HomeMy WebLinkAboutBUDGET AND FINANCE AGENDA 04-02-12central
Sanitary District
SPECIAL MEETING OF THE
CENTRAL CONTRA COSTA
SANITARY DISTRICT
BUDGET AND FINANCE COMMITTEE
Chair McGill
Member Nejedly
Monday, April 2, 2012
3:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
INFORMATION FOR THE PUBLIC
ADDRESSING THE COMMITTEE ON AN ITEM ON THE AGENDA
BOARD OF DIRECTORS:
JAMES A. NEJEDLY
President
DAVID R WILLIAMS
President Pro Tem
BARBARA D HOCKET
MICHAEL R MCGILL
MARIO M MENESI I
PHONE: (925) 228 -9500
FAX: (925) 676 -7211
wwmcentralsan.org
Anyone wishing to address the Committee on an item listed on the agenda will be heard when the
Committee Chair calls for comments from the audience. The Chair may specify the number of minutes
each person will be permitted to speak based on the number of persons wishing to speak and the time
available. After the public has commented, the item is closed to further public comment and brought to the
Committee for discussion. There is no further comment permitted from the audience unless invited by the
Committee.
ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA
In accordance with state law, the Committee is prohibited from discussing items not calendared on the
agenda. You may address the Committee on any items not listed on the agenda, and which are within their
jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may be
referred to staff for action or calendared on a future agenda.
AGENDA REPORTS
Supporting materials on Committee agenda items are available for public review at the Reception Desk,
5019 Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours
of the meeting to a majority of the Committee are also available for public inspection at the Reception
Desk. During the meeting, information and supporting materials are available in the Conference Room.
AMERICANS WITH DISABILITIES ACT
In accordance with the Americans With Disabilities Act and state law, it is the policy of the Central Contra
Costa Sanitary District to offer its public meetings in a manner that is readily accessible to everyone,
including those with disabilities. If you are disabled and require special accommodations to participate,
please contact the Secretary of the District at least 48 hours in advance of the meeting at (925) 229 -7303.
Budget and Finance Committee
April 2, 2012
Page 2
1. Call Meeting to Order
2. Public Comments
3. Old Business
*a. Review Andrew Brown of HighMark Capital's research on the District's
contractual agreement regarding the ability to stay with Mr. Brown and
HighMark if any significant changes occur later
*b. Review the proposed 5 -7% increase in overhead charges incorporated
into the proposed amendment to the Schedule of Environmental and
Development - Related Rates and Charges set for public hearing on
April 19, 2012
*c. Review staff's response to the Committee's request for information on the
following items:
• payment for locks at the Collection System Operations Building
• payment to DMS Facility Services
Staff Recommendation: Review the information and provide direction if
needed.
4. Risk Management
*a. Review Loss Control Report and discuss outstanding claims
Staff Recommendation: Review the report, discuss outstanding
claims and provide direction if needed.
b. Discuss new claims
Staff Recommendation: Discuss new claims and provide direction if
needed.
5. Review Position Paper accepting the financial status and budget of the Self -
Insurance Fund and approve allocation for Fiscal Year 2012 -13 Operations and
Maintenance Budget (Item 3.d. in Board Binder)
Staff Recommendation: Review the Position Paper and recommend Board
approval.
Budget and Finance Committee
April 2, 2012
Page 3
*6. Discuss fiduciary responsibilities under the Deferred Compensation Plan and
staff's interest in contracting for a benchmark study of the reasonableness of fees
charged by the three providers
Staff Recommendation: Discuss and provide direction to staff.
*7. Discuss approach to selling bonds to allow for payment of a portion of the
District's Unfunded Actuarial Accrued Liability (UAAL)
Staff Recommendation: Discuss and provide direction to staff.
8. Receive update on Contra Costa County Employees' Retirement Association
(CCCERA) five -year projection of employer rate changes (Item 6.a.2)f) in Board
Binder)
Staff Recommendation: Receive the update.
9. Discuss update on permit counter and connection fee collection matters (Item
6.a.1) in Board Binder)
Staff Recommendation: Review the report and provide direction to staff if
needed.
*10. Discuss extension of existing contract with Bulldog Gas and Power, Inc. to
purchase Landfill Gas
Staff Recommendation: Discuss and provide direction to staff.
11. Review February 2012 Financial Statements and Investment Reports (Item 3.c.
in Board Binder)
Staff Recommendation: Review and recommend Board approval.
12. Expenditures
a. Review Expenditures (Item 3.b. in Board Binder)
Staff Recommendation: Review and recommend Board approval.
*b. Review Legal Expenditure Summary
Staff Recommendation: Review Legal Expenditure Summary.
Budget and Finance Committee
April 2, 2012
Page 4
*c. Review P -Card expenditures
Staff Recommendation: Review P -Card expenditures.
13. Reports and Announcements
14. Suggestions for future agenda items
15. Closed Session
a. Conference with Legal Counsel - existing litigation pursuant to
Government Code Section 54956.9(a)
Louis Pimentel v. CCCSD & Anthony Nathan Harbaugh, Contra Costa
County Superior Court Case No. C11 -02394
16. Report out of Closed Session
17. Adjournment
* Attachment
3,a.
Central Contra Costa Sanitary District
March 30, 2012
TO: BOARD BUDGET AND FINANCE COMMITTEE
FROM: RANDALL MUSGRAVES A*4
DEBBIE RATCLIFF ,oZ1
SUBJECT: HIGHMARK CAPITAL MANAGEMENT
Andrew Brown from HighMark Capital Management was asked to research the
District's options to retain or change investment advisors based on the existing
contract with PARS and in light of the change from Union Bank to US Bank as
Trustee for the District's GASB 45 Fund.
Mitch Barker, Executive Vice President of PARS (OPEB Trust Administrator),
indicated that the District has the right at any time to change from a Discretionary
Approach (what the District uses now) to a Directed Approach where the District
would "direct" the Trustee (US Bank) to use HighMark Capital if US Bank were to
end the sub - advisory relationship. The investment management fee schedule
that HighMark Capital charges now, would remain the same. The Trustee fee,
which is currently waived, would be per the schedule below.
