the City of Oakland works on a 2-year budget cycle and asked Ms. Oliver if a valuation that efficiently minimizes the City’s contribution is attainable as the contribution date approaches. Ms. Oliver said the nature of regular actuary analyses is to continually develop an accurate contribution for the plan and the City. Member Yew said a mid-cycle adjustment might have to be made for OMERS because of the nature of the City’s 2-year budget cycle. Member Yew asked what payment schedule is in place for OMERS: do contributions need to come every month, quarterly or annually? Ms. Chriss also asked if pension systems are funded to the entire 100% level or do agencies try to


Page 4 of 4

D R A F T

D R A F T

achieve less, perhaps only paying to 90-95% of the goal. Ms. Oliver said every system she has worked with has always tried to achieve the 100% goal. Ms. Chriss asked if the required payment could be staggered in a manner where 90 percent of the required contribution could be made this year and 95 percent the following year, etc. Member Hill noted that the reporting requirement regarding contributions is dictated by Government Accounting Standards Board (“GASB”) and utilization ensures proper funding of the system.

Member Yew said specificity in a communication to the City Council regarding the method of paying the required contribution would be helpful. Member Yew also suggested that Ms. Chriss research and report what happens if the City does not make the required contribution. Ms. Oliver said she believes the ‘required contribution’ reported by OMERS is more a recommendation by the actuary to the OMERS board and the City. She said the GASB reports provide guidelines/accounting standards for reporting the finances of a pensions system but doesn’t actually require a contribution payment to a system. Member Ruby said the Board instruction to accommodate the required contribution should be brought to the City Council so they will have clarity on the requirements to pay the current required contribution. Member Ruby suggested the City Council agenda report should include the OMERS resolution that fixed the contribution formula. Member Yew agreed but said it is a different matter whether the City Council makes the contribution is a different story. Ms. Hudson-Harmon said it appears a new report that includes a resolution to determine what the City Council wants to do with the $120,000 required contribution to OMERS is needed. Member Ruby clarified that the OMERS board would not make the action but would provide the recommendation and the resolution approving the methodology that arrived at the $120,000 required contribution by the City to OMERS. The City then would need to make to choice regarding responding by making the contribution or not. Member Yew said he would communicate with Kathleen Salem-Boyd regarding this matter further.

8. Open Forum – No Report.

9. Future Scheduling – David Low said the next regular OMERS board meeting was scheduled for Thursday, April 21, 2011 at 2:00 PM in Hearing Room 3, City Hall.

The meeting adjourned at 3:30 PM.

WILLIAM C. RUSSELL, PRESIDENT DATE

ANNUAL REPORT Fiscal Years Ending June 30, 2009

and June 30, 2010

MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM

DRAFT

3

DRAFT CONTENTS

SECTION 1: INTRODUCTION President of the Board: Letter of Transmittal to the City Council ............................................... 6

Manager: Letter of Transmittal to the Board of Trustees ........................................................... 7

Members of the Board of Administration .................................................................................... 11

City of Oakland Retirement Systems ........................................................................................ 12

Professional Services ................................................................................................................. 12

SECTION 2: FINANCIAL Independent Auditor’s Report for Years Ended June 30, 2010 and 2009 ................................. 14

Management’s Discussion and Analysis .................................................................................... 16

Financial Statements

Statements of Plan Net Assets – June 30, 2010 and 2009 ....................................................... 24

Statements of Changes in Plan Net Assets – Years ended June 30, 2010 and 2009 .............. 25

Notes to Basic Financial Statements for Years Ended June 30, 2010 and 2009

1. Description of the Oakland Municipal Employees’ Retirement System .......................... 26

2. Summary of Significant Accounting Policies ................................................................... 27

3. Contributions ................................................................................................................... 27

4. Cash and Investments ..................................................................................................... 27

6. Actuarial Assumptions and Funded Status ..................................................................... 30

7. Reserves ......................................................................................................................... 31

8. Administrative Expenses ................................................................................................. 31

Required Supplementary Information

1. Schedule of Funding Progress ........................................................................................ 32

2. Schedule of Employer Contributions ............................................................................... 32

4

DRAFT CONTENTS

(Continued)

SECTION 3: INVESTMENT Investment Consultant’s Report ................................................................................................. 34

Investment Performance ............................................................................................................ 34

List of Investment Professionals ................................................................................................ 35

Investment Manager Fees and Other Investment Expenses .................................................... 35

Asset Allocation as of June 30, 2010 ......................................................................................... 36

Asset Allocation as of June 30, 2009 ......................................................................................... 36

SECTION 4: ACTUARIAL Actuary’s Certification Letter ...................................................................................................... 38

Summary of Assumptions and Funding Methods ...................................................................... 40

Valuation Results ....................................................................................................................... 41

SECTION 5: STATISTICAL Benefit Expenses by Type for Years Ended June 30, 2010 and 2009 ...................................... 44

SECTION 1 INTRODUCTION

6 Introduction

DRAFT

April 1, 2011 Oakland City Council 1 Frank H. Ogawa Plaza Oakland CA 94612

Honorable Mayor Quan and Members of the City Council:

I am pleased to present the annual report for the Oakland Municipal Employees’ Retirement

System for the fiscal years ended June 30, 2009 and June 30, 2010. Prepared in compliance with

Ordinance Number 713 C.M.S., this report includes the Plan’s financial information, investment

performance, actuarial valuations and statistical information for the years ended June 30, 2009

and June 30, 2010.

Please know that our Pension Board is well aware of the financial challenge facing all pension

boards. One of our main goals is to never have to ask the Oakland Taxpayer for assistance. To

that end, we are formulating alternative plans for the future. We will keep you informed.

