Orange County Employees Retirement System

Transcription

1 Orange County Employees Retirement System MEMORANDUM DATE: November 5, 2015 TO: FROM: Members of the Board of Retirement Brenda Shott, Assistant CEO, Finance and Internal Operations SUBJECT: OCERS Administrative and Investment Budget for Fiscal Year 2016 Recommendation: 1. Adopt the Administrative and Investment Budget for Fiscal Year 2016 (FY16) in the amounts presented in the budget report for the categories of Personnel Costs, Services and Supplies and Capital Expenditures. 2. Approve the 2016 Staffing Plan which includes the addition of two new positions: a. Contracts, Risk & Performance Manager b. Paralegal 3. Delegate CEO authority to award and distribute V3 incentive pay pool 4. Consider and take appropriate action on Investments Retention Program Background: The proposed budget was developed based on the 2016 Business Plan approved by the Board of Retirement on October 19, 2015 which included a series of goals and initiatives for individual departments at OCERS, as well as the three year Strategic Plan and OCERS Mission Statement. On October 22, 2015, staff held a Budget Workshop to give the Board of Retirement an opportunity to review the proposed FY16 budget in detail and provide staff direction on content of the budget prior to adoption at the November 16, 2015 Board meeting. Attached is the proposed FY16 budget package that staff is recommending for approval. Prepared By: Reviewed By: Tracy Bowman Director of Finance Brenda Shott Assistant CEO, Internal Operations Approved By: Steve Delaney CEO I-3 OCERS Administrative and Investment Budget for Fiscal Year 2016 Page 1 of 1 Regular Board Meeting, November 16, 2015

2 2016 BUDGET

3 TABLE OF CONTENTS Section I Introduction... 3 Section II Budget Policies and Processes... 5 Section III 2016 Budget... 5 Section IV 2016 Administrative Budget... 9 Section V 2016 Investment Budget Section VI 2016 Personnel Costs Appendix A Budget Detail by Department B Budget Detail by Expense Category C Personnel Cost Budget D - 21 Basis Points for Budget Year Basis Points for Budget Year 2016 E - Historical Statistics F - Recurring Expenses Budget vs 2015 Amended Budget New Recurring Expenses Budget Non-Recurring Expenses Budget

4 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM SECTION I INTRODUCTION OCERS mission is to provide secure retirement and disability benefits, quality information concerning those benefits and prompt, professional and courteous service that meets the highest standards of excellence. In carrying out that role, the Board of Retirement and staff are committed to act for the exclusive benefit of the plan and its participants, manage assets of the plan prudently and administer benefits with impartiality. To support this mission the agency has the following supporting goals: 1. Excellent customer service 2. Timely and accurate benefits 3. Secure and reliable data 4. Prudently managed investments 5. Professional plan administration The 2016 Budget was developed with the OCERS mission and goals as the foundation and the 2016 Business Plan and the Strategic Plan as additional building blocks. Budget requests are made and ultimately included in the budget only if they support one or more of these items. The 2016 Budget reflects the transition of V3, OCERS new pension administration software system, from a capital project to a routine operational expenditure. Costs that were previously capitalized, such as V3 Licensing and Support and V3 consultants, will now be recognized immediately as an expense once the project meets the anticipated Go-Live date in December In addition, costs related to performing a workforce analysis are included in the 2016 Budget. V3 is anticipated to result in a shifting of workloads and responsibilities, as well as a change to the skill sets needed to accomplish those changing workloads. The analysis is expected to provide an overview of staffing changes that may be required to efficiently, effectively and prudently provide the needed services of OCERS. The 2016 Budget also includes costs associated with the 2016 Business Plan presented to the Board at the off-site Strategic Planning Meeting held on September 10, 2015 and subsequently adopted by the Board at the Regular Board Meeting held on October 19, One of the entity-wide initiatives included in the Business Plan is an Operational Risk Management Program. A portion of that program is to put in place a Business Continuity/Disaster Recovery (BC/DR) plan. The budget also includes costs associated with the Fiscal Year 2016 (FY16) Staffing Plan, an information security program, as well as succession/leadership training. The other significant development included in the 2016 Budget is an increase in the amount budgeted for investment management fees which reflects a recent trend by some investment managers to disclose fees in their investment reports that were previously recorded as a direct 3

5 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM deduction against investment returns. Due to greater transparency, these fees are now being reported as an investment management fee expense Budget Summary Staff recommends a 2016 Budget of $59,090,000 which is: $9.6 million or 19.5% greater than the 2015 Amended Budget $567,000 or 1.0% greater than 2015 estimated actuals 4

6 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM SECTION II BUDGET POLICIES AND PROCESSES Budget Policies OCERS prepares the budget on an accrual basis in accordance with Generally Accepted Accounting Principles (GAAP). Budgeting policies are based on legal statutes required for 1937 Act Systems as well as policies set by OCERS Board of Retirement. OCERS budgeting authority is regulated by California Government Code Sections and A notable provision within the regulations is that OCERS budget for administrative expenses (which excludes investment-related costs and expenditures for computer software, hardware and related technology consulting services) is limited to twenty-one hundredths of one percent of the accrued actuarial liability of the retirement system (commonly referred to as the 21 basis point test). The FY16 administrative budget represents 8.48 basis points of the projected actuarial accrued liability. The FY16 budget also meets the Board s policy limitation of 18 basis points of the projected actuarial value of total assets and represents basis points of assets for FY16. Although OCERS is no longer bound by this test by the Government Code, the Board of Retirement includes this test as a requirement within the Budget Approval Policy. See Appendix D for both the 21 basis point test and 18 basis point test calculations. In addition to the State Code, the budget is also guided by OCERS Budget Approval Policy adopted by the Board of Retirement on February 19, 2002 and last revised July 20, This policy provides the purpose, roles and guidelines related to approving the annual budget for covering the expenses of administering the retirement system including the authority of the Chief Executive Officer, or the Assistant CEO, to transfer funds within the three broad categories of the budget: 1) Personnel Costs, 2) Services and Supplies, and 3) Capital Projects. Funds may not be moved from one category to another without approval from the Board of Retirement. In addition, any increases to the total approved budget resulting in a budget amendment must be approved by the Board of Retirement. Budget Process In August, each department head begins the process of completing their budget requests for the following fiscal year. The Director of Finance and Finance Manager-Budgeting compile the budget requests and draft the budgets for each department. The department heads then meet individually with the CEO, Assistant CEO of Internal Operations, and the Director of Finance to review and discuss each line item of their draft budget which may go through several review cycles. Once the CEO agrees upon the budget, any proposed business plan goals/initiatives with a budget impact are incorporated into the Business Plan for the upcoming fiscal year and presented to the Board at its annual off-site Strategic Planning Meeting in September. The Board s feedback is then incorporated into the budget and presented to the Board for their review at the annual Budget Workshop held in late October/early November. Any additional feedback is included in a proposed final version of the budget and submitted to the Board for final adoption at their regularly scheduled Board Meeting held in November. 5

