Exhibit A
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POLICY AND PROCEDURE
Subject: City Pension Investment Index: Finance & Administrative Policy Services
Number: 202-2
EffectiveDate: Deccmberl8,2013 PreparedEy: Finance&Adininistrative Services
Supersedes: Decemberl8,201_32 ApprovedEy:
1. O PURPOSE:
The purpose of the City's Pension Investment Policy is to establish: (1) an appropriate set of objectives and goals regarding the investment of the assets of the City of San Clemente Pension Plan (hereafter referred to as the Pension Trust Fund); and (2) investment policies and practices designed to permit the continuing financial obligations of the Fund to be satisficd justificd.
2.0 0RGANIZATIONS AFFECTED:
All City departments/divisions
3.O REFERENCES:
@ InvestmentAdvisoryActofl940
* Civil Code Section 2261, et seq.
* Govermnent Code Section 53600, et seq.
* CodeofEthicsPolicy,AdministrativePolicy#l02-1
4.O POLICY:
4.l_The policy of the City of San Clemente ("the City") to invest the retirement tnust funds in a manner which will provide a market rate of return while meetingthefinancialobligationsofthefundandconformingtoallapplicable Federal State and City statutes governing the investment of public funds, as referenced in section 3.0,
4.1.1 Scope: This investment policy applies to all financial assets of the City of San Clemente Pension Plan. These funds are accounted for Subject: City Pension Investment
Policy
Index: Finance & Administrative
Services
Number: 202-2
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Supersedes: Decemberl8,201_32 Approved Ey:
Attachment 2
investment report presented to the Investment Advisory Comtnittee. scmi annual rcvicw by thc City of San Clcmcntc's Pcnsion Cornrnittcc.
4.1.2 Statement of Responsibilities: The following parties associated with the Fund shall discharge their respective responsibilities in accordance with all applicable fiduciary standards as follows: -(1) in the sole interest of tl'ie Fund participants and beneficiaties; (2) with the care, skill, prudence and diligence under the circui'nstances then prevailing that a prudent individual acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and of like aims; and (3) by diversifying the investments so as to ininirnize the risk of large losses.
4.1.-!___2.1 CityInvestmentAdvisoryCommittee: Themembersofthe City Investment Advisory Committee will review and propose and Investment Policy for the approval of the City Council and provide direction as to the investi'nent strategy and Pension Trust Fund assets.
4.l.2.2City Pension Committee: The mcmbcrs of thc City Pension Committee are plan fiduciaries and havc bcen dclcgated authority to implement the approved Investment policy and daily
administration the invcstmcnts of thc asscts of th City of San Clemente Employee Retirement Plan ("the Plan"). -The
_embers of the Committee include: -City Manager, Financc & ,'idministrativc Scrviccs Dircctor, and,'isaistant to thc City Managcr Assistant City Manager/or Administrative Services Director,- a-mt_he Human Resources Manager, and the Finance Manager. These individuals are responsible for thc Non voting members include one (1) represcntativc of thc San Clcmcntc City Employccs ,"tssociation, onc (1) rctircc of thc City's pcnsion plan, and one reprcscntativc from theCity'sinidmanagcmcntgroup. Thcthrccnonvotingmcmbcrsarc not includcd for purposc's of obtaining a quorum. Staff to thc Coinmittcc will includc thc Human Rcsourct:s Managcr and Financial Sctaviccs Financc Managcr.Pcnsion Trust Fund operations and administration. This includes assets reporting and oversight, contributions, retiree payments, vendor payments, actuarial reports and other administrative requirements.
4.1.42.3 Investment Managgg_ter-s: The investment managers are delegated the responsibility of investing and managing the Fund's assets in accordance with this Investment Policy and all applicable laws. Investment Managers are selected by the Investment Advisory Committee. Each investment manager must either be; (1) registered under the Investment Company Act of 1940; (2) registered under Investment Advisors Act of 1940; (3) a bank, as defined in that Act; (4) an insurance company qualified under the laws of more than one state to perform the services of managing, acquiig or disposing of Fund assets; or, (5) such other person or organization authorized by applicable law or regulation to function as an investment manager.