Fees would be calculated on the market value of the assets held in the account
at the following rate:
.10% on the first $1,000,000
.08% on the next $4,000,000
.06% on the next $5,000,000
.05% on all over $10,000,000
Our current account balance is approximately $20 million. The fee on $20 million
would be $12,200 annual and would grow as the account balance increased.
Per the Trust Agreement, the District may elect to withdraw from the Trust by
giving at least 90 days prior written notice to the Trustee and the Trust
Administrator (PARS).
ak)Iolo
Central Contra Costa Sanitary District
MARCH 30, 2012
TO: BOARD BUDGET AND FINANCE COMMITTEE
VIA: RANDALL MUSGRAVES, DIRECTOR OF ADMINISTRATION
FROM: DEBORAH RATCLIFF, CONTROLLER 11)4—
SUBJECT: OVERHEAD PERCENTAGE
The Budget and Finance Committee asked for an explanation as to why the District
rates and charges were increasing by 5 -7 %. Staff indicated that the increase was based
on the new overhead calculation that was approved by the Board at the December 15,
2011 Board meeting.
The administrative overhead portion of the total overhead calculation increased by 12 %.
This increase was based on substantial increases in the GASB 45 contribution and
retiree healthcare premiums. The increase in the overhead rate equates to a 7.7%
actual increase in cost to contractors and the County Clean Water Program.
The Position Paper that the Board approved in December is attached.
HAOverhead percentage.doc
Central Contra Costa Sanitary District
' BOARD OF DIRECTORS
POSITION PAPER
Board Meeting Date: December 15, 2011
subjecr: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE FOR
FISCAL YEAR 2012 -13
Submitted By:
Debbie Ratcliff, Controller
Initladng Dept/Div.:
Administrative / Finance & Accounting
REVIEWED AND RECOMMENDED FOR BOARD ACTION.
r
D. Ratcli
long W
. Mu raves J Kelly,
Go eral Manager
ISSUE: Board approval is requested to adopt the annually updated administrative
overhead percentage.
RECOMMENDATION: Approve the use of the administrative overhead percentage of
194% for Fiscal Year 2012 -13.
FINANCIAL IMPACTS: The administrative overhead percentage is calculated annually
for the purpose of recovering administrative overhead and employee benefit costs when
recovering full costs for services provided to another agency, company or developer,
charging to capital projects and for customer billings involving labor costs.
ALTERNATIVES /CONSIDERATIONS: The administrative overhead calculation
methodology could be modified resulting in an increased or reduced percentage. This is
not recommended as a modification to the methodology would likely raise questions
and objections due to a lack of consistency.
BACKGROUND: In an effort to set the rate early enough to be used for the calculation
of rates and charges and the negotiation of the Clean Water Program contract, staff
brings the annual updated percentage to the Board every year by the first meeting in
January.
The purpose of calculating administrative overhead, non -work hours, and employee
benefits rates is to follow the Board's direction for the District to recover the full cost of
the direct services it provides.
Administrative overhead consists of indirect costs that are incurred for a common
purpose benefiting more than one task. Indirect costs include expenses such as
Administrative Department expenses, General Manager, and Department Director
salaries and benefits, secretarial salaries and benefits, self - insurance fund expense,
depreciation expense, and the GASB 45 annual contribution, including retiree
healthcare premiums.
POSITION PAPER
Board Meeting Date: December 15, 2012
subject. APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE FOR
FISCAL YEAR 2012 -13
Non -work hours consist of the value of vacation, sick leave, administrative leave,
birthday holiday, and earned overtime expressed as a percent of salaries.
Employee benefits consist of costs associated with retirement payments, medical
premiums, deferred compensation contribution in lieu of social security and other
similar benefits expressed as a percent of salaries.
The administrative overhead percentage is calculated using the most recent audited
financials. The administrative overhead percentage approved last year for use in the
2011 -12 budget was 173 %. This year, based on the 2010 -11 audited financial
statements, the calculation results in an administrative overhead percentage of 194 %.
The current calculation of the administrative overhead portion is higher mainly due to
substantial increases in the GASB 45 contribution and retiree healthcare premiums.
The employee benefits calculation increase is due to increases in healthcare premiums
and pension contributions.
For the 2012 -13 Fiscal Year, the following rate would apply:
Administrative Overhead
Non -Work Hours
Employee Benefits
Total Overhead
Recommended
Prior Year
for 2012 -13
2011 -12
105%
93%
.18%
19%
71%
61%
194%
173%
For those charged District overhead, such as contractors and the County Clean Water
Program, the increase in overhead rate will result in a 7.7% actual increase in cost to
them. This increase is anticipated to occur again in 2013 -2014 due to the increase in
retirement, OPEB, and healthcare costs.
RECOMMENDED BOARD ACTION: Approve the use of the administrative overhead
percentage of 194% for Fiscal Year 2012 -13.
NAACCOUNTING \GMTEMPI\Admin Overhead\2012 -2013 Admin OH Position Paper.doc Page 2 of 2
3,C,
Central Contra Costa Sanitary District
March 30, 2012
TO: BOARD BUDGET AND FINANCE COMMITTEE
FROM: RANDALL MUSGRAVES e/A
DEBBIE RATCLIFF ,jam
SUBJECT: MARCH 12, 2012 COMMITTEE MEETING
There were two outstanding questions from the last Board Budget and Finance
Committee meeting which required additional staff research. The questions and
answers are provided below:
1. 188942 — Pacific Lock and Door — What service was provided for the $2,774.14
charge?
Please see the attached memo from Shari Deutsch, Safety and Risk
Management Administrator.
2. 188925 — DMS Facility Services — Did the current invoice for $15,030.98 include
the clean up for the new CSO building?
This invoice was the regular monthly clean up for all District facilities, which
included the old CSO location. However, two clean ups for the new facility were
included at $540 each for special Board meetings prior to occupancy.
DMS was asked to clean the CSO facility prior to occupancy and to additionally
strip and wax two floor areas. This clean up cost $5,900 and will be recovered
from BoBo Construction. District staff has not paid the entire contract cost yet
and is still negotiating change orders. The $5,900 can be deducted from the final
payment to BoBo construction, if necessary.