7 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM SECTION III 2016 BUDGET The overall budget for 2016 is summarized by the following categories of expenses: Personnel Costs Services and Supplies Capital Expenditures The 2016 Budget is based on estimates of anticipated expenses for personnel costs, services and supplies, and capital expenditures. It includes the costs of carrying out the current level of services and activities approved by OCERS Board, as well as adjustments for normal cost increases for staffing salaries and office expenses and transitional costs due to the anticipated completion of the V3 project in December With the completion of this project, related costs will no longer be capitalized and will now be reflected as an expense for services and supplies. The 2016 Budget also includes $2 million for the completion of OCERS Data Center as part of the 2016 Business Plan Initiative to continue the implementation of the Business Continuity and Disaster Recovery (BC/DR) Solution. Important assumptions in the 2016 Budget include: An average fringe benefit rate of 55.3% of salaries A performance-based merit adjustment pool of 1.5% for OCERS management at a cost of $55,000 An additional 1.0% non-base building lump sum merit pool for OCERS management who receive an exceeds or exceptional job performance rating at a cost of $40,000 A V3 Incentive Pay pool related to the successful implementation of V3 at a cost of $65,000 Step increases for 17 County staff not at top of range at a cost of $72,000 Hiring of 2 two new positions as part of the 2016 Staffing Plan: o Contracts, Risk & Performance Manager at a cost of $133,600 ($84,600 salary + $49,000 benefits) o Paralegal at a cost of $90,000 ($56,000 salary + $34,000 benefits) Investment management fees, reflecting amounts for both direct billed and identifiable indirect fees, totaling $37,309,000 New recurring equipment maintenance and equipment/software expenses primarily related to V3 post Go-Live and 2016 Business Plan Initiatives, including: o V3 licensing and support for a total cost of $396,000 (previously capitalized as part of the V3 project) o V3 Oracle licensing in the amount of $60,000 o Anti-Spam and monitoring solutions, laptop security and location services related to cyber risk security initiative for a total cost of $75,000 New recurring training costs related to 2016 Business Plan Initiatives for Information Security Training (SANS) and Succession/Leadership Training and Development with a 6

8 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM total initial cost of $50,000 and $30,000, respectively (it is anticipated these costs will be less in future years) Non-recurring professional expenses, including: o Consultant expense for V3 wrap-up initiative, including V3 data conversion audit, at a cost of $776,000 o Potential change orders and/or additional support hours for V3 post Go-Live in the amount of $60,000 o Information Security Consulting related to cyber risk security initiative for a total cost of $150,000 o CEM consultant for benchmarking initiative to compare OCERS to other 1937 Act Systems Non-recurring building property management/maintenance costs related to space management and building modifications needed to vacate third floor of OCERS headquarters building at a total cost of $31,000 BC/DR capital project initiative at a cost of $2,000,000 Note: See Appendix F for a complete summary of all recurring, new recurring and nonrecurring expenses for the 2016 Budget. Comparison to 2015 Budget FY16 Budget (Dollars in Thousands) $60,000 $59,091 $58,000 $56,000 $54,000 $52,000 $50,000 $48,000 $46,000 $44,000 $49,444 Overall Budget increase of $9.6 million, or 19.5% Amended Budget 2015 Proposed Budget 2016 The total budget for 2016 is $59.1 million; $41.7 million for investment related activities and $17.4 million for administration of the retirement system, representing an increase of $9.7 7

9 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM million or 19.5% from the 2015 Amended Budget of $49.4 million. The majority of this increase relates to a $12.8 million or 44.3% increase in investment costs from the 2015 Amended Investment Budget of $28.9 million. This is primarily due to a change in how some of the indirect management fees are being reported by certain investment managers. Typically, investment managers with at-source type of investment strategies deduct investment fees directly from investment returns; however, there has been an increase in the reporting of investment fees previously not visible being disclosed on investment reports, resulting in a significant increase in the amounts being recorded as investment management fees. The increase in the Investment Budget was offset by a decrease in the Administrative Budget by $3.1 million or -15.3% compared to the 2015 Amended Budget of $20.6 million. This can be attributed to a reduction in capital expenditures due to the anticipated completion of the V3 project in December Excluding capital expenditures, the Administrative Budget increased $1.5 million or 11.2% due to increases in professional services and equipment maintenance totaling $908,000 for costs associated with V3 post Go-Live and the cyber risk security initiative discussed previously in the 2016 Budget assumptions. Administrative personnel costs also increased by $549,000 or 5.8%, primarily due to the addition of two new positions, Contracts, Risk & Performance Manager and a Paralegal; an increase in temporary help due to the majority of these costs previously being capitalized as part of the V3 project (which will now be included as a salary expense as V3 moves into the post Go-Live phase); and the funding of a salary adjustment pool as discussed further in Section VI - Personnel Costs (Including Investments). 8