4.L_.2.Investment Consultant: The investi'nent consultant is charged with the responsibility of advising the City Inveshnent Advisory Committee on invesh'nent policy, the selection of appropriate investmentg managcrs, and providing perfori'nance analysis, and monitoring services.
4.1.2.5 Inveshuent Custodian: The investment custodian is the company ' holdingPensionTrustFundassets. Thecustodianwillgenerallyreport on a monthly and quarterly basis the various assets and assist with the rebalancing of the asset classes. The custodian will facilitate funding payments to tlie retirees and paying approved administrative costs of the Pension Trust Fund.
4.2 Statement of Investment Philosophy:
4.2.1 City Investment Advisory Committee: The City Pension Committee is committed to:
-(1) protecting the corpus of the Fund; (2) obtaining adequate investi'nent returns in order to protect and pay the benefits promised to the participants; (3) complying with applicable law; and (4) controlling administrative costs.
4.2.2 __ The Pension Trust Fund: The Fund shall be managed in a prudent manner recognizing risk and return trade-offs:, -Wwhile concerned with avoiding undue rislc_., thc City Pension Committcc is dcsirous of maximizing investmcnt gains. Accordingly, consistcnt with safcty of principal ovcr thc long tcrm, invcstments shall be chosen to maximize the return on invested assets and overall safety of funds over the long teri'n. Sufficient liquidity shall also be maintained to fund expenses and benefit payments.
4.3 Investment Objectives: The Investment Objectives for the Pension Trust Fund will be for tlie asset value, exclusive of contributions orwithdrawals, to grow over the long run and eatn, through a combination of investment income and capital appreciation, a rate of return (time-weighted total remm gross of fees) in cxccss of that tracksiy the designated benchi'narks at a minimal cost utilizing a passive income strategy cstablishcd for thc medium tcrnn (3ycars) and long tcrm (5 ycars).
4.3.1 ' Performance Objectives:
4.3.1-+-_TotalFundObjective: Theobjectiveoftheteta!-PensionTrustfund is to invest in assets and achieve returns comparable to other Pension Trust Funds and exceeding the Pooled City Investmentscarn a rcturn that cxcccds traclcs thc return of thc indiccs wcightcd in accordancc with the currcnt targct assct allocation and maintaining liq.uidity needs of the fund.:
"1.3.1.2 Large Cap Equity: Thc objcctivc of the largc cap cquity scgmcnt of thc Fund is to carii a rcturn that cxcccds thc ratc of rcturn of thc S&P 500 Russcll 1000 Indcx. as wcll as tlie mcdian cquity rcturn in a rcprcscntativc pcrfornnancc univcrsc.
"1.3.1.3 Small Cap Equity: Thc objcctivc of thc small cap cquity scgincnt of thc Fund is to cam a rcturn that cxcccds traclcs thc ratc of return of the Russcll 2000 Indcx. as wcll as thc mcdian cquity rcturn in a rcprcscntativc small cap pcrformancc univcrsc.
d.3.l."l FixcdIncomc: ThcobjcctivcofthcfixcdincomcscgmcntofthcFund isto carnarcturnthatcxcccdstheratcofrcturnofthcLchmanBrothcts Barclays Capital ."tggrcgatc Bond Indcx as well as thc mcdian fixcd incomc rcturn in a rcprcscntativc pcrformancc univcrsc. d.3.l.5 International Equity: The objcctivc of thc intcrnational cquity scgincnt of thc Fund is to cam a rcturn that cxcccds thc ratc of rcturn of thcMSCI E.'iFEIndcxaswcllasthcmcdianintcnnationalcquityreturn in a rcprcacntativc pcrformancc universc.
'1.3.1.6 StablclTaluc: Thcobjcctivcofthcstablcvalucscgmcntofthcfundis to cam a return that cxcccds thc ratc of rcturn of the Banlccrs Trust 3 ycar GIC Indcx as wdl as the mcdian GIC rcturn in a rcprcscntativc pcrformancc univcrsc.