The members of the Board express their appreciation to the Mayor and City Council, City Ad-

ministrator, City Attorney, the various City Agencies and Departments, and the members of

their staff for their cooperation and assistance over the past year.

Respectfully submitted,

William C. Russell, President Oakland Municipal Employees’ Retirement System Board of Trustees

CITY OF OAKLAND

150 FRAN K H .OG AWA PL AZ A, 3RD FL OOR · OAKLAND, CAL IFORNIA 94612 -2 021 Department of Human Resources Management (510) 238-3307 Retirement Systems FAX (510) 238-7129 TDD (510) 839-6451

LETTERS OF TRANSMITTAL

7 Introduction

DRAFT LETTERS OF TRANSMITTAL

CITY OF OAKLAND

150 FRAN K H .OG AWA PL AZ A, 3RD FL OOR · OAKLAND, CAL IFORNIA 94612 -2 021 Department of Human Resources Management (510) 238-3307 Retirement Systems FAX (510) 238-7129 TDD (510) 839-6451

April 1, 2011

Board of Trustees Oakland Municipal Employees’ Retirement Board 150 Frank H. Ogawa Plaza, Suite 3332 Oakland CA 94612

Board of Trustees:

It is my pleasure to submit to you the Annual Financial Report of the Oakland Municipal Em-

ployees’ Retirement System for the fiscal years ended June 30, 2009 and June 30, 2010.

ACCOUNTING SYSTEM The report has been prepared in compliance with Ordinance Number 713 C.M.S., and in accor-

dance with generally accepted accounting principles for public retirement systems as prescribed

by the Governmental Accounting Standards Board (GASB). It also substantially conforms to the

standards established by the Government Finance Officers Association.

The method for recording revenues and expenses is on an accrual basis. Revenue is taken into

account when earned, regardless of the date of collection, and expenses are recorded when the

corresponding liabilities are incurred instead of when payment is made. Amortization of bond

premiums and discounts are over the life of the security and actuarial reserves are funded via the

full funding method.

RESTRICTED BONDS Elections were held in 1970 and 1973 resulting in the transfer of 1,527 Oakland Municipal Em-

ployees’ Retirement System (OMERS) members to the California Public Employees’ Retire-

ment System (PERS). In 1975, 244 employees elected to transfer from OMERS to PERS. On

July 4, 1981, six additional members elected to transfer to PERS and $264,758 in accumulated

retirement contributions and interest was transferred to PERS.

8 Introduction

DRAFT As a temporary measure, the City loaned OMERS $15.5 million in 1974 and $1.8 million in

1976 to pay the costs associated with the transfers to PERS. As a result, OMERS restricted

bonds with a market value of $15.2 million in 1974 and $1.8 million in 1976 to ensure repay-

ment of the loans. On April 1, 1992, OMERS fully redeemed the outstanding 1974 revenue

bonds. The related securities ($4,925,000) together with the reserve funds ($500,000) estab-

lished from the bond proceeds were transferred to OMERS’ unrestricted investment portfolio.

REVENUES Revenues for the Retirement System are generated by contributions from the members and in-

vest-ment income. The last active OMERS employee transferred to CalPERS in FY 2004. As a

result, there are no active member contributions. The net investment income (loss) was

$(1,429,406) and $706,489 for the fiscal years ending June 30, 2009 and June 30, 2010.

Historically, the System’s assets have exceeded its actuarial liabilities, and contributions have

not been required. However, the poor asset returns over the 2007/08 and 2008/09 fiscal years

have resulted in System liabilities that are greater than System assets and contributions have be-

come necessary. Based on the most recent Actuarial Valuation dated July 1, 2010, a contribu-

tion of $120,000 is required for FY 2011/12.

EXPENSES The principal expense of the Retirement System relates to the purpose for which it was created,

namely the payment of retirement benefits. Consequently, payment of retirement benefits man-

dated by the plan, refund of contributions to terminated employees, investment advisory fees,

administrative operating costs and staff costs comprise the total expenses.

RESERVES AND FUNDING Net assets held in trust for pension benefits decreased by $252,751 from June 30 2009 to June

30, 2010 and decreased by $2,400,899 from June 30, 2008 to June 30, 2009. As of the last Actu-

arial valuation, dated July 1, 2010, the actuarial present value of benefits was $5.471 million and

the plan was 86.4% funded.


9 Introduction

DRAFT INVESTMENTS The Actuarial assumed rate of return for the plan is 8%. The realized rate of return on the market value for the current and previous fiscal years are as follows:

BOARD OF ADMINISTRATION In accordance with Section 2602 of the Oakland City Charter, the Retirement System is admin-

istered by a seven-member Board of Administration composed of the Budget and Finance Direc-

tor, the City Auditor, three (3) members elected from the active, retired and deferred member-

ship of the Retirement System, a resident representative of a life insurance company and an offi-

cer of a local bank On March 26, 1996, Measure H was approved by the voters in the Primary

Election. This measure amended Section 2002 of the Charter of the City of Oakland to provide

that in the event that less than three members of the OMERS are elected to serve in the three

seats of the OMERS Board designated for such members, the retirement system members may

elect widows, widowers and beneficiaries to the vacant seats designated for active, retired and

deferred members of the retirement system. As of June 30, 2010, there was one vacancy on the

Board from the elected member category.

PROFESSIONAL SERVICES The Board of Trustees appointed investment professionals and consultants to provide profes-

sional services that are essential in making investments and developing a sound retirement plan.

