SAN DIEGO COUNTY EMPLOYEESRETIREMENT ASSOCIATION

S~RAStrength. Service. Commitment.

August 28, 2015

To: Board of Retirement

From: David B. WescoeInterim Chief Executive Officer

Re: INTERIM CHIEF EXECUTIVE OFFICER’S REPORT

The following is an update on SDCERA’ s staff activities and other matters of interest concerningthe Association since my July 31 Report.

The Gang’s All Here! With the arrival of Chief Legal Officer Elaine Reagan on Friday, August21, SDCERA’s C-Suite team, including Chief Financial Officer Greg Bych, Chief InvestmentOfficer Steve Sexauer and Chief Service Officer Johanna Shick, are all in place and fullyengaged in SDCERA’s operations. As I have mentioned before, these four individuals compriseone of the strongest management teams of any pension fund anywhere. I am very excited aboutthe positive impact their leadership will have on the organization.

CPAS Update. August was a good month on the CPAS front. On August 18, I and othermembers of our CPAS leadership team met with CPAS’ Chief Operating Officer, ChiefTechnical Officer and Strategic Account Executive to strengthen our lines of communication andensure we are all on the same page about the project’s status and our focus for the fiscal year. Itwas a very positive exchange of ideas, and I am encouraged about the renewed sense ofpartnership going forward. Later that day, I met with David Rive, CPAS’ CEO, to review themorning’s discussions and establish a clear communication channel at the very top of eachorganization. This meeting, too, went well. The new SDCERA/CPAS mantra is: “One Team,One Goal. 6.30.16.” With the addition of several experienced consultant/project managers toassist staff, I am more confident that our 6.30.16 CPAS goal can be met.

The latest CPAS software build, which contained 67 improvements and fixes, passed testing andwas promoted into production. Thirty-three of the fixes were related to the successful productionof the actuarial valuation files.

On a related CPAS note, SDCERA hosted and participated in the CPAS West Coast ClientWorkshop on August 18. This workshop provided an opportunity for SDCERA to learn fromCPAS representatives and other 1937 Act retirement system staff using the pensionadministration system. The day-long workshop involved numerous discussions centering on bestpractices, capabilities, and processes to help maximize the usefulness of the CPAS system. Iwant to share some feedback I received from one California county pension system manager whoattended the event:

2275 Rio Bonito Way, Suite 200, San Diego, CA 92108-1 685 . www.sdcera.org PHONE 619.515.6800 . TOLL FREE 888.473.2372

“One of the most remarkable components to [our] visit was being able to connect withSDCERA staff the day prior to the CPAS training. We contacted Johanna Shick andVictor DeWitt prior to our visit, and Mr. Dewitt was kind enough to dedicate most of themorning to showing us [SDCERA’s] operation and permitting us to talk to key staffabout issues that we mutually face. In addition, you personally took time out of your dayto talk with us. From our visit, we are able to take with us many ideas that will help usbetter serve our members, better communicate to members, and be more effective to ourBoard. It’s evident that both SDCERA operations and staff are premier in the publicretirement arena. We thank you and your excellent staff in taking the time to meet/talkwith us. By mutually working through some difficult CPAS issues together I’mconfident we can help each other to become better users of the system and improveCPAS’s ability to meet our needs.”

Administrative Services and Human Resources. SDCERA’s Annual Employee AppreciationLuncheon was held on August 26 in our seminar room. The theme was Hawaiian and includedlunch and entertainment. The following employees were honored by their colleagues for theircontributions to SDCERA’s success throughout the year: Kristen Lowrey, Lei Castillo, DaveWolford, Marilou Balagtas, Merrill Roach, Carlos Gutierrez, Rina Guzman, Sharon Cruz, SuCheng Wang, Yvonne Sanders, Brenton Jochens, Linda Crosland and Roxy Fulgham. As thesaying goes, “A good time was had by all.”

Business Systems and Information Technology. A top priority for the IT team was completingthe data reconciliation for the Actuarial Valuation. Rina Guzman, Alla Melnik and MattStachelski worked tirelessly with subject matter experts from other departments to perform datareconciliation, analysis, and data clean-up activities between PARIS and CPAS to ensure dataintegrity. As a result, valuation file extracts were generated solely by CPAS and sent to theactuary. The team continues to work closely with the Accounting team on the Solomon GeneralLedger (GL) upgrade project. A test GL environment was established, data is being migrated,and a new fixed asset module was integrated. After data migration is completed, the project willenter the testing phase. IT is also working with Accounting to produce material requested for theFY 2015 audit.