10 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM SECTION IV 2016 ADMINISTRATIVE BUDGET Administrative Summary (Excludes Investments) The Administrative Budget is prepared in accordance with the limits of Section of the County Employees Act of 1937 which limits the budget to twenty-one hundredths of one percent of the accrued actuarial liability of the retirement system (commonly referred to as the 21 basis point test), excluding investment-related costs and expenditures for computer software, hardware and related technology consulting services totaling $3.3 million in the FY16 Budget. The 2016 Administrative Budget is $22.3 million under the cap limit of $36.4 million (see Appendix D 21 Basis Points for Budget Year 2016). A summary of the FY15 Amended Administrative Budget compared to FY15 estimated actuals and the FY16 Administrative Budget compared to FY15 estimated actuals, along with a description of each line item, is provided below: Amended Budget 2015 Estimated Actuals Over/(Under) Budget Budget Budget vs Actuals Over/(Under) Personnel Costs $9,411,426 $8,824,776 ($586,650) $9,960,279 $1,135, % Services and Supplies Professional Services 1,710,400 1,201,348 (509,052) 2,370,900 1,169, % Building Prop Mgmt/Maint 660, , ,000 45, % Equipment Maintenance 421, ,850 (62,561) 668, , % Miscellaneous Office Expense 502, ,200 (45,130) 492,870 35, % Training 350, ,052 (103,798) 432, , % Legal Services 410, ,208 (24,792) 360,000 (25,208) -6.5% Equipment/Software Expenses 165, ,141 9, ,750 5, % Equipment Lease 98,000 94,018 (3,982) 98,000 3, % Meetings & Mileage 47,150 35,142 (12,008) 57,550 22, % Services and Supplies 4,365,141 3,612,959 (752,182) 5,365,363 1,752, % Capital Expenditures* 6,793,368 4,094,261 (2,699,107) 2,098,000 (1,996,261) -48.8% Administrative Expense Total $20,569,935 $16,531,996 ($4,037,939) $17,423,642 $891, % *Capital expenditures represent purchases of assets to be amortized in future periods. 9

11 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM FY16 Administrative Budget 12.0% Personnel Cost 30.8% 57.2% Services and Supplies Capital Expenditures Administrative Personnel Costs Administrative Personnel Costs for 2016 are $9.9 million and represent 57.2% of the total Administrative Budget. The total budget for administrative personnel costs is $1.1 million or 12.9% higher than the 2015 estimated actuals for administrative personnel costs. Total personnel costs are discussed further under Section VI - Personnel Costs (Including Investments) and a detailed breakdown of administrative personnel costs can be found in Appendix C 2016 Personnel Cost Budget. Administrative Services and Supplies Administrative Services and Supplies costs for 2016 are $5.4 million, which is 30.8% of the total Administrative Budget. Included in services and supplies are professional services, legal services, equipment expenses (other than those that are capitalized on OCERS books as assets that will be depreciated over time and budgeted as a capital expenditure), maintenance costs, office expenses, training, and meetings & mileage costs. The expenses that are included in these line items are detailed in Appendix B Budget Detail by Expense Category and summarized below: Professional Services budgeted at $2.4 million represents the largest percentage of Administrative Services and Supplies and comprises 13.6% of the total administrative budget. The overall increase of $1.2 million or 97.4% from FY15 estimated actuals consists primarily of non-recurring items attributed to V3 wrap-up tasks of approximately $776,000 included in the 2016 Business Plan, as well as $150,000 for an information security consultant related to the cyber risk security initiative. The remaining variance can be attributed to amounts being budgeted for in 2015 on an asneeded basis and re-budgeted for in 2016, such as legal services and a CEO contingency, which were underutilized in 2015 and re-budgeted in

12 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM Building Management and Maintenance budgeted at $705,000 represents 4% of the overall Administrative Budget and is related to funds distributed to the property manager of OCERS Headquarters building to manage and maintain the building. Expenses include property management fees, utilities, property taxes, insurance and maintenance contracts. This line item is expected to increase $45,000 or 6.8% due to an anticipated 2% increase in utilities and increases in janitorial services as a result of union negotiations and an increase in the minimum wage from $9/hour to $10/hour. The budget also includes non-recurring costs related to space management and building modifications needed to vacate third floor of OCERS headquarters building at a total cost of $31,000. Equipment Maintenance budgeted at $669,000 represents 3.8% of the total Administrative Budget and has increased from FY15 estimated actuals by $310,000 or 86.3%. The bulk of the increase is related to V3 licensing and support of $396,000 which had previously been capitalized as part of the V3 project and will now be a new recurring expense, as well as other ongoing V3 costs which are higher than the previous pension administration software system, Pension Gold. These costs were offset by the elimination of $167,000 in maintenance costs for Pension Gold. Miscellaneous Office Expense budgeted at $493,000 represents 2.8% of the total Administrative Budget and consists of routine office expenses such as postage, printing costs, telephone, office supplies and periodicals. The budget for this line item increased from FY15 actuals by $36,000 or 7.8% primarily due to $20,000 reserved for potential mass mailings not being utilized in FY15, as well as an adjustment for normal cost increases in membership fees and office supplies. Training budgeted at $433,000 represents 2.5% of the total Administrative Budget and has increased from FY15 estimated actuals by $186,000 or 75.2%. This category encompasses training and conferences attended by the Board and all other departments, as well as tuition reimbursement. The overall increase can be attributed to two 2016 Business Plan initiatives, Information Security Training (SANS) of $50,000 and OCERS Management Succession/Leadership training of $30,000. Excluding these initiatives, the training budget has remained flat. Estimated actuals have come in low compared to amounts budgeted primarily due to the strain on staffing resources as a result of the V3 project. Legal Services budgeted at $360,000 are 2.1% of the Administrative Budget and consist of fees paid to our external legal counsel and tax attorney. These fees are budgeted on an as-needed basis and are anticipated to decrease by $25,000 or -6.5% from FY15 estimated actuals due to the completion of the Employee Handbook update project in

13 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM Equipment/Software Expenses budgeted at $180,000 represent 1% of the total Administrative Budget and increased $6,000 or 3.2% compared to FY15 estimated actuals. This line item consists of miscellaneous hardware and software, as well as new recurring costs for anti-spam and monitoring solutions, laptop security and location services related to the cyber risk security initiative totaling $75,000. Equipment Lease budgeted at $98,000 represents 0.6% of the total Administrative Budget and increased by $4,000 or 4.2% from FY15 estimated actuals. This line item consists of copiers, postage machine and Lexis Nexis and is expected to remain relatively flat. Meetings and Mileage budgeted at $58,000 represents the smallest portion of the total Administrative Budget at 0.3%. The majority of the expenses relates to Board meetings. The budget has increased by $22,000 or 63.8% compared to FY15 estimated actuals due to an anticipated increase in the cost to attend Industry Group committee meetings in FY16, including SACRS, NCPERS and GFOA (CORBA). In addition, the budget includes an additional $10,000 for visits by Board members to other pension systems which was included in the 2016 Business Plan. Capital Expenditures Capital Expenditures for 2016 are $2.1 million and are 12.0% of the total Administrative Budget. The 2016 budget is $2.0 million lower than FY15 estimated actuals primarily due to costs budgeted, but not yet incurred, for the OCERS Data Center which was budgeted at $2.3 million, but only incurred $300,000 in FY15. This project has been re-budgeted in FY16 for $2.0 million and was included in the 2016 Business Plan as part of the BC/DR initiative. The budget also includes $98,000 for third floor tenant improvements and building safety expansion for the headquarters building. 12

