Fresno County Employees’ Retirement Association Strategic Planning Session Presented by Tom Iannucci Cortex Applied Research October 17, 2007.

Fresno County Employees’ Retirement Association

Strategic Planning Session

Presented by Tom Iannucci Cortex Applied Research

October 17, 2007

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Agenda

1. Why plan?

2. The planning process:– Strategic planning– Business planning

3. Preliminary discussions:– Mission statement– Strategic positioning– Strategic threats– Business planning projects

4. Conclusion and next steps

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Benefits of an Effective Planning Process

Clarifies/ confirms our strategy what business we are in our general approach to that business our priorities

Aligns how we spend our time and allocate resources with strategy

Focuses the organization (Board and Staff) Improves efficiency Allows us to gauge progress Orients new board members/staff

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Identify Strategi

c Prioritie

s

The Planning Process

Clarify Our Strategy &

Threats(What kind of org.

will we be?)

Statement of

Strategic Direction

Business Plan

(Specific projects, time-

lines, resp. etc.)

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Outcomes

Mission Statement

Statement of Strategic Direction

Business Plan

Concise description of our business (1 paragraph) (long-term view/ seldom changes)

More detailed description of what kind of organization we will be and how we will approach

our business (5-6 pages)(long-term view/ changes slowly)

Detailed description of specific projects we will undertake to achieve our Mission and Strategic

direction over the coming 18 months: Projects Timelines Responsibilities Resources

(short-medium term view/ changes often)

Revie

w P

eri

odic

ally

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Strategic Planning

Is about strategic thinking Defining your business and any threats to it

In private sector, it involves identifying: Customers Needs Markets Ownership structure

For public sector funds, above issues are generally set in statute

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The Pension Business

Discount Rate

Low

High

High Contributions

Liabilities

Risk High

EfficientFrontier

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Public Retirement Systems

Instead, retirement systems should focus on continually ensuring clarity around other strategic issues such as: Role in influencing legislation Role in corporate governance Commitment to service quality Scope of member communications (narrow vs.

holistic) Approach to risk management Investment management vs. investment oversight Independence vis-à-vis sponsor

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Customer

Service

Stakeholder Relations

Board Governance

Investments

Strategy

Risk Management

Stakeholder Relations

Board Governance

Corporate Governance

Investments

Customer Service

Human Resources

Customer Service

Stakeholder Relations

Investments

Corporate Governance

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Identifying Threats to the Current Business

Funding/contribution levels

Employer withdrawals

Misinformed sponsors/stakeholder

Competing pension arrangements

Succession

Drains on the fund

Internal governance/management

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Business Planning

Strategic programming Defining those projects that will either:

Move the organization in the desired direction Address threats to the business

Defining project parameters: Deliverables Timing Responsible parties Reporting Etc.

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An Example

Statement of Strategic Direction

Business Plan

XYZCERA will be very proactive in engaging with stakeholders (City Council,

City Administration)

Projects1. Develop a Stakeholders Relations Plan. Project description:

Deliverables Timing Responsibilities Budget Implications

2. Hire Stakeholder LiaisonProject description: Deliverables Timing Responsibilities Budget Implications

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Mission Statements

A mission statement should clearly and concisely describe what business an organization is in: What needs to meet What products/services to provide What customers we serve What market(s) we serve

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FCERA’s Mission Statement

In essence:To administer the retirement benefits provided for by law to the members and beneficiaries of the Fresno County Employees’ Retirement Association in a prudent, accurate, and timely manner consistent with fiduciary duties.

Preliminary Discussions

Stakeholder Relations

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Discussion 1

To what extent if any do you believe FCERA requires greater autonomy or authority to carry out its mission? Budget Human resources Legal services Management information services

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Discussion 2

Who are FCERA’s primary stakeholders?

Do we need to be more stakeholder-focused as an organization (i.e. more effort/resources)? If so:

– Which groups shall we emphasize?– What types of efforts do you foresee?

Customer Service Quality

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Customer Service

All retirement systems say they are committed to service quality

Retirement systems are monopolies; therefore commitment and service quality need to be well defined

Significant implications for: Organizational structure Staffing Training & development Technology

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Please indicate the appropriate benchmarks for

a) identifying best practices and

b) assessing customer service quality:

Discussion 3

Benchmark A B

Fresno City Retirement System

Other 37 Act retirement systems

Other US retirement systems Private sector financial institutions

Private sector service organizations

Custom internal benchmarks

None of the above

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Customer Service Criteria

1. Customer service culture

2. Performance evaluation tied to customer service

3. Service quality measurement & reporting

4. Customer service benchmarks

5. Staff training

6. Supporting technology

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Discussion 4Please indicate with an X the number of customer service criteria listed in the previous slide that you feel are currently satisfied at FCERA.

