ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM BOARD OF RETIREMENT 2223 WELLINGTON AVENUE SANTA ANA, CALIFORNIA REGULAR MEETING JUNE 20, 2005 MINUTES

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1 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM BOARD OF RETIREMENT 2223 WELLINGTON AVENUE SANTA ANA, CALIFORNIA REGULAR MEETING JUNE 20, 2005 MINUTES The Chair called the meeting to order at 8:30 a.m. and read the opening statement into the record. Attendance was as follows: Present: Sharon L. Neebe, Chair; Thomas J. Lightvoet, Vice-Chairman; Frank E. Eley; Robert A. Griffith; George W. Jeffries; John M. W. Moorlach; Reed L. Royalty; Lisa Welch Silbar; David J. Thompson and Richard A. White, Jr. Also Present: Keith Bozarth, Chief Executive Officer; Tom Flanigan, Chief Investment Officer; Julie Wyne, General Counsel; Jim Buck, Assistant CEO, External Operations; Stephen Cadena, Assistant CEO, Internal Operations; Toi Dang; Chief Financial Officer; Tanya Ho, Internal Auditor; Shanta Chary, Investment Analyst; Lorelei Chao, Investment Analyst; Ricki Parker, Benefits Managers; Suzanne Jenike, Disability Investigator; Elaine Reagan, Staff Attorney; Jerry Weissburg, Staff Attorney; Robert Kinsler, Communications; Anthony Beltran, Audio/Visual Technician and Diane Schumacher, Recording Secretary Jeff Reiger, Steefel, Levitt & Weiss Andy Yeung, The Segal Company Dave Bergerson, The Segal Company Mr. Thompson led the Pledge of Allegiance and Mr. Moorlach offered the invocation. CONSENT AGENDA All matters on the Consent Agenda are to be approved by one action unless a Board Member or a member of the public requests separate action on a specific item. Mr. Bozarth made a correction on Item C-5 D. The remaining uncommitted balance after additional commitments to American Realty and CB Richard Ellis was actually $22 million, rather than $16 million. A motion was made by Mr. White, seconded by Mr. Moorlach to approve the remainder of the Consent Agenda. Motion carried unanimously. C-1 MATERIAL DISTRIBUTED Applications and Notices - f:board/agenda/ Board Minutes

2 Regular Board Meeting Minutes Page 2 Recommendation: Receive and file. C-2 BOARD MEETINGS AND COMMITTEE MEETINGS: Approval of Meetings and Minutes Regular Board Meeting - May 16, 2005 Portfolio Review Meeting/Private Equity-Real Estate - May 17, 2005 Audit Committee Meeting - May 20, 2005 Real Estate Committee Meeting - June 1, 2005 Recommendation: Authorize all meetings and approve all minutes. C-3 LEGISLATIVE UPDATE Recommendation: Receive and file. C-4 RECOMMENDATIONS OF THE AUDIT COMMITTEE RESULTING FROM A MEETING ON MAY 20, 2005: A. ANNUAL MANAGEMENT LETTER BY LINK MURREL AND COMPANY Recommendation: Receive and file. B. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2004 BY LINK MURREL AND COMPANY Recommendation: Receive and file. C. NEXT SCHEDULED MEETING Recommendation: Next meeting scheduled for July 8, C-5 RECOMMENDATIONS OF THE REAL ESTATE COMMITTEE RESULTING FROM A MEETING ON JUNE 1, 2005: A. TOWNSEND GROUP 2005 FIRST QUARTER REAL ESTATE PERFORMANCE REPORT Recommendation: Receive and file. B. DISCUSSION OF MANAGER COMPENSATION Recommendation: Have staff explore alternatives to the current fee structure, which will eliminate use of interim appraisals in the incentive fee calculation. Proposed changes will be brought back to the Committee for review and approval. C. DISCUSSION OF BENCHMARK