A list of these consultants is contained in this report.


Total Returns % 1 Year 3 Year Total Fund 14.9% -5.7%

10 Introduction

DRAFT ACKNOWLEDGEMENTS The compilation of this report reflects the combined efforts of the Retirement System Adminis-

trative staff, the Board of Trustees and various professional consultants. Its intent is to provide

complete and reliable information to the beneficiaries of the Plan and to serve as a basis for

making management decisions and to ensure compliance with legal provisions affecting the ad-

ministration of the Plan.

Respectfully submitted,

Yvonne S. Hudson-Harmon Manager, Retirement and Benefits City of Oakland


11 Introduction

DRAFT

Staff Liaison Yvonne S. Hudson

Retirement and Benefits Manager

Legal Advisor Tracy Chriss

Deputy City Attorney

Henry Cotten Insurance Representative (Replaced by James Hill on

November 18, 2010)

Carl E. Gilmore Vice President

Bank Representative

William C. Russell President

Retired Representative

MEMBERS OF THE BOARD OF ADMINISTRATION

Courtney Ruby City Auditor

Joseph T. Yew, Jr. Mayoral

Designate

12 Introduction

DRAFT

PROFESSIONAL SERVICES Over the past year the Board of Administration has engaged the following consultants to assist

in making investments and in developing a sound retirement plan:

A complete list of Investment Professionals is included on page 35 of this Annual Report.

The Board meets bi-monthly starting in February on the last Thursday and holds special meet-

ings as they are necessary. The meetings are currently held at 1 Frank H. Ogawa Plaza, Oak-

land, California 94612. Members of the Retirement Plan and the general public may attend any

of the meetings. Current OMERS Board minutes and agendas are available online at

www.oaklandnet.com.

Actuary Bartel Associates, LLC Auditors Macias, Gini & Company, LLP Williams, Adley & Company, LLC Custodial Service Bank of New York

(left to right): Téir Jenkins, Retirement System Accountant; David Low, Administrative Assistant II; Sandra Tong, Accountant II; Yvonne Hudson-Harmon, Retirement and Benefits Manager; Carol Kolenda, Benefits Representative

CITY OF OAKLAND RETIREMENT SYSTEMS

SECTION 2 FINANCIAL

14 Financial

DRAFT INDEPENDENT AUDITORS’ REPORT

15 Financial

DRAFT YEARS ENDED JUNE 30, 2010 AND 2009

16 Financial

DRAFT MANAGEMENT’S DISCUSSION AND ANALYSIS

A s management of the Oakland Municipal Employees’ Retirement System (the System), we offer

readers of the System’s financial statements this narrative overview and analysis of the financial

activities of the System for the fiscal years ended June 30, 2010 and 2009. We encourage readers to

consider the information presented here in conjunction with the System’s financial statements that follow

this section. This management discussion and analysis is presented in the following sections:

• Organizational Overview

• Overview of the Financial Statements

• Financial Analysis: 2010 vs. 2009

• Financial Analysis: 2009 vs. 2008

• Requests for Additional Information

ORGANIZATIONAL OVERVIEW

The City of Oakland City Charter (Oakland Charter) established the System and provides for its funding.

Accordingly, the System is an integral part of the City of Oakland (City) and its operations have been

reported as a Pension Trust Fund in the City’s basic financial statements. The System is a closed single-

employer, defined benefit pension plan that provides service and disability retirement, and survivor

benefits for eligible employees of the City. The System covers the City’s non-uniformed employees hired

prior to September 1970 who have not elected to transfer to the California Public Employees’ Retirement

System (CalPERS). The System is governed by a seven-member Board of Administration composed of

the City Treasurer, the City Auditor, three members elected from the retired and deferred membership of

the System, and Mayor appointed representatives of a local life insurance company and a local bank in

accordance with Section 2002 of the Oakland Charter.

The System’s funding policy provides for periodic employee and City contributions at actuarially

determined amounts sufficient to accumulate the necessary assets to pay benefits when due as specified in

the City Charter. The System no longer receives employee contributions as all members of the System

have retired or transferred to CalPERS.

The System uses the Aggregate Cost Method to determine City contributions and the Entry Age Normal

Cost Method for its disclosure and reporting. The Actuarial Accrued Liability (AAL) is the present value

of all future benefits for current plan participants. The System’s current membership is 45, which include

22 retirees, 16 beneficiaries, and 7 Alameda County Health Department transferees.

17 Financial

DRAFT The following are the significant assumptions used to compute contribution requirements:

• 7.0% investment rate of return

• 3.0% future benefit increases

• 3.25% inflation rate

OVERVIEW OF THE FINANCIAL STATEMENTS

This report consists of three parts – management discussion and analysis (this section), the financial

statements and other required supplementary information. The financial statements include Statements of

Plan Net Assets; Statements of Changes in Plan Net Assets; and the Notes to the Basic Financial

Statements.

The Statements of Plan Net Assets and the Statements of Changes in Plan Net Assets report information to

assist readers in determining whether the System’s finances as a whole have improved or deteriorated as a

result of the year’s activities. These statements report the net assets of the System and the activities that

cause the changes in the net assets during the year, respectively.

The Statements of Plan Net Assets present information on all System assets and liabilities, including the

difference between the two reported as net assets held in trust for pension benefits. Over time, increases

or decreases in net assets held in trust for pension benefits may serve as a useful indicator of whether the

financial condition of the System is improving or deteriorating.