4.3.2 Long Term Performance Objectives:
4.3._2TotalFundReturn: Thcobjcctivcofthctotalfundreturn that mccts ori_ncctor exceeds the actuarial assumption rate_or discount rate over a multiple year period by 100 basis points,.
4.3.;L-2_3 -Rate of Rehirn: The objective of the total fund is to earn a rcturn that cxcccds thc ratc of return of the indices weighted in accordance with the current target asset allocation.
4.3.4 InvestmentRisk: Tl'ieobiectiveoftheinvestmentpolicyistomanage portfolio risk through a diversified pool of assets while ensuring proper
4.4 AssetStrategyandClasses: ThePensionTrustassetswillbeinvestedwithavariety of diversification to minimize the risk of any one asset class and improve overall longterm perfornnance, while comparing individual returns to benchrnarks or indexes. The following asset classes may be participated in through mutual fund, exchange traded funds, or other investment options to minimize costs.
4.4.1 Large Capitalization Equity: The obiective of the larze cap equity segment of the Fund is to eann a rate of return tracking of the Russell
1000 Index. This index is comprised of the top 1,000 companies by market capitalization.
4.4.2 Small Capitalization Equity: The obiective of the small cap equity segment ofthe Fund is to eann arate of remm tracking the Russell 2000 Index. This index is comprised of the smallest 2,000 companies by market capitalization.
4.4.3 CoreFixedIncome: Theobiectiveofthefixedincomeseentofthe Fund is to earn a return that exceeds the rate of return of an Aggregate Bond Index as well as the median fixed income return in a representative perfori'nance universe. Theis category includes both short and long-term rated debt instruments.
4.4.4 Treasury Inflation-Protected Security (I'IPS): The objective of the TIPS segtnent of the Fund is to provide inflation protection and diversification within the fixed-income portfolio while generating a long-term rate of return consistent with the TIPS asset class.
4.4.5 International Equity: The obiective of the international equity segmentoftheFundistoearnarateofreturntrackingtheMSCI EAFE Index or other international equity return in a representative perfornnance universe.
4.4.6 Stable Value: The obiective of the stable value portion is currently invested similar to a cash equivalent with a benchmark rate of retum comparable to the Bankers Trust 3-year GIC Index, or comparable index.
4.-34.7 0therAssets: Theobiectiveofthisapproachistacticalassetallocation in inflation-sensitive investments, including debt, comi'nodities, equities or leveraged assets.
4.g4.8 Cash/Cash Equivalent: The obiective of the cash portion of the portfolio is to provide liquidity resources as needed to pay short-term costs of the Pension Trust Fund.
Other investments options may be added, if allowed by law, with the approval of policy revisions approved by the City Council.
d.3.2.3 Consumer Price Index: Thc objcctivc of thc total fund is to cam a rcturn that cxcccds thc annual changc in the Consumer Pricc Index by 350 basis points.
4.4 -Asset Allocation: -Asset allocation involves establishing asset class allocation policy -The Pension Trust,%sctAllocation ofthc FundAsset Allocation is deterinined by the Investment Advisory Committee. The target allocation will be addressed in this Policy and tlie assets will bc is sct up to bc rcbalanced automatically on a quarterly basis automatically. Theinvestmentallocationortargetallocationistobeinshallbcrcvicwcd at Icast annually to insurcthatthc Currcnt ,Allocation is in compliance with the following guidelines. ,
AssetClass Miniinum Maximum
Cash/CashEquivalent 0% 0% 5%
CoreFixedIncome 20% 10% 30%
TIPS 3% 0% IO%
SmallCapEquity 5% 0% 10%
LargeCapEquity 32% 25% 45%
InternationalEquity 15% 0% 20%
StableValue 20% 0% 40%
AbsoluteReturn 5% 0% 5%
100%
4.6 Investment Guidelines: It is tlie intention of the City Investment Advisory Committee to allow eaeh-__theinvestment manager full investment discretion within the scope of these investment guidelines, the applicable Investment Manager Agreement, and -any laws that supersede either of these documents.
