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I N T R O D U C T I O N / L E T T E R O F T R A N S M I T T A L Board of Retirement San Diego County Employees Retirement Association 2275 Rio Bonito Way, Suite 200 San Diego, California 92108 Dear Board Members, It is with great pleasure that I submit the Comprehensive Annual Financial Report (<strong>CAFR</strong>) of San Diego County Employees Retirement Association (SDCERA, Association or Plan) for the year ended June 30, 2007. The San Diego County Employees Retirement Association is a public employee retirement system that was established by the County of San Diego on July 1, 1939, and is administered by a Board of Retirement (Board) to provide service retirement, disability, death and survivor benefits for its members under the California Government Code, Section 31450, et.seq. (County Employees Retirement Law of 1937). This letter of transmittal should be read in conjunction with Management’s Discussion and Analysis which provides a narrative overview and analysis of financial activities for the year ended June 30, 2007. MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING Responsibility for the accuracy of the data, along with the completeness and fairness of the presentation of financial information rests with the management of the Association. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to fairly present both the financial position and the Association’s operations results. MAJOR INITIATIVES AND SIGNIFICANT EVENTS • The Board of Retirement approved a Supplemental Benefit Allowance (SBA) available to General, Tier A members or Safety members covered by the 3% at 50 formula, effective July 1, 2007. Members are eligible for the SBA if they have at least 10 years of SDCERA service credit at the time of retirement. • SDCERA launched a new web site with expanded sections specific to Active, Retired and Deferred members for easier navigation. • Based on member feedback, SDCERA streamlined its retirement seminars to offer both a Mid-Career Seminar and Late-Career Seminar to members, focusing on career-specific information based on members’ years of service. • SDCERA completed the relocation of its offices to a new location in Mission Valley. 4 COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007
L E T T E R O F T R A N S M I T T A L / I N T R O D U C T I O N ACCOUNTING SYSTEMS AND REPORTS This <strong>CAFR</strong> was prepared in conformity with accounting principles generally accepted in the United States of America and reporting guidelines set forth by the Governmental Accounting Standards Board (GASB) Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contributions Plans; Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions, Statement No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments, Statement No. 37; Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments: Omnibus; Statement No. 38, Certain Financial Statement Note Disclosure; Statement No. 40, Deposit and Investment Risk Disclosures-an amendment of GASB Statement No. 3, Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, Statement No. 44, Economic Condition Reporting: The Statistical Section-an amendment of NCGA Statement 1; and the County Employees Retirement Law of 1937. The accompanying basic financial statements are prepared using the accrual basis of accounting. Contributions from employers and members are recognized as revenue when earned. Expenses are recorded when corresponding liabilities are incurred, regardless of when payment is due or made. Brown Armstrong, the Association’s independent auditors, has audited the accompanying basic financial statements. Management believes that an adequate system of internal control is in place and that the accompanying statements, schedules and tables are presented fairly. INVESTMENTS On a market value basis, the total net assets held in trust increased from $7.3 billion at June 30, 2006 to $8.4 billion at June 30, 2007. For the fiscal year 2007, investments provided a return of 15.4%, net of fees, and reflected market conditions throughout the year. The Plan’s annualized rate of return, net of fees, was 14.6% over the last three years, 13.7% over the last five years, and 9.6% over the last 10 years. FUNDING The actuarial liability and the value of assets of the Association on June 30, 2007, the date of our latest actuarial valuation, totaled $8.1 billion and $7.3 billion, respectively. This results in an unfunded actuarial accrued liability of $0.8 billion. The Plan’s resulting funded ratio of 89.7%, or the percentage computed by dividing the actuarial value of assets by the actuarial accrued liability, measures the current funded status. A historical perspective of the Association’s funding levels is presented in the Financial Section of this report. PROFESSIONAL SERVICES Professional consultants are appointed by the Board of Retirement to perform professional services that are essential to the effective and efficient operation of the Association. Opinions from our independent auditor, Brown Armstrong Paulden McCown Starbuck & Keeter, and our actuary, The Segal Company, are included in this report. Other consultants are listed on page 11 of this report. Additional information regarding investment professionals who provide services to the Association is located on page 54 in the Investment Section of this report. COMPREHENSIVE ANNUAL FINANCIAL REPORT 2007 5
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