While the Statements of Plan Net Assets provide information about the nature and amount of resources

and obligations at year-end, the Statements of Changes in Plan Net Assets present the results of the

System’s activities during the fiscal year and information as to how the net assets held in trust for pension

benefits have changed during the year. The Statements of Changes in Plan Net Assets measure the results

of the System’s investment performance as well as any additions from contributions and deductions for

payment of benefits and administrative expenses. The Statements of Changes in Plan Net Assets can be

used as indicators of how the System has progressed to or regressed from the twin goals of fully funding

all current and past service costs along with having sufficient additional revenue to pay for current refunds

of contributions and administrative and investment expenses.

18 Financial

DRAFT The Notes to the Basic Financial Statements and Required Supplementary Information provide

explanations and other information that is helpful to a full understanding of the data provided in the

financial statements. The Notes to Financial Statements and Required Supplementary Information are

found starting on page 26 and on page 32, respectively.

FINANCIAL ANALYSIS: 2010 VS. 2009

Table 1 summarizes the System’s net assets as of June 30, 2010 and 2009:

Net assets held in trust for pension benefits decreased $252,751 from June 30, 2009 to June 30, 2010.

The main source of this decrease was due to a reduction in the System’s investment portfolio and the

payment of benefit payments.

As of June 30, 2010, the System’s investment portfolio consists of shares of two investment funds: the

American Century Equity Mutual Fund and the HighMark Employee Benefit Flexible Bond Commingled

Fund.

Table 1: Summary of Plan Net Assets as of June 30, 2010 and 2009 June 30 Change 2010 2009 Dollars Percentage Assets:

Cash and cash equivalents $ 45,086 $ 125,111 $ (80,025) (64.0) Receivables 146 3,781 (3,635) (96.1) Investments 4,740,928 4,913,045 (172,117) (3.5)

Total assets 4,786,160 5,041,937 (255,777) (5.1) Liabilities: 57,900 60,926 (3,026) (5.0)

Net assets held in trust for pension benefits $ 4,728,260 $ 4,981,011 $ (252,751) (5.1)

19 Financial

DRAFT Table 2 summarizes changes in the System’s net assets for the years ended June 30, 2010 and 2009:

The System’s investment income (loss) during the years ended June 30, 2010 and 2009 were $706,489

and $(1,429,406), respectively. The actual returns for these two years were 14.9% and -19.8%,

respectively, which compares to benchmark returns of 10.6% and -14.2%, respectively, and actuarially

assumed annual returns of 8.0% for both years.

The System’s benefit expenses for the year ended June 30, 2010 were $581,904, a decrease of $102,903

from the prior year. This decrease reflects the ongoing reduction in the System’s membership.

Table 2: Summary of Changes in Plan Net Asset as of June 30, 2010 and 2009 June 30 Change 2010 2009 Dollars Percentage Additions:

Investment income (loss) $ 706,489 $ (1,429,406) $ 2,135,895 149.4 Total additions 706,489 (1,429,406) 2,135,895 149.4

Deductions:

Benefits to members and beneficiaries 581,904 684,807 (102,903) (15.0) Administrative expenses 377,336 286,686 90,650 31.6

Total deductions 959,240 971,493 (12,253) (1.3)

Change in net assets (252,751) (2,400,899) 2,148,148 89.5 Net assets held in trust for pension benefits

Beginning of year 4,981,011 7,381,910 (2,400,899) (32.5) End of year $ 4,728,260 $ 4,981,011 $ (252,751) (5.1)

20 Financial

DRAFT FINANCIAL ANALYSIS: 2009 VS. 2008

Table 3 summarizes the System’s net assets as of June 30, 2009 and 2008:

Net assets decreased $2,400,899 from June 30, 2008 to June 30, 2009. The main source of this decrease

was due to a reduction in the System’s investment portfolio and the payment of benefit payments. The

reduction in the value of System’s investment portfolio coincided with an overall downturn in the U.S.

financial markets.

As of June 30, 2009, the System’s investment portfolio consists of shares of three commingled mutual

fund investments: the Western Asset Core Bond Fund, the Barclays Aggregate Bond Fund and the

American Century Equity Fund.

The System restated the administrative expenses for the year ended June 30, 2008. It was discovered that

a portion of the System’s administrative expenses were incorrectly charged to the City of Oakland

General Fund and the Oakland Police and Fire retirement System for fiscal years 2007 and 2008. These

additional administrative costs were $51,703 payable to the City of Oakland and $19,820 payable to the

Oakland Police and Fire Retirement System.

As a result of the above changes in both assets and liabilities, net assets held in trust increased $2,216,861

from June 30, 2008 to June 30, 2009.

Table 3: Summary of Plan Net Assets as of June 30, 2009 and 2008 June 30 Change (Restated)

2009 2008 Dollars Percentage Assets:

Cash and cash equivalents $ 125,111 $ 647,326 $ (522,215) (80.7) Receivables 3,781 11,687 (7,906) (67.6) Investments 4,913,045 6,871,530 (1,958,485) (28.5)

Total assets 5,041,937 7,530,543 (2,488,606) (33.0) Liabilities:

Other liabilities 60,926 77,110 (16,184) (21.0) Payable to the City of Oakland - 51,703 (51,703) (100.0) Payable to PFRS - 19,820 (19,820) (100.0)

Total liabilities 60,926 148,633 (87,707) (59.0)

Net assets held in trust for pension benefits $ 4,981,011 $ 7,381,910 $ (2,400,899) (32.5)

21 Financial

DRAFT Table 4 summarizes changes in the System’s net assets for the years ended June 30, 2009 and 2008:

The System’s investment losses during the years ended June 30, 2009 and 2008 were $1,429,406 and

$787,169, respectively. The actual returns for these two years were -19.8% and -9.0%, respectively, which

compares to benchmark returns of -14.2% and -5.3%, respectively, and actuarially assumed annual returns

of 8.0% for both years.