3 Regular Board Meeting Minutes Page 3 Recommendation: Receive and file. E. DISCUSSION OF ALTERNATIVE ALLOCATION - STRATEGIES a. Natural Resources Funds b. Country Funds Recommendation: Have staff develop a proposed structure and process for investing in Natural Resources Funds and Country Funds, and to bring the proposal back to the Committee. C-6 RETIREMENT PAYROLL STATISTICAL DATA REPORT Recommendation: Receive and file. * * * * * * * END OF CONSENT AGENDA * * * * * * * INDIVIDUAL ITEMS AGENDA I-1 INDIVIDUAL ACTION ON ANY ITEM TRAILED FROM THE CONSENT AGENDA C-5 RECOMMENDATIONS OF THE REAL ESTATE COMMITTEE RESULTING FROM A MEETING ON JUNE 1, 2005: D. DISCUSSION OF REAL ESTATE ALLOCATION UNALLOCATED BALANCE Recommendation: Allocate $30 million to American Realty Advisors, $55 million to CB Richard Ellis, $22 million to be unallocated, and amend the Strategic Plan to allow for total leverage on the real estate portfolio to go up to 50%. Mr. Lightvoet pulled item C-5 D because he had questions regarding leverage. Where is OCERS now? Not comfortable with raising the leverage to 50%. How did we get to that? Mr. Royalty responded that OCERS had good managers and they are doing a good job of cautiously investing in a difficult market. The added leverage could add to available returns. Mr. Flanigan commented that staff carefully watches this and OCERS is conservatively invested. Following discussion, Mr. Royalty made a motion, seconded by Mr. Griffith to increase the leverage to 50%. The motion carried 5 to 4, with the voting as follows: AYES NAYS ABSTAIN ABSENT Mr. Eley Mr. Griffith Mr. Jeffries Mr. Lightvoet

4 Regular Board Meeting Minutes Page 4 Mr. Royalty Ms. Silbar Mr. White Mr. Moorlach Ms. Neebe Mr. Bozarth asked for clarification, did the motion include the additional allocation to the two managers as specified in the recommendation? The Chair responded that was not addressed in the motion. A motion was made by Mr. Royalty, seconded by Mr. Griffith to allocate $30 million to American Realty Advisors, $55 million to CB Richard Ellis, $22 million to be unallocated. The motion carried unanimously. I-2 CHIEF INVESTMENT OFFICER S REPORT Mr. Flanigan reviewed the CIO report. Following discussion, a motion was made by Mr. Moorlach, seconded by Mr. Lightvoet to receive and file the CIO report. Motion carried unanimously. Mr. Moorlach requested that staff provide a narrative with the monthly report on Dow Jones and the S&P 500. I-3 ORANGE COUNTY TRANSPORTATION AUTHORITY RMBR AGREEMENT Following discussion, a motion was made by Mr. Royalty, seconded by Mr. Jeffries to approve amended and restated memorandum of Understanding Agreement for the Orange County Transportation Authority. Motion carried 8 to 1, with Lisa Silbar voting No. I-4 CONTRIBUTION RATES FOR FISCAL YEAR 2006/2007 Mr. Bozarth made a few comments before The Segal Company made their presentation. He is requesting that the Board not act on this item today, but defer the decision to the July Board meeting. Mr. Bozarth also explained that the County has hired its own actuary, John Bartel, to review The Segal Company s assumption changes. Mr. Bozarth requested that Mr. Yeung also go over the steps CalPERS took recently in revisiting its actuarial processes. Andy Yeung, with Dave Bergerson provided a review of The Segal Company s presentation on Contribution Rates for Fiscal Year 2006/2007. Board took a break at 9:50 a.m.

5 Regular Board Meeting Minutes Page 5 Board reconvened at 10:00 a.m. Mr. Griffith suggested that the Board continue with the Item I-4 discussion. Mr. White commented that this was not fair to the people that have taken the time to be here for their disability case and the Board should hear the Disability Agenda as scheduled. A motion was made by Mr. Griffith to continue discussion on Agenda Item I-4. Motion failed for lack of a second. DISABILITY APPLICATIONS/MEMBER APPEALS AGENDA Mr. Bozarth announced that there was a new procedural item today. Staff has put together the approvals as a Consent Calendar and ask that the Board make a single motion to cover the consent items. Mr. Royalty thought this had already been discussed by the Board before. The Board should vote again on the process. Mr. Bozarth explained that he had received several requests from Board members to expedite the Disability decision process. Staff went through several ideas and the only one that could possibly be implemented was taking the approvals as a consent package. Mr. Royalty believes that these cases would go fast anyway, does not believe the Board would gain anything by putting the approvals on a consent calendar. Ms. Silbar does not believe that the Board should use a consent calendar on disability cases. A motion was made by Ms. Silbar, seconded by Mr. Royalty to not use the consent calendar and to go through each disability case. The motion failed 4 to 5, with the voting as follows: AYES NAYS ABSTAIN ABSENT Mr. Eley Mr. Griffith Mr. Royalty Mr. Jeffries Ms. Silbar Mr. Lightvoet Mr. White Mr. Moorlach Ms. Neebe Ms. Silbar pulled Item D-1 from the Disability Consent Agenda for discussion.