14 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM SECTION V 2016 INVESTMENT BUDGET Investment Summary Investment Costs Costs related to investing the System s money are all included in the Investment department and are not considered to be a cost of administration of the retirement system, but are instead considered a charge against the assets of the retirement system. There are no other costs included in the Investment department other than those related to investing, and as such, there are no administrative costs included in the Investment department s budget. A summary of the FY15 Amended Investment Budget compared to FY15 estimated actuals and the FY16 Investment Budget compared to FY15 estimated actuals is provided below: Amended Budget 2015 Estimated Actuals Over/(Under) Budget Budget Budget vs Actuals Over/(Under) Personnel Costs $1,330,017 $1,224,362 ($105,655) $1,384,807 $160, % Services and Supplies Professional Services* 27,383,827 40,670,178 13,286,351 40,104,129 (566,049) -1.4% Training 44,720 6,788 (37,932) 64,130 57, % Due Diligence 52,725 27,921 (24,804) 52,890 24, % Miscellaneous Office Expense 28,975 27,995 (980) 26,705 (1,290) -4.6% Equipment/Software Expenses 25,000 25, , % Meetings & Mileage 9,000 9, , % Services and Supplies 27,544,247 40,766,882 13,222,635 40,281,854 (485,028) -1.2% Investment Expense Total $28,874,264 $41,991,244 $13,116,980 $41,666,661 ($324,583) -0.8% *Staff is recommending a budget amendment be approved by the Board of Retirement for the FY15 Amended Budget in the amount of $13.5 million to account for additional investment management fees 13

15 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM 3.3% FY16 Investment Budget Personnel Cost Services and Supplies 96.7% Investment Personnel Costs Investment Personnel Costs for 2016 are $1.4 million and represent 3.3% of the total Investment Budget. The total budget for investment personnel costs is approximately $160,000 or 13.1% higher than the FY15 estimated actuals for investment personnel. A detailed discussion of total personnel costs, including investments, is discussed further under Section VI - Personnel Costs (Including Investments) and a detailed breakdown of investment personnel costs can be found in Appendix C 2016 Personnel Cost Budget. Investment Services and Supplies Investment Services and Supplies costs for 2015 are $40.3 million, which is 96.7% of the total Investment Budget. Included in services and supplies are professional services (including investment related legal services), due diligence and related investment conferences, training, equipment expenses, miscellaneous office expenses, and meetings & mileage. The expenses that are included in these line items are detailed in Appendix B Budget Detail by Expense Category and summarized below: Professional Services budgeted at $40.1 million represents the largest percentage of Investment Services and Supplies and comprises 96.2% of the total Investment Budget. Professional Services consists primarily of investment management fees, as well as investment consultants, investment-related legal fees, actuarial fees and custodial bank fees. Overall, as a percentage, professional services has remained consistent with FY15 estimated actuals; however, when comparing the FY15 Amended Budget to FY15 estimated actuals, this line item is over budget by $13.3 million. This can be directly attributed to a change in how some of the indirect management fees are being reported by certain investment managers. Typically, only direct-billed investment management fees are budgeted for as indirect fees (also commonly referred to as at-source fees) are deducted directly from the investment returns and typically not visible on investment 14

16 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM statements. In an effort to be more transparent, a growing number of investment managers are disclosing these fees on their investment reports, resulting in a significant increase in the amounts being recorded as investment management fees. As a result, there will be a budget amendment request to the FY15 Amended Budget in the amount of $13.5 million to cover these newly reported fees at the November 16, 2015 Board meeting prior to the adoption of the FY16 Budget. Training budgeted at $64,000 represents 0.2% of the total Investment Budget and is approximately $57,000 higher than FY15 estimated actuals. This line item consists of conferences, the Educational Forum and tuition reimbursement. The variance between amounts budgeted for FY16 compared to FY15 estimated actuals can be attributed to training dollars budgeted, but not spent in FY15. It is anticipated that more training costs will be incurred in FY16 due to investments becoming fully staffed as of the last quarter of Due Diligence budgeted at $53,000 represents 0.1% of the total Investment Budget and is approximately $25,000 higher than estimated actuals. The variance between amounts budgeted for FY16 compared to FY15 estimated actuals can be attributed to amounts being budgeted for due diligence trips to both new and existing investment managers, but not being spent in FY15. It is anticipated that more due diligence trips will be incurred in FY16 due to investments becoming fully staffed as of the last quarter of Miscellaneous Office Expense, Equipment/Software Expenses and Meeting & Mileage with a combined budget of $61,000 represent less than 0.1% of the total Investment Budget. These line items consist of memberships, periodicals, Bloomberg and meals for the Investment Committee meetings. The FY16 Budget is consistent with FY15 estimated actuals. 15

