management skills, two different skills. also an administrative analyst core exam. you can add on to the duties for the department and not create a whole exam from scratch each time. we think that will speed things up. i will ask ted -- is my tiny about right? -- is my timing about right? >> we have been working very closely with the department of emergency management. the project is to identify exempt positions and move those into core staff. as a result, the department has requested that we establish eligibility for permanent civil service examinations. we start at the top looking at management and then will be doing classification actions for the staff beneath them. that is a year-long project. we are about one-quarter of the way through in terms of identifying all those eligible for management positions for which the department can make a

selection. from there, we will be moving to the line staff. we will be done in about six months, i would hope, to get all of the permanent work done. supervisor kim: on the issue of workers' comp, i appreciate the department's efforts in this area because the workers' comp reduction is an impact that happens city-wide. you had mentioned a trend that we are down comparatively and are doing fairly well compared to other jurisdictions in workers' comp, but that we are beginning to see a trend hinging out. the -- inching up. do you know what that is a result of and are there ways to manage that? rex -- >> the slight trending up is largely due to the increase in medical costs and slight increase in injury. there is a presumption, if you will, that a certain type of

injury is work-related. whereas it might otherwise not have been considered work- related. it is more likely to be considered work-related. in the public safety areas, there is reason legislation in those areas as well. those are things that can increased costs. -- can increase costs. one way to offset that is -- we have now gone from a three or four months to turn around to wait 2 to 3 day turnaround to approve documents by the workers' compensation appeals board. through electronic processes we have gone from five to six months to a five-day turnaround on disability rating spirit we have made a lot of changes that we think will offset that, but -- on disability ratings. we have made a lot of changes that we think will offset that, but the cost of medical treatment and amount of injury, we cannot control those costs.

the base cost is so going up. >> -- chairperson chu: and in terms appellant budgets -- and in terms of budget recommendations, the analysts are any agreement? >> yes. chairperson chu: what we go to the budget analyst report? >> our total reductions, of that amount, $93,000 are ongoing savings and 22,000 are one-time savings. this would increase the budget slightly over $1 million or 1.4%. and those recommendations would result in general fund savings. before 2013-14, we recommend reductions totaling $93,000. this will increase two $0.2

million of the department's budget, or 3%. and as i and understand it, the department -- the department concurs. chairperson chu: if we have no other questions for the department, can we entertain a motion? we will do that without objection. thank you to micki and her team. we will not need you to come back next week. >> thank you pierpont chairperson chu: thank you -- thank you. chairperson chu: thank you. and to the retirement system. >> good morning, supervisors.

i am the executive director of the san francisco employees' retirement system. i'm very pleased to be here for you this morning. i prepared a very short presentation. if i could get the overhead, i would appreciate it. we are in concurrence with the budget analyst recommendations regarding our budget this year. the first slide of our presentation gives you a basic indication of the impact of the last two years of pension reform and the -- the proposals that have been approved by city voters and the effect on our department. prior to 2010, we were administering a total of six benefit plans, to each to fire

and four other -- two each to fire and four other miscellaneous plans. we're now administering several others. we have three two-year plans that became effective in 2010. and with the latest proposition "c" effective january 7th, which traded three -- we created three plans for fire and safety as well as shares personnel and miscellaneous safety. our current membership, 33,407 non-retired members. we of 22,000 retired and a total of the chip to 7767 members. -- 57,767 members.

active membership over this five-year time frame declined 7.5%. as people leave city employment, they either take a refund, or if they have at least five years of service they can go into this next column of vested members. we saw an increase of 45%, roughly 1400 folks who left city employment during this time and elected to leave their money with the city to come back a later day to collect a pension benefits. the third column indicates the reciprocal members. those folks when they leave city employment go to work for another california reciprocal plan with the state. we had an increase of 31.9%, or 247 of those individuals. during the same time frame, the net growth of our retired members on continuance has been

300,076. chairperson chu: can you explain the complement of active to retiree ratio? -- can you explain the column of active to retiree ratio? >> you have seen a decline, but 1.378 is still a very healthy ratio, meaning that there are 1.378 active employees continuing to contribute against the retirees who are no longer contributing chairperson chu: is there a metric where we would be concerned? >> if we ever got to make point -- ever got to a point where from the city's perspective there were fewer contributing

that the retiree pension obligations, that would raise concern. the good news is, retirees are living longer. for all of us, that is good news. from a pension perspective, not necessarily good news, and for finding liability, not necessarily good news. but we know that will trend into the future. chairperson chu: and on the reciprocal members, why is that we track this number? >> we have an obligation to report. they leave their money here just the way a vested member would leave their money. sede had a 10-year career with the city and went to work for san mateo and when they get ready to retire, they retire from both systems and we still have to be that 10 years of retirement to them. they get to cap their benefits at the end of their career. the next slide demonstrated over a five-year time frame are