4.7-_Liquidity: The Fund's cash flow w_ism monitored on a rcgular baais by the City Pension Committee_with sufficient liquidity maintained to :tund benefit payment outflows. If reallocations arc withdrawals bccomcncccssary prior to the next q.uaiterly rebalance, thc City Pcnsion Committcc will notify the Invcstment Advisory Committee will be notified by the Pension Comrnittccinvcstmcnt managcrs as far in advancc as possiblc to allow thcm sufficicnt tirnc to acquirc thc ncccssato liquid . Casli and cash equivalents should equal at least 3 months of monthly disbursements providing for the day-to-day liquidity needs at the time of the portfolio rebalance.
4.8 Proxy Voting: The investment managers shall have the sole and exclusive right to vote i any and all proxies solicited in connection with the securities held by the Pension Trust Fund.
4.9 Trading and Execution: The investment managers shall use their best efforts to obtain execution of orders through responsible brokerage firms at the most favorable prices and competitive commission rates.
4.lOPensionTrustCosts: Costsmatterandaretobemanaged.TliePensionCommitteewill manage costs through agreements and other staff actions to minimize investment costs,
administrative costs, and otlier actions. However, costs may be negotiated to acl'ffieve ongoing continuity of the pension trust and to ensure proper expertise.
5.O DEFINITIONS:
None
6.O PROCEDURE:
__6.I Investment Performance Review,-amlReporting and Evaluation:
6.1.1 Inveshnent Advisory Committee: The City Investment Advisory Cornrnittee will review the invesh'nent results of the investment managers at least semi-annually. -Performance comparisons will be made against a representative performance universe and the performance objectives set forth in this policy statement.
6.1.2 Review of Investment : The City Investinent
Committee, with the assistance of the investment consultant shall peiiodically review the qualitative developments of each investment.
This evaluation should include: Changes in ownership, personnel tuit'iover, adherence to investment style and philosophy, and any other qualities that-tlie City Investment Advisory Coimnittee deem appropriate. -This review should also include an assessment as to ivhcthcr cachcach investinent manager ha+operated within the Investinent Policy scopc of this Invcsti'ncnt Policy.
6.1.3 Reporting: The quarterly investment report will include the assets held in the Pension Trust, the allocation percentages, and the quarterly return. Information as to the quarterly disbursements will be included in the report and whether minimum liquidity requirements are met.
6.1.4 Disclosures: The investment managers must disclose all major changes in organization or investmentphilosophy to the City Pcnsion Committcc mcmbcrs within30days. Further,allregisteredinvestmentadvisorsmustpresentupdated ADV-2 fornns on an annual basis to the City Pension Committee and Investment Consultant.
6.1._5 Inveshnent Manager Accountability: The City Pension Committee is desirous of holding each investment manager accountable for the performance of the assets overwhichthey exercise discretion. -If an investmentmanager fails to accomplish the investment objectives as set forth in this Investment Policy over a market cycle (typically three to five years), the City Pcnsion Corninittcc will notify the investment manager in writing !!!L!!_S__that thcy havc failcd to accomplislithcpcrformanccobjcctivcs andthatthcCityPcnsionComrnitteehas placedthem onprobationy- The (jty Pension Committccwill continue to monitor the investment results until they determine that removal ofprobation or termination of the investment manager is warranted. The City Coinmittec still reserves the right to terminate investment managers_-if they
violate this Investi'nent Policy, experience personnel or organizational changes, orifthe City Investment Advisory Committee detennines that a change of investment managers is in the best interests of Plan participants.
6.2 Internal Control: In conjunction with the City's independent annual financial audit, a review of actual and documented internal controls ofthe City's investmentprogram will be coordinated by the Pension Coinmittee. -The review will assure that internal controlsareadequateandassurecompliancewith policies andprocedures._A!!Y deviations resulting from this review will be reported to tlie Investment Advisory Committee.
6.3 Policy Changes: The investment consultant shall advise the City Invesh'nent Advisory Corni'nittee of anyrestrictions withinthis InvestmentPolicywhichmayprevent the investment manager(s)/consultant from a a achievin the objectives and goals set forth herein. Any violation of the investment guidelines or other sections of this Investment Policy discovered by the investment consultant in the preparation of its regular perfon'nance review shall be reported immediately to the City Investment Advisory Committee and discussed at tl'ieir next regularly scheduled meeting.