17 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM SECTION VI 2016 PERSONNEL COSTS A summary of the FY15 amended personnel costs compared to FY15 estimated actuals and the FY16 personnel costs compared to FY15 estimated actuals is provided below: Personnel Costs (Including Investments) Amended Budget 2015 Estimated Actuals Over/(Under) Budget Budget Budget vs Actuals Over/(Under) Administrative Personnel Costs: Annual Salary $5,479,898 $5,179,043 ($300,855) $5,721,447 $542, % Board Allowance 15,000 15, , % Fringe Benefits 3,221,643 3,042,124 (179,519) 3,242, , % Overtime 204, ,919 (90,761) 213,179 99, % Annual Leave 176, ,253 34, ,011 7, % Temp Help 130,900 85,101 (45,799) 318, , % Salary Adj. Pool* 183, ,336 (3,959) 231,506 52, % Total Administrative Personnel Costs $9,411,426 $8,824,776 ($586,650) $9,960,279 $1,135, % Investments Personnel Costs: Annual Salary $809,533 $738,067 ($71,466) $851,234 $113, % Fringe Benefits 478, ,458 (71,493) 484,041 76, % Overtime 2,543 15,258 12,715 2,543 (12,715) -83.3% Annual Leave 23,990 28,161 4,171 31,989 3, % Temp Help 15,000 11,398 (3,602) 15,000 3, % Salary Adj. Pool* 0 24,020 24,020 0 (24,020) % Total Investment Personnel Costs $1,330,017 $1,224,362 ($105,655) $1,384,807 $160, % Total Personnel Costs $10,741,443 $10,049,138 ($692,305) $11,345,086 $1,295, % *All salary pool adjustments are budgeted in Administrative Services Department until awarded. Personnel Costs for 2016 are $11.3 million and represent 19.2% of the total Administrative and Investment Budget combined. Personnel costs are detailed by department in Appendix C and include salaries, estimated overtime, fringe benefits (e.g., health insurance, retirement and deferred compensation), salary adjustment pool, accrued leave buyouts and temporary help costs. The total budget for personnel costs is $1.3 million or 12.9% higher than the FY15 16

18 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM estimated actuals for personnel costs. This can be attributed to several positions budgeted, but remaining vacant during FY15, including the recently filled Investment Officer position and the still vacant Accountant Auditor position, resulting in less expenses incurred for annual salary and fringe benefits. In addition, the newly created position for an investment analyst that was filled in mid-may reflects a full year budget in FY16. In addition to the vacancies, the overall increase in the FY16 Budget for personnel costs is due to the following: A performance-based merit adjustment pool of 1.5% for OCERS management at a cost of $55,000 An additional 1.0% non-base building lump sum award for OCERS management who receive an exceeds or exceptional job performance rating at a cost of $40,000 A V3 Incentive Pay Pool related to the successful implementation of V3 at a cost of $65,000 Step increases for 17 County staff not at top of range at a cost of $72,000 Hiring of 2 two new positions as part of the 2016 Staffing Plan: o Contracts, Risk & Performance Manager at a cost of $133,600 ($84,600 salary + $49,000 benefits) o Paralegal at a cost of $90,000 ($56,000 salary + $34,000 benefits) An increase in overtime of $90,000 compared to estimated actuals due to anticipated V3 wrap-up tasks An increase in temporary help compared to FY15 estimated actuals of $233,000 primarily due to a significant portion of these costs previously being included in the V3 project capital expenditures project (with the anticipated completion of the project in December 2015, these costs will now be expensed at the time incurred) 17

19 APPENDIX

20 Appendix A 2016 Budget Detail by Department Department Account Group Description Total BOARD Personnel Cost Annual Salary $15,000 Personnel Cost Total $15,000 Professional Svcs Board Election Costs $65,000 Security 3,000 Professional Svcs Total $68,000 Legal Svcs Outside Counsel Services $280,000 Legal Svcs Total $280,000 Training Board Approved Conferences $25,000 CALAPRS 8,000 NASRA 4,000 NEPC Institute 8,000 SACRS 8,000 Strategic Planning 15,000 UC Berkeley 5,000 Training Total $73,000 Mtg/Mileage Miscellaneous Meetings $10,000 Membership Committee Meetings 4,000 System Visits 10,000 Mtg/Mileage Total $24,000 Membership CALAPRS $3,000 NASRA 2,700 NCPERS 600 SACRS 6,100 NIRS 2,800 Membership Total $15, BOARD Total $475, EXECUTIVE Personnel Cost Annual Salary $770,228 Fringe Benefits 439,203 Overtime 4,761 Leave P/O 29,348 Personnel Cost Total $1,243,540 Professional Svcs CEO Contingency $75,000 CEM Benchmarking 25,000 Professional Svcs Total $100,000 Training Tuition Reimbursement $3,000 CALAPRS 9,000 GFOA Conference 5,000 IFEBP 3,500 LCW Employment Law Conference 1,800 Miscellaneous Conferences/Training 7,000 Public Pension Financial Forum 2,500 SACRS 3,500 NCPERS - General & Safety 5,000 NASRA/NIRS 6,000 CEM Conference 2,500 Training Total $48,800 Mtg/Mileage CEO/Manager visits to So Cal Retirement Systems $5,000 Miscellaneous Meetings 5,000 CEO Visit to State Legislature 1,000 Membership Committee Meetings 2,000 Mtg/Mileage Total $13,000 Membership AICPA $600 American Express 300 CalCPA 500 GFOA 690 International Foundation (IFEBP) 800 P2F2 - Public Pension Financial Forum 150 State Board of Accountancy 50 Coalition for Social Security 2,300 Membership Total $5,390 Periodicals Miscellaneous periodicals $400 Public Retirement Journal 950 Periodicals Total $1, EXECUTIVE Total $1,412, INVESTMENTS Personnel Cost Annual Salary $851,234 Fringe Benefits 484,041 Overtime 2,543 Leave P/O 31,989 Temp Help 15,000 Personnel Cost Total $1,384,807 Professional Svcs Consulting Fees $1,360,130 Actuarial Fees 500,000 Legal Services 525,000 Custodial Bank Fees 385,000 Investment Management Fees 37,308,999 Investor Search/Proxy Services/Other 25,000