The System’s benefit expenses for the year ended June 30, 2009 were $684,807, a decrease of $121,533

from the prior year. This decrease reflects the ongoing reduction in the System’s membership.

Table 4: Summary of Changes in Plan Net Asset as of June 30, 2009 and 2008 June 30 Change (Restated) 2009 2008 Dollars Percentage Additions:

Investment loss $ (1,429,406) $ (787,169) $ (642,237) 81.6 Total additions (1,429,406) (787,169) (642,237) 81.6

Deductions:

Benefits to members and beneficiaries 684,807 806,340 (121,533) (15.1) Administrative expenses 286,686 376,686 (90,000) (23.9) Change in payable to the City of Oakland - (4,205,537) 4,205,537 100.0

Total deductions 971,493 (3,022,511) 3,994,004 (132.1)

Change in net assets (2,400,899) 2,235,342 (4,636,241) 207.4

Net assets held in trust for pension benefits

Beginning of year 7,381,910 5,165,049 2,216,861 42.9 Restatement - (18,481) 18,481 (100.0)

Beginning of year, 7,381,910 5,146,568 2,235,342 43.4 End of year $ 4,981,011 $ 7,381,910 $ (2,400,899) (32.5)

22 Financial

DRAFT The payable to the City of Oakland decreased by $4,205,537 in the year ended June 30, 2008. The

amount payable to the City of Oakland was based on an agreement between the Retirement System and

the City that net assets, which exceed 125% of the actuarially determined present value of liabilities, shall

be recorded as a payable to the City. As of the actuary valuation dated July 1, 2007, the actuarially

determined value of assets as a percentage of the actuarial accrued liability was 124.7%. As a result, the

payable to the City of Oakland for excess actuarially determined present value of liabilities was $0 as of

June 30, 2008. In comparison, the payable to the City of Oakland was $4,205,537 as of June 30, 2007.

The reduction of the funding ratio to below 125% was primarily based on a difference in the treatment of

the present value of liabilities for future administrative expenses.

REQUESTS FOR ADDITIONAL INFORMATION

This financial report is designed to provide a general overview of the System’s finances and to account for

the money that the System receives. Questions concerning any of the information provided in this report

or requests for additional information should be addressed to:

Office of Human Resources Management Retirement Systems City of Oakland 150 Frank H Ogawa Plaza, 2nd Floor Oakland, CA 94612

23 Financial

DRAFT

24 Financial

DRAFT Statements of Plan Net Assets June 30, 2010 and 2009 June 30 Assets 2010 2009

Cash and cash equivalents:

Cash held by City Treasury $ 45,086 $ 125,111

Receivables:

Interest receivable 146 365

Investments receivable - 3,416

Total receivables 146 3,781

Investments, at fair value:

Short-term investments 46,814 28,101

Mutual funds 4,694,114 4,884,944

Total investments 4,740,928 4,913,045

Total assets $ 4,786,160 $ 5,041,937

Liabilities

Accounts payable $ 3,722 $ 851

Benefits payable 47,322 51,539

Investments payable - 3,416

Accrued investment management fees 6,856 5,120

Total liabilities $ 57,900 $ 60,926

Net assets held in trust for pension benefits $ 4,728,260 $ 4,981,011

See Accompanying Notes to Financial Statements

25 Financial

DRAFT Statements of Changes in Plan Net Assets Years Ended June 30, 2010 and 2009 June 30 2010 2009

Additions (Declines)

Investment income (loss): Net appreciation (depreciation) in fair value of investments $ 617,960 $ (1,614,812)

Interest 34,835 5,578

Dividends 75,309 200,173

Total investment income (loss) 728,104 (1,409,061)

Less: Investment expenses (21,615) (20,345)

Net investment income (loss) 706,489 (1,429,406)

Deductions

Benefits to members and beneficiaries:

Retirement 491,302 590,875

Disability 86,602 90,932

Death 4,000 3,000

Total benefits to members and beneficiaries 581,904 684,807

Total Administrative Expenses 377,336 286,686

Total deductions 959,240 971,493

Change in net assets (252,751) (2,400,899)

Net assets held in trust for pension benefits:

Beginning of year 4,981,011 7,381,910

End of year $ 4,728,260 $ 4,981,011

See Accompanying Notes to Financial Statements

26 Financial

DRAFT 1. DESCRIPTION OF THE OAKLAND MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM

The Oakland Municipal Employees’ Retirement System (the System) is a closed, single-employer defined

benefit pension plan (the Plan) established by the City of Oakland (the City) Charter. The System is gov-

erned by a board of seven trustees, composed of the City Treasurer, the City Auditor, three members

elected by the retired and deferred membership of the System, and Mayor appointed representatives of a

local life insurance company and a local bank in accordance with Section 2002 of the Oakland Charter.

Trustees receive no compensation. The System covers the City’s non-uniformed employees hired prior to

September 1970 who have not transferred to the State of California Public Employees’ Retirement System

(CalPERS).

The System is exempt from the regulations of the Employee Retirement Income Security Act of 1974

(ERISA). The System is also exempt from federal income taxes and California franchise tax.

System Membership

At June 30, 2010 and 2009, the System membership consisted of:

Basic Benefit Provisions

The City Charter establishes plan membership, contribution, and benefit provisions. The System provides

that any member who completes at least 20 years of service and has attained age 52 or completes at least

five years of service and attains age 60 is eligible for retirement benefits. The member shall receive a ser-

vice retirement allowance that is calculated on a basis that takes into account the final three years average

compensation, age, and the number of years of service. In addition, the System provides disability, death

and survivors benefits for the members.