funding levels. i'm showing you this to demonstrate the impact. obviously, we had very difficult financial markets in 2007-08, 2008-09. you can see in this column the value of the markets in the trust went as low as $9 billion. it i'm happy to report that over the next two years we are back at about $15.6 billion as of july 1st, 2011. we continue to be relative to other public plans across the united states among a handful of folks in the still have this type of a funded level. we're very proud of that. because the voters basically control the benefits, among other issues, it is well managed. we're still among a handful

across the u.s. to have these types of funding levels. you'll notice we are having a declining funding level on an actuarial value basis. but that is because of a slowdown in the pension reform and the changes and reduction in benefits for new hires. by you will notice on the market value, after the initial decrees of the market value in 2009, we're actually building upward on a market value basis. and an 83.9% funded level is extraordinary in the industry. >> what is the difference between the market value of assets and the actual? >> market value assets are what we actually invested. actuarial investments are what is assumed. they will increase the actuarial value based on what we are soon

to learn, even if we did not actually earn it. in a lot of cases, the actuarial will be higher. in 2007, the market value was $16.9 billion. the actuarial was $14 billion. the actuarial assumed higher, so we were actually investing $17 billion. it will become more standard that we will report and focus more on the market value. chairperson chu: and the difference between our actuarial liability compared to the market value assets, or in the actuarial value of assets, there's still a gap. we know we have a liability of 18.5 $9 billion. -- $18.59 billion.

where does that catch up? >> we will do the best can to bring up the market value of assets, but again, 84% of the funding level against and $18 billion accrued liability basically says we have 84¢ to pay every dollar promised for all active employees as well as retired employees for as long as we assume they will work and live. the goal is to get as close to 100% funding in that area as we can. but probably 70¢ to 75¢ on every dollar is generated into the investment return. our job is to make sure that we can capture that investment return. we had a return of over 20 two% netted fees -- 22% near its fees for fiscal year 2011. we lost 22% the year before that.

again, we're focusing on both of these numbers, realizing we need to get both of those percentages as close to 100% as we can. the retirement system also administers the city's deferred comp plan. i want to give a brief report on that. as of last month, we had 13,740 two actively contributing employees. that is quite remarkable given that we've had a timeframe where we had employees affected by unpaid furlough days. this is a voluntary plan. they have still persisted in saving and differing monies to the 457 plan. and 50% participation is very extraordinary in this type of voluntary plan. we have 24,173 total

participants, reflecting those who still have money in the plan but not actively contributing. and the assets topped $2.1 billion as of the end of may. that is an important piece of the voluntary plan that the city employees have access to. my final page basically focuses on the five questions that you had asked as to present. our two-year budget outlook, all of the costs of administering the trusts are born out of the investment earnings of the trust. there is no general fund impact that we would perceive going into the two years at all costs being administered to the workers' comp program are being deferred by the party administrator. we started we were going into a two-year budget cycle. the retired board adopted a strategic planning approach in october, 2011, which gives them

a three to five-year outboard look -- out word look -- outward look. the four major projects identified in this plant are the enhanced customer service. we currently estimates that 95% of transactions are done face to face with staff. we're trying to figure out how to transition that a way to give more service time to employees. we're also enhancing our website. we want to provide 24/7 access sell an employee can log on and check their ballots, service credit, and look at what future benefits with the like. the third area is in reporting. and a fourth is the electronic content management of the system to replace the electronic archiving technology that we currently have.

we requested a total of four new positions in the budget. we have accepted the budget analyst office recommendation that we would proceed with three. two of those positions, one is a management level position and a benefit technician position in the deferred comp program budget. currently, there are two employees supporting the membership, other participants as well as the two billion dollars invested in the deferred comp program. these positions will be put in place to address the growing customer service needs. most of you might be similar -- familiar with the fact that we introduce target date funds in march of this year. and with a target date funds we think there is a lot of possibility, but we plan to introduce a rafa feature to the plan by the end of this year. -- a roth feature to the plan

by the end of this year. under summer youth employment opportunities, we have allocation for the mayor's summer youth work program. and for language access, we are a two-tiered department under the ordinance. we provide services upon request and we have certified staff that can council folks in mandarin, cantonese, and spanish. chairperson chu: one area where we missed information and perhaps you might have covered it, but in terms of the contribution rate that the city would have to pay into the fund, what does that look like over time? >> the employer contribution rate is set at 20.71% starting july 1st, 2012. our actuaries are estimating that the net contribution rate

to the city will be close to 18.3% with the employees, based on salary, can treating roughly two points out -- 2.5% of what the city would have contributed. we have five-year smoothing of the retirement system, so we're still smoothing out the losses of two thousand eight-09. we will have two more years -- 2008-09. we will have two more years where we will have to deal with those. but then it will be offset by higher level of employee contributions. without knowing where we will finish this year, because the snapshot is taking june 30th, it is hard to say. but there will be a trend over the next two years of an increase in the contribution rate. chairperson chu: in terms of the snapshot at this moment, the