21 Appendix A 2016 Budget Detail by Department Department Account Group Description Total Professional Svcs Total $40,104,129 Due Diligence Due Diligence $52,890 Due Diligence Total $52,890 Training Tuition Reimbursement $6,000 Educational Forum 15,000 Conferences 43,130 Training Total $64,130 Mtg/Mileage Investment Committee Meetings $9,000 Mtg/Mileage Total $9,000 Membership CII Membership $16,000 Other Memberships 10,505 Membership Total $26,505 Periodicals Miscellaneous periodicals $200 Periodicals Total $200 Equipment / Software Bloomberg $25,000 Equipment / Software Total $25, INVESTMENTS Total $41,666, COMMUNICATIONS Personnel Cost Annual Salary $159,249 Fringe Benefits 89,407 Overtime 2,690 Leave P/O 6,068 Personnel Cost Total $257,414 Professional Svcs Financial Seminars $20,000 Professional Svcs Total $20,000 Training CALAPRS $1,900 IFEBP 3,500 Miscellaneous Conferences/Training 1,200 SACRS 2,000 Training Total $8,600 Mtg/Mileage Miscellaneous Meetings $500 Mtg/Mileage Total $500 Printing Svcs Brochures $10,000 CAFR (Comprehensive Annual Financial Report) 15,000 Quarterly newsletters 65,000 Printing Svcs Total $90,000 Periodicals Organizational Communication $500 Periodicals Total $500 Postage Miscellaneous Mailing/Mass Mailing $20,000 Quarterly Newsletters - All Members 50,000 Postage Total $70,000 Office Supplies Public Relation Materials $5,000 Office Supplies Total $5, COMMUNICATIONS Total $452, LEGAL Personnel Cost Annual Salary $741,036 Fringe Benefits 421,742 Overtime 2,618 Leave P/O 28,235 Personnel Cost Total $1,193,631 Professional Svcs Admin. Hearing Process Fees $150,000 Court Filing Fees 800 Court Reporter Fees 50,000 Medical Record Reviews/Expert Testimony 10,000 Subpoena Fees 1,000 Writ of Mandate (court-ordered payment) 75,000 Professional Svcs Total $286,800 Legal Svcs Tax Attorney/Outside Counsel $80,000 Legal Svcs Total $80,000 Training CALAPRS $4,000 MCLE and other training 4,300 NAPPA Meetings 10,000 SACRS 5,000 Training Total $23,300 Mtg/Mileage Miscellaneous Meetings $2,000 Membership Committee Meetings 3,000 Mtg/Mileage Total $5,000 Membership NAPPA (National Assoc.of Public Pension Attorneys) $1,150 State Bar Dues 1,900 Membership Total $3,050 Periodicals Legal Publications, Daily Journal, Law Book Updates, Reference Books $6,000 Periodicals Total $6,000 Equipment Lease LEXIS $20,000 STATE NET 3,000 Equipment Lease Total $23, LEGAL Total $1,620,781

22 Appendix A 2016 Budget Detail by Department Department Account Group Description Total MEMBER SERVICES Personnel Cost Annual Salary $1,378,405 Fringe Benefits 778,677 Overtime 126,226 Leave P/O 52,525 Temp Help 141,400 Personnel Cost Total $2,477,233 Professional Svcs Death Records Match $5,000 V3 Post-Go Live Consultant 83,200 Professional Svcs Total $88,200 Training Tuition Reimbursement $6,000 CALAPRS 2,700 SACRS 1,800 Staff Development Training 2,000 Training Total $12,500 Mtg/Mileage Miscellaneous Meetings $250 Mtg/Mileage Total $250 Periodicals ACH Participant Directory $500 Periodicals Total $ MEMBER SERVICES Total $2,578, FINANCE Personnel Cost Annual Salary $787,489 Fringe Benefits 445,617 Overtime 16,083 Leave P/O 30,007 Temp Help 55,000 Personnel Cost Total $1,334,196 Professional Svcs Bank Charges $40,000 Dynamics Consulting 5,000 Financial Audit Cost 165,000 GFOA Certificate Application Fee 1,100 CAFR 20,000 V3 Post-Go Live Consultant 115,000 Professional Svcs Total $346,100 Training Tuition Reimbursement $5,000 Dynamics Training 4,000 Conferences 7,550 Staff Training/Continuing Education 3,500 Training Total $20,050 Mtg/Mileage Miscellaneous Meetings $500 Mtg/Mileage Total $500 Membership AICPA $1,000 American Express 55 CalCPA 2,000 GFOA 600 P2F2 - Public Pension Financial Forum 150 State Board of Accountancy 100 Membership Total $3,905 Periodicals Miscellaneous periodicals $1,000 Periodicals Total $1, FINANCE Total $1,705, DISABILITY Personnel Cost Annual Salary $282,506 Fringe Benefits 156,226 Overtime 5,095 Leave P/O 10,765 Personnel Cost Total $454,592 Professional Svcs Investigations $5,000 Medical Panel Reviews 250,000 Records Retrieval/Copy Svcs 20,000 Professional Svcs Total $275,000 Training Tuition Reimbursement $6,000 CALAPRS 1,200 Miscellaneous Conferences/Training 1,000 SACRS 1,700 Training Total $9,900 Mtg/Mileage Miscellaneous Meetings $450 Mtg/Mileage Total $ DISABILITY Total $739,942

23 Appendix A 2016 Budget Detail by Department Department Account Group Description Total ADMINISTRATIVE SERVICES Personnel Cost Annual Salary $411,843 Fringe Benefits 233,400 Overtime 2,147 Leave P/O 15,693 Temp Help 15,000 Salary Adj. Pool 231,506 Personnel Cost Total $909,589 Professional Svcs Building Safety Program (Include consultant cost) $5,000 CWCAP(County Wide Cost Allocation Plan) 40,000 Employee Wellness Program 1,000 Iron Mountain 11,000 Plant Maintenance 2,200 Recruitment Costs 5,000 Universal Protection Security (UPS) 5,000 Performance Management Software 5,000 Professional Svcs Total $74,200 Training Tuition Reimbursement $6,000 CALAPRS 500 LCW Employment Law Conference 1,500 Public Pension HR Conference 1,600 SACRS 1,600 Society for HR Conference 3,000 OCERS Management Succession/Staff Training 30,000 Training Total $44,200 Mtg/Mileage Civic Center Parking Cards $500 EE Recognition/Educational Seminar/Qtrly Meetings 7,000 Miscellaneous Meetings 500 Mtg/Mileage Total $8,000 Membership International Public Management Association for HR $400 Orange County HR Consortium 3,300 Professional In Human Resources Association 150 Society of Human Resources Management 370 Membership Total $4,220 Printing Svcs Printing $5,000 Printing Svcs Total $5,000 Postage Pony Mail Services $2,000 Postage Expense 55,000 Postage Total $57,000 Office Supplies General Office Expense $30,000 Office Furniture 7,000 Office Supplies Total $37,000 Capital Expenditures Building Safety $37,000 Third Floor Tenant Improvements 61,000 Capital Expenditures Total $98,000 Equipment Lease Postage Machine $15,000 Equipment Lease Total $15,000 Bldg. Prop. Mgmt./Maintenance Property Management/Maintenance $660,000 Convert Law Library to conference room 15,000 Convert storage space to office 6,000 Tree planting 2,000 Space management, relocating furniture from 3rd floor, building work stations 6,000 Add locked cage in Mail room 3,000 Relocate Mothers lactating room 1,000 Employee Restroom Upgrades 12,000 Bldg. Prop. Mgmt./Maintenance Total $705, ADMINISTRATIVE SERVICES Total $1,957, INFORMATION TECHNOLOGY Personnel Cost Annual Salary $935,102 Fringe Benefits 533,589 Overtime 53,559 Leave P/O 35,631 Temp Help 107,000 Personnel Cost Total $1,664,881 Professional Svcs Certified Tape Destruction $3,000 County VPN Access 147,000 Internet Access 75,000 Linea Support 125,000 Network Consulting 10,000 Network Security Testing 100,000 Online Data Storage 15,000 Oracle Consulting 25,000 Information Security Consulting 150,000 Vitech Addl. Support - Cos 60,000 AV Upgrades 10,000 Additional Consulting 57,600 Professional Svcs Total $777,600