Upon the retiree’s death, payments are continued to the retiree’s eligible spouse at the 50% level. The plan

provides an automatic cost-of-living adjustment based on changes in the CPI up to a maximum of 3% per

year. Disability benefits are paid to eligible members who became disabled prior to retirement. If the

member’s disability is work related, then the member or widow is paid a pension equivalent to an imme-

diate service retirement. The disability pension is paid at a level no less then 50% of the pay attached to

the rank. When a death occurs after retirement, a one-time payment of $1,000 is paid to the member’s

designated beneficiary.

2010 2009 Membership:

Retirees 25 28 Beneficiaries 20 22

Total 45 50

Notes to Basic Financial Statements Years Ended June 30, 2010 and 2009

27 Financial

DRAFT 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation

The System is reported as a pension trust fund in the City’s basic financial statements. The financial

statements of the System present only the financial activities of the System and are not intended to present

the financial position and changes in financial position of the City in conformity with accounting princi-

ples generally accepted in the United States of America.

Measurement Focus and Basis of Accounting

The financial statements are prepared on a flow of economic resources measurement focus using the ac-

crual basis of accounting. Contributions are recognized in the period in which the contributions are due,

pursuant to formal commitments as well as statutory or contractual requirements, and benefits and refunds

are recognized when payable under plan provisions.

Methods Used to Value Investments

Investments are reported at fair value. Securities traded on a national or international exchange are valued

at the last reported sales price at current exchange rates.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the

United States of America requires management to make estimates and assumptions that affect certain re-

ported amounts and disclosures. Accordingly, actual results could differ from those estimates.

3. CONTRIBUTIONS

All active non-uniformed City employees hired prior to September 1970 have transferred to CalPERS or

retired. Accordingly, the System did not receive any employee contributions during the years ended June

30, 2010 and 2009 and will not receive any employee contributions in the future.

The City contributes, at a minimum, such amounts as are necessary as determined on an actuarial basis

using the aggregate actuarial cost method, to provide assets sufficient to meet benefits to be paid to plan

members. The contributions are established using various assumptions as to inflation, rate of return on

investments and mortality. Administrative costs are prefunded through City contribution rates. As of July

1, 2010 (the date of the System’s last actuarial valuation), the actuarial accrued unfunded liability is ap-

proximately $743,000.

4. CASH AND INVESTMENTS Investment Policy

The System’s investment policy authorizes investment in domestic common stocks and bonds. The in-

vestment policy states that the asset allocation of the System’s investment portfolio shall be a target of

70% Domestic Equities and 30% Domestic Fixed Income. As of June 30, 2010, the System’s investment

portfolio consists of shares of two investment funds (Funds). The System is invested in the American

28 Financial

DRAFT Century Equity Mutual Fund and the HighMark Employee Benefit Flexible Bond Commingled Fund.

Specific guidelines for the Funds are detailed in the prospectus or Declaration of Trust, for each individ-

ual Fund.

The following table summarizes the System’s investment portfolio as well as the interest rates and the

weighted average maturities of the System’s investments as of June 30, 2010:

The following table summarizes the System’s investment portfolio as well as the interest rates and the

weighted average maturities of the System’s investments as of June 30, 2009:

Cash and Cash Equivalents

As of June 30, 2010 and 2009, cash and cash equivalents consisted of cash in treasury held in the City’s

cash and investment pool. These funds are invested according to the investment policy adopted by the

City Council. Interest earned on these pooled accounts is allocated monthly to all funds based on the av-

erage daily cash balance maintained by the respective funds. It is not possible to disclose relevant infor-

mation about the System’s separate portion of the investment pool. Information regarding the characteris-

FY 2010

Fair

Value Yield Maturity (Years)

Equity Investments American Century Equity Fund $ 2,991,983 - -

Fixed Income Investments

HighMark Employee Benefit Flexible Bond Fund 1,702,131 2.9% 5.4 $ 4,694,114

* The Plan became invested in the HighMark Employee Benefit Flexible Bond Fund in FY 2010

FY 2009

Fair

Value Yield Maturity (Years)

Equity Investments American Century Equity Mutual Fund $ 3,388,810 - -

Fixed Income Investments

Western Asset Core Bond Mutual Fund 832,976 5.5% 8.1 Barclays Aggregate Bond Fund 663,158 4.9% 6.7

$ 4,884,944 * The Plan became invested in the Barclays Aggregate Bond Fund in FY 2009

Notes to Basic Financial Statements

29 Financial

DRAFT tics of the entire investment pool can be found in the City’s June 30, 2010 basic financial statements. A

copy of that report may be obtained by contacting the City Treasurer. As of June 30, 2010 and 2009, the

System’s share of the City’s investment pool totaled $45,086 and $125,111, respectively.

Credit Risk

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation.

The System’s investment policy states that the fixed income portfolio shall not exceed 8% investment in

below investment grade securities (rated Ba/BB or below by at least one Nationally Recognized Statistical

Rating Organization (NRSRO)) in fair value.

As of June 30, 2010, the System was invested in the HighMark Employee Benefit Flexible Bond Fund

with a credit quality rating of AA.

As of June 30, 2009, the System was invested in the Western Asset Core Bond Fund and the Barclays

Aggregate Bond Fund. The Western Asset Core Bond Fund had a credit quality rating of AA- and the

Barclays Aggregate Bond Fund had a credit quality rating of AA.

