lacera board member handbook

Revised by Communications Division 12-14-17

LACERA Board Handbook 1

LACERA Board Handbook Document Table of Contents

PART 1: INTRODUCTION ............................................................................................................................ 2

PART 2: BOARD OF RETIREMENT ........................................................................................................... 5 PART 3: BOARD OF INVESTMENTS ......................................................................................................... 7

PART 4: FIDUCIARY DUTIES & RESPONSIBILITIES ............................................................................... 9

PART 5: CONFLICTS OF INTEREST & ETHICS RULES ........................................................................ 13

PART 6: OPEN MEETING LAWS .............................................................................................................. 15

PART 7: SYSTEM FUNDING ..................................................................................................................... 17 PART 8: INVESTMENTS ............................................................................................................................ 18

PART 9: PENSION BENEFITS .................................................................................................................. 20

PART 10: RETIREE HEALTHCARE PROGRAM ...................................................................................... 25

PART 11: LACERA MEMBERSHIP IN ORGANIZATIONS ....................................................................... 27

PART 12: TRAINING POLICY ................................................................................................................... 31

PART 13: EDUCATION AND TRAVEL POLICY ....................................................................................... 35 PART 14: FAQs .......................................................................................................................................... 36

PART 15: APPENDIX ................................................................................................................................. 44

Board of Retirement: Board of Supervisors Nomination Rotation Schedule ................................. 44 Effective Term Dates of Current Board of Retirement ....................................................................... 44 Board of Investments: Board of Supervisors Nomination Rotation Schedule ............................... 45 Effective Term Dates of Current Board of Investments .................................................................... 45 LACERA Fund Performance — from 2017 Annual Report ................................................................ 46 Responsible Pension Reform .............................................................................................................. 47 LACERA Organizational Chart ............................................................................................................. 48

Part 1: Introduction


PART 1: INTRODUCTION

Governing Boards The role of governance in any organization is vital to its success. The governing Boards of the Los Angeles County Employees Retirement Association (LACERA), in partnership with management, determine guiding policy, the organization’s vision, mission and strategic goals. While management is charged with implementation, the Boards are responsible for oversight of the organization’s aspirations, purpose and focus.

Handbook Purpose The LACERA Board Handbook Document is intended to enhance the governing Boards’ effectiveness as Board members successfully guide the efforts of LACERA into the future. Both new and experienced Board members will find value in the document, as the Handbook can be used as an initial educational method and as an ongoing reference.

On January 1, 1938, LACERA was established to provide retirement allowances and other benefits to its safety and general members employed by the County of Los Angeles. Subsequently, LACERA expanded its membership program to include four other districts, namely:

• Little Lake Cemetery District • Local Agency Formation Commission • Los Angeles County Office of Education • South Coast Air Quality Management District

Board Resources Website Board members have their own website. Within the site you will find Board-related information, approved conferences, travel policies, Board forms, and other important material.

Resource: Access the Board Website at lacera.com/BoardResourcesWebSite/Index.html or use the “secret link”: Visit the Board of Retirement or the Board of Investments main web page on lacera.com. Click on the subhead titled “BOR BOARD MEMBERS” or “BOI BOARD MEMBERS” to be directed to the Board Resources website.

Governance LACERA is governed by the California Constitution, the County Employees Retirement Law of 1937, the California Public Employees’ Pension Reform Act of 2013 (PEPRA), and the regulations, procedures and policies adopted by LACERA’s Boards of Retirement and Investments. The Los Angeles County Board of Supervisors may also adopt resolutions, as permitted by the retirement law, which may affect the benefits of LACERA members.

The Board of Retirement (BOR) is responsible for the general management of LACERA. The Board of Investments (BOI) is responsible for determining LACERA’s investment objectives, strategies, and policies and for funding the system to assure the prompt delivery of benefits. Both Boards appoint a Chief Executive Officer, to whom is delegated the responsibility of overseeing the day-to-day management of LACERA and developing its annual administrative budget. Adoption of the budget is subject to approval by both Boards.

(Resource: CERL is included in the Board Handbook binder and is also available on the home page of the Board Resources website. Information on PEPRA is included in the Benefits section of lacera.com.)

California Retirement System History In 1937, the California State Legislature enacted the County Employees Retirement Law of 1937,1 which authorizes a board of supervisors to create a retirement system for officers and employees of the county.

1 Government Code Section 31450, et seq.



Frequently referred to as “the ‘37 Act,” the legislation was sponsored by the County of Los Angeles and drafted by the Los Angeles County Counsel’s office.

The Los Angeles County Board of Supervisors implemented the ‘37 Act in 1937 by adopting Ordinance No. 3008, thus creating the Los Angeles County Employees Retirement Association (“LACERA”). Since then, the ‘37 Act has been implemented in the counties of Alameda, Contra Costa, Fresno, Imperial, Kern, San Bernardino, San Diego, San Joaquin, San Mateo, Sonoma, Marin, Mendocino, Merced, Orange, Sacramento, Stanislaus, Tulare, Ventura and Santa Barbara. Los Angeles County and these other 19 counties are sometimes referred to collectively as “the ‘37 Act counties.” 2

The State, the County and the Retirement System Counties are political subdivisions of the State. A county has only those powers granted by the State Legislature, and those powers necessarily implied therefrom.3 For this reason, all of the retirement benefits provided by a county must be authorized by State statute. In LACERA’s case, as noted previously, the original authorizing statutes are set forth in the ‘37 Act. Since January 1, 2013, LACERA is also governed by PEPRA. Any future changes in retirement benefits likewise must be authorized by state statute. Consequently, LACERA pursues an active legislative program connected with ongoing administration of the system.

The relationship of a ‘37 Act retirement system to county government can be confusing at times. Although a county board of supervisors must take formal action to create a system, once created, the retirement system is a separate government entity, independent from the county.4

Further complicating the relationship between a county and the retirement system is the manner in which the system is staffed and operated. In some counties, administration of the system is handled by employees in the county treasurer’s office and the cost of administration is included in the county’s general fund budget. In larger counties, the retirement system appoints its own personnel, in which case the cost of administration is included in a budget approved by the retirement system and charged against the earnings of the retirement fund. Los Angeles County falls into this latter category. LACERA’s Boards of Retirement and Investments, acting jointly, annually adopt a budget providing for the entire administration of the system, and the system is run using personnel who are appointed and managed independent of county government.

Private pension systems are regulated by the Federal Government under the Employees Retirement Income and Security Act (“ERISA”). Although public pension plans are not subject to ERISA, California public pension plans are governed by similar provisions contained in the California Constitution, the ‘37 Act, and PEPRA.

Article XVI, Section 17 of the California Constitution grants public retirement boards “plenary authority and fiduciary responsibility for investment of moneys and administration of the system...,” and further provides:

a) The retirement board of a public pension or retirement system shall have the sole and exclusive fiduciary responsibility over the assets of the public pension or retirement system. The Retirement Board shall also have sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries. The assets of a public pension or retirement system are trust funds and shall be held for the exclusive purposes of providing benefits to participants in the pension or retirement system and their beneficiaries and defraying reasonable expenses of administering the system.

b) The members of the Retirement Board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of

2 The City and County of San Francisco‘s retirement system is provided for in the city charter. The remaining counties of the state

obtain retirement benefits for their employees by contracting with the California Public Employees Retirement System (“CalPERS”).

3 Younger v. Board of Supervisors (1979) 93 Cal.App.3d 864. 4 The independence of a retirement system was first recognized in 1961, when the Court of Appeal held that the Board of

Retirement, in denying a disability retirement, was not bound by a finding against the County in an earlier workers’ compensation claim. Flaherty v. Board of Retirement (1961) 198 Cal.App.2d 397.



providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. A Retirement Board’s duty to its participants and their beneficiaries shall take precedence over any other duty.

c) The members of the Retirement Board of a public pension or retirement system shall discharge their duties with respect to the system with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.

The standard of care imposed on LACERA’s trustees by the Constitution is essentially the same standard applicable to ERISA trustees. Government Code Section 31595 is consistent with the Constitution and requires LACERA’s trustees, officers and employees to “discharge their duties with respect to the system:

a) Solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system.”

b) With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.”

c) Shall diversify the investments of the system so as to minimize the risk or loss and to maximize the rate of return, unless under the circumstances it is clearly prudent not to do so.”


PART 2: BOARD OF RETIREMENT

Board Composition The ’37 Act designates members of the Board of Retirement as follows:

Composition of the Board of Retirement Member Position Description First County treasurer who serves as ex-officio member Second Elected by the general membership Third Elected by the general membership Fourth Appointed by the Board of Supervisors Fifth Appointed by the Board of Supervisors Sixth Appointed by the Board of Supervisors Seventh Elected by the safety membership Eighth Elected by the retired membership Ninth Appointed by the Board of Supervisors Alternate Member The candidate in the election for the Seventh Member from the branch of

service other than the successful candidate’s branch who received the most votes.*

Alternate Retired Member

Elected by the retired membership

*If the candidate receiving the most votes in the election is a member of the Sheriff’s Department, the candidate from the Fire Department receiving the most votes becomes the Alternate Member and vice versa.

The alternate member sits with the Board during meetings and is permitted to make motions and participate in all deliberations, but the member’s ability to vote is limited. The alternate member becomes a voting member whenever the second, third, or seventh member is absent. In the case of an application for a disability retirement by a person from the same branch of service as the seventh member, the alternate member votes in lieu of the seventh member. Finally, in the event there is a vacancy in one of the elected offices, the alternate member fills such vacancy on a temporary basis until such time as the vacancy is filled on a permanent basis by an election held for such purpose.

The members appointed by the Board of Supervisors must be qualified electors of the County and cannot be connected with County government in any capacity. (Government Code Section 31520.1.) Being retired from the County does not constitute a disqualifying connection with County government because the retirement system is separate and independent from the County.

Board Election Schedule The Board of Supervisors has adopted a policy providing for members of the Board of Supervisors to take turns in nominating a person to fill a Board of Retirement vacancy. (View the nomination rotation schedule in Part 15: Appendix.) We are not aware of any instance when an individual Supervisor’s nomination was not confirmed by the Board of Supervisors.

Elected and appointed members of the Board serve for a fixed term of three (3) years. In the event a term has expired but a successor has not been appointed or elected, the member whose term expired continues in office until a successor has qualified. (Government Code Section 1302.) An appointed member cannot be removed by the Board of Supervisors, even for cause. And there is no recall procedure applicable to an elected member. Only a court of law can remove a Board member for cause. In some instances, however, a Board member’s term can terminate early by operation of law.

Such instances include the following: • An appointed member ceasing to be an elector of the County • Termination of County employment of the second, third, or seventh member • Conviction of a felony or any offense involving violation of official duties

Part 2: Board of Retirement


Board of Retirement Election Schedule* Date Action March Board of Supervisors adopts a resolution setting forth election

procedures April Departments post notice of election April – July Deadline for filing nominating petitions with Registrar-

Recorder/County Clerk Deadline for candidates to file statement of qualifications Registrar-Recorder/County Clerk certifies candidates to be placed on ballot

July Mailing of ballots August Deadline for return of ballots

Board of Supervisors officially declares election results

*To view effective dates of current Board terms, see Part 15: Appendix.

(Resource: BOR agendas, minutes, committee information, and BOR member profiles are available on the BOR page of lacera.com.)

Board Committees Board committees are structured as follows:

Board of Retirement Committees Number of Members Disability Procedures and Services Four and Alternate Insurance, Benefits & Legislative Four and Alternate Operations Oversight Four and Alternate

Joint Committees

Committee Number of Members Audit Three BOR and Three BOI Joint Organizational Governance Four BOR and Four BOI

Board Authority With the few exceptions described below, the Board of Retirement serves as LACERA’s governing body responsible for management of the retirement system. (Government Code Section 31520.)

Originally, the Board of Retirement was responsible for investments, as well as all other aspects of management. In 1970, the State Legislature amended the ‘37 Act to permit a county with a retirement fund in excess of $800 million to establish a Board of Investments. (Government Code Section 31520.2.). The Los Angeles County Board of Supervisors established the LACERA Board of Investments in 1972. To date, no other ‘37 Act County has established a Board of Investments.