6 Regular Board Meeting Minutes Page 6 DISABILITY CONSENT AGENDA D-2 JERRY EISENMAN, RDMD Vegetation and Pest Control Technician II Application for service and non-service connected disability retirement Staff recommendation to grant service connected disability retirement with an effective date of October 22, 2004 D-3 MICHAEL ESAAK, Health Care Agency Service Chief II Application for non-service connected disability retirement Staff recommendation to grant non-service connected disability retirement with an effective date of September 29, 2004 D-4 GERALDINE WARKENTINE, OC Public Library Library Assistant Application for non-service connected disability retirement Staff recommendation to grant non-service connected disability retirement with an effective date of July 23, 2004 D-5 ILENE YOUNG, Social Services Agency Eligibility Supervisor Application for service and non-service connected disability retirement Staff recommendation to grant non-service connected disability retirement with an effective date of September 13, 2004 A motion was made by Mr. Lightvoet, seconded by Mr. Moorlach to approve the remainder of the Disability Consent Agenda. The motion carried unanimously. * * * END OF DISABILITY CONSENT AGENDA* * * D-1 WILLIAM STIRLING, Sheriff s Department Deputy Sheriff II Application for service and non-service connected disability retirement Staff recommendation to grant service connected disability retirement with and effective date of July 14, Item D-1 was pulled by Ms. Silbar for discussion. A motion was made by Mr. White, seconded by Mr. Griffith to approve staff recommendation. Ms. Silbar commented that should Deputy Stirling have surgery at a later time, the case should be reevaluated and a further determination made as to whether Deputy Stirling could return to work.

7 Regular Board Meeting Minutes Page 7 A substitute motion was made by Ms. Silbar, seconded by Mr. Lightvoet to recommend approval subject to further evaluation should Deputy Sterling have surgery. Mr. White is uncomfortable with the motion since there is already a provision in the law for any disabled member of this system to be reexamined up to age 55 for fitness for duty, then it goes back to the employer to see if they can put the employee back to work. OCERS panel doctors are saying clearly that the applicant is permanently disabled. William Stirling, applicant, addressed the Board. Ms. Silbar believes staff should be proactive about this, to monitor the case. Mr. Lightvoet commented that there was enough question in his mind to suggest that this case go to a hearing officer. He believes that this is a very reasonable way to approach this case. Following further discussion, a roll call vote was taken on the substitute motion to recommend approval subject to further evaluation should applicant have surgery. The motion carried 5 to 4, with the voting as follows: AYES NAYS ABSTAIN ABSENT Mr. Jeffries Mr. Eley Mr. Lightvoet Mr. Griffith Mr. Moorlach Ms. Neebe Ms. Silbar Mr. White Mr. Royalty Mr. Stirling expressed his displeasure with the process saying, he has been met with distrust, hostility and been treated as if he was asking for something he didn t deserve. Mr. Thompson requested a point of clarification on Item D-5. What exactly did the Board vote on? The memo that came with the book was to grant a service-connected disability and to deny a service connected. The Chair responded that the Board approved to grant service connected disability retirement with an effective date of September 13, STAFF RECOMMENDATION TO DENY SERVICE AND NON-SERVICE CONNECTED DISABILITY RETIREMENT (General Member) (D-6) D-6 HENRY BODKIN, OC Transportation Authority Coach Operator Application for service and non-service connected disability retirement This Item was pulled per Applicant s request. He would like an opportunity to provide further medical evidence to support his application. A motion was made by Mr. Moorlach, seconded by Mr. Griffith to continue this item to the July Board meeting. Motion carried unanimously.

