Transcripts For SFGTV Health Service Board 111215 20151115 :

Fiduciary duties around investments if you recall a representative of the treasurers did not come and explain how were a part of the large pool of funds and forgetting but still some outstanding questions at least from a board stand point i think that and over attorney will advise us on we may need to address in addition he wanted to you requested of the City Attorney to give the board kind of and then he hope the public who are here in the audience and those who might see that as a late point about the duty of the fiduciary and the multiple of that board sincerely does indeed guide our action and Decision Making lots of and lots of guidance from the Mayors Office from City Attorneys office how to behavior and not have conflict of interest and so on and so forth annual letters around that stuff some core fiduciary requirements this board has that is unique to this board and its role administering the trust fund for the members members of the city and county of San Francisco that are part of this system with that introduction ill ask my worthy council eric please come forward and the secretary will read the first agenda item. I want to make sure that sfgovtv is recording us we cut you nine out of ten. Eric will straighten his tie and adjust his glasses and all that stuff. Were okay okay. So item one. Item one discussion item the fiduciaries standards and board roll in adapting the plan for sf trust fund assets and applications of pursuant person standards and the need to adopt a policy and a sf policyears. Eric. Okay. Hello. Were here thank you eric. Should how do we get oh, there that is Good Afternoon Health Service Board this is my first time my first time doing a presentation from this side of the podium. Does it look any different okay laughter . Before i start today, i want to go through a couple of caveats to this presentation i think the legal presentation without caveats will not be much of a legal presentation at all first when we talk about the roles list in the agenda it is not meant to be an exhausted list i picked 4 basic roles to talk about the board decisions that the commissions make from fremont and also i dont mean to say youll be engaging in one role and not more at the same time ill briefly discuss all 4 roles today, the primary presentation it the boards roll in investing trust fund assets second this is not intended to be a fiduciary review of the Health Service Board Investment obligation what im hoping today is to begin answering two basic questions first what is a fiduciary standard that applies to the Health Service board oversight of trust fund assets and second is it appropriate for the Health Service board to continue to lead the trust fund assets invested with the San Francisco Treasurers Office and finally id like this presentation to be more of a general discussion were not here today to review the specific decisions in the past more of a forwardlooking discussion and, of course, hypothetical questions you want to ask thats great lets keep the questions truly hypothetical and not based on a specific decision that board made in the last couple of years. So let me briefly review what im hoping to cover first the charter language establishing the Health Services as a trust fund and providing the authorization for this board to invest trust fund assets and second go over the board terms of reference specifically the Investment Administration policy other board adapted in april and have a brief discussion how we got here today and next go over briefly 12 fiduciary standards and then answer the question specifically with respect to the boards obligation regarding the assets that are countering have found that the San Francisco Treasurers Office and switch gears again and go over the other roles listed in the agenda the boards roll in adapting the plans as part of the raising benefits the boards role of setting policy and overseeing the administration and the boards roll in hearing appeals. Okay first chart section chart section 12203 i niend the key language the charter language that established the trust fund and identifies who the fiduciaries are specifically the active and retired members theyre covered dependents i think when but read this charter section in conjunction with the rest of the chariot fair to say in general the of primarily trust fund is to negotiate and approve the rates and benefits every year to make sure the Health Services are based the employee employee and employer contributions the next charter system is charter section a two 49 the first sentence the board has control of the Administration Information xhivenlgs of the Health Service board board and system to invest the trust fund assets you see the priority that all the investments shall be of the legal for Insurance Companies in california aim in the process of following up with outside council regarding the limitations but at that point no depreciation this board contemplates making bumps up against the lirmgs this language was adopted by the voters in 1937 i think so that in the early 90s a lot of other funds moved uaw from the language all still used in other parts of country and others limitations. Just a moment. Sure. Just so were clear im clear it says the character legal for Insurance Companies does that suggest that there is a more conservative view how we should be behaving in terms of how we invest in terms of find the faster growing thing in the