(Resource: BOR Regulations brochure is included in the Board Handbook binder and is also available on the BOR page of the Board Resources website.)

Board Members are Public Officials As public officials, Board members are subject to a variety of laws and regulations dealing with conflicts of interest and other matters. (See Part 5 for LACERA Conflicts of Interests and Ethics Rules.)


PART 3: BOARD OF INVESTMENTS

Board Composition The ‘37 Act authorizes a county board of supervisors to establish a Board of Investments if the assets of the retirement fund exceed $800 million. (Government Code Section 31520.2). To date, LACERA is the only ‘37 Act system with a Board of Investments.

The Board of Investments is comprised of nine members, as follows:

Composition of the Board of Investments Member Position Description First County treasurer who serves as ex-officio member Second Elected by the general membership Third Elected by the general membership Fourth Appointed by the Board of Supervisors Fifth Appointed by the Board of Supervisors Sixth Appointed by the Board of Supervisors Seventh Elected by the safety membership Eighth Elected by the retired membership Ninth Appointed by the Board of Supervisors

Board Election Schedule The members appointed by the Board of Supervisors must be qualified electors of the County and cannot be connected with County government in any capacity. More importantly, an appointed member must have had “significant experience in institutional investing, either as investment officer of a bank, a trust company; or as investment officer of an insurance company or in an active, or advisory, capacity as to investments of institutional or endowment funds.” (Government Code Section 31520.) Being retired from the County does not constitute a disqualifying connection with County government.

The Board of Supervisors has adopted a policy providing for members of the Board of Supervisors to take turns in nominating a person to fill a Board of Investments vacancy. (View the nomination rotation schedule in Part 15: Appendix.) We are not aware of any instance when an individual Supervisor’s nomination was not confirmed by the Board of Supervisors.

Elected and appointed members of the Board serve for a fixed term of three (3) years. In the event a term has expired but a successor has not been appointed or elected, the member whose term expired continues in office until a successor has qualified. (Government Code Section 1302.) An appointed member cannot be removed by the Board of Supervisors, even for cause. And there is no recall procedure applicable to an elected member. Only a court of law can remove a Board member for cause. In some instances, however, a Board member’s term can terminate early by operation of law.

Such instances include: • An appointed member ceasing to be an elector of the County • Termination of County employment of the second, third, or fourth member • Conviction of a felony or any offense involving violation of official duties

Part 3: Board of Investments


Board of Investments Election Schedule* Date Action March Board of Supervisors adopts a resolution setting forth election procedures April Departments post notice of election April – July Deadline for filing nominating petitions with Registrar-Recorder/County Clerk

Deadline for candidates to file statement of qualifications Registrar-Recorder/County Clerk certifies candidates to be placed on ballot

July Mailing of ballots August Deadline for return of ballots

Board of Supervisors officially declares election results

*To view effective dates of current Board terms, see Part 15: Appendix.

(Resource: BOI agendas, minutes, committee information, and BOI member profiles are available on the BOI page of lacera.com.)

Board Committees Board committees are structured as follows:

Board of Investments Committees Number of Members Corporate Governance Four Equity: Public/Private Four and One Alternate Fixed Income/Hedge Funds/Commodities Four and One Alternate Portfolio Risk Four and One Alternate Real Estate Four and One Alternate

Joint Committees

Committee Number of Members Audit Three BOR and Three BOI Joint Organizational Governance Four BOR and Four BOI

Board Authority The Board of Investments has exclusive jurisdiction over all investments of the retirement system. In addition, matters dealing with the funding of retirement benefits (i.e., the actuarial valuation and the setting of contribution rates) are within the exclusive jurisdiction of the Board. In a few areas — the appointment of the CEO, classification and compensation of personnel, and adoption of LACERA’s annual budget — jurisdiction is shared with the Board of Retirement and requires joint approval of both Boards.

(Resource: The BOI Bylaws are included in the Board Handbook binder and are also available on the BOI page of the Board Resources website.)

Board Members are Public Officials Members of the Board of Investments are “public officials.” Government Code Section 82048 defines a “public official” to include “every member, officer, employee or consultant of a state or local government agency...” Government Code Section 82041 defines a “local government agency” as including a “county, city or district of any kind… or any other local or regional political subdivision, or any department, division, bureau, office, board, commission or other agency of the foregoing.”

As public officials, Board members are subject to a variety of laws and regulations dealing with conflicts of interest and other matters. (For a discussion of the LACERA Conflicts of Interests and Ethics Rules, see Part 5.)


PART 4: FIDUCIARY DUTIES & RESPONSIBILITIES

Overview LACERA is a public pension system created in accordance with the ‘37 Act and administered pursuant to the ‘37 Act and PEPRA, solely for the benefit of the members and retired members of LACERA and their survivors and beneficiaries. Its Boards have “plenary authority and fiduciary responsibility for investment of moneys and administration of the system,” notwithstanding any other provisions of law or the California Constitution.1 Thus, members of the Boards of Retirement and Investments are “fiduciaries.” A “fiduciary” is a person to whom property or power is entrusted for the benefit of another.

Duty of Loyalty As fiduciaries, Board members have special duties to the system, active members, retired members, survivors, and beneficiaries. Article XVI, Section 17 of the California Constitution2 as amended by Proposition 162, passed by the general electorate in 1992, is the source of many of these duties. Statutes and case law also describe the duties of Board members. These duties are discussed in this Section.

A Board’s “duty to its participants and their beneficiaries shall take precedence over any other duty.”3 As fiduciaries, Board members must act exclusively in the interest of the participants and their beneficiaries, as opposed to the Board member’s own interests or those of a third party. This duty includes the obligation to put aside the interests of the party responsible for a Board member’s appointment. It also includes the duty to be impartial towards differing interests of participants and beneficiaries.

Duty of Care As fiduciaries, Board members must act prudently. Board members are required to discharge their fiduciary duties with respect to the system “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.”4

The standard is essentially the same as that applicable to ERISA trustees. In contrast to the law of private trusts, it imposes a higher standard of conduct than that of a “prudent amateur,” but does not go so far as to hold the Board member to a “prudent expert” standard. It is an objective standard. A prudent Board member behaves as the members of similar boards similarly situated would behave. Board members have the duty to familiarize themselves with the matters that come before the Board. For example, members sitting on the Board of Investments have a duty to familiarize themselves with the types of investments LACERA has made or may be advised by staff or outside consultants to make in the future.

Duty to Provide Benefits and Defray Expenses Board members “shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system.”5

Board members must therefore be motivated only by the objectives of providing benefits, minimizing the County’s contributions, and the payment of reasonable expenses. Wasting money, for example, is imprudent. Determining the reasonableness of an expense depends on the type of asset involved and the skills of the Board members. A Board relatively inexperienced in investment matters may be acting prudently by spending more on investment advice than other boards whose members are more experienced in such matters.

1 California Constitution Article XVI, Section 17. 2 All references to “Section 17” in this chapter are to Article XVI, Section 17 of the California Constitution. 3 Section 17(b) 4 Section 17(c) and Government Code Section 31595(b). All references to “Section 31595” in this chapter are to the Government

Code. 5 Section 17(b) and Section 31595(a)

Part 4: Fiduciary Duties & Responsibilities


Duty to Diversify Investments Members of the Board of Investments have a duty to diversify investments. Board members must “diversify the investments of the system so as to minimize the risk of loss and maximize the rate of return, unless under the circumstances it is clearly not prudent to do so.”6

The duty to diversify is based on the modern portfolio theory of investing, and is intended to minimize “uncompensated” risk. “Uncompensated” risk is risk taken for which there is no compensation offered, and is distinguished from “compensated” risk.7 For example, limiting investments to one or a small number of asset classes (for example, fixed income)8 is very risky, because if those asset classes perform poorly, the entire portfolio performs poorly. It is also an “uncompensated” risk, because there is no one paying LACERA for deciding to limit its investments to one or a small number of asset classes. LACERA could reduce this type of “uncompensated” risk simply by diversifying, that is, by investing in a larger number of asset classes (stocks, real estate, and alternative assets, for example, in addition to fixed income).9 The law requires LACERA to diversify unless it would clearly not be prudent to do so.

Because the constitutional and statutory provisions governing LACERA's investment activities are essentially identical to federal law governing ERISA plans, we may look to ERISA cases for guidance in determining whether the Board of Investments and the Board's investments advisors and managers acted consistently within their fiduciary responsibilities.

In Laborers National Pension Fund v. Northern Trust Quantitative Advisors, Inc., 173 F.3d 313, decided by the 5th Circuit U.S. Court of Appeals in 1999, the Court opined:

"In determining compliance with ERISA's prudent man standard, courts objectively assess whether the fiduciary, at the time of the transaction, utilized proper methods to investigate, evaluate and structure the investment; acted in a manner as would others familiar with such matters; and exercised independent judgment when making investment decisions. [ERISA's] test of prudence… is one of conduct, and not a test of the result of performance of the investment. The focus of the inquiry is how the fiduciary acted in his selection of the investment, and not whether his investments succeeded or failed. Thus, the appropriate inquiry is whether the individual trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment.” (Id., at 317.)

To the same effect is the opinion of the 3rd Circuit U.S. Court of Appeals in In re Unisys Sav. Plan Litig., 173 F3d 145, decided on March 22, 1999. The Court noted that the prudence requirement focuses on whether "a fiduciary employed the appropriate methods to investigate and determine the merits of a particular investment."

Evidence that fiduciaries deviated from standard industry practice can be compelling evidence that the fiduciaries failed to satisfy the standard of care imposed on them by law. For example, Bussian v. RJR Nabisco, Inc., decided August 14, 2000, by the 5th Circuit U.S. Court of Appeals, involved the collapse of Executive Life Insurance Co. The RJR pension fund trustees were sued for purchasing annuities from Executive Life. The Court returned the case to the trial court and provided guidance for deciding whether the plan fiduciaries complied with their fiduciary obligations:

“We note that a reasonable fact-finder could conclude from the evidence that application of the ‘normal’ investigation was not sufficient under the circumstances. Executive Life's investment strategy deviated significantly from the norm, was comparatively untested, and was the subject of debate among industry insiders.

“Similarly, a reasonable fact-finder could conclude that Executive Life was not an appropriate choice based upon the investigation that RJR should have conducted. There is evidence that many voices in the industry had concerns about Executive Life's investment strategy — a strategy that was

6 Section 17(d) and Section 31595(c) 7 In a “compensated” risk scenario, a third party does offer compensation to LACERA to take risk. For example, government bonds,

traditionally a low-risk investment, pay a relatively low rate of interest. So-called junk bonds, because they are riskier, pay a higher rate of interest. The issuer of the junk bond is compensating LACERA for taking additional risk by offering the higher rate of interest.

8 A strategy described in laymen’s terms as “putting all your eggs in one basket.” 9 Again in laymen’s terms, put its eggs in many baskets.



substantially different from that used by the industry and that had not stood the test of time. As such, there was more uncertainty (and more associated risk) with Executive Life than with the other candidates. A fact-finder could conclude on this basis alone that a prudent person would not select Executive Life's annuity over the annuities offered by those candidates.

“The record supplies the fact-finder with considerable additional evidence that leads to the same conclusion [that a prudent person would not select Executive Life]. A fact-finder could conclude from evidence in the record that the vast majority of insurance companies at the time rejected the type of investment strategy that Executive Life had adopted.” (Slip Opinion at pp. 15-16. Emphasis added.)

In Hittle v. Santa Barbara County Employees Retirement Assoc. (1985) 39 Cal.3d 374, the California Supreme Court applied the standard of care applicable to trustees under California statutory trust law to a case involving the officers of the Santa Barbara County Employees Retirement Association. It seems likely the Court will also apply the "prudent investor rule," adopted by the California Legislature in 1995, and found at Probate Code Section 16047:

“A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.”

“A trustee's investment and management decisions respecting individual assets and courses of action must be evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust."

Applying California trust law, our Courts have held that a trustee must make a reasonable effort to ascertain facts relevant to the investment and management of trust assets and to exercise reasonable effort and diligence in making those investments. [See Prob. Code 16047(d).]