6.4 Review and Revisions: The City Investment Advisory Committee reserves the right to amendthe InvestmentPolicy at any tii'nc thcy dccm such amcndmcntto bc__as necessary, or to comply with changes in federal and/or state law as these changes affect the investi'nent of the Fund's assets. -This policy will be reviewcd, rcviscd as ncccssary on an annual basis by the City Investment Advisory Committee and any revisions or modifications made thereto recoininended by the Committee and approved by the City Council. Funds invested in sl'iould have ample liq.uidity to meet any operational needs as determined by the Invesh'nent Advisory Committee.
6.5 Authorized Investment Managers: The City Investment Advisory Committee reserves the right to modify investments and managers during the year. Current authorized investment managers include Empower, Dodge & Cox, PIMCO, and State Street Global Advisors. Investment managers of funds may be added or modified upon approval by the Investment Advisory Committee.
.'rUTHORIZED n'JVESTMENT MAN,AGERS
ST.'rTE STREET GLOBAL ADVISORS (SSG,t)
Russcll 1000 Indcx
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DODGE & COX
Intcrnational Stoclc Fund
I. Invcstmcnt Assignmcnt
Dodgc & Cox will bc givcn full discrction within thc scopc of thcsc mutually agrccd upon invcsti'ncnt guidclincs. Dodgc & Cox will bc rcsponsiblc for rcvicwing tlicse guidclincs with thc City Pcnsion Comi'nittcc at Icast annually to assurc thcy rcmain prudcnt. Dodgc & Cox shall dischargc its managci'ncnt in a prudcnt manncr, ahvays Icccping thc bcst intcrcat of thc participants clcarly in mind.
II. Invcstmcnt Objcctivcs
The invcsti'ncnt objcctivcs of thc Dodgc & Cox will bc for thc asset valuc, cxclusivc of contributiots or withdrawals, to grow ovcr thc mcdium tcn'n (3 ycara) and cam, through a combination of invcstmcnt incomc and capital apprcciation, a ratc of rcturn (timc wcightcd total rcturii gross of fccs) that cxcccds thc ratc of rcturn of thc EAFE Indcx as wcll as the median cquity rcturn in a intcrnational pcrformancc univcrsc.
III. ,Allowablc Sccuritics
Thc allowablc sccuritics shall bc solcly compriscd of sharcs of thc Dodgc & Cox Intcrnational Stoclc Fund. Invcstmcnt a madc by Dodgc & Cox must bc consistcnt with thc currcnt Dodgc & Cox Intcrnational Stoclc Fund prospectus. Should thc allowablc sccuritics pcrmittcd undcr subscqucnt prospectuscs changc, it is thc rcsponsibility of Dodgc & Cox to promptly notify thc City Pcnsion Cornrnittcc in writing.
PIMCO
PIMCO Total Rcturn Fund
I. Invcstmcnt Assignincnt
PIMCO will bc givcn full discrction within thc scopc of thcsc mutually agrccd upon invcsti'ncnt guidclincs. PTh4C0 will bc rcsponsiblc for reviewing thesc guidclincs witli thc City Pcnsion Committec at lcast annually to asaurc thcy rcmain prudcnt. PIMCO shall dischargc its managcmcnt in a prudcnt manncr, always lcccping thc best intcrest of the participants clcarly in mind.
II. Invcstmcnt Objcctivcs
The invcstmcnt objcctivcs for PIMCO will bc for thc assct value, exclusivc of contributions or withdrawals, to grow over thc long run and cam, through a combination of invcshncnt incomc and capital apprcciation, a ratc of rctuni (timc wcightcd total rcturii) in CXCC!,!, of thc bcnchinarkz cstablislicd for thc long tcrm (5 ycars). Thc Total Portfolio is to cxcccd thc Barclays Capital ,/tggrcgatc Bond Indcx aa wcll as thc mcdian rcturn in a reprcscntativc fixcd incomc pcrformancc m
III. ,'illowablc Sccuritics
Thc allowablc sccuritics shall bc solcly compriscd of sharcs of PIMCO Total Rcturn Fund.