Central Contra Costa Sanitary District
March 29, 2012
TO: Budget and Finance Committee
VIA: Randy Musgraves, Director of Administration
FROM: Shari Deutsch, Safety & Risk Management Administrator
SUBJECT: Invoice #60476 from Pacific Lock and Door
Invoice #60476 from Pacific Lock and Door shows three items for a total cost of
$2,774.14. The first item, described as "rekey cylinders, cut and stamp primus keys,
install cylinders per proposal' involved modifying the original lock cylinder cores to
accept the primus key system, cutting all the primus keys as defined in the CSO key
plan and installing the modified cylinder cores in the door lock hardware.
This work should have been performed under the general contract for the CSO building
project. District construction managers asked the contractor repeatedly to get this work
done in time for the CSO relocation but it was unable to accomplish the task. As a
result, the District asked Pacific Lock and Door to perform this work and invoice it
directly to avoid further relocation delays.
The second item, described as "3 extra trip charges due to contractor not having core
keys or proper glass door cylinder cores" arose from a subcontractor error. The lock
cores installed in all the glass doors were not compatible with the primus key system.
The subcontractor was asked to correct this problem. Pacific Lock and Door staff was
asked to come back on a future day to pick up the replacement cores. On three
separate occasions Pacific staff arrived as planned but the replacement cores had not
yet been delivered.
The third item, described as "replace cylinder cores provided by the contractor ",
involved removing the improper cores from the glass door locks and installing the
replacement cores once they had been modified to accept the primus key system. Had
the contractor initially installed the proper cores in the glass doors, this work would have
been done as part of item 1.
Since all three items on this invoice resulted from contractor errors, the entire invoice is
being charged back to the contractor.
t
a
d
O
C
O
U
N
N
O
J
�
N--
1
0
N
C
O
C
C �
•v_
}
m c �
C C1 y C
_.OLL ._
3 IT O C
d C .` d
z0 (L (L
Z
W
2
W
In
cc
Cm
G
W
cc
a
Z
WE
J
fZ
v
Z
CD
Q
O
J
LL
cc
W
O
H
O �
L c
ca
0 �
U 7 = J
m y y¢ H o G
O ft1 11 W = g
U 7E O U y S .cc U ca
y 'O
Z to rn •Z w x .a -
C
fn a fn a)o > fn �2 d
� n O T S S O S N p�A
co 64 t2 M N M O i�9
di di EM9 di CO ON-
�
V3
O O S CI
� � � 40A to
I III
J
M i
O
a
� F
n S `$
19 N
M
La
�1
N
O
cc
I°-
cr
W
O
J
J
a
cr
W
Z
W
a
i
Y Y = _
d �'
aNi
C
N
C -O O
w w w U m V' i V
C>
R
U
fO C
ca C
ism
co
mo
O� N N i0
�M39AL
N N
:
N
N >
N
Q
= W
Y
U
}
1-
O
m v
m U
LZ
m m
o
rd..
> 3:
m
S d
LO
a
Q
UUq
O 8
U
O
c N j
r
w.
O
fn9
T >
Q
d
m C!
O
N c_
tv
icr
N a . J OV
CU
A d
LL
CD
U
L m r -O O W E
=
C
_ c
>
m
11N9i
Jp
Q LO
Y = O
o
N
m
oy cc,
c
N O
to
A :5
ca
Cl) r
N
_
J x Q
J Q
Q y
C N
N N N
O
� O
ygjT
t0
a
m
7 fO
J gal 0 a
'S
y
alga
N m
a >
mx
c �Iv
�vEi
to
S
N
I-
c °1
or a`) =
c
o
E
N
N
V W
N co V
y
'-
'-
'- '- ^ N N_
N
N
N_
J N
_
0
N O
Z!
N N N O O
04 CM
O
Q
`^
N
M�
`ti9
�� r •- N
r
tin
yO
O O
.J J J -i -1
0
J
J
Jfn
cn U))
a a cn
CK
CL
N
m O
O
pa pa pQap
O LO co O O N
cm
I It
to
O
t0
p
1�
O
OIO
N
N N N N
N_
CpV
1pV
N
N N
pN
N N N N O C,G
N
G
Q
m
N to to to
m
O)
7 N
N N
N Cl) N a)
O
0 0
0 0 0 0 0
p
N U
U U
U U U U U
V
�1
N
O
cc
I°-
cr
W
O
J
J
a
cr
W
Z
W
a
8
ci
5i I Gf) S
a�i I a�i J
U m R y,U 0
j C N C j
r f0 1�0 N t0 0
,o
_ «Id
N CA
ca fA N CCy - ` O
i
Y 13 J Q
0
� c co to cn
Q .-ice O N
CL
CD W WO,N
>_ O N S
a>�•ELL
C C 0 w Y
O a°Um Y
J O O O t�f p
O N N N SIN
O
(♦7 J J J J J
J(.7 0 0 0 0
8N p A r
N N O- N
O O O O O
N N N !V N
fkl - N CO LL st
I
7 N = c N
O N O O
N,U,�IUI0U
a`
y
J
0''
m
LU_
U
d
U
(O c
CL
H
E
C
C O
N
N >
N
Q
= W
Y
U
}
1-
O
LZ
m m
rd..
> 3:
obi
LO
a
m
O 8
M
r
w.
t0
di
fn9
8
ci
5i I Gf) S
a�i I a�i J
U m R y,U 0
j C N C j
r f0 1�0 N t0 0
,o
_ «Id
N CA
ca fA N CCy - ` O
i
Y 13 J Q
0
� c co to cn
Q .-ice O N
CL
CD W WO,N
>_ O N S
a>�•ELL
C C 0 w Y
O a°Um Y
J O O O t�f p
O N N N SIN
O
(♦7 J J J J J
J(.7 0 0 0 0
8N p A r
N N O- N
O O O O O
N N N !V N
fkl - N CO LL st
I
7 N = c N
O N O O
N,U,�IUI0U
a`
4,0k%
(A
'p C
O
0
m �
O Q
CD
Q y
N �
IZ Q
LO CD m r-
10:01 N tto to t9) O t0 O
aD � o to
N aD tD tD N �
Ca3
fie.