A trustee must also consider the trust's assets, purposes, and circumstances as a whole. Christensen v. the Superior Court of Orange County, (1987) 193 Cal.App.3d 139, 143 ("a trustee must prudently invest properly in light of ‘the general economic conditions and the anticipated needs of the ... beneficiaries .... [a] trustee has a general duty to maximize the trust assets consistent with safety and other relevant considerations’); [See also Wells Fargo Bank v. Wilton, (1982) 132 Cal.App.3d 496, 501.] ("As a general rule, 'trustee has not performed his duty merely because he has made an investment in a type of security which is authorized; he must use care and skill and caution in selecting the particular investment.').

To determine whether a trustee has satisfied the prudent investor rule, therefore, a court will look to the circumstances existing at the time it was made. See Rest. 2d Trusts Sec. 227 Comment ("Whether an investment is proper depends upon the circumstances existing at the time it was made, rather than upon subsequent events.").

The basis of analysis, therefore, is not how the trustee would handle personal affairs, but how another trustee would act in similar circumstances. Similarly, a trustee owes a duty of care with respect to the delegation of trust investment and management decisions.

In delegating investment authority to investment managers and consultants, the Board must exercise great care. Probate Code Section 16052(a), a provision of the California Uniform Prudent Investment Act, provides:

"In delegating management and investment functions, the trustee must exercise prudent in selecting an agent, establishing the scope and terms of the delegation and periodically reviewing the agent's overall performance and compliance with the terms of the delegation."



For a helpful discussion on the issue of trustees delegating authority to external managers, see the quote below by J. Hartog, and P. Anderson, Fiduciary Delegation of Investment Power Under the California Uniform Prudent Investor Act-Part II:

"The trustee will be required to demonstrate that the selection of the investment manager was made according to reasonably objective criteria. In consequence, the trustee may need to retain an additional agent for assistance in determining the qualifications of persons wishing to manage the trust portfolio." [Emphasis added].

(Resource: The Investment Policy is included in the Board Handbook binder and is available, along with other investment information, on the Policies page of the Board Resources website.)


PART 5: CONFLICTS OF INTEREST & ETHICS RULES

Overview The fiduciary character of ‘37 Act retirement systems, coupled with the fact that such systems are governmental entities, imposes obligations upon Board members and staff to avoid conflicts of interest and to conduct themselves in accordance with other ethical standards. The statutory requirements are set forth primarily in the Political Reform Act of 1974 (Cal. Gov. Code § 81000 et seq.), which includes the Ethics in Government Act of 1990 (Cal. Gov. Code § 89500 et seq.); California Government Code Sections 1090 through 1097; and California Government Code Sections 1125 through 1128. Other requirements and standards are set forth in court decisions, opinions of the California Attorney General, in the Retirement Law itself, and in LACERA’s own Code of Ethical Conduct.

(Resource: The Code of Ethical Conduct brochure is included in the Board Handbook binder and is available on the Policies page of the Board Resources website.)

Conflicts of Interest The Political Reform Act prohibits a public official from participating in or influencing, directly or indirectly, any governmental decision in which he or she knows, or has reason to know, he or she has a financial interest. (Cal. Gov. Code § 87100.) Such a “financial interest” shall be found to exist if all of the following factors are satisfied:

• It is reasonably foreseeable that the decision will have a financial effect • The anticipated financial effect is upon a financial interest of the official • The anticipated financial effect is “material” • The financial effect of the decision upon the official’s financial interest is distinguishable from the

effect on the public generally

Government Code Section 87103 also sets forth certain specific transactions or interests that automatically constitute a disqualifying financial interest, including business or real property investments of $1,000 or more; and businesses in which the official is a director, officer, partner, trustee, employee, or holds a management position.

It is not a conflict of interest for a member of the Board of Retirement who is a retiree of LACERA to vote on a cost-of-living increase for retirees. Under Fair Political Practices Commission Regulation 18702.1(c), a public official does not have to disqualify himself or herself from a governmental decision if the decision only affects the salary, per diem, or reimbursement for expenses the official receives from a state or local government agency. In Opinion A-88-348 dated October 28, 1988, the Fair Political Practices Commission concluded the regulation was applicable to a decision to grant cost-of-living increases because a pension is a form of deferred compensation and thus considered to be “salary.”

Government Code Sections 1090 through 1097 prohibit government officials from having a financial interest in contracts made by them in their official capacity. An exception exists for “remote” interests that are disclosed to the agency’s board, provided the official abstains from participating in or influencing the contracting decision.

Incompatible Activities Government Code Sections 1125 through 1128 set forth standards for determining whether outside activities of a public agency officer or employee are “incompatible” with his or her public service. Section 1126 provides in part that a public agency officer or employee “shall not engage in any employment, activity, or enterprise for compensation which is inconsistent, incompatible, in conflict with, or inimical to his or her duties… or with the duties, functions, or responsibilities of his or her appointing power or the agency by which he or she is employed.”

Court cases and opinions of the California Attorney General have confirmed this principle. As the Attorney General has stated: “The time-honored maxim, that no man can serve two masters, supports the mandate of sound policy that a ‘public officer is impliedly bound to exercise the powers conferred on him with disinterested skill, zeal, and diligence – ’’ [citation omitted]

Part 5: Conflicts of Interest & Ethics Rules


Fidelity in public office must be maintained, and the law does not permit a public officer to place himself in a position in which he might be tempted by his own private interests to disregard the interests of the public. [Citations omitted]” 48 Cal. Ops. Atty. Gen. 80, 84 (1966).

Acceptance of Gifts Government Code Section 89503(a), which is part of the Ethics in Government Act of 1990, prohibits designated public officials, including those who manage public investments (see Cal. Gov. Code § 87200), from accepting “gifts from any single source in any calendar year with a total value of more than [four hundred forty dollars ($470) for 2017-2018].” The dollar limit on gifts is adjusted in odd-numbered years for inflation. This provision applies to members of both Boards.

Section 89503(c), which applies to “designated” employees and officials of governmental agencies, including members of the Board of Retirement, prohibits the acceptance of gifts over four hundred forty dollars ($470) for 2017-2018 in any calendar year from a single source, if he or she would be required to report the gift on a statement of economic interests. The dollar limit on gifts is adjusted in odd-numbered years for inflation.

There are a number of definitions and exceptions that apply to the limitations on the acceptance of gifts that are set forth in the regulations adopted by the Fair Political Practices Commission. The FPPC has also published a fact sheet on gifts, honoraria, and travel that helps explain these complicated rules.

(Resource: The Limitations and Restrictions on Gifts, Honoraria, Travel, and Loans brochure is available on the Policies page of the Board Resources website.)

Prohibition on Accepting Honoraria The rules on accepting honoraria differ, as with the rules relating to gifts, depending upon whether the official is a member of the Board of Investments or the Board of Retirement, or a LACERA staff member. Members of the Board of Investments and the Chief Investment Officer are deemed “officials who manage public investments,” and are prohibited from accepting honoraria payments from any source. (Cal. Gov. Code § 89502(a).) Members of the Board of Retirement and staff members listed in LACERA’s Conflict of Interest Code are “designated” officials, and may not accept honoraria payments from any source if he or she would be required to report the receipt of income or gifts from that source on a statement of economic interests.

The definition of what constitutes an honorarium payment is set forth at Government Code Section 89501, and in the Fair Political Practices Commission regulations.

Disclosure Requirements The Political Reform Act requires a public official to file statements disclosing his or her personal economic interests. Members of the Board of Investments and the Chief Investment Officer must file an initial “Assuming Office Statement” within ten days after assuming office. Members of the Board of Retirement, and staff members listed in LACERA’s Conflict of Interest Code, must file such a statement within thirty days after assuming office. Each official must also file subsequent annual statements, and also a “Leaving Office Statement” within thirty days after leaving office. (Cal. Gov. Code § 87200 – 87207, 87302.)


PART 6: OPEN MEETING LAWS

Overview of the Brown Act The Ralph M. Brown Act (“Brown Act”), found at California Government Code Sections 54950-54962,1 provides that public commissions, boards, councils and other public agencies in California must conduct their business in public unless the law provides otherwise. The Brown Act covers both deliberation and action.

Both LACERA Boards are covered by the Brown Act. All permanent committees and subcommittees established by the Boards are also covered by the Brown Act.2 Ad hoc committees composed solely of members constituting less than a quorum are not covered by the Brown Act.

The Brown Act applies to all “meetings.” The term “meeting” is defined broadly to include “any congregation of a majority of the members of [the Board] at the same time and place to hear, discuss, or deliberate upon any item that is within the subject matter jurisdiction of [the Board or LACERA].”3 It is also a violation of the Brown Act to conduct a telephone poll of Board members’ opinions, or to use any other form of communication to develop a collective concurrence as to action to be taken.

Agendas of public meetings, and materials distributed to a majority of the Board members in connection with a matter subject to discussion or consideration at a Board meeting, are disclosable public records, unless otherwise exempt from public disclosure under the California Public Records Act, Government Code Sections 6250 et seq.4

(Resource: The Brown Act is available on the Policies page of the Board Resources website.)

Agenda Posting For regular meetings, the Board must post an agenda at least 72 hours prior to the meeting containing a brief general description of each item of business to be transacted or discussed at the meeting. For special meetings, the agenda must be posted at least 24 hours prior to the meeting.

Closed Sessions Closed sessions, sometimes called “executive sessions,” are private meetings of the Board where the Board’s business may be transacted without public attendance. Before holding a closed session, the Board must state the general reason(s) for the session, and/or the legal authority under which the closed session is being held.5

The scope of the closed session is limited to the matters covered in the Board’s statement of reasons for the meeting. After the closed session, the Board must reconvene in open session and publicly report any action taken in closed session.

The Brown Act describes many purposes for which closed sessions may be held, including personnel matters and the discussion of litigation with legal counsel.

Open Meetings All meetings of the Boards must be open to the public unless an exception permitting closed sessions applies.6 Secret ballots are prohibited.7 A member of the public cannot be required, as a condition of attendance, to register his or her name, to provide other information, to complete a questionnaire, or otherwise to fulfill any condition for attendance.8

1 All section references in this chapter are to the Government Code, unless otherwise noted. 2 Section 54952.3 3 Section 54952.2 4 Section 54957.5 5 Section 54957.7 6 Section 54953 7 Ibid 8 Section 54953.3

Part 6: Open Meeting Laws


Any member of the public may tape record or film the meeting unless the Board makes a finding it would disrupt the proceedings.9

Any member of the public may address the Board on any item on the agenda, and this must be permitted before the Board takes action on the item. In addition, the Board must include a “public comment” item on the agenda, permitting a member of the public to address the Board on any item of interest to the public that is within LACERA’s jurisdiction.10

Brown Act Violations A Board member may be convicted of a misdemeanor if he or she attends a meeting where action is taken in violation of the Brown Act, if the member intends to deprive the public of information which the member knows, or has reason to know, the public is entitled to have disclosed. There is no criminal penalty, however, if the meeting consists of deliberation only, and no action is taken.

Preventing and Redressing Brown Act Violations The district attorney or any “interested person” may commence legal action to stop violations or threatened violations of the Brown Act by the Board.11 They may also demand that the Board correct or cure actions they believe to have been taken in violation of the Brown Act.12 If the Board fails to cure or correct such action, or determines not to cure or correct such action, the interested person may petition the courts to declare such action null and void. Courts may award court costs and attorneys’ fees to plaintiffs where it is found that the Board has violated the Brown Act. The costs and fees are paid by LACERA, and do not become the personal liability of any Board member.

(More information is available in Part 14: FAQs, under Board Protocol.)

9 Section 54953.5 10 Section 54954.3 11 Section 54960 12 Section 54960.1


PART 7: SYSTEM FUNDING

Funding Sources With the exception of Plan E, benefits provided to LACERA’s members and their beneficiaries are funded from three sources:

• Member contributions made by active employees • Employer contributions • Investment earnings

Members of Plan E are not required to make contributions, and benefits provided under that plan are funded entirely by employer contributions and investment earnings thereon.

Contribution Rates Government Code Section 31454 requires the Board of Supervisors to adjust contribution rates in accordance with the recommendations of the Board of Investments not later than 90 days after the beginning of the immediately succeeding fiscal year.