0 63

Current

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Discussion 5Please indicate with an X the number of customer service criteria you believe FCERA should strive to satisfy over the coming 2-3 years:

0 63

Target

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Discussion 6Assuming FCERA has approximately $100 000 available for new discretionary projects, what amount would you be prepared to dedicate to enhancing customer service over the coming year (e.g. customer service training, establishing service quality benchmarks, measuring service quality; but not technology projects). Such funds, of course, would be permanently unavailable to fund plan liabilities

a) Less than $25,000b) $25,000 - $50,000c) $50,000 - $100,000d) 100,000 - $150,000e) Greater than $150,000

Investments & Funding

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Discussion 7

How do you hope the FCERA investment program will look in 5 years: Internal investment resources Consulting resources Asset classes Risk management practices Board practices Other

Risk Management

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Two Basic Approaches

Boards and/or organizations can be focused on: performance management, risk management, or they can allocate effort to both.

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Risk Management Focus

Examples: Defining risks Asset allocation and diversification Policy (investment/operations) Risk budgeting Planning Due diligence process and oversight Business continuity and disaster recovery Internal controls and audit:

– Investment controls– Operational controls

Investment compliance Monitoring service providers Organizational structure

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Performance Management Focus

Examples: Manager interviews Manager selection Manager allocations Conducting due diligence Resolving member complaints Approving purchases and contracts

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Discussion 8

How does the Board currently define the risk associated with the investment portfolio?

To what extent is the Board able to measure and control the amount of risk in the investment portfolio?

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Discussion 9

To what extent do you believe FCERA needs to devote more resources to evaluating the performance of its advisors and service providers: Actuary Investment consultant Custodian Investment managers Other

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Discussion 10

Please discuss the need for, or feasibility of, establishing an internal audit function at FCERA in the foreseeable future

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Discussion 11

Please provide a general indication of how you believe the Board allocates its time among risk management and performance management currently and ideally:

Risk management: _____% _____%

Performance mgmt.: _____% _____%TOTAL 100 % 100 %

Today Ideally

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Discussion 12

What sorts of risk management activities, if any, would the Board like to devote more resources to?

Role in Pension Benefit Policy

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Discussion13Role in Benefit Policy

Retirement boards normally do not have authority over benefit design/levels

Boards may however attempt to play some role influence Boards may decide to stick to one strategy or switch

strategies over time Please indicate FCERA’s position on the scale below (both

currently and ideally)

Administer Benefits

Only

Expert source of Info. on Request

Provide Info. Proactively

Advocate

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Role in Benefit Policy

Administer Only Focus on operations. No need for an internal policy function. Rely on actuary/investment consultant as needed

Provide Info. on Request

Need to have policy function capability even if there are no requests.

Provide Info. Proactively

Need to build policy function Develop a process to determine which issues will be addressed Need to develop ability to present info in an even- handed manner

Advocacy Need to build policy function Develop a process to determine priorities Develop expertise in persuasion

Corporate Governance/Shareholder Activism

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Corporate Governance

Retirement systems are major shareholders in the U.S. and world economies and have a duty to exercise their duties as shareholders

There are a range of approaches retirement systems may take to exercising their duties

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Range of Approaches

Low-level activism

Mid-level activism

High-level activism

Vote proxies in the best interests of the beneficiaries

Active in CII Letter campaigns Class action lawsuits

Meet with corporate mgmt.

Lead plaintiff status Proxy battles

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Discussion 14

With respect to shareholder activism:1. Please indicate how active you believe

FCERA is today:

– Low Medium High

2. How active should FCERA be in the future?

– Low Medium High

Strategy, Core Competencies,and Threats

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Discussion 15

In what ways do you believe FCERA should differentiate itself (if at all) from other retirement systems of similar size?

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Discussion 16

What specific skills or expertise do you believe FCERA needs to develop or refine over the next five years in order for the organization to most effective or successful?

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Discussion 17

What are the biggest threats facing FCERA over the coming 2-3 years?

Strategic Priorities

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Discussion 18

Please identify the top 3 issues you believe FCERA should focus on in the next 12-18 months.

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Next Steps

To be discussed