Custodial Credit Risk

Custodial credit risk is the risk that, in the event of the failure of a depository financial institution or coun-

terparty to a transaction, there will be an inability to recover the value of deposits, investments, or collat-

eral securities in the possession of an outside party.

The California Government Code requires that governmental securities or first trust deed mortgage notes

be used as collateral for demand deposits and certificates of deposit at 110 percent and 150 percent, re-

spectively, of all deposits not covered by federal deposit insurance. As the City holds all cash and certifi-

cates of deposit on behalf of the System, the collateral must be held by the pledging financial institution’s

trust department and is considered held in the City’s name.

The System does not have any investments that are not registered in the name of System and are either

held by the counterparty or the counterparty’s trust department or agent but not in the System’s name.

Implementation of New Accounting Principle – Derivatives

The System adopted GASB Statement No. 53 Accounting and Financial Reporting for Derivative Instru-

ments, effective July 1, 2009. The statement addresses hedge accounting requirements and improves dis-

closures, providing a summary of the government’s derivative instrument activity, its objectives for enter-

ing into derivative instruments, and their significant terms and risks. Implementation of GASB No. 53

had no effect on the System because the Plan had no derivatives as of June 30, 2010 and 2009.

Years Ended June 30, 2010 and 2009

30 Financial

DRAFT 5. ACTUARIAL ASSUMPTIONS AND FUNDED STATUS

Information regarding the funded status of the System as of the most recent valuation date is shown be-

low.

Multiyear trend information about whether the actuarial value of Plan assets is increasing or decreasing

over time relative to the actuarial accrued liability for benefits is presented in the Required Supplementary

Information immediately following the Notes to the Basic Financial Statements.

A summary of the actuarial methods and significant assumptions used to calculate the funded status and

funding progress for the most recent valuation dated July 1, 2010 is as follows:

Valuation Date July 1, 2010

Actuarial Cost Method Entry Age Normal Cost Method

Asset Valuation Method Market Value

Investment Rate of Return 6.50%

Inflation Rate 3.25%

Cost-of-living Adjustments 3.00%

Amortization Method Closed Level Dollar

Amortization Period 6 Years

Dollars in Thousands

Actuarial Valuation

Actuarial Accrued Liability (AAL)

Actuarial Value

of Assets

Unfunded (Over-

funded) AAL

Funded Ratio

Covered Payroll

Overfunded AAL as a

Percentage of Covered

Payroll Date (a) (b) (a-b) ( b/a) (c) ((a-b) / c)

7/1/2010 $5,471 $4,728 $743 86.40% - N/A

Notes to Basic Financial Statements

31 Financial

DRAFT A summary of the actuarial methods and significant assumptions used to calculate the annual required

contribution for the year ended June 30, 2010 is as follows:

6. RESERVES

Reserves are established from member and employer contributions and the accumulation of investment

income after satisfying investment and administrative expenses. The System’s major reserves are as fol-

lows:

Retired Member Contribution Reserve represents the total accumulated transfers from active member con-

tributions and investments, less payments to retired members.

Employer Reserve represents the total accumulated employer contributions for retirement payments. Ad-

ditions include contributions from the employer and investment earnings; deductions include payments to

retired members.

The aggregate total of the System’s major reserves as of June 30, 2010 and 2009 equals net assets held in

trust for pension benefits and comprises the following:

7. ADMINISTRATIVE EXPENSES

The City provides the System with accounting and other administrative services. Staff salaries included in

administrative expenses for the years ended June 30, 2010 and 2009 were $321,122 and $228,962, respec-

tively. Other administrative expenses including accounting and audit services, legal fees, annual report

and miscellaneous expense for the years ended June 30, 2010 and 2009 were $56,214 and $57,724, re-

spectively.

Valuation Date July 1, 2009

Actuarial Cost Method Entry Age Normal Cost Method

Asset Valuation Method Market Value

Investment Rate of Return 7.00%

Inflation Rate 3.25%

Cost-of-living Adjustments 3.00%

Amortization Method Closed Level Dollar

Amortization Period 6 Years

2010 2009 Retired Member Contribution Reserve $ 681,128 $ 714,489 Employer Reserve 4,047,133 4,266,524 $ 4,728,260 $ 4,981,011

Years Ended June 30, 2010 and 2009

32 Financial

DRAFT The information presented in the required supplementary schedule was determined as part of the actuarial

valuations as of the dates indicated.

Schedule II: Schedule of Employer Contributions

Year Ended

June 30,

Annual Required

Contribution ($)

Percentage

Contributed (%)

2005 $0 100%

2006 0 100

2007 0 100

2008 0 100

2009 0 100

2010 0 100

REQUIRED SUPPLEMENTAL INFORMATION Years Ended June 30, 2010 and 2009

Schedule I: Schedule of Funding Progress Dollars in Thousands

Actuarial Valuation

Actuarial Accrued Liability (AAL)

Actuarial Value

of Assets

Unfunded (Over- funded)

AAL Funded Ratio

Covered Payroll

Overfunded AAL as a

Percentage of Covered

Payroll Date (a) (b) (a-b) ( b/a) (c) ((a-b) / c)

7/1/2003 * $ 6,714 $ 11,668 $ (4,954) 173.8% - N/A 7/1/2005 * 5,277 10,595 (5,318) 200.8% - N/A 7/1/2007 ** 7,516 9,371 (1,855) 124.7% - N/A 7/1/2009 ** 5,499 4,981 518 90.6% - N/A 7/1/2010 ** 5,471 4,728 743 86.4% - N/A

* The aggregate actuarial cost method was used to calculate results.