Actuarial Valuation Government Code Section 31453 requires LACERA to engage an enrolled actuary to perform an actuarial valuation at least every three years. Based on such valuation, the Board of Investments is required to recommend to the Board of Supervisors changes in the rates of contributions for members and the County to assure that the system is properly funded.

Actuarial valuations are performed annually to monitor LACERA’s funded status. Triennially, an investigation is made of the appropriateness of all economic and non-economic assumptions.

(Resource: LACERA’s Actuarial Valuation report is available on the Policies page of the Board Resources website.)

Historical Perspective By way of historical perspective, the June 30, 1977, valuation reflected an unfunded liability of approximately $2.8 billion and a funding level of only 41.7 percent. Commencing July 1, 1978, the County began making additional payments to LACERA to discharge the unfunded liability over a 30-year period.

LACERA’s goal of eliminating the unfunded liability by June 30, 2007, was achieved early when, during fiscal year 1994-1995, a Retirement System Funding Agreement was negotiated with the County. Under the agreement, the County issued pension obligation bonds and transferred the proceeds to LACERA. Following this large infusion of funds, the June 30, 1995, actuarial valuation determined the funding status of LACERA to be 100.7 percent with a surplus of $112 million. Due to the market downturn in 2009, the funding status decreased to 80.6 percent, with a fund value of $39.5 billion as of June 30, 2011.

(LACERA’s current funding ratio and Additions and Deductions in Fiduciary Net Positions — Pension are displayed in Part 15: Appendix.)


PART 8: INVESTMENTS

Investment Authority Prior to 1984, Article 16, Section 17 of the California Constitution restricted the type and amount of securities in which a California public pension fund could invest. In 1984, the voters passed Proposition 21, which amended Article 16, Section 17 to enable the California Legislature to authorize public pension systems to invest in any form or type of investment, subject to the conditions below:

• Recognition that the assets of the retirement system are trust funds. • The assets are held for the provision of benefits and reasonable administrative expenses of the

system. • The fiduciaries of the system discharge their duties solely with the objective of providing benefits,

minimizing employer contributions, and paying the system’s administrative expenses. • The fiduciaries carry out their duties “with the care, skill, prudence and diligence under the

circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.”

• Diversification of investments minimizes losses and maximizes gains.

The Legislature exercised the authority granted under Proposition 21 by adding Government Code Sections 31594 and 31595 to the ‘37 Act to read:

Section 31594 It is the intent of the Legislature, consistent with the mandate of the voters in passing Proposition 21 at the June 5, 1984, Primary Election, to allow the board of any retirement system governed by this chapter to invest in any form or type of investment deemed prudent by the board pursuant to the requirements of Section 31595. It is also the intent of the Legislature to repeal, or amend as appropriate, certain statutory provisions, whether substantive or procedural in nature, that restrict the form, type, or amount of investments that would otherwise be considered prudent under the terms of that section. This will increase the flexibility and range of investment choice available to these retirement systems, while ensuring protection of the interest of their beneficiaries.

Section 31595 The board has exclusive control of the investment of the employees’ retirement fund. The assets of a public pension or retirement system are trust funds and shall be held for the exclusive purposes of providing benefits to participants in the pension or retirement system and their beneficiaries and defraying reasonable expenses of administering the system. Except as otherwise expressly restricted by the California Constitution and by law, the board may, at its discretion, invest, or delegate the authority to invest, the assets of the fund through the purchase, holding, or sale of any form or type of investment, financial instrument, or financial transaction when prudent in the informed opinion of the board.

The board and its officers and employees shall discharge their duties with respect to the system: • Solely in the interest of, and for the exclusive purposes of providing benefits to, participants and

their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system.

• With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.

• Shall diversify the investments of the system so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances it is clearly prudent not to do so.

Delegation of Investment Authority As noted previously, Section 31595 allows the board to delegate its authority to invest. Such delegation must be done with care, skill, prudence, and diligence regarding:

• The selection of the agent to whom authority is delegated;

Part 8: Investments


• The terms of the delegation, for example, how much authority is delegated, and what recourse is available if the agent exceeds its authority or acts irresponsibly; and

• Monitoring the agent’s compliance with its delegated authority. The level of “care, skill, prudence, and diligence” to be exercised in delegating authority is that which under the circumstances then prevailing, a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.1

The assets of LACERA are managed exclusively by external investment management firms.

(Resource: LACERA investment policies and portfolio information is contained in the Comprehensive Annual Financial Report (CAFR). The CAFR is included in the New Board Member Package and is also available in the Investments section of lacera.com.)

Investment Expenses Section 31596.1 provides that the expenses of investing are to be borne solely by the system, and sets forth the following list of expenses which are not costs of administration, but rather a reduction in earnings from investments or a charge against the assets of the system, as determined by the Board of Investments:

• Costs, approved by the board, of actuarial valuations and services; • The compensation to the bank or trust company performing custodial services; • Loan servicing costs, when investments are made in deeds of trust and mortgages; • Fees to investment counsel for consulting or management services in connection with the

administration of the board’s investment program; and • Compensation to attorneys for services rendered or legal representation provided.

1 Section 31595


PART 9: PENSION BENEFITS

LACERA Plan Summary A permanent County or outside district employee working at least three-quarter time becomes a LACERA member on the first of the month following his or her hire date.

LACERA members are divided into two (2) classes: general members and safety members. Safety members include employees whose principal duties consist of active law enforcement, active fire suppression, and active lifeguard service. All other members of LACERA are general members.

LACERA administers six (6) general member plans, Plans A, B, C, D, E, and G, and three (3) safety member plans – Safety Plans A, B, and C. All of these plans are “defined benefit” plans. Under a defined benefit plan, retirement benefits are based on years of service credit, age at retirement, and final compensation, and are defined at the time membership commences.

General Member Plans A, B, C, D, E, and G, and Safety Member Plans A, B, and C are “contributory” plans. Members make monthly contributions to LACERA to partly finance their retirement benefits. Also financing the payment of benefits are contributions made by the County and investment earnings of the retirement fund.

General member Plan E is a non-contributory plan. Members of this Plan are not required to make contributions and the payment of benefits is financed entirely by County contributions and earnings of the retirement fund.

Enrollment in General Member Plan A, B, C, D, or G is determined by LACERA membership date. Plan A was the original Plan offered. As time passed, the County began reducing retirement benefits for new employees by closing membership in the current plan and offering a new plan.

• From September 1, 1977, to September 30, 1978, new members were enrolled in Plan B. • Plan C includes employees with membership dates between October 1, 1978, and May 31, 1979. • Plan D was opened on June 1, 1979; employees with LACERA membership dates from that date

to January 3, 1982 were enrolled in Plan D. • With the opening of non-contributory Plan E on January 4, 1982, employees with LACERA

membership dates from January 4, 1982 to November 27, 2012 had the option of enrolling in Plan D or Plan E.

• Those with membership dates from December 1 to December 31, 2012 enrolled in Plan D. The introduction of non-contributory Plan E in 1982 marked a further reduction in general member retirement benefits. The most significant reductions in benefits under Plan E were the elimination of disability retirement and post-retirement cost-of-living adjustments. In 2002, Plan E added retiree cost-of-living (COLA) increases for income earned on or after June 4, 2002.

The County has never made a non-contributory plan available to safety members. Safety Members with membership prior to September 1, 1977 were enrolled in Plan A. Safety Members with membership dates from September 1, 1977 to December 31, 2012 enrolled in Plan B.

Effective January 1, 1990, Section 415 of the Internal Revenue Code set a limit on the maximum retirement benefit an employee may receive from a qualified Plan. Section 415 limits apply to employees hired after January 1, 1990, and to benefit enhancements taking effective after January 1, 1990. To mitigate the federal limit imposed on state approved benefit levels, the Board of Supervisors adopted a replacement benefit plan on November 3, 2010.

(Resource: The latest versions of all LACERA Summary Plan Descriptions are available in the Plan Book Section on lacera.com. You may order printed Plan Books on the Brochures & Form of lacera.com.)

PEPRA The California Public Employees’ Pension Reform Act of 2013 took effect on January 1, 2013. Basically, PEPRA affects new LACERA members on or after January 1, 2013 through provisions affecting benefit

Part 9: Pension Benefits


formulas, the definition of what comprises pensionable earnings, limits on pensionable earnings, and other matters. The law also calls for new members to pay 50 percent of the normal cost of benefits and strengthens the rules involving pension forfeiture for public employees and elected officials who commit job-related felonies. In January 2013, in compliance with the provisions of PEPRA, the County established two new contributory retirement plans — General Plan G and Safety Plan C — for new members with membership dates on or after January 1, 2013. These plans are structured to comply with PEPRA’s 50/50 cost-sharing requirement. Member contributions for these plans are based on a flat-rate percentage; the member’s age is not considered. In accordance with PEPRA, the replacement benefit plan was discontinued for employees with membership dates of 2013 or later.

(Resource: Information on PEPRA is included in the Benefits section of lacera.com.)

Service Retirement A general member in a contributory Plans A, B, C, or D may retire at age 50 or older if he or she has retirement credit for ten or more years of qualifying service; or at any age with retirement credit of thirty or more years of qualifying service; or at age seventy or older, regardless of service credit. A member of contributory Plan G who has five or more years of retirement credit is eligible to retire at age 52. A member in noncontributory Plan E may retire at age 55 with 10 or more years of retirement credit.1

A Safety Plan A or B member may retire at age fifty or older if he or she has retirement credit for 10 or more years of qualifying service; or at any age with retirement credit of twenty or more years of qualifying service.2 The mandatory retirement age for most safety members is sixty.3 A Safety Plan C member with five or more years of retirement credit is eligible to retire at age 50.

Public service (service with certain other public agencies) for which a member may be eligible to receive credit may not be used to meet the minimum requirements for retirement.4

A member of general Plan A, B, C, or D who has elected deferred retirement may retire with a minimum of five years service at any time at which he or she could have retired had he or she remained in County service in a full-time position, but not later than the first day of the month following that in which he or she attains the applicable compulsory retirement age, if any.5

Upon retirement, a retiree’s allowance consists of three factors: (1) a service retirement annuity, 2) a current service pension, and (3) prior service pension. A “service retirement annuity” is an annuity which is the actuarial equivalent of the member’s accumulated contributions at the time of his or her retirement. A member’s “current service pension” is a pension purchased by the contributions of the county or district, equal to that portion of the annuity purchased by the accumulated normal contributions of the member. “Prior service pension” is an additional pension for members purchased by contributions of the county or district, multiplied by the number of years of prior service credited.6

In general, a member retired for service or disability may not be paid for any services rendered to the county (or district) after the date of his or her retirement. There are several exceptions to this rule. (1) Any person who has retired may be employed in a position requiring special skills or knowledge for a period of time not to exceed one hundred twenty working days or nine hundred sixty hours whichever is greater per fiscal year, (2) Services rendered as an independent contractor under a bona fide contract for services within the purview of Section 31000, and (3) A retired member may receive compensation for services on the retirement board, investment board, or as a juror, an election officer, or temporarily as a judge when

1 Government Code Section 31672 2 Government Code Section 31663.25 3 Government Code Sections 31662.4, 31662.6, 31662.8, 31663.15 4 Section 31480 5 Government Code Section 31700 6 Government Code Sections 31673, 31674, 31675 and 31676



assigned by the Chairman of the Judicial Council, as well as compensation for services if he or she is subsequently elected to county office after retirement.7

Deferred retirement is governed by Article 9, commencing with Section 31700 of the Government Code. It allows a member to terminate employment, leave funds on deposit with the system and receive a retirement allowance at a later time when the member would have been eligible to retire had the member remained in employment.