3
CO
Y
C
N
cn
44
O O
6
o
m
LU_
U
Z
U
W
2
N
N to
c
U
}
1-
T
� tII
Z
> 3:
tU
Q
a
t0
y
W >
T >
Q
d
y
t0C
4,0k%
(A
'p C
O
0
m �
O Q
CD
Q y
N �
IZ Q
LO CD m r-
10:01 N tto to t9) O t0 O
aD � o to
N aD tD tD N �
Ca3
fie.
3
CO
Y
C
N
cn
44
O O
6
o
m
N
N to
c
O
12
T
� tII
> 3:
tU
lU N
N
t0
y
W >
T >
C
J
t0C
..O-.
�2 J
J J
g
CD
U
T
On.
_ c
>
m
L y
C cU
Y = O
o
N
m
oy cc,
c
N O
A :5
Q
to
_
J x Q
J Q
N N N
N
ygjT
t0
aa¢EL
Q Q
alga
�NI N
O O
to
S
N
Cl) O.-
S O O
N N N
_p
N N
N N
N
N
V W
N co V
y
O
U
U
O
U
O
U
O-
0
L
O
N
m
N
M
-no
Central Contra Costa Sanitary District
March 29, 2012
TO: BUDGET AND FINANCE COMMITTEE
VIA: RANDALL MUSGRAVES, DIRECTOR OF ADMINISTRATION
FROM: DEBBIE RATCLIFF, CONTROLLER
DEFERRED COMPENSATION COMMITTEE
SUBJECT: FIDUCIARY RESPONSIBILITIES REGARDING FUND FEES
The Diepenbrock Group at Graystone Consulting met with the District to offer
Investment Advisory Services for the District's Deferred Compensation Plans. During
the meeting, Mr. Jim Diepenbrock indicated that the District had a fiduciary
responsibility to evaluate the fees charged by the funds that were offered by each of the
three Deferred Compensation Providers.
Staff asked for a legal opinion from Trucker Huss regarding the District's fiduciary
responsibility in terms of Plan fees and fees charged by the investment funds (See
Attachment A). Mr. Charles Dyke from Trucker Huss responded that "the District has a
duty to prudently select and monitor the investment options that are offered under the
Plan. This includes a duty to periodically assess the performance of the Plan's funds
and their continuing suitability. This includes evaluating the fund's returns and
assessing whether the fees charged continue to be reasonable with respect to
investment performance."
Mr. Dyke indicated that it is becoming more common for large retirement plans to hire
an expert independent investment consultant to compare overall performance of each
fund to appropriate benchmarks, compare the fee and expense ratios of each fund to
appropriate benchmarks, and make recommendations regarding fund retention and
replacement. An investment advisor can also be used to try to negotiate lower fees.
After discussions with Jon Chambers from Schultz Collins Lawson Chambers, Inc., one
of the benchmarking firms recommended by Trucker Huss, regarding the typical number
of deferred compensation providers offered by companies to their employees, staff
conducted a survey of other public entities (see Attachment B). Private employers
consistently use one provider. Public agencies surveyed showed different results with
equal numbers using one, two or three providers. The cost of a fee analysis and the use
of an investment consultant to review the funds are greater with three providers than
one.
H- Fiduciary Responsibilities and Fund Fees - Revised 3 -12 doc
Mr. Chambers estimated a cost of $6,000 for a benchmark study which would include
collecting sufficient information to evaluate current fee arrangements for each of the
three providers; provide an in -depth analysis of fee structure for each provider; meet
with the Controller/Trustee and Deferred Compensation Advisory Committee to discuss
findings and express an opinion regarding the reasonableness of each provider's fee
arrangement. Staff recommends that this be done every three years.
Should the District seek investment advisory services, the fee would range from
approximately $21,000 to $105,000 for annual monitoring. This fee range is based on
monitoring one provider versus three providers. Each of our providers offer
approximately 30 investment funds to pick from, therefore, it is more costly to monitor
multiple providers. Monitoring would include performing extensive comparative and
quantitative analysis of individual investment vehicles; evaluate fund expense structure
and provide recommendations for cost reductions; submit formal written report; present
report to the Deferred Compensation Advisory Committee, maintain investment policy
statement and serve as co- fiduciary for investment selection and monitoring purposes.
The Deferred Compensation Advisory Committee reviewed the specific fiduciary
responsibilities noted in the Trucker Huss letter with each of the District's deferred
compensation providers to determine what reviews were being done by them and which
were being done by District staff (see Attachment C). There are several areas where the
District could potentially benefit from the help of both a benchmark study as well as an
investment advisor. Those areas are reasonable fees and expenses compared to risk,
fund manager performance, comparisons to peers relative to historical returns,
performance relative to risk and consistent performance of funds. An investment advisor
could also advise the District as to fund line -up as well as replacement funds for existing
underperforming funds.
The Deferred Compensation Committee is recommending that the District:
Contract with Schultz Collins Lawson Chambers, Inc. to provide a
benchmark analysis of our three current providers regarding fees.
2. Receive and review the benchmark analysis and determine the appropriate
steps needed to meet the District's fiduciary responsibilities.
3. Perform a benchmark analysis every third year.
HAFiduciary Responsibilities and Fund Fees- Revised 3- 12.doc
ATTACHMENT A
; \, l frd
TRUCKER ♦ HUSS
I'.Iirlhclll L. 1..11
R. I lC
R. Itr;rxli'nr,l I Ins;
Mallllc\l 1,. (ioljatl,.
l:harlrs:l. `�torkc
A PROFESSIONAL CORPORATION
�Il�hcllc ticllnllcl I.t:%%':�
I 1(att l
ERISA AND EMPLOYEE BENEFITS ATTORNEYS
r_nlia 11. 1'crkius
OchoAin
Ut:hur,lh lurhth 1\ lcncr
Icrtnllcr kick Brook,
.ltlhc hulli.lnk
.! i \1MV 1,0L:
PullalJ.1. 1 richt.
k•nnilcr 11 ( hulls!