Invcstmcnts madc by PTh4C0 must be consistent witli the currcnt PIMCO Total Rcturn Fund prospcctus. Should thc allowablc sccuritics pcrmittcd undcr subscqucnt prospcctuscs changc, it is thc rcsponsibility of PIMCO to promptly noti'fy thc City Pcnsion Corninittcc in writing.
ST,ATE STREET GLOB,"tL ADVISORS (SSGA)
Trcasur,o Inflation Protcctcd Sccuritics (TIPS) Fund
I. In'v'C!:iilnOIIt AS!31gIuIlent
SSGA will bc givcn full discrction within thc scopc of thcsc mutually agrccd upon invcstmcnt guidclincs. SSGA will bc rcsponsiblc for rcvicwing thcsc guidclines with tlic City Pcnsion Committcc at Icast annually to assurc thcy rcmain prudcnt. SSGA shall discliargc its managcmcnt in a pi'udcnt manncr, ahvays lcccping tlic best intcrcst of thc participants clcarly in II. Invcstmcnt Objectivcs
Thc invcstmcnt objcctivcs for SSGA will bc for thc assct valuc cxclusivc of contributions or withdrawals, to grow ovcr thc long run and cam, through a combination of invcstmcnt incomc and capital appreciation, a rate of rctunn (time wcightcd total rcturii) in linc with tlic bcnchxnarks cstablishcd for the long tcrm (5 ycars). Thc Total Portfolio is to track the Barclays Capital US TIPS Indcx as well as thc mcdian rcturn in a rcprcscntativc fixcd incomc pcrformancc univcrsc.
III. ,'illowable Sccuritics
Thc allowablc sccuritics shall bc solcly compriscd of sharca of the SSG.'i TIPS Fund. Invcstincnts madc by SSG,'i must bc consistcnt with thc current SSGA TIPS Fund prospcctus. Should thc allowablc sccuritics pcrmittcd undcr su?scqucnt prospcctuscs changc, it is thc rcsponzibility of SSGA to promptly notify thc City Pcnsion Committcc in writing.
GRE,AT 1j'EST
Dcfincd Bcncfit Guarantccd Portfolio
I. IllVCStInCIlt i'k!j31gnlnCIlt
Grcat Wcst will bc given 'full discrction within thc scopc of all applicablc law rclating to the invcstincnt of asacts of an insurancc company in thcir Dcfincd Bcncfit Guarantccd Portfolio.
Grcat Wcst shall dischargc its managcmcnt in a prudcnt manncr.
II. Invcahncnt Objcctivcs
Thc invcatmcnt objcctivcs of thc Dcfincd Bcncfit Guarantccd Portfolio of Grcat Wcst will bc for thc assct valuc, cxclusivc of contributions or withdrawals, to grow ovcr thc mcdium tcri'n (3 ycats) and earn, through a combination of invcstmcnt incomc and capital apprcciation, a ratc of rcturn (timc wcightcd total rcturn gross of fccs) that cxcccds thc ratc of rcturn of the 3 Ycar GIC Indcx as wcll as tlic mcdian rcturn in a Stablc Valuc Funds pcrformancc univcrsc.
III. Allowablc Sccuritics
Thc allowablc sccuritics shall bc solcly compriscd of sharcs of thc Dcfincd Bcncfit Guarantccd Portfolio of Grcat '1XTcst. Invcstmcnta madc by thc Dcfincd Bcncfit Guarantccd Portfolio of Grcat Wcst must bc consistcnt with thc current Dcfincd Bcncfit Guarantced Portfolio invcstmcnt policics as dcacribcd by Grcat Wcst to tlic City Pcnsion Cornmittcc. Should thc allowablc sccuritics pcrmittcd undcr subscqucnt policics changc, it is thc rcspot'sibility of Thc Grcat Wcat to promptly notify thc City Pctsion Comrnittcc in writing.