8 Regular Board Meeting Minutes Page 8 STAFF RECOMMENDATION TO DENY SERVICE AND NON-SERVICE CONNECTED DISABILITY RETIREMENT (General Member) (D-7) D-7 SHIRLEY HARRELSON, OC Public Defender Information Processing Technician Application for service and non-service connected disability retirement A motion was made by Mr. White, seconded by Mr. Lightvoet to deny service and nonservice connected disability retirement. The motion carried 8 to 1, with Mr. Eley voting No. Richard Silberg, Attorney for Applicant, addressed the Board. STAFF RECOMMENDATION TO DENY SERVICE AND NON-SERVICE CONNECTED DISABILITY RETIREMENT (General Member) (D-8) D-8 CATHERINE MEYER, Sheriff s Department Sheriff s Special Officer II Application for service and non-service connected disability retirement A motion was made by Ms. Silbar, seconded by Mr. Lightvoet to deny service and non-service connected disability retirement. Motion carried unanimously. Mark Singer, Attorney for Applicant, addressed the Board. STAFF RECOMMENDATION IS TO REJECT THE RECOMMENDATION OF THE REFEREE, REVIEW THE RECORD OF THE HEARING INCLUDING A TRANSCRIPT AND TAKE SUCH ACTIONS AS INDICATED BY THE EVIDENCE (Safety Member) (D-9) D-9 TOBY L. BLOCK, OC Fire Authority Fire Captain Application for service connected disability retirement A motion was made by Mr. Thompson, seconded by Mr. Eley to approve alternative #3 to approve and adopt the proposed recommendation of the referee. Mr. Thompson questioned staff, if PERS had decided to grant this applicant a 100% retirement, would we have reduced our benefit to zero. Ms. Reagan, Staff Attorney, responded that the reason the benefit was reduced unilaterally was because it is required by law. We applied a prorata reduction to the OCERS benefit, as the law requires. If he had been entitled to a 100% benefit from PERS, then staff would have looked at that and applied a prorata reduction, so that the applicant is not receiving more from both systems than he would have received had he had all of his service with one entity, which is what the law states.

9 Regular Board Meeting Minutes Page 9 Mr. Thompson does not endorse the result and suggested it needs to be fixed legislatively. Mr. Moorlach question whether staff has looked at legislative correction to this matter. Ms. Reagan responded that the law as it now stands is designed to prevent a situation where a reciprocal employee receives more than 100% of salary when he receives a disability retirement. Section is the legislative fix for pension spiking on disability retirement. Tom Wicke, Attorney for Applicant, addressed the Board. Following further discussion, a substitute motion was made by Mr. Royalty, seconded by Mr. Lightvoet to adopt staff recommendation to reject the recommendation of the referee, review the record of the hearing including the transcript and take such actions as indicated by the evidence. Mr. Moorlach would like to defer this for a month, and have outside counsel look at it. Ms. Reagan responded that Mr. Leiderman looked at it and he concurs with staff s recommendation. Mr. Griffith supports applicants receiving what they are entitled to, however, he is not an advocate for employees receiving windfalls by manipulating the system. The Chair called for a vote on the substitute motion. The motion carried 8 to 1, with Mr. Thompson voting No. STAFF RECOMMENDATION IS TO CONFIRM THE APPLICATION OF GOVERNMENT CODE TO CONFINE THE FORMER MEMBER S REDEPOSIT OF SERVICE TO THE FINAL PERIOD OF EMPLOYMENT, AND DENY THE REQUEST TO REDEPOSIT PRIOR PERIODS OF SERVICE. (D-10) D-10 JOYCE NOHAVEC A motion was made by Mr. Lightvoet, seconded by Mr. Royalty to approve staff recommendation to confirm the application of Government Code to confine the former member s redeposit of service to the final period of employment, and deny the request to redeposit prior periods of service. The motion carried unanimously. Joyce Nohavec, Applicant, addressed the Board. Ms. Wyne, General Counsel, informed the Board that there is a provision in Section that limits its application to active members of the retirement system. Deferred members are not given the opportunity to redeposit their previously withdrawn service. The reason Ms. Nohavec is being allowed to put the last period of service back into the system is because we could not find records of her being properly informed that she had the right to defer her time. We are putting her back into the same position she would have been in had she been able to defer her time, giving her the service credit