\'I,irr I: I'mtcll
I�tl,nl C' (illuu�lc
knircril� tichct<ntr
Itl�lu•Il It (i�lctcr
I ill;tnt ! Salim,
Miku.l,l (' 11,111111
firkin F. %olt
T. f,alull kda c
t..121f1 >tid .\ K ins—,
\larla K. I.ctelher
Charlcti \I 1)\l.c
March 19, 2012
Allwo K. Su
t tl('nu11'el
tirl_cial l ounscl
Harhar,l h. t..rc.r(l
Barhara 1' I'Irtchrr
Rtdharl \ Gilhert
Deborah Ratcliff
Controller
Central Contra Costa Sanitary District
\\lilcr; I)ir,:cl I)1;t1
--
5019 Imhoff Place
1 15.2 ,;,t(„
Martinez, CA 94553 -4392
Re: Investment Fees Under District's Deferred Compensation Plan
Dear Ms. Ratcliff:
You have asked us to comment on the extent to which the Central Contra Costa County
Sanitation District has a duty, when monitoring and evaluating the performance of the families of
investment fund alternatives under the District's 457 Governmental Deferred Compensation Plan
(the "Plan "), to retain only families or funds that charge the lowest management and other fees
and expenses, and whether when evaluating such fees the District should retain an expert to
perform such evaluations. As discussed more fully below, the District has a duty to evaluate and
consider the fees charged by the investment funds in the families of funds offered under the Plan.
But there is no duty to retain only funds or families of funds that charge the absolute lowest fees.
An investment fund's fees are but one consideration among a number that the Plan's fiduciary
must take into account when deciding whether to select or maintain an investment option. As
also discussed further below, when a plan's fiduciary does not have sufficient in -house expertise
to evaluate the reasonableness of the funds' fees, the prudent course is to retain an appropriate
expert independent investment consultant to perform the evaluations and make recommendations
to the plan fiduciary. We suggest the District do so with respect to the Plan.
Under the Plan document, the District is the entity with discretionary authority and
responsibility for managing and administering the Plan. The District's Board of Directors has
given the Controller responsibility for coordinating certain aspects of Plan administration,
pursuant to which a Deferred Compensation Advisory Committee (the "Committee "), chaired by
the Controller, has been formed. The Plan allows participants to direct the investment of their
accounts, and presently offers participants three families of funds from which they can make
their selections. The three fund families are made available through three Plan service providers.
The Committee assists the Board of Directors by monitoring the performance of the existing
vendors and investment fund families and reporting to the Board of Directors. The Committee
asks for and receives performance data from the Plan's service providers, and relies on this data
91161421
One Embarcadero Center, 12th Floor, San Francisco, California 94111.3628
Tel (415) 788-3111 + Fax (415) 421 -2017 + www.truckerhuss.com
Deborah Ratcliff
March 19, 2012
Page 2
when reporting to the Board of Directors. To date, the Committee has had no reason to doubt the
reliability of the performance data it has received.
The Plan is governed by California law, not the federal Employee Retirement Income
Security Act of 1974 ( "ERISA "), because the District is a governmental entity whose retirement
programs are exempt from ERISA coverage. The California Constitution and the California
Government Code set forth the fiduciary duties of loyalty and prudence that those with
discretionary authority for managing and administering California public retirement systems owe
to participants. These California provisions are nearly identical to provisions in ERISA.
Because of the absence of a well - developed body of California case law, ERISA's large body of
law can provide useful guidance to public plan fiduciaries.
The duty of loyalty requires fiduciaries to manage and administer their plans "solely in
the interest of, and for the exclusive purposes of providing benefits to, participants and their
beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of
administering the system." Cal. Const. Art. XVI, § 17; see ERISA § 404(a). The duty of
prudence requires fiduciaries to "discharge their duties with respect to the system with the care,
skill, prudence, and diligence under the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with these matters would use in the conduct of an enterprise
of a like character and with like aims." Cal. Const. Art. XVI, § 17; see ERISA § 404(a).
Because the Plan allows participants to direct the investment of their accounts, the
District has a duty to prudently select and monitor the investment options that are offered under
the Plan. This includes a duty to periodically assess the performance of the Plan's funds and
fund families, and their continuing suitability. There are many considerations the District should
take into account when deciding which investments, or families of funds, to offer and retain, only
one of which is the fees charged by the funds. As a federal court of appeals recently explained in
an ERISA case rejecting a challenge to the reasonableness of a 401(k) plan's investment fees:
"The fact that it is possible that some other funds might have had even lower ratios is beside the
point; nothing in ERISA requires every fiduciary to scour the market to find and offer the
cheapest possible fund (which might, of course, be plagued by other problems)." Hecker v.
Deere & Co., 556 F.3d 575, 586 (7" Cir. 2009). The key requirement is that plan fiduciaries
follow a prudent process in selecting funds or families of funds for inclusion in the plan and for
evaluating whether to keep those funds or families. Among the considerations the District
should take into account are:
• whether the Plan offers a sufficient range of funds to cover appropriate risk, return and
diversification objectives for the Plan's participant population;
• whether each investment fund and its investment manager have a reasonable
performance record, typically a minimum of three years;
• the investment option's historical returns relative to its peers;
• the investment fund's performance relative to risk, as compared to its peers;
#1161421
Deborah Ratcliff
March 19, 2012
Page 3
• whether the investment's performance has been consistent from year to year or has had
significant periods of underperfonnance; and
• whether the investment option has reasonable fees and expenses.
Fiduciaries have an ongoing duty to monitor the funds' performance. This includes
evaluating the fund's returns and assessing whether the fees charged continue to be reasonable
with respect to investment performance and any services provided. It is now common for
fiduciaries of large private retirement plans to review fund perfonnance quarterly and to evaluate
fees annually with the assistance of an expert independent investment consultant. (We have
provided you with the names of three such investment consulting firms with whom we and our
clients have worked successfully in the past, and we can provide you with others if you wish.) In
current practice, independent investment consultants often are retained to: (i) compare overall
performance of each fund, or a family of funds, in a plan to appropriate benchmarks; (ii)
compare the fee and expense ratios of each fund or family of funds in a plan to appropriate
benchmarks; and (iii) make recommendations regarding fund or family retention and
replacement. On the last item, family replacement is now a regular feature of the private- sector
plan landscape, where processes and regulatory guidance have been developed to ease the burden
on fiduciaries and reduce the disruption to participants.