To be eligible for deferred retirement, a member must have five years of County service credit or become a member of CalPERS or another retirement system established under the County Employees Retirement Law of 1937 (hereinafter ‘37 Act) within ninety days after leaving county service. The member must also leave accumulated contributions on deposit and make an election for deferred retirement within one hundred eighty days after leaving County service.8 If a member with five years of service leaves County service and fails to make an election, the member is deemed deferred if:

• The member’s contributions remain in the system.9 • The member applies for and receives a retirement allowance at any time after the member

could have retired had he or she remained in County service, but not later than the compulsory retirement age.10

• The member’s retirement allowance is calculated based on the ‘37 Act law as it exists when the retirement allowance commences.11

• A person on deferred retirement remains a member of the ‘37 Act System.12 • A member on deferred retirement wishes to take one of the optional allowances, for which six

months prior notice must be given.13 A member on deferred retirement may cancel or rescind the deferred retirement status and withdraw accumulated contributions at any time before the effective date of retirement.14

Disability Retirement A member of a contributory plan is entitled to a disability retirement if the Board of Retirement determines the member is permanently disabled as a result of:

• A service-connected injury or disease, regardless of the length of service, or • Any injury or disease, whether or not service-connected, when the member has completed five

(5) years of service.15 (Resource: Disability information is included on CD in the Board Handbook binder and in the Policies section on the Board Resources website.)

Reciprocity In order to encourage career public service, a system of reciprocal benefits among certain public agencies has been established.16 Reciprocity is designed to protect a member’s earned retirement benefits when the member transfers from one public agency to another.

Reciprocity exists between LACERA and the other 19 county retirement systems in California governed by the ‘37 Act. LACERA also has reciprocity with CalPERS (California Public Employees Retirement

7 Government Code Sections 31680, 31680.1, 31680.2, and 31680.6. 8 Section 31700. 9 Section 31700 10 Sections 31700 and 31703 11 Section 31705 12 Section 31470 13 Section 31704 14 Section 31701 15 Section 31720 16 Section 31830, et seq.



System), systems with reciprocal agreements with CalPERS, the California State Teachers Retirement System (CalSTRS), and the Judges Retirement System I and II (JRS).17

In order for members to receive reciprocal benefits, members must leave one system and enter another system within 180 days.18 The member must retire from both systems concurrently, or be legally unable to retire from both systems, and must have funds on deposit with both systems.19

Reciprocal service counts toward meeting the minimum service requirements for vesting.20 For purposes of contribution rates, the age at entry for a member (except PEPRA members) who enters a retirement system within 90 days of last rendering service shall be the age at entry into the first system.21

(Resource: Reciprocity is covered in depth in the Benefits section of lacera.com.)

Continuing Benefits LACERA members may designate a beneficiary to receive continuing benefits upon the member’s death. Continuing benefits are available to the survivors or designated beneficiary(ries) of members who die after retirement, and to the survivors of contributory plan members who die before retirement. There are no pre-retirement survivor benefits available to Plan E members.

To be eligible to receive post-retirement benefits, a survivor other than a minor child must be designated as a beneficiary.22

To be eligible to receive pre-retirement survivor benefits, a survivor other than a surviving spouse or minor children must be designated as a beneficiary.23 In the absence of a surviving spouse, a minor child, or other named beneficiary, the member’s estate is entitled to receive a death benefit.24

Survivor benefits are paid to surviving spouses for life and to minor children until age 18, or age 22 if the child remains unmarried and enrolled as a full-time student in an accredited school.

Cost of Living Adjustments (COLA) Article 16.5 of the ‘37 Act, commencing with Section 31870, governs cost-of-living adjustments for retired contributory plan members and Section 31495.5 of Article 1.5 for noncontributory plan members.

Each year the Consumer Price Index (CPI) is reviewed by the Board of Retirement to determine whether a cost-of-living adjustment may be granted.

The Board is required to adjust allowances on April 1st of each year to approximate to the nearest one-half of one percent the percentage of annual increase or decrease in the CPI in the Los Angeles- Riverside-Orange County area. Cost-of-living adjustments are limited to a maximum of 3 percent for Plan A members and 2 percent for Plan B, C, D, and G members.25 Effective June 4, 2002, Plan E members are also eligible for a maximum 2 percent COLA benefit; however, this benefit is based on the member's service on and after June 4, 2002 only ("automatic COLA"). In addition, Plan E members may choose to purchase "elective COLA" for their periods of service prior to June 4, 2002.26

In December 1989, the Board of Retirement implemented a new cost-of-living benefit known as the Supplemental Targeted Adjustment for Retirees (STAR) Program, pursuant to Section 31874.3(b). The STAR Program seeks to restore long-term retirees’ lost purchasing power to a level equal to 80 percent of the purchasing power held when their benefits commenced. Cost-of-living adjustments under the STAR Program can only be made so long as there are sufficient excess earnings to fund them. As of June 30,

17 Sections 31830, 31831.1 and 31831.2 18 Sections 31831 and 31840.1 19 Section 31815 20 Sections 31836 and 31836.1 21 Section 31833 22 Sections 31760.1, 31761, 31762, 31763, and 31764 23 Sections 31765, 31765.1, 31780, 31781.1 and 31786 24 Section 31780 25 Sections 31780 and 31770.1 26 Section 31495.5



2012, LACERA had over $614 million reserved for future STAR Program adjustments, which should be sufficient to fund the STAR Program for at least another 20 years.

(Resource: In-depth COLA information is available in the Retiree Benefits section of lacera.com.)


PART 10: RETIREE HEALTHCARE PROGRAM

Overview The LACERA-administered Healthcare Benefits Program offers an extensive choice of medical plans and dental/vision plans for retirees and their eligible dependents.

(Resource: View Retiree Healthcare information on lacera.com.)

Program History Prior to July 1, 1982, LACERA funded the retiree healthcare program using surplus earnings. Retirees’ premiums were subsidized by LACERA based on the number of years of service. Retirees with 10 years of service had 40 percent of their premiums paid by LACERA. For each additional year of service, an additional 4 percent was paid by LACERA, with the result that retirees with 25 or more years of service had their entire premium subsidized.

In April 1982, an agreement was negotiated with the County that required the County to take over the funding of the healthcare program. The agreement provides for healthcare benefits at least equal to those being provided to retirees in April of 1982, and further provided:

“[LACERA] agrees not to lower retired members’ current contributions toward insurance premiums or increase medical-dental-optical benefit levels without the consent of the County.”

Fully Vested Program The obvious intent of this provision is to assure the County that it will not become financially responsible for additional healthcare benefits implemented without the County’s consent.

If a retiree has less than 25 years of retirement service credit, or the Plan chosen costs more than the maximum County contribution for the benchmark plans, the portion of the premium not subsidized will be deducted each month from the member’s retirement allowance.

The agreement negotiated with the County in 1982 obligated the County to fund the healthcare program only so long as the County provided a healthcare program for active employees. That limitation has since been deleted, resulting in a fully-vested healthcare program for LACERA retirees.

OPEB Retiree Healthcare Trust Other Post-Employment Benefits (OPEB) refers to benefits an employee will begin to receive at the start of retirement. This includes retiree health and dental care benefits; it does not include a retiree’s pension benefits.

On May 15, 2012, the Board of Supervisors (BOS) approved Resolution 12-2059 establishing an OPEB trust (Trust) to prefund the LACERA-administered Retiree Healthcare Benefits Program. The County hired the BOI to act as Trustee and Investment Manager for the Trust and directed the BOI to establish a Trust budget and investment policy. Trust earnings will fund the benefits provided to eligible retirees and survivors in the LACERA-administered Retiree Healthcare Benefits Program.

On June 17, 2014, the Los Angeles County Board of Supervisors (County) authorized a new retiree health insurance program for new County employees who are hired after June 30, 2014 and are eligible for LACERA membership. The program, titled the Los Angeles County Retiree Healthcare Benefits Program – Tier 2 (Tier 2), offers benefits covering hospital services, medical services, and dental/vision services to County retirees and their eligible dependents.

Under the Tier 2 program, Medicare-eligible retirees and their eligible dependents are required to enroll in Medicare Parts A and B and in a corresponding Medicare health plan, such as Medicare Advantage Prescription Drug Plan (MA-PD) or Medicare Supplement Plan. Additionally, a retiree and his/her eligible dependents must be enrolled in the same medical plan, unless some, but not all family members are Medicare-eligible. In such case, the Medicare-eligible individuals must enroll in a Medicare plan and non-Medicare-eligible individuals must enroll in the corresponding non-Medicare health plan.



With Tier 2, the County’s retiree medical and dental/vision subsidy applies to retiree-only coverage. Also, the County reimburses Medicare Part B (standard rate) for the LACERA member or eligible survivor only. (Resource: OPEB Trust information is contained in the Comprehensive Annual Financial Report (CAFR). The CAFR is included in the New Board Member Package and is also available in the Investments section of lacera.com).


PART 11: LACERA MEMBERSHIP IN ORGANIZATIONS

Overview To ensure individual Board members and staff receive current benefit, financial, and policy information, LACERA has membership or significant participation in many organizations. Some are listed below:

APPFA Association of Public Pension Fund Auditors (APPFA) (www.appfa.org)

This non-profit organization has more than 100 member organizations, including the largest public employee retirement systems in 40 states and Canada. APPFA serves to unify and encourage cooperation among public pension fund auditors, provide comprehensive professional development opportunities on pension-related topics, promote and maintain high professional standards for internal auditors of public retirement systems, and encourage and facilitate research, publication, and dissemination of information among the membership.

ARMA International ARMA International (www.arma.org)

ARMA is a not-for-profit professional association and the authority on managing records and information — paper and electronic. The association publishes The Information Management Journal, the only professional journal specifically for professionals who manage records and information on a daily basis. ARMA also develops and publishes standards and guidelines related to records management. It was a key contributor to the international records management standard, ISO-15489.

ASTD ASTD (www.astd.org/astd)

ASTD (American Society for Training & Development) is the world's largest association dedicated to workplace learning and performance professionals. ASTD's members come from more than 100 countries and connect locally in 120 U.S. chapters and with 16 international partners. Members work in thousands of organizations of all sizes, in government, as independent consultants, and suppliers. ASTD has widened the profession's focus to link learning and performance to individual and organizational results, and is a sought-after voice on critical public policy issues.

CALAPRS California Association of Public Retirement Systems (CALAPRS) (www.calaprs.org)

This is an association that sponsors educational forums for sharing information and exchanging ideas among trustees and staff of California public retirement systems to enhance their ability to administer public pension plan benefits and manage investments consistent with their fiduciary responsibility.

CII Council of Institutional Investors (CII) (www.cii.org)

An organization of large public, labor, and corporate pension funds, CII seeks to address investment issues that affect the size or security of plan assets. The organization educates its members, policymakers, and the public about the importance of corporate governance, shareowner rights and related investment issues, and advocates on its members’ behalf.

http://www.astd.org/astd

http://www.calaprs.org/

http://www.cii.org/

Part 11: LACERA Membership in Organizations


GFOA Government Finance Officers Association (GFOA) (www.gfoa.org)

This is a professional organization of state and local finance officers in the United States and Canada. dedicated to the sound management of government financial resources. The GFOA strives to provide leadership to the government finance profession through education, research, and best practices. Its many programs include national training seminars, publications, periodicals, and an annual conference.

IFEBP International Foundation of Employee Benefit Plans (IFEBP) (www.ifebp.org)

This is a non-profit organization serving the employee benefit field in the United States and Canada. The foundation addresses all aspects of benefit-related issues including contemporary issues influencing the administration and design of benefit plans. IFEBP offers educational programs covering a wide range of topics to meet the needs of benefit professionals.

IPMA-HR IPMA-HR (www.ipma-hr.org)

The International Public Management Association for Human Resources represents the interests of human resource professionals at the federal, state and local levels of government. IPMA-HR members include all levels of public sector HR professionals. The organization’s goal is to provide information and assistance to help HR professionals increase job performance and overall agency function by providing cost-effective products, services, and educational opportunities. The Association is divided into four regions, which are comprised of chapters, as well as non-chapter members residing within regional boundaries. The regions include the Central Region, the Eastern Region, the Southern Region, and the Western Region. All regions host an annual conference. There are approximately 50 Chapters, and each maintains its own dues structure and member benefits packages. Chapter members are encouraged to be members of the national IPMA-HR.