Finance and Accounting. August was a very busy and productive month for the Finance andAccounting group. Following the successful transition of investment assets from Salient, theteam worked with BNY Mellon, Blackrock and PIMCO to establish~ monthly reportingrequirements. Manyee “Fortune” Cheng, who has a Masters in Accounting, was hired to fill thevacant accountant position. The tean~ is now working diligently on all financial reportingactivities, including closing the June and fiscal 2015 year-end financials. The team has also beenbusy providing information responsive to Brown Armstrong requests. Work continues on theSolomon/General Ledger (GL) system upgrade, and on August 26, BNY Mellon’s ServiceDirector, Nina Caruso, was on-site to review BNY services and discuss future training andenhancement opportunities.

Investments. As was discussed at the August 20 Board meeting, August 10 marked thecompletion of the work to move the management of $5 billion of SDCERA’s portfolio fromSalient Partners to other investment managers. The total project included the both Salient

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portfolios and the associated collateral portfolios, and the total funds moved were more than $7billion.

The transition was completed successfully with no errors and low transaction costs. What we arenow calling SDCERA’s “transition portfolio” is well diversified and positioned to be in placewhile the Board and staff complete the work to update the Investment Policy Statement andAsset Allocation to reflect the move to an in-house investment program.

Member Services/Active Benefits. Interest is credited each January and July to members’contribution accounts. The process of crediting interest to active and deferred members’contribution accounts as of June 30 has been completed. In the month preceding the interestposting, SDCERA enters into a blackout period during which refunds, corrective distributions,and service purchases cannot be processed until the interest rate has been determined and interestis credited to members’ contribution accounts. Since the July interest posting, staff processed 57refunds and 2 corrective distributions, and generated 18 service purchase contracts.

Member Services/Communications and Education. In preparation for Open Enrollment, staffbegan producing the necessary communications materials to be used to educate members aboutthe 2016 SDCERA-sponsored plan offerings. Pre-Enrollment Letters containing informationabout SDCERA-sponsored medical and dental plans were mailed out to 16,948 members onAugust 28.

The August 2015 issue of Extra, SDCERA’s quarterly electronic newsletter, was sent to allactive members and featured information about SDCERA’s 76th anniversary as well as aneducational article detailing the differences between an employee’s hire date and SDCERAmembership entry date. Also included in this issue were brief articles introducing SDCERA’snew Chief Legal Officer, Elaine Reagan, and newest Board Trustee, Dick Tartre.

The Annual Member Statement (AMS) template was delivered to an external print vendor fortesting to ensure that data elements are populated in the correct fields on the statement. This willbe the first year that SDCERA produces Annual Member Statements using data from CPAS.

Member Services/Disability and Special Services. As part of a new customer service initiativestarted in 2015, SDCERA has been surveying disability retirement applicants asking them to ratetheir experience during the medical evaluation appointment. Sixty-seven percent of therespondents rated their experience as either excellent or good, while 33% rated it as fair or poor.SDCERA Disability and Special Services staff shares this participant survey commentary withthe panel physicians as a means to promote understanding and improve future memberexperience. Participation in the survey is optional, and respondents may choose to remainanonymous.

Member Services/Project Management and Health. In August, staff began producing thenecessary open enrollment communications materials that will be used to educate members aboutthe 2016 SDCERA-sponsored plan offerings.

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FY 2015 actuarial valuation reports were delivered to SDCERA’s actuary on August 7 followinga number of testing activities. Staff is now responding to the actuary’s questions. Data testing forthis year’s Annual Member Statement project is underway, and this will be the first year thatSDCERA produces the Annual Member Statements using data from CPAS.

Member Services/Retired Benefits. In July, staff conducted the annual IRS Section 415 reviewto ensure that retired member benefits do not exceed the maximum annual benefit permittedunder IRS rules. Staff reviewed 239 retired member accounts. Based on the analysis, six newmembers were added to the 4 15(m) Plan.

Member Services Semiannual Activity Report: The Member Services Semiannual ActivityReport from January 1 through June 20, 2015 is attached. The Report contains information andstatistics on the delivery of benefits and services to SDCERA members in the first six months of2015. Highlights include an increase in website usage of more than 30% in 2015, with 128,135visits, and staffs initiation of the re-examination assessment of 65 retirees to determine theirdisability status.