In assessing the reasonableness of a fund's fees, it is important that the fiduciary identify
the universe of fees being charged. Some fees, such as investment management fees and sales
charges (or loads), might be readily apparent. Others might not. Fees and expenses under
deferred compensation plan investments might include revenue sharing arrangements, 12b -1
fees, SEC Rule 28(e) soft dollars, sub - transfer agent fees, variable annuity wrap fees, and float.
Where fees are not transparent, a request that the fund vendor identify all fees is often fruitful.
Once the total fees have been determined, the fiduciary — again, typically through the
services of a prudently retained independent investment expert — should compare fees or expense
ratios against those charged by comparable investment vehicles (benchmarks). The goal in
assessing and comparing total fees is to avoid paying above - average fees or expense ratios.
Where the investment manager or fund has demonstrated above - average investment
performance, then higher fees or expense ratios may be appropriate.
One way to help reduce fees is to try to negotiate for reductions. For example, large
plans that offer mutual fund investments typically have the bargaining power to obtain
institutional shares for participants, which are significantly less expensive than the retail shares
offered to individual investors. Where the only difference between share classes is the fees, a
fiduciary may have a duty to pursue the cheaper shares. See Tibble v. Edison International,
639 F. Supp. 2d 1074, 1111 (C.D. Cal. 2009). Another example can be found in revenue sharing
arrangements, which are common when investment funds are offered under a plan through a
bundled service arrangement. Under such an arrangement, the investment fund pays a portion of
the fees it collects from participants' investments back to the service provider — such as a
recordkeeper — to cover a portion of the cost of the recordkeeper's services to the plan. Such
fees are not inherently unreasonable. The question is whether the shared or "indirect" revenue
#1161421
Deborah Ratcliff
March 19, 2012
Page 4
constitutes reasonable compensation for the services rendered when added to any direct
compensation also received by the service provider. If the compensation appears high, the plan's
fiduciary must take that into account and may have a duty to try to negotiate a reduction. (Again,
the independent investment consultant may be able to assist with such efforts.) In recent
litigation against private 401(k) plan fiduciaries under ERISA, fee sharing arrangements have
been challenged as inherently unreasonable because they are alleged in reality to be nothing
more than kickbacks to the service provider for having included the investment fund in the
bundle. Some courts have allowed such lawsuits to go forward, at least long enough to give the
plaintiffs a chance to prove their allegations. See, e.g., Braden v. Wal -Mart Stores, Inc., 588
F.3d 585, 589 -90 (8th Cir. 2009).
If an investment fund's fees, or the fees of a family of funds, increase disproportionately
to the fund's or family's performance, the fiduciary may have an obligation to replace it with a
comparable fund or family with lower, more reasonable, fees, depending on a number of
considerations. The extent to which any replacement may be called for depends on the particular
facts and circumstances of each case. Where the plan fiduciary does not have sufficient in -house
expertise to make these evaluations, a prudent and often - followed course is the retention of an
expert independent investment consultant to perform the analyses described above and to make
recommendations. Outside counsel also is sometimes brought in to assist. In the District's case,
since it has ultimate responsibility for evaluating the performance and suitability of the funds in
the Plan, engagement of an expert independent investment consultant to perform the evaluations
discussed above would be a prudent and appropriate course to follow.
In the private sector, a certain amount of the information that fiduciaries acquire during
selection and monitoring process now must be disclosed to participants. In October 2010, the
Department of Labor released final regulations under ERISA requiring fiduciaries of participant -
directed 401(k) and other individual account plans to regularly disclosure certain information
designed to help participants make better - informed investment decisions. The regulations do not
require compliance until January 1, 2012 for calendar -year plans. Among the disclosures that
must be made are: (i) performance data for each investment alternative over one -, five -, and ten -
year periods, (ii) investment performance benchmarks based on appropriate broad -based
securities market indexes covering the same periods; (iii) any restrictions or limitations on a
participant's ability to purchase, transfer, or withdraw the investment; and (iv) fee and expense
information. The fee and expense disclosures that must be made include:
• the amount and description of any shareholder -type fees;
• the total annual operating expenses of the investment, expressed both as a percentage
(e.g., expense ratio) and as a dollar amount for a one -year period for each $1,000
invested;
• a statement indicating that fees and expenses are only one of several factors that
participants and beneficiaries should consider when making investment decisions; and
#1161421
Deborah Ratcliff
March 19, 2012
Page 5
a statement that the cumulative effect of fees and expenses can substantially reduce the
growth of a participant's or beneficiary's retirement account and that participants can
visit the Department of Labor's web site for an example demonstrating the long -term
effect of fees and expenses.
Under the regulations, private plan sponsors must make these disclosures on or before the date
the participant can first direct his or her investments, and at least annually thereafter. Although
the District is not subject to the regulations, it may wish to review its practices and take steps as
appropriate under the circumstances to align its practices with them.
A final observation. The Plan probably would benefit if the District's administrative
services agreements with the Plan's vendors were replaced with more up -to -date documents.
Asking the Plan's vendors to send you copies of their current forms of service agreement would
be a useful first step in this regard.
I hope you have found this letter helpful. Attached for your reference is a discussion of
current fiduciary issues in the selection and monitoring of plan investments by one of my
colleagues, Brad Huss, As I mentioned in a recent telephone call, we would be happy to sit
down with you and your colleagues in person to discuss these issues in greater depth and to
provide a fiduciary training session for the Committee. Because the District is a long -time client
of our firm, we would be happy to do so at no charge. Please let me know how we can be of
further assistance.
Sin rel
l.�
Charles M. Dyke
Director of Litigati
Enclosure
CMD:ss
#1161421
April 2010
This issue feature,;
nn icctcrviczo zoith
R. Bradford H.USS,
ERISAAffornevanci Director
of Trucker Huss,, A PC
PI MCO
DCPractice
Dear prudence.