** The decline in the funded ratio was primarily due to explicit recognition of future administrative expenses in the Plan’s actuarial accrued liability. The entry age normal cost method was used for disclosure and annual required contribution rates starting with the July 1, 2009 valuation.

SECTION 3 INVESTMENT

34 Investment

DRAFT INVESTMENT CONSULTANT’S REPORT

35 Investment

DRAFT

Deductions by Type Fiscal Years Ending June 30

2010 2009 Investment Expenses

Investment Managers Fees $ 2,829 $ - Custodian Fees 5,286 5,345 Investment Consulting Fees 13,500 15,000

Total Investment Expenses $ 21,615 $ 20,345

List of Investment Professionals Domestic Equity Manager: Custodian: American Century Equity Mutual Fund Bank of New York - Mellon Fixed Income Manager: Investment Consultant: HighMark Employee Benefit Flexible Bond Fund Pension Consulting Alliance

36 Investment

DRAFT

OMERS ASSET ALLOCATION June 30, 2009

Domestic Fixed

Income 30.3%

Domestic Equities 67.3% Cash

2.5%

OMERS ASSET ALLOCATION June 30, 2010

Domestic Fixed

Income 36.5%

Cash 0.9%

Domestic Equities 62.5%

SECTION 4 ACTUARIAL

38 Actuarial

DRAFT

ACTUARY’S CERTIFICATION LETTER

39 Actuarial

DRAFT

40 Actuarial

DRAFT

SUMMARY OF ASSUMPTIONS AND FUNDING METHOD

T he System is a closed single-employer defined-benefit pension plan that provides service

and disability retirement and survivor benefits to eligible former employees of the City.

The System covers the City’s non-uniformed employees hired prior to September 1970 who

have not elected to transfer to the California Public Employees’ Retirement System (CalPERS).

Plan membership as of July 1, 2010 is comprised of 45 retirees and beneficiaries whose average

age is 90.

The System’s funding policy provides for periodic employee and City contributions at actuari-

ally determined amounts sufficient to accumulate the necessary assets to pay benefits when due

as specified by ordinance. The System no longer receives employee contributions as all mem-

bers of the System have retired or transferred to CalPERS.

Historically, the System’s assets have exceeded its actuarial liabilities, and contributions have

not been required. However, the poor asset returns over the 2007/08 and 2008/09 fiscal years

have resulted in System liabilities that are greater than System assets and contributions became

necessary with the July 1, 2009 valuation. To synchronize contributions with the City’s budget

cycle, a contribution of $120,000 based on that valuation was recommended for FY 2011/12.

Based on the July 1, 2010 valuation a contribution of $161,000 was recommended for fiscal year

2012/13. These recommended contributions were based on level dollar 6-year amortization of

the July 1, 2009 Unfunded Actuarial Liability and level dollar 6-year amortization of each sub-

sequent year’s changes in the Unfunded Actuarial Liability due to actuarial gains and losses and

assumption, method, and plan changes. This calculation methodology has been approved by the

Retirement Board but must be approved by the City Council prior to implementation.

41 Actuarial

DRAFT The significant assumptions used to compute contribution requirements are shown below:

• 6.50% investment rate of return, • 3.25% inflation rate, • 3.0% cost-of-living adjustments with increases for health department retirees beginning

in 2014, • Mortality for service retirements and survivors based on the RP-2000 Table projected to

2010, then projected generationally using Scale AA, and

• Administrative expenses based on budgeted expenses for the coming year and increased at 3.5% per year until the number of participants reaches half of the number on July 1, 2007. Thereafter, 2/3rds of the administrative expense is assumed to decrease with the number of participants. Total annual administrative expenses are capped at 100% of benefit payments.

Following are valuation results.

07/01/2009 07/01/2010 % chg Participant Counts • Service Retirees 26 23 -11.5% • Disability Retirees 2 2 0.0% • Beneficiaries 22 20 -9.1% • Total 50 45 -10.0%

Demographic Information • Average Age 89 90 • Annual Benefit Payments $ 633,000 $ 575,000 -9.2% • Administrative Expenses 296,000 346,000 16.9% Actuarial Liabilities • Present Value of Projected Benefit Payments 3,140,000 2,922,000 -6.9% • Present Value of Administrative Expenses 2,359,000 2,549,000 8.1% • Total Actuarial Liabilities 5,499,000 5,471,000 -0.5% Assets • Actuarial Value (= Market Value) 4,981,000 4,728,000 -5.1% • Prior Year Annualized Rate of Return -20.7% 15.7% Plan Funded Status • Total Actuarial Liability 5,499,000 5,471,000 -0.5% • Actuarial Value of Plan Assets 4,981,000 4,728,000 -5.1% • Unfunded Actuarial Liability 518,000 743,000 43.4% • Funded Ratio 90.6% 86.4%

City Contribution for fiscal year 1 • Fiscal Year 2011/12 2012/13 • Recommended Contribution 120,000 161,000

1 Subject to City Council approval of recommended methodology.

————amounts in $000’s————-

42

DRAFT

SECTION 5 STATISTICAL

44 Statistical

DRAFT

Benefits Expense by Type Fiscal Years Ending June 30 2010 2009

Type of Retirees # of

Retirees

Yearly Gross

Amount # of

Retirees

Yearly Gross

Amount Service Allowance * 39 $ 495,302 43 $ 593,875 Disability Allowance 6 86,602 7 90,932 TOTAL 45 $ 581,904 50 $ 684,807 * Includes Death Allowance

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