10 Regular Board Meeting Minutes Page 10 she had when she left Orange County. At the time she left County service, Ms. Nohavec had not redeposited any of her previously withdrawn service. By allowing her to put back only the last period of service, it is putting her in the same position as if she had been properly advised. Ms. Nohavec is still a deferred member. STAFF RECOMMENDATION IS TO CONFIRM THE CALCULATION OF THE MEMBER S RETIREMENT ALLOWANCE AT 2% AT 50, AND DENY REQUEST FOR RECALCULATION AT 3% AT 50 OR 2.7% AT 55. (D-11) D-11 GARRY LAYMAN A motion was made by Mr. Lightvoet, seconded by Ms. Silbar to approve staff recommendation to confirm the calculation of the member s retirement allowance at 2% at 50, and deny request for recalculation at 3% at 50 or 2.7% at 55. Mr. Thompson offered a substitute motion, seconded by Mr. Griffith that Mr. Layman s retirement benefit be based upon the 3% at 50 formula. Mr. White commented that the way he understand Mr. Layman s situation, his pay has to equate to what he would have been making as a Fire Captain, therefore, the supplemental check he gets from the Retirement System makes up the difference between what he gets in his other position, and what the Fire Captain salary is. The applicant can only get the disability retirement as the maximum. He is drawing an active employment payroll check while retired member of the system. When the applicant decides to end employment, the law provides that he goes back to a full service connected disability retirement. Mr. Thompson understands that in Mr. Layman s case the increased service from his past-disability employment would enhance his retirement. Mr. Thompson referenced a provision in the third paragraph of Government Code Section for Safety members that are rehabilitated into General Member positions and mandates that these members shall be treated as if they satisfy the conditions for Safety Membership in OCERS, despite their actual job duties. This is why he made the substitute motion for the 3% at 50. Ms. Wyne responded that the section Mr. Thompson is quoting actually controls the contributions that the member pays into our system. Contributions are paid by the member to offset any disability payment the member received before taking the position and any supplemental disability payments that are being paid, because the statute also contemplates that member s accumulated contributions not be reduced as a result of any disability payments being made by OCERS. The safety language is in the law to ensure that we are taking contributions out at a safety member rate. It defines the compensation received by the member as compensation, not compensation earnable upon which a retirement allowance is based. Following further discussion, the Chair called for a vote on the substitute motion. The motion failed 2 to 7, with Mr. Thompson and Mr. Griffith voting for the motion.

11 Regular Board Meeting Minutes Page 11 The Chair called for a vote on the original motion. The motion carried unanimously. STAFF RECOMMENDATION IS TO CONFIRM THE REVERSAL OF THE MEMBER S PUBLIC SERVICE PURCHASE AND REFUND, CONFIRM THAT THE MEMBER IS A RETIRED MEMBER OF OCERS AND CONFIRM THE FUTURE RECALCULATION OF THE MEMBER S NONSERVICE-CONNECTED DISABILITY RETIREMENT ALLOWANCE USING THE TIER II FORMULA. (D-12) D-12 VALERIE WILLIAMSON A motion was made by Mr. White, seconded by Mr. Royalty to approve staff recommendation to confirm the reversal of the member s public service purchase and refund, confirm that the member is a retired member of OCERS and confirm the future recalculation of the member s nonservice-connected disability retirement allowance using the Tier II formula. John Gulino, Attorney for Applicant, addressed the Board. Mr. Griffith commented that he has a problem with members that are employed, working side by side with other employees and not getting the same benefits. Mr. Moorlach questioned the population of employees in similar situations as has been discussed today and how is our actuary treating these individuals? Are we funding for the larger benefit or are we funding for the benefit that was agreed to? Ms. Wyne responded that there are six to eight employees in this identical situation. Mr. Royalty questioned whether staff s recommendation is consistent with the previous case. Ms. Wyne responded that the difference was that Ms. Williamson was allowed to commence a service purchase in error and we are rescinding the service purchase, otherwise they are the same. The Chair questioned General Counsel, if the employee were to terminate today, would they begin receiving disability retirement payments without having to refile? Ms Wyne responded that they would. Mr. White disagrees with Mr. Griffith that the employee is being treated the same. She is different than her peer group because she is actually receiving a supplemental retirement benefit, so she is actually getting more money in that position than her peer group. She is a retired member and they are active members and this is where the confusion is coming from. Retired members cannot purchase service credit. It is unfortunate, that we as a system have either given bad information out or do not have documentation in our files. There is probably a very good likelihood that they would not have made the decision they made had the information been given to them in the current form. That is why treatment already being provided to this member goes beyond what is required by statute.