24 Appendix A 2016 Budget Detail by Department Department Account Group Description Total Training Tuition Reimbursement $9,000 CALAPRS 3,500 KnowledgeNet Online Training 95,000 Miscellaneous Training Materials 2,500 PRISM Conference 5,000 Sidepath Compellent SANS training 8,000 Information Security Training (SANS) 50,000 Training Total $173,000 Mtg/Mileage Miscellaneous Meetings $500 Mtg/Mileage Total $500 Membership Gartner $93,500 MISAC 750 MSDN 1,200 Public Retirement Information System Managers (PRISM) 200 Membership Total $95,650 Equip Maintenance ACL AuditExchange license and annual support $5,000 Audio Visual Maintenance (Board room) 5,000 Cibermaxima Annual Maintenance Fee 1,000 Cisco SmartNet Support 4,000 Computer Room AC/Humidifier Maintenance 5,000 Computer Room UPS Maintenance 8,000 Comuter Room UPS Battery Replacement 6,000 Dynamics Software Maintenance 6,500 LivePerson Chat Software 5,000 LogMeIn Central Annual Maintenance Fee + 10 Pro Client annual renewals 1,000 Microsoft Software Assurance 33,000 Novanis Liberty Maintenance 16,500 Phone System Service Calls 2,500 Sandler Kahne Annual Maintenance Fee 750 Server Hardware Support 10,000 SSL Certificate Renewals 5,000 Teamsite Annual Maintenance 2,000 V3 Licensing and Support 396,000 Work Station Hardware Support 10,000 Oracle Maintenance - PG 10,000 Printer & Microfiche Maintenance 2,000 ShoreTel License and Support 15,000 Database Access 17,500 ADTran Switch Maintenance and Support 1,000 Dell Compellent Annual Support (1 of 3 year support renewal) 11,000 Pressure Sealer Maintenance and Support 1,100 Kofax Scanning Maintenance and Support 3,000 IBM DejaView One Maintenance and Support 6,000 Oracle - V3 60,000 Catalyst-Bullhorn Licensing 5,000 Anti-Virus Solution 3,000 HP Server Post-warranty Support 11,693 Equip Maintenance Total $668,543 Equipment / Software Board Portal $32,250 Computers/Laptops/Monitors 15,000 Miscellaneous Software 15,000 OpenDNS Subscription 5,000 Printer Supplies (Toner, Maintenance Kits, etc.) 10,000 Miscellaneous Hardware & Supplies 15,000 Wireless & Telecom Equipment 2,500 Log Aggregation and Monitoring Solution 25,000 SmartBear Licensing 10,000 Anti-Spam Solution 25,000 Laptop Security and Location Services 25,000 Equipment / Software Total $179,750 Capital Expenditures OCERS Data Center $2,000,000 Capital Expenditures Total $2,000,000 Equipment Lease Copier/Printer Lease $60,000 Equipment Lease Total $60,000 Telephone Cellular/Mobile Services $40,000 Telecom Services 50,000 Telephone Total $90, INFORMATION TECHNOLOGY Total $5,709,924

25 Appendix A 2016 Budget Detail by Department Department Account Group Description Total INTERNAL AUDIT Personnel Cost Annual Salary $255,589 Fringe Benefits 144,875 Leave P/O 9,739 Personnel Cost Total $410,203 Professional Svcs Audit consultant / specialist / expert $335,000 Professional Svcs Total $335,000 Training Tuition Reimbursement $3,000 Assoc. Pension Fund Audit 5,000 Miscellaneous Conferences/Training 9,000 SACRS 2,400 Training Total $19,400 Mtg/Mileage Miscellaneous Meetings $350 Travel for Audits 5,000 Mtg/Mileage Total $5,350 Membership AICPA $500 ALGA 180 APPFA (Assoc. Public Pension Fund Auditors-IA) 350 GFOA 300 IIA (Institute Of Internal Auditor-IA) 260 ISACA 265 State Board of Accountancy 50 Membership Total $1,905 Periodicals Reference books / research materials $200 Periodicals Total $ INTERNAL AUDIT Total $772, Grand Total Budget $59,090,303

26 Appendix B 2016 Budget Detail by Expense Category Investments Account Group Description Total Personnel Cost Annual Salary $851,234 Fringe Benefits 484,041 Overtime 2,543 Leave P/O 31,989 Temp Help 15,000 Personnel Cost Total $1,384,807 Professional Svcs Consulting Fees $1,360,130 Actuarial Fees 500,000 Legal Services 525,000 Custodial Bank Fees 385,000 Investment Management Fees 37,308,999 Investor Search/Proxy Services/Other 25,000 Professional Svcs Total $40,104,129 Due Diligence Due Diligence $52,890 Due Diligence Total $52,890 Training Tuition Reimbursement $6,000 Educational Forum 15,000 Conferences 43,130 Training Total $64,130 Mtg/Mileage Investment Committee Meetings $9,000 Mtg/Mileage Total $9,000 Membership CII Membership $16,000 Other Memberships 10,505 Membership Total $26,505 Periodicals Miscellaneous periodicals $200 Periodicals Total $200 Equipment / Software Bloomberg $25,000 Equipment / Software Total $25,000 Total Investment Budget $41,666,661