In this PIMCO DC Dialogue, we speak with Brad Huss,
Employee Retirement Income Security Act (ERISA) attorney
and director of Trucker Huss, APC. Brad discusses many of the
legal issues that defined contribution (DO plan sponsors are
confronting today. He shares the concerns with fees, as well as
how the courts have responded to fee litigation thus far. Brad
underscores the need for plan fiduciaries to follow a prudent
Moderalcil b„ process in the selection and monitoring of their plan providers.
Stacy L. Schaus, UP He points out that even index funds require plenty of fiduciary
PhVIC U SI`WOI' Vice P) c,ident crud
Defined Conhibuhon Practice Leader work. He also talks about DC plan investments, including the
1,ohinu, i, AS ue 4 importance of evaluating target -date products. In addition, Brad
addresses the issues of offering company stock in a plan. Finally,
he shares recent concerns with data privacy and the .0
potential risks of providers cross- selling
products to participants
DC Dialogue
DC Dialogue:
What are some of the legal issues that DC plan sponsors are
facing today?
Brad Huss:
Plan sponsors are perhaps facing more legal issues today than ever
before. Among the issues are fees and plan investments, including
the use of passive versus active vehicles, target -date strategies and
company stock. Plan sponsors also are concerned with vendors' limits
on liability, participants' data privacy as well as the cross - selling of
products using plan information. They're concerned with litigation and
how to protect their organizations
DCD:
Can you start with a discussion of the fee issues?
Huss:
Fees have been the subject of lawsuits, Department of Labor (DOL)
activity and congressional proposals. There are several facets to fees;
first, of course, being the level of the fees in
the underlying investments
and plans. Second, there's an issue of fiduciaries being able to gain
access to the information they need about fees that are being charged
by their various vendors, and the arrangements they have with those
"
vendors. For instance, plan sponsors need to fully understand the
T72e focus on fees
indirect revenue - sharing arrangements and how much everyone is
may be overly
receiving for their services, as well as the cost to plan participants.
influencing
In addition, there's an issue regarding how to disclose fees to
investment selection."
participants in an understandable manner. These communications
should provide the information that participants need to make informed
choices, yet not overwhelm them. Of course, that's a fine line and
there's a difference of opinion on how much detail participants actually
need. Is it simply the total cost of the investment? Is that the only
material factor to a participant's decision? Or do they need to know
much more granular information about fees, such as who's receiving
what, and how the various fees get divided up among different
the
investments and other service providers?
DCD:
How are the fee concerns impacting investment decisions?
Huss:
While it's necessary for plan sponsors to understand the fees in their
plans and how the providers are paid, the focus on fees may be overly
influencing investment selection. Some plan sponsors experience
tension as they seek to drive down plan costs, yet at the same time
aim to offer a best -in -class investment lineup to their participants.
This tension includes considering active versus passive investment
management, as well as brand -name mutual funds versus using
other vehicles such as separate accounts or collective trust funds. It's
important to manage plan costs; however, there are other legitimate
considerations beyond fees.
DCD:
How should plan sponsors think about their plan costs?
Huss:
Benchmarking total plan costs, including investment management,
record keeping, trust and other expenses, is crucial. Unfortunately,
there is a lack of readily accessible benchmarking data, especially on
the non - investment costs such as record keeping and trust services.
Consultants can help the plan sponsor as they often have proprietary
Page 2
r
i
i
data banks to provide fee comparisons. Plan sponsors should also
consider pricing their plan services in the market every so often.
DCD: You mentioned active versus passive management. Is the government
suggesting one approach over another?
Huss: ERISA requires prudence in the selection process. With the focus on
fees, some plan sponsors may believe the government is providing a
safe harbor if they select low -cost index investment vehicles rather
than actively managed investments. I don't think choosing all passive
is inherently a fiduciary safe harbor. While passive management
certainly can lower the overall expenses of the plan, the sponsor
may be sacrificing investment upside that active management has the
potential to bring to participants. Plan sponsors should consider each
asset class and whether active management may be more attractive
for participants. Some asset classes may make more sense to manage
actively, especially less efficient markets such as small caps. What's
most important is that plan sponsors use a prudent process to select the
investment lineup and that they document their approach. That's the
standard the government expects sponsors to meet.
Keep in mind, even if the plan sponsor selects passive funds, fiduciary
oversight requirements remain. They need to consider tracking error,
risk, securities lending and how the funds are run. Plus, even with
index funds you need to look at the fee level. Just because it's an index
fund doesn't mean the fees are always low. Some index funds do
have higher expense ratios, and some of them are designed to create
revenue - sharing amounts, so not all index funds are inherently low fee.
Plan sponsors also need to consider which indexes are relevant to the
specific investment purposes they're trying to achieve with their plan
investment options. So, even with index funds, there's still plenty of
fiduciary work to do and considerations that need to be taken into
account. There's not a "set it and forget it" approach with index funds.
DCD: You also mentioned target -date funds as an issue.
Huss: Yes. Target -date funds have been highlighted especially as they have
the blessing from the Department of Labor as one of the three types
of qualified default investment alternatives. Early in the development
of target -date funds, many plan sponsors naturally leaned toward
just accepting the target -date fund offered by their vendors. Now,
it's apparent that target -date funds have a lot of complexity to them
and plan sponsors are evaluating the products in the market as well
as considering setting up their own strategies. They're considering
the glide path philosophy, underlying investments, risk exposure,
benchmarking as well as how to explain the funds to their participants.
For instance, plan sponsors are asking whether the disclosure materials
for their target -date strategies are adequate.
These are, of course,-issues that are being looked into by the Securities
and Exchange Commission (SEC) and the Department of Labor. With
the amount of money flowing into target -date funds and the reliance
on them for retirement purposes, such as through default investment
.0 PIMCO
DC Practice
"Plan sponsors should
consider each asset
class and whether
active management
may be more attractive
for participants."
6A
Page 3
DC Dialogue
options, many more issues have started coming to light. Choosing to
include a target -date fund in one's retirement plan is not as simple as it
may have seemed several years ago.
DCD: What additional scrutiny is the government giving to
target -date strategies?