ISCEBS ISCEBS (www.iscebs.org)

The International Society of Certified Employee Benefit Specialists (ISCEBS) is the organization that provides the Certified Employee Benefit Specialist (CEBS) designation. It is a membership organization is for those who have earned the CEBS, Group Benefits Associate (GBA), Retirement Plans Associate (RPA) and Compensation Management Specialist (CMS) designations. Members have access to a variety of educational resources and networking opportunities that can broaden their knowledge and enhance their careers. Since 1981, the Society has provided educational programs, information and networking resources, publications, and other services to a diverse group of benefits professionals.

ISPI ISPI (http://www.ispi.org)

Founded in 1962, the International Society for Performance Improvement (ISPI) is the leading international association dedicated to improving productivity and performance in the workplace. ISPI represents more than 10,000 international and chapter members throughout the United States, Canada, and 40 other countries. ISPI's mission is to develop and recognize the proficiency of our members and advocate the use of Human Performance Technology. Assembling an Annual Conference & Expo and other educational events like the Institute, publishing books and periodicals, and supporting research are some of the ways ISPI works toward achieving this mission.

http://www.gfoa.org/

http://www.ifebp.org/

http://www.ipma-hr.org/

http://www.iscebs.org/

http://www.ispi.org/



NAPPA National Association of Public Pension Attorneys (NAPPA) (www.nappa.org)

This organization consists exclusively of attorneys who are employed by or provide advice to public pension systems. Its purpose is to provide educational opportunities and informational resources for its attorney members. During its annual conference, LACERA attorneys are able to address legal issues common to other jurisdictions and to exchange ideas and experiences regarding those legal issues.

NASRA National Association of State Retirement Administrators (NASRA) (www.nasra.org)

NASRA members are the administrators of the state retirement systems for the 50 American states, the District of Columbia, and the territories of American Samoa, Guam, Puerto Rico and the Virgin Islands. In addition, the administrators of certain other statewide retirement systems are also eligible for full membership in the association.

NCPERS National Conference on Public Employee Retirement Systems (NCPERS) (www.ncpers.org)

This organization is the largest national, non-profit public pension advocate. Since 1941, it has protected the pensions of public employees. It represents pensions on Capitol Hill, provides trustee education, and delivers essential pension information to trustees, administrators and public officials.

PREA Pension Real Estate Association (PREA) (www.prea.org)

This is a non-profit organization whose members are engaged in the investment of tax-exempt pension and endowment funds into real estate assets.

PIHRA PIHRA (http://www.pihra.org/)

Professionals in Human Resources Association was founded as the Personnel and Industrial Relations Association in 1945 by a small group of Los Angeles personnel executives. They organized to provide a forum in which Human Resource professionals could exchange ideas, increase their knowledge of, and work together for, the betterment of the profession.

In 1959, PIHRA became affiliated with the Society of Human Resource Management (SHRM), then known as the American Society of Personnel Administration (ASPA). Today, PIHRA is the largest SHRM chapter in the country, consistently achieving SHRM's Annual Superior Merit Award. PIHRA is a non-profit California corporation whose officers and committee members serve without compensation. There are more than 3,500 PIHRA members representing more than 3,000 firms spanning the spectrum and breadth of every type of industry in Southern California. PIHRA is comprised of all levels of HR practitioners; members have an interest in acquiring knowledge of the most recent and innovative developments in the HR arena.

SCPMA SCPMA (www.scpma-hr.org)

The Southern California Public Management Association-HR (SCPMA-HR) as part of the Western Region of IPMA-HR is the leading Human Resources organization in the Southern California area for

http://www.nappa.org/

http://www.nasra.org/

http://www.ncpers.org/

http://www.prea.org/

http://www.pihra.org/

http://www.scpma-hr.org/



public agencies. By providing tools, resources, and information unique to the public sector, SCPMA-HR works to enhance the image of the Human Resources Professional through ongoing professional, personal, and organizational development. Over 400 HR professionals representing 150 agencies (cities, counties, schools, special districts) participate in our various conferences, training, and workshops. SCPMA-HR was founded in 1940 as Chapter II of the ASPA (America Society for Personnel Administration).

SHRM SHRM (www.shrm.org)

The Society for Human Resource Management (SHRM) is the world's largest association devoted to human resource management. Representing more than 205,000 individual members, the Society's mission is to serve the needs of HR professionals by providing the most essential and comprehensive resources available. As an influential voice, the Society's mission is also to advance the Human Resource Profession to ensure that HR is recognized as an essential partner in developing and executing organizational strategy. Founded in 1948, SHRM currently has more than 550 affiliated chapters and members in more than 100 countries.

SACRS State Association of County Retirement Systems (SACRS) (http://www.sacrs.org)

SACRS is an association of 20 California county retirement systems, enacted under the County Employees Retirement Law of 1937. This law chapter, beginning with Section 31450 of the California Government Code, sets forth the policies and regulations governing the actions of these county retirement systems. SACRS meets as an organization twice a year with all 20 counties participating through attendance by Trustees, Administrators, Treasurers and staff. Education and legislation are the principle focus of these meetings, particularly education in the investment and fiduciary responsibility area.

http://www.shrm.org/

http://www.sacrs.org/


PART 12: TRAINING POLICY

Training Policy The LACERA Boards’ fiduciary duties of loyalty, skill, care and diligence extend across all facets of LACERA’s governance. Accordingly, in order to satisfy their duties and mitigate the risk of legal liability to LACERA and its members and beneficiaries, Board members acknowledge the need to acquire a level of knowledge of pension fund administration and fiduciary practice that is appropriate for prudent LACERA governance. The Boards as a whole will encourage their members to secure the necessary knowledge as required by this policy, and monitor their compliance with all provisions of the policy.

Purpose This Board Training Policy is intended to provide the Board members of LACERA with guidelines and procedures which recognize and affirm the central role of training in the successful discharge of their statutory duties.

Assumptions The LACERA Board Training Policy rests on the following important assumptions:

• The role of a Board member is different from that of management; therefore, the training needs of a Board member may differ as well.

• Board members are responsible for making policy decisions affecting all major aspects of pension plan administration. Therefore, Board members must acquire a level of knowledge in all significant facets of the plan appropriate to policy determination.

• No single method of educating Board members is best. Instead, depending upon circumstances, a variety of methods may be necessary and appropriate.

• The policy should establish minimum requirements. Board members are encouraged to seek additional training in public pension matters. LACERA will support all such additional efforts.

Objectives The objectives of the LACERA Board member training program are as follows:

• To ensure all LACERA Board members gain the required knowledge needed to effectively carry out their fiduciary duties.

• To ensure LACERA Board members possess a common base of knowledge of pension administration to facilitate group discussion, debate, and effective decision-making; and

• To encourage Board members to seek and maintain a level of familiarity with public pension issues.

Training Policy Guidelines General Provisions This Board Training Policy is intended to provide the Board members of LACERA with guidelines and procedures which recognize and affirm the central role of training in the successful discharge of their statutory duties.

Board members agree to pursue an appropriate level of training across a broad spectrum of pension-related areas. The specific areas in which Board members shall endeavor to gain knowledge and understanding shall include:

• Governance and fiduciary duty • Investment policy and asset allocation (Board of Investments) • Benefits administration (Board of Retirement) • Technology • Regulatory and legal issues • Human resources management • Plan funding and valuation



In each of the above areas, Board members shall attempt to gain knowledge consistent with the Board’s role as a high-level policy-setting and oversight body.

Appropriate educational pursuits for Board members may include, but are not limited to: • External conferences, seminars, workshops, roundtables, courses, or similar vehicles (henceforth

referred to collectively as “conferences”) • Relevant periodicals, trade journals, and textbooks • In-house briefings or presentations provided by senior management, staff, external service

providers or others • Information compiled by staff for trustee use • CD ROMs, and other electronic training media

Preference shall be given to conferences that are within close proximity to Los Angeles County, and that are sponsored by educational institutions or pension industry associations (such as SACRS, CALAPRS and NCPERS).

Management shall identify appropriate educational opportunities and include such information in Board agenda materials for Board members’ consideration. LACERA’s Administration shall indicate the area of knowledge to which the opportunity relates.

Board members who individually identify opportunities they believe to be timely and appropriate may request that such opportunities, together with the area of knowledge they address, be included in the Board agenda for approval.

In determining the priority of particular educational opportunities, the Board and LACERA Administration shall consider:

• The extent to which an opportunity is expected to provide Board members with the understanding and information they need to carry out their responsibilities

• The cost-effectiveness of the opportunity • The timeliness and relevance of the opportunity

Board members agree to endeavor to meet the following minimum requirements: • To secure, over time, a useful level of understanding in each of the seven areas listed under

General Provisions on page 31. • To participate in a minimum of one conference annually in addition to in-house briefings and

presentations • To participate in an annual in-house planning and educational initiative organized by

management with input from the Board members • To participate throughout the year in educational activities related to the mandates of Board

members’ assigned committee roles or to have otherwise participated in such relevant activities in the prior year

In meeting the goals set above, Board members may apply credits earned from educational activities required to maintain professional designations, provided such activities are directly related to their duties as LACERA Board members.

A formal orientation program shall be developed for new Board members by Human Resources Training and Development and LACERA Counsel. The aim of the orientation program shall be to ensure new Board members are in a position to contribute fully to Board and committee deliberations, and to effectively carry out their fiduciary duties as soon as possible upon joining the Board.

Training Orientation Program As part of the orientation, within 45 days following their election or appointment to the Board, new Board members shall be:

• Assigned a Board member mentor by the Chief Executive Officer • Briefed on the contents of the LACERA Board Handbook by LACERA Administration • Introduced to all members of senior management and staff by LACERA Administration • Provided a tour of the LACERA offices by LACERA Administration



• Briefed by the Chief Executive Officer and the Assistant Executive Officers • Briefed by the Chair • Apprised of their fiduciary duties by Counsel • Receive other relevant information and documentation from LACERA Administration or the Chair

During the course of their first year on the Board, new Board members shall endeavor to attend the California Association of Public Retirement Systems (CALAPRS) program, “Basic Principles of Pension Management.”

Prior to their first meeting of the Board, new Board members are encouraged to attend a meeting of the Board or a standing committee as an observer.

(Resource: Meeting schedules for the respective Boards are posted on the BOR or BOI pages on lacera.com.) LACERA Board Orientation material shall provide each new Board member and shall contain, at a minimum:

• The ‘37 Act, the Brown Act, and the LACERA Regulations • The most recent LACERA Board Handbook • Copies of LACERA Board policies • Most recent actuarial valuation and financial statements • Most recent business plan, budget, and organizational chart (in LACERA annual budget) • Names, phone numbers, and email addresses of other Board members, the Chief Executive

Officer, and the Chief Counsel • Listing of current committee assignments

Management shall review and update the LACERA Board Handbook.

Training Policy & Conferences

General Provisions The following guidelines shall be adhered to with respect to attendance at conferences or seminars:

• Attendance shall be in compliance with the Education and Travel Policy • Board members are encouraged to participate in the following conferences: o The semi-annual Conference of the State Association of County Retirement Systems (SACRS) o The General Assembly and Trustee Roundtables of CALAPRS o The International Foundation for Employee Benefits (IFEB) annual conferences and trustee

accreditation programs o CALAPRS “Basic Principles of Pension Management”; and o Wharton Pension Fund Management Course or equivalent

• Board of Investments must attend additional courses (refer to 705.14 of Travel Policy).

Policy Review The Boards shall review the Board Training Policy at least every two years to ensure it remains relevant and appropriate.

Effective Date The current policy was adopted by the Board on June 21, 2013.

Equipment and Supplies Board members will be contacted individually to schedule a one-on-one consultation with an IT professional from LACERA's Systems Division. Your computer, printer, and other technical needs will be addressed at that time. As a courtesy, Technical support will be provided for LACERA-issued equipment and software as necessary to perform Board duties. LACERA does not provide support or software for personal equipment. Note: The configurations, specifications, and versions of provided equipment and supplies are based on



policy, security requirements, internal testing, and currently supported products. Equipment and supplies are standardized to curtail expenses and facilitate troubleshooting and updates; they do not necessarily mirror industry trends. Staff will provide special equipment or software under certain circumstances (e.g., ADA requirements) to meet the Board member's needs. This applies only to LACERA-supplied equipment. Board members are reminded that any and all equipment provided by LACERA as a perquisite of office remains the property of LACERA and must be returned at termination of appointment or term of office. (Resource: See your Board Secretary to order LACERA business cards.)