best understanding we have right now is that your expectation is that beginning july 1st, we will have a job -- a general contribution rate of 20% going to retirement expenses, correct? and some is paid by the employee and some by the employer. and over the next two years, the expectation is that will grow to 24%? >> yes. and again, those are projections based on different scenarios. the actuarial provides the retirement board as well as the city with the requested scenarios. the most recent one we ran because we know this has been a difficult year financially over the last several months. as of today we are up 1.5%. but depending on the scenario, the range of contributions go as high as 24%, 25% over the next two years. but that would trigger a higher

level of bertsch submission on the employee's side as well. >> -- a higher level of participation on the employee's side as well. chairperson chu: and on the employer's side, that would be relative to how much money? >> from retirements perspective, we also cover the two school districts as well as the trial courts. we have roughly $1.4 billion. the city will be roughly 95% of that. 1% would be roughly $24 million. what has happened is as the employees have decreased, the covered pay levels have also decreased. we have seen decreases in pay in the last two years.

the last number we were looking at was $2.4 billion in covered paid. -- covered pay. >> madam chair, members of the committee, this estimate is what we would have assumed as well. chairperson chu: $24 million and roughly 95% as the city share. $24 million is 1% across the entire system. >> that is correct. i think the last time we looked was roughly 95% with city /employee covered pay. chairperson chu: the areas where it would change that liability would be with fewer employees or better returns, it sounds like. >> the passage of the two

pension reforms assumed a very gradual replacement of existing employees with basically, the employees that have a lower level of benefits. i think we have been surprised at what is happening with the city that the turnover as far as replacing and people retiring with a higher level of benefits and be replaced with folks at the lower level, that is more rapidly taking place than the actuary assumed. the actuary was very conservative in the cost of those programs. i think we see people -- as we see people leaving the city and been replaced, there is a chance to accelerate those savings. the savings from passing does two -- those two were crossed that the board of supervisors thought would take 20 years to see a savings that is to begin. i think we will -- that is significant. i think we will see that accelerated.

it is good news as people are retiring. we just need to make sure that we continue to invest wisely and to the best we can. chairperson chu: and a final question with regard to the administration costs, you mentioned that most of the expenses are paid out of the trust. i'm wondering, is there a rule of thumb, good metric in terms of the administrative expense to the trust? although it does not cost the general fund, it is coming out of that trust. is there a level that we would not want to exceed? what is good practice? rex it could be -- >> the actuary has assumed anywhere between 45 to 55 basis points. that is a good average of what the administrative costs should be. the only thing that complicate it on our side is that we have a number of different types of -- we now have 14 separate benefit

plans covering active employees. there's a degree of competition there. but i think there rule of thumb, at least in the actuarial industry, is anywhere between 45 to 55 basis points against the value of the trust. chairperson chu: and where are we, generally? >> i think we are 46. chairperson chu: thank you. you are never met with the budget analysts recommendations -- you are in agreement with the budget analyst recommendations? >> we are. and we thank them for their report. chairperson chu: let's go to the next report. >> it recommended reduction of 2013-14, a decrease that would still allow 5.9% in the department's 12-13 budget. we also recommend an extension of encumbrances which would allow $100,000 to the city of

san francisco for plant project reserves. none of those are general fund reductions. regarding 2013-14, recommended reductions total $313,000. of that amount, ongoing savings would still allow an increase of 1.2% of the department's budget. of those recommendations in 2013-14, $3,879 our general fund reductions. chairperson chu: given that we have agreement on operations as well as the close out, do we have a motion? we will do that without objection. thank you very much. we will not require you to come back next week. health service systems.

>> good morning, supervisors. i am pleased to present the health service board budget presentation today. i will start out by reminding you all that we have 107,000 covered lives. we do services for the city and county. our total budget in terms of the contracts we manage our over 25 complex contracts. it is over $700 million for the budget. our administrative costs represent less than 1% of what we actually manage. these are not investment. these are actual services that we are negotiating. i want to highlight three areas of change and growth. the first came about because of the passage of prop c.

when we presented our budget last year, we did not know that prop c would exist. we agreed after it passed to negotiate calendar year for health and benefits. right now, we're in the midst of a six-month benefit plan, finishing out our fiscal year negotiations. and beginning in 2013, we will benefit -- we will negotiate benefits based on the calendar year. the one planned save about service system by $16.9 million, half of which went to the city and county. this year, going to the 2013 plan, we will be going -- implementing something called the medicare employer group labor plan, which will save another $2.3 million beginning next year. it also required as to double our workload not just in terms of open royal lowlights, -- open

enrollment, but in terms of the negotiations. we are performed every organization in california in terms of negotiating benefit rates. we will outperform calpers this year. the next major area of a challenge for us is the implementation of the marriage -- implementation of e-merge. it will change the way we manage our workload because we will not have access to get two days a month. but we will work with the unified school district, the community college district, and retirees during these outages and accomplish a lot of reconciliation that usually happens simultaneously.