marketplace to do whatever it can to increase the corpus of fund in our charge. I dont know that this was a limitation that the voters established in 1937 my understanding in 1992 other trust funds probably adopt the standards more likely but regardless of whether it is this standard or another standard i dont think that anything given that the Health Services will consider is a bump up against this standard. Director dodd. I think the reason it keeps referring totions is because in 1937 person completely selfinsured we paid our own claims and since city plan was born so we had to ply with any Insurance Standards now contract that administrative part out assume our vendors are complooilg. Thats and helpful clarification. Ill followup to the an area im personally familiar with so the next the next charter section a 423 again, this confirms the Health Services boards Investment Authority and the Administrative Expenses related to the Fund Investments can be paid from trust funds investment. I know your highlighting we know youre there it is informative to look at the other aspects of this particular charter precisions it talks about a lot of the things we make decisions dissixth amendment information a wellness program, supporting the cost of our actuary all the components we find we spends months and days on here if in chamber doing again go ahead. Thats correct so outside of paying for premiums a question arises from time to time a certain expense out of trust fund assets and generally not until a specific allowed expectation in section a 243 is the actuary expenses and Wellness Programs and communication expenses. Okay. Now id like to briefly again switch gears slightly and talk about the Health Services board terms of reference that were approved on april 9th so specifically id like to gave us context up until a few years ago not that much money in the money in the refers i understand theyre under 20 million and that means that the money that came in pay premiums went out relatively quickly with a more robust policy combined with the city to flex the blue shield funds the reserves grew and thus, the board asked our office what the fiduciary obligations over the trust fund assets in april of third year upon the governance consultant tom do you mind a Administration Policy which was included 2, 3, 4 did boards terms of reference ive copied on this slide and the next slide for your reference that the boards august meeting of this year pauley marks the chief treasurer with the office made a presentation made a presentation explaining how Health Services and trust fund assets are currently invested that the Treasurers Office so as you can see. We didnt have an investment policy the board didnt center a policy. Thats correct ill get to that right now you have not formally adopted an investment policy right so this but essentially im refer to an investment policy if you look at the combined this what you have newer your board terms of respect not a formal policy but the language you youve adopted duo to date so this Investment Administration language first as you can see the section 12203 and 09 we discussed and then it goes ton and theyre taking this requires the board to adopt a written policy statement and taking those out of order the current terms of reference require regular monitoring and ongoing review of Investment Performance and having qualified managers appointed to manage the Health Services assets but a key part of policy requires the board to adapt a written Department Policy statement i guess were i know take apart words is that the policy that requires an investment policy that is what you do you mind today and the bottom 3 bullet points are depending on the investment fair to say why the board has by default adopted the treasurers policy to date the two policies were here to discuss what the fiduciary standard it applies to the Oversight Trust fund assets and should the board formally adopt the treasurers policy as the Health Services policy or in the alternative consider some other option. And while beer at this moment of pause i want to reiterate for the record this not about fingerpointing and not about what has or hadnt been done or should not by the Treasurers Office this is rather take into account the duties this board has regarding its role if in area. How well decide the outcome of the next steward step it a matter for another day. Okay. Thank you. So, now again, this is switching gears slightly we want to briefly go over the various sfefl fiduciary the california constitutional standard for Pension System not a Pension System this standard doesnt legally apply to us i wanted to read it so you can get a sense of the standards look like requires that the board of a Pension System shall discharge their the United States with respect to the system with the care and skill and prudence under the circumstances that a pursuant person familiar with those matters will use in the concoct of duties this incorporates this constitutional fiduciary standard for the retirement system again, were not a Pension System it doesnt apply to us when we look at the other trust in the city are there the recommend system were talking about the hfrs system a standard that applies to the Health Care System and a state standard which is the uniform pursuant investor or the upi a a standard in probate or the fiduciary obligations for terrorist fee managing a state that standard requires that the fiduciary the manager trust u