PART 13: EDUCATION AND TRAVEL POLICY

The fiduciary duty of the Board of Retirement and the Board of Investments includes the duty to obtain education on matters of public pension investments and administration. Government Code §31522.8 requires members of both Boards to complete 24 hours of “board member education” every two years. The Education and Travel Policy adopted by both Boards is designed to ensure Board members receive the education they need to uphold their fiduciary duties in protecting and furthering the interests of the retirement fund. In so doing, the policy recognizes Board members and designated staff may need to travel to attend designated seminars, conferences, legislative meetings and hearings, etc. The Policy establishes conference and seminar requirements, rules governing travel and expense authorizations, and claims for travel expense reimbursement. The Travel Committee of the Board of Retirement and Board of Investments shall review the Policy annually or as needed. The Policy is subject to amendment by both Boards at any time. (Resource: The Education and Travel Policy is available on the Board Resources website.)


PART 14: FAQs

This section provides the answers to questions often asked by new and existing board members regarding stipends, reimbursement, travel, agendas, equipment, mileage, and more. Stipends:

1. Who is eligible for stipends? Board members who are County employees do not receive stipends. Board members who are not active County employees and who have been appointed by the Board of Supervisors or elected by the retirees (the 4th, 5th, 6th, 8th, and 9th members of both Boards and the alternate retired member of the Board of Retirement) will receive a stipend.

2. How much is the stipend? Board and committee meetings are $100 per meeting. The maximum number of meetings you may attend a month is five, for a maximum of $500 a month. Disability case review is paid hourly. Effective April 1, 2018, eligible Board of Retirement members will be compensated for the review of disability cases at the rate of $14.75 per hour up to a maximum of 32 hours in any single month.

3. What counts as a meeting? Regular Board Meetings, Special Board Meetings, Joint Board Meetings, LACERA-sponsored Board Offsite Meetings, and Board Committee Meetings. Attendance at Board-approved conferences and seminars do not count as a meeting, nor do meetings with investment managers or other vendors that take place outside of a committee or Board meeting.

4. What is the process required to generate a stipend? Meeting stipends are generated on the basis of attendance. The Board or Committee secretary will take attendance at each meeting and process applicable check requests; no additional action by the board member is required. To receive compensation for the review of disability cases, a Board member must complete and submit a Disability Review Claim Form. The form, which is available on the Board Resources website, can be emailed, mailed, or faxed to the Board Secretary. (Resource: The Disability Review Claim Form can be found in the Board Handbook binder and on the Board Resources home page.)

5. When are stipends paid? Stipends, including compensation for the review of disability cases, are paid on the 15th of the month.

6. How are stipends treated for tax purposes? Stipends are taxed as regular income. Board members who are eligible to receive a stipend are required to complete a W-4 form.

7. Who do you call if you have questions about your stipend? Contact your Board Secretary, Bonnie Nolley (BOR) or Linda Ghazarian (BOI).

Board Meeting Attendance: 1. What should I do if I am unable to attend a meeting or I know I will be late?

Please inform the Board Secretary, the Board Chair, or the CEO prior to the meeting so your absence can be noted as an approved absence. If you are an appointed member, your attendance record is reported quarterly to the Executive Office of the Board of Supervisors. Note: The attendance of all Board members is a matter of public record that must be disclosed to anyone upon request.

PART 14: FAQs


2. What should I do if I need to leave a meeting before adjournment? Please inform the Board Chair prior to the convening of the meeting. This allows the Chair to rearrange agenda items to cover action items first, in the event there are potential issues related to maintaining a quorum.

Board Protocol: 1. Are there standards of conduct for Board members during Board meetings?

Each and all of the trustees agree to show, in their relations with fellow trustees, staff, service providers, members and other interested parties the same courtesy, civility, and respect that they would expect to receive.

2. Are there rules of order for the proceedings in Board meetings? Yes. Robert’s Rules of Order shall govern the Boards in their meetings. Members should advise the Chair of their desire to be heard by indicating so on their electronic consoles. (Resource: A Robert’s Rules of Order book is included in the New Board Member Package. A Quick Reference Sheet is included in the Board Handbook binder, and is also found on the Policies page of the Board Resources website.)

3. What is a Closed or Executive Session? A closed session (sometimes casually referred to as an Executive Session) is a meeting which is not open to the public. The Brown Act limits the circumstances under which a closed session is permitted. (Resource: The Brown Act is available on the Policies page of the Board Resources website.)

4. Under what circumstances is a closed session permitted? The Brown Act permits closed sessions for review of personnel matters, pending litigation, labor negotiations, real property negotiations, and public security.

5. What action should be taken if a Board member witnesses a Board member harassing another Board member? Any such behavior should be promptly reported to the LACERA CEO or Chief of Internal Audit.

6. What is the relationship between Board members and the Board’s Medical Advisor? The Medical Advisor to the Board of Retirement is available to the Board to answer medical questions and clarify medical opinions, if requested. He or she cannot take a position on a disability case and cannot advise the Board on how to rule. The Medical Advisor is appointed by the County Public Health Officer.

7. What are the rules for contacting the Medical Advisor outside of a formal meeting? Individual Board members are free to contact the Medical Advisor outside of a formal meeting. However, two or more Board members may not contact the Medical Advisor together outside of a formal meeting. That would violate the Brown Act.

8. What is the procedure when a Board member wants to request something from LACERA staff? We prefer Board members direct their requests to the LACERA Executive Office. The Executive Office will determine which staff member is best suited to efficiently implement the request in a timely manner.

9. What should a Board member do if a LACERA member asks for advice on retirement counseling? We recommend such requests be referred to our Call Center or Member Service Center for retirement counseling from one of our specially-trained Retirement Benefits Specialists. If the

PART 14: FAQs


member's request is urgent or if it appears a higher level of assistance is indicated, we recommend the Board member contact LACERA's Executive Office. (Resource: LACERA Call Center - 800-786-6464.)

10. Is it appropriate for a Board member to allow a vendor to pay or reimburse him or her for travel expenses, including lodging and meals, and/or registration fees for conferences, seminars, etc.? The payment or reimbursement of travel expenses, including lodging and meals, constitutes a gift, even if the travel is in connection with official LACERA business. Prior to accepting a gift of travel (including lodging and meals), Board members and staff members shall consult with the Legal Office to confirm that such acceptance is not prohibited by law. Additionally, Board members are prohibited from accepting any gift from anyone who is doing or is seeking to do business of any kind with LACERA, when the gift is offered with a view toward securing favorable treatment in the awarding of any contract or agreement, or the making of any determination. (Resource: The Limitations and Restrictions on Gifts, Honoraria, Travel and Loans brochure is available on the Policies page of the Board Resources website.)

Informal Board Member Discussions:

1. To what extent can Board members discuss LACERA business outside of official Board meetings? The Ralph M. Brown Act prohibits a majority of Board members from discussing LACERA business when not present at a Board meeting. Underlying the Brown Act is the public policy that government business, including the deliberation of issues, should take place at a public meeting. A series of telephone calls or emails can result in a violation if a majority of Board members are ultimately involved. If, as a result of internal discussions, a majority of Board members reach a consensus as to how to vote at a meeting, a crime has been committed for which the participants could be prosecuted. (Resource: The Brown Act is available on the Policies page of the Board Resources website.)

2. Are there rules governing discussions between Board members outside of a meeting? Board members are cautioned not to discuss Board business, even informally, with another Board member outside of a formal Board meeting. This includes communications via email or phone, as well as in-person conversations, including those in the lunchroom. Such discussions run the risk of developing into a serial meeting, which is prohibited under the Brown Act.

3. What constitutes a serial meeting? A “serial meeting” is a series of communications, whether written, oral, or electronic (including “Reply All” emails), between Board members outside of a formal meeting. Serial meetings occur when a majority of the Board members have communicated about an issue and have developed a consensus on the matter. This can happen when Board members hear, directly or indirectly, other Board members’ opinion on an issue and begin to develop an agreement with it.

Member Appeals: 1. Can a member appeal a decision regarding a disability application?

Under LACERA’s Disability Appeal process, a disability applicant may appeal the following: 1) the Board’s decision to grant or deny the member’s application for a Service-connected or Non-service Connected Disability retirement, or 2) the Board’s denial of the applicant’s request for an earlier effective date. The appeal must be filed within 30 days of the date of notification of the Board’s decision. (Resource: Sections on Disability Appeals and Administrative Hearings are included on the Disability Policies & Procedures CD in the Board Handbook binder, and on the Policies page of the Board Resources website.)

2. Can a member appeal a LACERA staff decision regarding retirement benefits? Any decision made by LACERA staff regarding retirement benefits can be appealed under LACERA’s Administrative Appeal process. An appeal must be filed within 30 days of the date of

PART 14: FAQs


notification of the staff’s action. Examples of decisions that may be appealed include: staff- determined effective dates, benefit amounts, years of service credited, amount of final compensation, and other benefits not covered under the Disability Appeal process. (Resource: Material regarding Administrative Hearings can be accessed on the Policies page of the Board Resources website.)

3. Can the Administrative Appeal process be construed as providing an extension to the 30-day deadline for filing a disability appeal? No. The two time periods cannot be combined to extend the 30-day window for filing an appeal. Disability retirement and retirement benefits are two distinct categories of appeals.

Mileage: 1. What kinds of trips entitle one to claim mileage?

• Travel by personal automobile from one’s home to LACERA when traveling for LACERA business

• Travel to and from Board meetings, committee meetings, and individual meetings with investment managers or other vendors to discuss LACERA business

• Trips to the Hall of Administration to meet with the Board of Supervisors when related to LACERA business

• Trips to meetings for the purpose of explaining or discussing LACERA business • Trips to attend conferences and seminars located within Los Angeles County • Use of personal automobile to travel to common carriers such as airports and rail terminals in

connection with attendance at Board meetings and Board-approved conferences 2. How frequently should mileage claims be submitted?

Monthly. 3. What form should be used?

Use the Mileage Reimbursement Form, which includes the current reimbursement rate. (Resource: The Mileage Reimbursement Form is available in the Board Handbook binder and on the Travel page of the Board Resources website.)

4. How long does it take to get the reimbursement? Generally, reimbursement should take approximately four business days. However, the process may take longer, depending on accuracy and completeness of the reimbursement request.

5. Am I covered by LACERA insurance when I'm using my vehicle on LACERA business? Yes, provided you contact LACERA’s Director of Risk Management, Cynthia Guider at 626-564-2327 and provide your driver’s license information.

Board Education: 1. How do Board members receive the training they need to perform their duties?

• Board Orientation • Board Handbook • Offsite Meetings • Attendance at Educational Conferences and Seminars • Periodicals • Board Resources website

2. Do we have Board meetings off-site? Yes. Off-site meetings are held at a location within Los Angeles County, but at a site other than LACERA headquarters. These are official, posted meetings of the Boards that are used for in-depth review of benefits, administration, and investments. Generally, the agendas for these

PART 14: FAQs


meetings do not include action items. An offsite meeting, including both Boards and LACERA management, usually occurs in January.

3. What conferences or educational seminars may I attend? Board members may attend any conference in Los Angeles County if the incurred costs will be limited to mileage and parking. Other conferences must be approved by the appropriate Board. (Resource: The Board-approved Calendar is available on the Board Conference Calendar page of the Board Resources website.)

4. How can I submit a conference for Board approval? Advise your Board Secretary, Bonnie Nolley (BOR) or Linda Ghazarian (BOI), that you would like a conference or seminar placed on the agenda for approval. Agenda requests must be received ten business days prior to the meeting.

5. How many conferences may a Board member attend? Every Board member may attend eight conferences per year, twelve if the member serves on both Boards.

6. What is the relationship between LACERA and SACRS? LACERA is a member and active participant in the State Association of County Retirement Systems (SACRS). (Resource: Info on SACRS and the many other organizations in which LACERA is a member is included in the Board Handbook document, Part 11: LACERA Membership in Organizations.)

7. May Board members travel to conferences held outside of the United States? Yes; however, travel to an international destination is limited to two trips within a 12-month period and requires board approval. (Resource: The Travel Policy is included in the Board Handbook binder and the Board Travel page of the Board Resources website.)