12 Regular Board Meeting Minutes Page 12 Mr. Thompson asked how the payments from OCERS are being treated as far as income tax purposes. Mr. Gulino responded that it is being treated as part of her income. Ms. Wyne reported that non-service disability is taxable. Following further discussion, the Chair called for a vote. The motion carried 8 to 1, with Mr. Griffith voting No. * * * * * END OF DISABILITY APPLICATIONS/MEMBER APPEALS AGENDA* * * * * * Board took a break at 11:26 a.m. Board reconvened at 11:35 a.m. * * * * INDIVIDUAL ITEMS (Continued)* * * * I-4 CONTRIBUTION RATES FOR FISCAL YEAR 2006/2007 Mr. Yeung continued with his review of The Segal Company s presentation regarding contribution rates for fiscal year 2006/2007. Ms. Silbar questioned whether the assumption changes were a result of blending the old assumptions and the last three years experience. She is interested in whether there is still an element of a longer history of experience incorporated in the changes. Mr. Yeung responded that this is correct, The Segal Company tried to draw as much as possible from the prior study and weighed that information accordingly, and in addition, they compare to the other 37 Act systems. Mr. Yeung reviewed the Asset Smoothing Presentation. Mr. Lightvoet exited the meeting at 12:01 p.m. and returned at 12:15 p.m. Mr. Thompson exited the meeting at 12:12 p.m. and returned at 12:17 p.m. Mr. Eley commented that withdrawals and salary assumptions are moving components, and is concerned the aggregate numbers are too high. He is interested in the rationale Towers Perrin, applied with regards to these issues. Mr. Bozarth reported that the County of Orange has hired an actuary, John Bartel, to review The Segal Company s assumption changes. In part for that reason he suggests the Board defer setting rates until July. Following further discussion, a motion was made by Mr. Lightvoet, seconded by Mr. Jeffries to receive and file the report by the Segal Company and defer the decision on this item until July s Board meeting to allow the County s actuary to review assumption numbers.

13 Regular Board Meeting Minutes Page 13 Nick Berardino, General Manager, Orange County Employees Association (OCEA), addressed the Board. Mr. Berardino has grave concerns over the cost of OCERS for employers and the members. OCEA has asked the County to study making the change to PERS and whether it would be cost effective. Mr. Berardino believes it makes sense to examine going to PERS. Mr. Lightvoet responded that he has looked at PERS and he does not find any basis for believing there is a significant long term cost difference. If PERS is putting that forward, it is incorrect. Mr. Jeffries inquired about the implications of changing to PERS. Ms. Wyne responded that it would require a statutory change for the County of Orange to change to PERS. Mr. Reiger concurred. Mr. White believes this has been a very important and interesting debate. There has been some media coverage concerning OCERS that did not come from this system; maybe it would be appropriate for OCERS to do a press release addressing the issues. Mr. Bozarth responded that due to the significance of the issues, the major changes in assumptions, and the wide spread interest in the topic he recommended deferring the decision until July. While he is confident in the reports we have been provided, the major changes justify additional actuarial review and he suggests that the Board might want to establish an Ad Hoc Committee to work with the staff. The Chair appointed an Ad Hoc Committee to work with OCERS staff and the County of Orange. She appointed Mr. Griffith, Mr. Jeffries, Mr. Lightvoet and Mr. Eley to this Ad Hoc Committee and directed the committee to work with staff and the County and to have the report completed by the Strategic Planning Meeting in September. Ed Corser, Chief Financial Officer for County addressed the Board. Mr. Corser reported that the County hired John Bartel to do a review on medical benefits and is now reviewing The Segal Company s math and how they came up with the numbers. Once the review is completed, they will come back to the OCERS Ad Hoc Committee to discuss differences, but believes there will not be a big difference in the numbers. Mr. Corser stated that contributions have gone up, some numbers as high at 50%. Because the numbers have increased so much the County would like to have Towers Perrin s prior review, especially the improvements to benefits and how much the cost was going to be. Mr. Corser believes there will be a value in looking at the prior valuation. The Chair called for a vote on the motion to defer this matter to July and to receive and file Segal s report. The motion carried unanimously. Mr. Bozarth reminded the Board that they needed to make a motion on the Probation s Contribution Rates. A motion was made by Mr. Lightvoet, seconded by Mr. Jeffries to increase Probation s Contribution Rates to 14.8% as of July 1, The motion carried unanimously.

