COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Employee and Public Services

DATE:

October 1, 2003

BOARD MEETING DATE:

October 21, 2003

TO:

Honorable Board of Supervisors

FROM:

Deferred Compensation Committee

SUBJECT:

Revised Investment Policy for County Deferred Compensation Plans

Recommendation

Adopt a resolution amending the County's Deferred Compensation Investment Policy to incorporate legislative and fund review changes.

Background

On December 18, 2001 the Board approved a number of changes to its Deferred Compensation Plans in compliance with the Economic Growth and Tax Relief Reconciliation Act of 2001, including the establishment of a County Deferred Compensation Investment Policy. The Policy identifies how future providers and fund offerings will be monitored and evaluated.

Discussion

The amendment incorporates two changes that have occurred since the Investment Policy was initially approved.

1. The first change is the Sarbanes-Oxley Act of 2002. This Act assures a minimum of 30-day advance notice of "black-out" periods when participant actions will be restricted. Black-out periods may occur when plans change administrators, record-keeping systems or investment options.

2. The second change is the modification of Morningstar's fund evaluation rating system. Morningstar is an independent investment research firm that provides analysis of investment options using a five-star system (where 1 star means a fund is performing poorly and 5 stars means a fund is performing very well compared to similar funds).

Deferred Compensation Plans include numerous fund options that are divided into major categories or "asset classes" based on risk and potential return (e.g. stable value, bonds, international funds, growth, growth and income). In 2002, Morningstar expanded their categorization of growth funds and growth and income funds into nine categories to provide a more balanced comparison with other, similar funds. This allows employers and administrators to assess how well funds perform using a benchmark of comparable funds that have similar characteristics and objectives.

Vision Alignment

The amendment of the Investment Policy represents Vision Statement #20 which focuses on careful consideration of future impact and #21 incorporating the County's vision and goals into the delivery of service.

Fiscal Impact

There is no fiscal impact to the County as a result of this amendment.