Strategic Accomplishments: FY 2015. Attached is staffs completed StrategicAccomplishments for FY 2015. These items correlate to SDCERA’s FY 2014-2016 StrategicPlan. These accomplishments are very impressive and reflect, again, the great effort expended bystaff to move SDCERA forward.

Service Anniversaries. Seven SDCERA employees celebrated service anniversaries in August:Stephanie Reed (27 years), Veronica Johnson (21 years), Michael Long (17 years), Su ChengWang (12 years), Victor DeWitt (10 years) and Jim Lery (9 years). This is a talented bunch, andSDCERA members benefit from their efforts every day.

“Employees of the Week.” “Employees of the Week” since my last report are:

Su Cheng Wang who, “Since her arrival at SDCERA on May 1, has contributed greatlyto the Finance and Accounting team. Among other tasks, she has participated in selectingnew division staff, analyzed and posted detailed investment transactions that havecontributed to the production of SDCERA’s monthly financial statements and hascontributed to process improvements within the group.

“Su was responsible for executing one of the largest and most rapid movement ofinvestment assets in SDCERA’s history. Su is managing the wire transfers and trackingof more than $2.3 billion in SDCERA funds, moving them from PIMCO to six newinvestments with Blackrock to facilitate the Board’s direction to move to an in-houseinvestment program. To accomplish this, Su has worked collaboratively with theInvestment and Accounting groups and SDCERA’s custodial bank, BNY Mellon, toensure a smooth transition. And, so far, we haven’t misplaced a nickel! Su’s hard work,dedication and attention to detail during this investment transition period has beenterrific.”

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Rina Guzman, “for her work enabling SDCERA to generate actuarial valuation filesfrom CPAS for the first time. Rina worked tirelessly to ensure the project would besuccessful by partnering with CPAS on all structural issues related the actuarial valuationfiles, coordinating application of all data fixed in CPAS test and productionsenvironments, generating new actuarial valuation files on a weekly basis to facilitatecomprehensive review process for Member Services and IT, improving efficiency ofactuarial valuation file generation through partnership with CPAS, and completingsignificant review and testing of data and functionality issues. Her level of commitment isdemonstrated by the fact that, for the last eight weeks, she worked around the clockupdating the environments and running the batch process to facilitate the ability for thecomparison reports to be generated for the team each week. This dedication to ourmission and members is truly inspiring.”

Sharon Cruz, who “models teamwork at its very best. Since February, when the Boardbroadened the scope of disability re-examination, Sharon has been responsible for nearlyall newly-filed disability applications — 29 in all. Sharon has efficiently, effectively andadmirably met this new challenge by reviewing voluminous records, preparing detailedreports, and building rewarding relationships with staff and members. Sharon is a greatexample of SDCERA teamwork in action!”

Linda Crosland, who is retiring in several weeks after almost 20 years with the Countyand eight with SDCERA, is “A hardworking and dedicated employee, Linda ensures thatSDCERA’s payments are made timely and accurately with all the proper supportingdocumentation and sign-offs. Additionally, knowing that retirement was looming, Lindawent “above and beyond” and created a desk procedure manual for her replacement touse. Linda is doing it all: performing her usual duties and training her replacement in allof her activities. Linda’s dedication to SDCERA’s success is impressive! Therefore, it iswith great pleasure that we honor Linda Crosland as “Employee of the (Two) Week(s)”from Monday August 31 through her last day here on September 11 .“

“Why?” Award. Assistant ClO Loren de Mey received a Why? Award for asking why staffcould not receive formal training in project management skills. Given the project to transition toan in-house investment program and the ongoing efforts on the CPAS project that so many staffare involved in, I thought this was an excellent question. Possible answers to Loren’s questionwill be discussed in the coming weeks.

Book Club. The SDCERA Book Club was highlighted in a recent article in Pension &Investments, a copy of which is attached. The first meeting of the Book Club is scheduled forSeptember 30.

Conclusion. August was another very busy and very productive month. The transition to an inhouse investment program went smoothly, and important CPAS projects were completed. Wecelebrated staff accomplishments at the Appreciation Luncheon, which is always a highlight forme. Nothing is more satisf~’ing than recognizing and relishing your colleagues’ achievements.Staffs hard work and dedication to SDCERA’s mission and members is inspiring. There is much

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to be done in the coming months, but a plan is place and the groundwork has been laid to ensurecontinued operational successes.

[N.B.: Information items unrelated to my Report that previously have been included behind theReport are now placed in the Agenda section “Information Items.”]

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