trusted assets as a pursuant investor by look at the requirements and other circumstances of the trust and satisfactory that standard the fiduciary shall experience reasonable care and skill and caution i think the next standard that is relevant this the arise standard it does not preto the Health System but because the arise law a law that cantonese cases related to multi Employer Trust from there were are a litigation or a court to review trust standards in this context it is highly likely the parts will look to arise for guidance it requires the fiduciary to act solely in the interest of the participant and benchmarks of the plan and with the care skill and prunsz and diligence under the circumstances then prevailing that a prudent man acting in a lick capacity familiar would use in the connecting conduct of a enterprise with lick character this is similar to the upi a that the california constitution. Sure. The words have somewhat familiar but in a legal sense not some of the standards use the words caution, some prudence are they enter challengeable how does we begin prudence. Right today ointment going to specifically advise this board adapt a specific standard i think that is a discretion for a later day and so hold that question is it so r it is a legitimate question weve started to engage in a fiduciary review as part of progress i think the board will windup adopting a standard on that note i just added the next slide is the standard that the retirements Health Service board adopted in their terms of reference and the trust fund is the third, the lastly trust fund is designed to prefund the citys obligation to pay for restored health care and like contributions from employees it was adopted in 2008, and requires the employees hired after january 10, 2009, to contribute 9 percent to the fund and in prop c in 2011 amended to the employees hired before january of 2009 will have to make contributions in 2016 and their matching employer contributions as well the retired health care ive pasted it right there not going to read it but prior to the standards and i would envision this process the Health Services duplicities a standard at this time well talk about the differences between the different language so the next slide is in a sense the one i dont want to say give us legal advice the answer to the question should the board formally adopt the policy as the Health Services or in the alternative consider other options i think we can answer this question without having to pick a specific standard regardless of what standard this board picks i think our advise is going to be the same and so for this one ill read this one allowed fiduciaries acting in correspondence are the upi a generally find that appropriated to remain outside expertise with the fiduciaries dont have the expertise to address the question in managing of managing the assets it is common more Plan Sponsors and others to remain Third Party Consultants or advisors to advise them on the policies recommending an Investment Program for on Employee Benefit plan this expert could advise whether it is to be rained remained are ray retained in longer investment strategy. To put a pin in this to be be clear our council on this topic regarding the roll that we have as investors under our investment terms. Right we can advise to the Legal Standard is were not here to provide specific investment advise the idea that consistent with the fiduciaries obligations it make sense to consultant. If we determine because we were too busy in other matters wiener we dont want to address this gay would we be acting as good fiduciaries as well save that to the ends hopefully, well see what happens i mean, hopefully youll follow the advice. Okay. Well not there it have to answer that question. Now switching gears well discuss the board role as oversight role for managing Health Services and assets and investing overseeing assets i want to talk about so the other 3 i think major roles this commissioners play on a yearly basis the central with an in adapting the rates and benefits every year set forth in charter second second a the board shall have the power and the majority vote of the heart and soul to adopt the plans or plan for rendering medical care to members of the system i think this arguably the role of this board the one sort of. I would footnote everything there are a number of people that play inside baseball for years and years a Standard Committee on rates and benefits would the change in our terms ever reference last year, we decided to do you away with that committee ultimately that is the responsibility of every member of this board and so rather than having a two tier kind of thing going on we we have a Committee Meeting and the boards meeting youre here and voting on the same thing twice under the leadership of cesarean and others in the governance area we decided to make the board act as committee as a whole it is consistent now with the charter section. The only thing to add about that process and role the adoption of plans that on the shall not be fiscal until the board of supervisors adopted by 3 quarters of its members weve had one Carbon Monoxide the board of supervisors did not approve a rate and benefits sent it back to the haelts so in making those rates and benefits decision obviously something the commissioners have to take into account the charters they make the benefits will be approved by the board of supervisors. So again the next role he wanted to disc