8. Who goes to a conference when the conference invitation limits the number of attendees? If the conference invitation limits the number of attendees, a priority list is used to determine who can go. Senior Board members have priority over new Board members.

9. What periodicals do Board members receive? Most Board members have subscriptions to Pensions & Investments and The Wall Street Journal. Other relevant periodicals include Plan Sponsor and Institutional Investor. Note: If you want to subscribe to a relevant periodical, please contact your Board Secretary, Bonnie Nolley (BOR) or Linda Ghazarian (BOI).

Board Travel Arrangements: 1. Who makes the travel arrangements for Board members?

The Board Secretary, Bonnie Nolley (BOR) or Linda Ghazarian (BOI), will make all travel arrangements, unless you prefer to do it yourself.

2. How much notice do I need to give if I am thinking of attending a conference or seminar? If the trip involves air transportation, we encourage you to let us know at least 30 days prior to the departure date so that we can obtain lower airfares.

3. What happens if I need to cancel a trip? Notify the Board Secretary, Bonnie Nolley (BOR) or Linda Ghazarian (BOI), as soon as possible in order to avoid cancellation penalties. The LACERA Travel Policy requires Board members to reimburse LACERA for any cancellation penalties unless the cancellation was for good cause such as health, family emergency, work, or weather.

4. May I request a travel advance? LACERA will prepay conference registration fees, lodging, and airfare. Other travel advances are not allowable, per the LACERA Travel Policy.

PART 14: FAQs


5. What kind of transportation can I use for LACERA business travel? If your destination is within 100 miles of your residence, LACERA would expect you to use the common carrier — car or public transportation such as bus, train, or subway. If the destination is more than 100 miles away, Board members usually travel by air.

6. What if the trip is more than 100 miles away and I prefer to drive? You may drive and be reimbursed mileage. Lodging and meals are reimbursed to the same extent they would be if you traveled by air.

7. What if I prefer not to travel by plane even though this would be considered the “common carrier?” If you choose to travel by bus or train, the cost of the transportation will be reimbursed up to the amount that would be incurred for the common carrier.

8. What about Saturday “stay-overs?” In the past, airfare was sometimes less expensive if the trip included staying at the destination on Saturday night. If this situation should occur, LACERA will reimburse the additional expenses related to including Saturday in the trip, as long as the extra expenses plus airfare do not exceed the airfare that would be paid without the Saturday stay-over. The airfare differential should be documented on the travel expense voucher.

Reimbursement of Travel Expenses: 1. What kind of travel entitles me to reimbursement of travel-related expenses?

Administrative Travel: This travel is linked to participation in committees or serving as an officer of SACRS or CALAPRS. For example, you are a member of the SACRS program committee and you travel to Sacramento to attend a committee meeting. Reimbursable expenses related to this type of trip include transportation costs, lodging, meals, local ground transportation, and parking. Educational Travel: This travel is associated with attendance at approved seminars or conferences. Travel expenses including transportation, lodging, meals, local ground transportation, and parking are reimbursable.

2. How do I claim reimbursement for travel expenses? Immediately following completion of your trip, a Travel Expense Voucher must be completed with all original, itemized receipts attached. You can obtain the form from the Board Secretary or the Board Secretary will be happy to assist you in completing the form. All expenses with the exception of porterage should be substantiated with receipts. If LACERA has prepaid airfare and/or lodging expenses, you should still obtain receipts. Meal expenses can be claimed in two ways, by per diem or by actual expenditure to a maximum of $100 per day, substantiated by receipts. Prior to the trip, the Board Secretary will provide you with the per diem amount that can be claimed for the trip. (Per diem amounts are set by the IRS and vary by location). (Resource: The Travel Expense Voucher is included in the Board Handbook binder and on the Board Travel page of the Board Resources website. The Per Diem rates are available on the Board Travel page of the Board Resources website.)

3. How frequently should I submit travel claims? We prefer that you submit a claim immediately after a completed trip. The IRS will force us to treat the reimbursement as taxable compensation if the claim is submitted more than three months after the travel expenses have been incurred.

4. How long does it take to receive reimbursement once my claim has been submitted? Generally, reimbursement should take approximately four business days. However, the process may take longer, depending on the accuracy and completeness of the reimbursement request.

PART 14: FAQs


Board Packages: 1. What is the schedule for delivery of electronic documents to Board Members?

On the Friday preceding a Board of Retirement meeting (or joint meeting), LACERA transmits electronic copies of Board packages (with the exception of disability packages) and Committee packages to Board of Retirement members' LACERA-provided iPads. The electronic packages are identical to the printed version of the packages. On the Thursday preceding a Board of Investments meeting (or joint meeting), Board of Investments members receive electronic copies of Board and Committee packages on their LACERA-provided iPads.

2. What is the schedule for delivery of print versions of Board and Committee packages to Board Members? Print versions of Board of Retirement packages are delivered, via messenger, to BOR members on the Friday preceding a Board meeting. Print versions of Board of Investments packages are delivered, via messenger, to BOI members on the Thursday preceding a Board meeting. Print versions of Committee packages are delivered, via messenger on Thursday for Wednesday meetings and on Friday for Thursday meetings.

3. How do Board members receive disability packages? Each Tuesday two weeks prior to a Board meeting, LACERA delivers, via messenger, print copies of disability packages to Board of Retirement members.

Mail: 1. Do Board members receive mail?

Yes. Typically, Board members receive periodicals, conference announcements, letters and informational materials from vendors and prospective vendors, letters from members, memos from LACERA staff, and letters from the Board of Supervisors and County Departments.

2. How do I get my mail? You are always welcome to pick up your mail whenever you visit LACERA. The Board Secretaries store your mail in the work room adjacent to their work stations on the 8th floor. The accumulated mail is sent to you every Friday.

3. How do I respond to correspondence? Board regulations specify that correspondence will be forwarded to the appropriate staff member for response. Board members may not send correspondence on LACERA letterhead without specific Board authorization.

Agendas: 1. How do I receive meeting Agendas?

All Board Agendas and corresponding information are sent directly to you via messenger. (Resource: Board Agendas and Minutes for Board meetings and Committee meetings are available on the BOR and BOI pages of lacera.com.)

2. When can I expect my Agenda? You should receive your Agenda and any related information at least three business days before a meeting.

Board Member Addresses and Telephone Numbers: 3. How is Board member contact information listed?

For external parties, we list LACERA’s address and telephone number as your address and number unless you direct us to use a different address and phone number.

PART 14: FAQs


4. Who has access to my contact information? Your address and phone numbers are provided to your fellow Board members and to LACERA staff who have a business need to know this information, such as the Board Secretary. Some Board members ask us to release only business addresses and phone numbers. We will honor such requests. (Resource: BOR and BOI rosters are included in the Board Handbook binder.)

5. What happens if someone wants to contact me at the LACERA number? The Board Secretaries will take a message and phone you to determine how you want the call to be handled. If you are not available, they will leave you a voice message, email, or fax the message, as you prefer.

Equipment and Supplies: 1. What will LACERA provide to assist me in fulfilling my Board duties?

• Computer Equipment: iPad, desktop or laptop with a printer and/or fax machine • Data line for internet access and fax transmissions • Office Supplies such as printer paper, fax paper, printer and fax cartridges • Internet Service Provider • Luggage Carrier for handling agendas (usually provided for Board of Retirement members) • Business Cards • Secure File Storage Containers


PART 15: APPENDIX

Board of Retirement: Board of Supervisors Nomination Rotation Schedule

Board of Retirement District/Supervisor 2015 2016 2017 2018 2019 2020 2021 1: Solis Bravo Walsh 2: Ridley-Thomas Adams 3: Kuehl Bernstein Bernstein 4: Hahn Robbins Zapanta-Murphy 5: Barger Okum

Effective Term Dates of Current Board of Retirement

Board of Retirement Term Expires First Member Joseph Kelly County treasurer;

serves as ex-officio member N/A

Alternate First Member Keith Knox Chief Deputy County treasurer, serves as alternate ex-officio member

N/A

Second Member Herman Santos Elected by general membership 2020 Third Member Vivian Gray Elected by general membership 2018 Fourth Member Thomas Walsh Appointed by Board of Supervisors 2020 Fifth Member Marvin Adams Appointed by Board of Supervisors 2018 Sixth Member Alan J. Bernstein Appointed by Board of Supervisors 2019 Seventh Member Shawn R. Kehoe Elected by safety membership 2019 Eighth Member Les Robbins Elected by retired membership 2020 Ninth Member Gina Zapanta-

Murphy Appointed by Board of Supervisors 2020

Alternate Safety Member William R. Pryor Elected by safety membership 2019 Alternate Retired Member James “J.P.” Harris Elected by retired membership 2020

PART 15: APPENDIX


Board of Investments: Board of Supervisors Nomination Rotation Schedule

Board of Investments District/Supervisor 2015 2016 2017 2018 2019 2020 2021

1: Solis Valenzuela Sanchez 2: Ridley Thomas Simril Moore Moore 3: Kuehl Villarreal 4: Hahn Schneider 5: Barger Barger Okum

Effective Term Dates of Current Board of Investments

Board of Investments Term Expires

First Member Joseph Kelly County treasurer; serves as ex-officio member

N/A

Alternate First Member

Keith Knox Chief Deputy County treasurer, serves as alternate ex-officio member

N/A

Second Member David Green Elected by general membership 2020 Third Member Herman Santos Elected by general membership 2018 Fourth Member Shawn R. Kehoe Elected by safety membership 2019 Fifth Member Ronald A. Okum Appointed by Board of Supervisors 2019 Sixth Member Wayne Moore Appointed by Board of Supervisors 2020 Seventh Member

Michael Schneider Appointed by Board of Supervisors 2018

Eighth Member David L. Muir Elected by retired membership 2020 Ninth Member Gina V. Sanchez Appointed by Board of Supervisors 2020

PART 15: APPENDIX


LACERA Fund Performance — from 2017 Annual Report LACERA Funded Ratio For the Last Five Actuarial Valuations Valuation Date Funded Ratio June 30, 2012 76.8%

June 30, 2013 75.0% June 30, 2014 79.5%

June 30, 2015 83.3%

June 30, 2016 79.4%

Additions and Deductions in Fiduciary Net Position — Pension Plan For the Fiscal Years Ended June 30, 2017, 2016, and 2015

2017

Contributions $ 1,858

Net Investment Income/(Loss) 6,135

Total Additions $ 7,993

Benefits and Refunds (3,030) Administrative Expenses and Miscellaneous (67)

Total Deductions $ (3,097)

Net Increase/(Decrease) 4,896

Net Position at Beginning of Year 47,847

Net Position at End of Year $ 52,743


Responsible Pension Reform Plan A, the original benefit plan, was established in 1937. The County began exercising pension reform on its own in 1977 when it recognized the benefit formula for Plan A would not be sustainable over the long term. Thus began the evolution of County retirement plans; each successive plan established a reduced benefit formula and marked the closing of the previous Plan.


LACERA Organizational Chart

Robert HillInterim

Chief Executive Officer

James P. BrekkInterim Deputy Chief Executive

Officer

Bernardo BuenaflorInterim

Assistant Chief Executive Officer

Beulah AutenChief Financial

OfficerFinancial and

Accounting Services

Derwin BrownChief, Quality Assuarance

Quality Assurance

Roxana CasitilloInterim Manager

Technology Systems

Vanessa GonzalezInterim Division

ManagerBenefits

Cassandra SmithDirector, Retiree

HealthcareRetiree Healthcare Benefits Program

JJ PopowichAssistant Executive

Officer

Alan CochranDivision ManagerMember Services

Cynthia MartinezChief,

Communications

John NogalesDirector, Human

ResourcesHuman Resources

Ricki ContrerasDivision Manager

Disability Retirement

Kimberly HinesDivision Manager

Administrative Services

Vincent LimChief Counsel,

Disability LitigationDisability Litigation

Jonathan GrabelChief Investment

OfficerInvestments

Richard BendallChief, Internal Audit

Steven RiceChief CounselLegal Services

Mary PhillipsInterim Manager Member Systems

lacera board member handbook

Documents