14 Regular Board Meeting Minutes Page 14 The Chair announced that the Closed Session Item would be heard during lunch in the Executive Conference Room. The Board broke for lunch at 12:55 p.m. CLOSED SESSION AGENDA S-E-1 CONFERENCE WITH LEGAL COUNSEL - ANTICIPATED LITIGATION Discussion of whether to initiate litigation pursuant to subdivision (c) of Section (One potential case) No reportable action taken. * * * * END CLOSED SESSION AGENDA* * * * The Board reconvened at 1:55 p.m. I-5 EARLY PAYMENT OF EMPLOYER CONTRIBUTIONS Mr. Bozarth reviewed this item and reported it was limited to cash payments. Mr. Moorlach wanted to know what the incentive was for early payments. Mr. Bozarth responded that OCERS can invest the fund early and it also allows for cash planning. Following discussion, a motion was made by Mr. Lightvoet, seconded by Mr. Moorlach to approve an early payment policy with respect to employer contributions as described, with the specific provision that a discount be provided only for cash payments, not for transfers from the Investment Account. The motion carried unanimously. I-6 DRAFT STRATEGIC PLANNING AGENDA Mr. Bozarth reviewed the Draft Strategic Planning Agenda. Mr. Eley would like for the Investment section to provide an overview of things such as leverage and risk issues in the portfolio, etc. Ms. Silbar would like a written legislative report. I-7 REPLACEMENT BENEFIT PLANS UNDER IRC 415 Ms. Wyne reviewed the agreements regarding Replacement Benefit Plans under IRC 415.

15 Regular Board Meeting Minutes Page 15 Ms. Silbar reviewed the agreements and sees two different agreements. Since these are not benefits OCERS will be responsible for, the agreements are not clear as to who will be making the determination. Ms. Silbar would like to discuss some drafting changes with Ms. Wyne. Following discussion, a motion was made by Ms. Silbar, seconded by Mr. Lightvoet to authorize the CEO to enter into agreements with the County and the Sanitation District for OCERS to administer the 415 plans for each entity subject to some modifications to the agreements. The motion carried unanimously. I-8 PETITION FOR REASSIGNMENT OF REFEREE - DISABILITY RETIREMENT APPLICATION OF DORIS KIRKLEY Ms. Parker reviewed the petition for reassignment of Referee. Following discussion, a motion was made by Ms. Silbar, seconded by Mr. Eley to allow reassignment of referee for the disability retirement application of Doris Kirkley. The motion carried unanimously. * * * * * * * * END OF INDIVIDUAL ITEMS AGENDA * * * * * * * * PUBLIC COMMENTS: None BOARD MEMBERS COMMENTS: Mr. Royalty complimented staff on how well they handled the difficult issues that came before the Board this morning. Mr. Moorlach questioned whether Mr. Bozarth responded concerning Mr. Beckett s memo, as it stated in the minutes from the Board meeting on May 16, Mr. Bozarth responded that he had not done that yet. Mr. Moorlach also questioned whether the Audit Committee Meeting on July 8, 2005 would be at 8:30 a.m. or 1:30 p.m. The Chair responded that had not been discussed, but assumed it would be at 8:30 a.m. Ms. Neebe announced that she would be retiring from the County of Orange after 35 years of service as of August 5, CHIEF EXECUTIVE OFFICER/STAFF COMMENTS: Mr. Bozarth thanked the Board for getting through today s agenda. COUNSEL COMMENTS:

16 Regular Board Meeting Minutes Page 16 None. ADJOURNMENT: (IN MEMORY OF THE ACTIVE MEMBERS, RETIRED MEMBERS, AND SURVIVING SPOUSES WHO PASSED AWAY THIS PAST MONTH) Active Members: Retired Members: Surviving Spouses: None Donald Brown; William Brown; Robert Chatterton; Margaret Clements; Horace Deuel; Euna Elder; Marjorie Gerretse; Micaela Grant; Lois Grogan; Irene Gunville; Richard Matura; Roxanne Morgan; Gilbert Mueller; Elbert Muench; Phyllis Paul; William Sebor; Clyde Thomas Betty Kohlmeier; Mary Macoy; Constance Sands There being no further business to bring before the Board, a motion was made by Mr. Griffith, seconded by Mr. Lightvoet to adjourn the meeting. The motion carried unanimously. Meeting adjourned at 2:14 p.m. Submitted by: Approved by: Keith Bozarth Secretary to the Board Sharon L. Neebe Chairman