27 Appendix B 2016 Budget Detail by Expense Category Administrative Account Group Description Total Personnel Cost Annual Salary $5,736,447 Fringe Benefits 3,242,736 Overtime 213,179 Leave P/O 218,011 Temp Help 318,400 Salary Adj. Pool 231,506 Personnel Cost Total $9,960,279 Professional Svcs Admin. Hearing Process Fees $150,000 Audit consultant / specialist / expert 335,000 Bank Charges 40,000 Board Election Costs 65,000 Building Safety Program (Include consultant cost) 5,000 CEO Contingency 75,000 Certified Tape Destruction 3,000 County VPN Access 147,000 Court Filing Fees 800 Court Reporter Fees 50,000 CWCAP(County Wide Cost Allocation Plan) 40,000 Death Records Match 5,000 Dynamics Consulting 5,000 Employee Wellness Program 1,000 Financial Audit Cost 165,000 Financial Seminars 20,000 GFOA Certificate Application Fee 1,100 Internet Access 75,000 Investigations 5,000 Iron Mountain 11,000 Linea Support 125,000 Medical Panel Reviews 250,000 Medical Record Reviews/Expert Testimony 10,000 Network Consulting 10,000 Network Security Testing 100,000 Online Data Storage 15,000 Oracle Consulting 25,000 Plant Maintenance 2,200 Recruitment Costs 5,000 Security 3,000 Subpoena Fees 1,000 Universal Protection Security (UPS) 5,000 Writ of Mandate (court-ordered payment) 75,000 Performance Management Software 5,000 Information Security Consulting 150,000 Vitech Addl. Support - Cos 60,000 AV Upgrades 10,000 CEM Benchmarking 25,000 Records Retrieval/Copy Svcs 20,000 CAFR 20,000 V3 Post-Go Live Consultant 198,200 Additional Consulting 57,600 Professional Svcs Total $2,370,900

28 Appendix B 2016 Budget Detail by Expense Category Administrative Account Group Description Total Legal Svcs Outside Counsel Services $280,000 Tax Attorney/Outside Counsel 80,000 Legal Svcs Total $360,000 Training 8880 Tuition Reimbursement $38,000 Assoc. Pension Fund Audit 5,000 Board Approved Conferences 25,000 CALAPRS 30,800 Dynamics Training 4,000 GFOA Conference 5,000 IFEBP 7,000 KnowledgeNet Online Training 95,000 LCW Employment Law Conference 3,300 MCLE and other training 4,300 Miscellaneous Conferences/Training 18,200 Miscellaneous Training Materials 2,500 NAPPA Meetings 10,000 NASRA 4,000 NEPC Institute 8,000 PRISM Conference 5,000 Public Pension Financial Forum 2,500 Public Pension HR Conference 1,600 SACRS 26,000 Sidepath Compellent SANS training 8,000 Staff Development Training 2,000 Strategic Planning 15,000 UC Berkeley 5,000 Society for HR Conference 3,000 Information Security Training (SANS) 50,000 NCPERS - General & Safety 5,000 NASRA/NIRS 6,000 CEM Conference 2,500 Conferences 7,550 Staff Training/Continuing Education 3,500 OCERS Management Succession/Staff Training 30,000 Training Total $432,750 Mtg/Mileage CEO/Manager visits to So Cal Retirement Systems $5,000 Civic Center Parking Cards 500 EE Recognition/Educational Seminar/Qtrly Meeting 7,000 Miscellaneous Meetings 20,050 Travel for Audits 5,000 CEO Visit to State Legislature 1,000 Membership Committee Meetings 9,000 System Visits 10,000 Mtg/Mileage Total $57,550 Membership AICPA $2,100 ALGA 180 American Express 355 APPFA (Assoc. Public Pension Fund Auditors-IA) 350 CALAPRS 3,000 CalCPA 2,500

29 Appendix B 2016 Budget Detail by Expense Category Administrative Account Group Description Total Gartner 93,500 GFOA 1,590 IIA (Institute Of Internal Auditor-IA) 260 International Foundation (IFEBP) 800 International Public Management Association for H 400 ISACA 265 MISAC 750 MSDN 1,200 NAPPA (National Assoc.of Public Pension Attorney 1,150 NASRA 2,700 NCPERS 600 Orange County HR Consortium 3,300 P2F2 - Public Pension Financial Forum 300 Professional In Human Resources Association 150 Public Retirement Information System Managers (P 200 SACRS 6,100 Society of Human Resources Management 370 State Bar Dues 1,900 State Board of Accountancy 200 Coalition for Social Security 2,300 NIRS 2,800 Membership Total $129,320 Equip Maintenance ACL AuditExchange license and annual support $5,000 Audio Visual Maintenance (Board room) 5,000 Cibermaxima Annual Maintenance Fee 1,000 Cisco SmartNet Support 4,000 Computer Room AC/Humidifier Maintenance 5,000 Computer Room UPS Maintenance 8,000 Comuter Room UPS Battery Replacement 6,000 Dynamics Software Maintenance 6,500 LivePerson Chat Software 5,000 LogMeIn Central Annual Maintenance Fee + 10 Pro 1,000 Microsoft Software Assurance 33,000 Novanis Liberty Maintenance 16,500 Phone System Service Calls 2,500 Sandler Kahne Annual Maintenance Fee 750 Server Hardware Support 10,000 SSL Certificate Renewals 5,000 Teamsite Annual Maintenance 2,000 V3 Licensing and Support 396,000 Work Station Hardware Support 10,000 Oracle Maintenance - PG 10,000 Printer & Microfiche Maintenance 2,000 ShoreTel License and Support 15,000 Database Access 17,500 ADTran Switch Maintenance and Support 1,000 Dell Compellent Annual Support (1 of 3 year suppo 11,000 Pressure Sealer Maintenance and Support 1,100 Kofax Scanning Maintenance and Support 3,000 IBM DejaView One Maintenance and Support 6,000