Huss: They're focusing on whether participants understand what they're
investing in, for one. This may result in regulations that address how
the products are labeled. They're also looking at potential conflicts of
interest. For instance, the issue of whether a fund portfolio manager
assembling the underlying components of a target -date fund should
he deemed to have a status as an ERISA fiduciary. The Department
of Labor decided against that position. But there is a potentially valid
concern there if a vendor is assembling a target -date fund, or any
fund -of -fund type vehicle, that they may have the tendency to choose
funds for the benefit of the vendor as opposed to assembling the best
possible product for plan participants.
DCD: You also mentioned company stock. Can you talk about the company
"The market crisis stock issues that are of concern currently?
Huss: One issue involves employee stock ownership plans (ESOPs). This
has highlighted the concern has arisen from a couple of cases in which the courts have
varying philosophies said that the company sponsoring the ESOP is not permitted, under
the ERISA rules against exculpatory provisions, to indemnify the ESOP
underlying different fiduciaries against claims that they breached their duty to the plan, at
least where the ESOP owns a significant percentage of the company.
target -date structures This has raised concern among ESOP trustees as to their own liability if
and underscored how they're unable to obtain indemnification from the plan sponsors.
performance hinges There are many issues with company stock in plans, including the
heightened risk of holding an undiversified security and the reality
on these differences." that employees already have exposure to that company via their
employment —if the company doesn't do well, both the employee's
job and their stock holding in their retirement accounts are at risk. Plan
sponsors and trustees need to consider these added risks carefully.
DCD: Has the recent market crisis impacted these investment issues or
increased sensitivity to risk?
Huss: One clear impact of the market crisis was in the target -date arena,
particularly with the near -term target -date funds, since some of these
funds suffered significant percentage losses in their assets. The market
crisis has highlighted the varying philosophies underlying different
target -date structures and underscored how performance hinges on
these differences. As I mentioned, the DOL and SEC are examining the
appropriateness and communication of these different philosophies.
The terms "to" versus "through" retirement have emerged in the
debate about what's appropriate for participants, especially since many
participants will likely be defaulted into these strategies. Should they be
managed "to" their retirement date or "through" that date to a mortality
date? So the market downturn really heightened the awareness of
Page 4
E
PIMC4
®C Practice
1
the complexity of target -date fund structures, creating difficulties
for fiduciaries in fully understanding what would constitute prudent
choices in terns of target -date offerings.
Some of the other issues, such as fees, have been around for many
years and well before the recent market crisis. In the past, there was
more of a focus on the direct fees that plan sponsors incurred in
obtaining services for their plans and participants. Now, there's lots
of attention to indirect fee- sharing arrangements, as well as other less
transparent costs.
DCD: So the fee issues have been with us for a while. What about limits on
liability, and other issues such as data privacy, that you brought up?
Huss: We see many different types of issues in our practice, especially since
"Service providers
we work with plan sponsors of all sizes on contracts with vendors
have information on
and service providers. In particular, some service providers want to
file that's prime for
put limits on their liability, or caps on their potential exposure for
committing errors, with respect to their services to the plan. That,
identity theft."
again, can create tension for the plan sponsor between wanting to be
able to use a service provider that it thinks may be the best choice for
the plan, but knowing that sometimes those very service providers want
to put limits on their potential liability. That forces the plan sponsor to
juggle its fiduciary duty of picking a well - qualified provider but not
subjecting itself to potential liability or the plan to potential losses.
There's another issue we see in the vendor contracts, which in recent
days has taken on heightened importance. I'm speaking of the concern
regarding protection of data, particularly participant -level data, which
is a sensitive subject. Service providers have information on file that's
prime for identity theft. Names, addresses, social security numbers and
dates of birth are necessary to run the plans. However, this is also very
sensitive information. Sponsors must make sure that there is proper
protection of that data by their vendors and proper protection against
potential liability exposure of the plan sponsor if there's a breach by
the vendor with respect to the data. So that's another area where we've
seen a lot of concern in negotiating vendor agreements.
DCD: Are they concerned about participant data being used nappropriately?
Huss: To some extent, yes. One worry among plan sponsors is the potential
for service providers to use this data to engage in cross - selling of other
products they offer outside of the plan. These providers may use their
relationship with the plan to gain access to plan participants and try
and sell other services to them. That potentially exposes plan sponsors
to liability if participants choose outside products from the plan
service providers. These could be products like life insurance, annuity
contracts or rollover individual retirement accounts (IRAs).
When a participant chooses an outside product from a plan vendor,
they might later become disgruntled, such as with the level of fees, and
blame the plan sponsor; for in the participant's view, the plan sponsor
is the one who facilitated that relationship with which they have later
become disenchanted. That is a newer concern among plan sponsors.
Pnge 5
DC Dialogue
I don't think it's been caused by the market downturn as much as the
increased focus on the recent fee and investment litigation, which has
brought out plan sponsors' concerns of potential fiduciary exposure.
Part of the worry also may stem from the increased aggressiveness of
some service providers who want to accumulate assets through their
connection with plans. Another likely facet of that problem is the aging
of the baby boomers who hold sizable plan accounts.
Many of these participants have been through the accumulation
phase in which they have built up their plan accounts, and they are
coming to benefit payment status in the plans. This can impact the
plans themselves in terms of pricing due to a reduction in plan assets.
However, the vendors want to retain these assets. So there is a tension
between whether the plan sponsors can achieve an advantage for the
participants and the plan by having more assets and, hopefully, getting
better pricing, versus their vendors who are concerned about losing assets
under management when participants take large distributions. Vendors
want to steer retiree assets toward their own products outside the plan
rather than to help the sponsor retain the assets within their plan.
DCD:
Could you talk about the different types of litigation we're seeing and
"Vendors want to steer
where its coming from?
Huss:
retiree assets toward
Even though there is more of it now, there has always been fiduciary
litigation ever since ERISA was enacted. The two largest sources of
their own products
litigation in defined contribution plans have been related to company
outside the plan
P
stock and plan fees. The most prominent form of fee lawsuits are
those brought by plan participants against plan sponsors and service
rather than to help
providers, alleging excessive fees in the investment choices in the
the sponsor retain
P
plans as well as a failure by the plan sponsors and fiduciaries to make
disclosure to plan participants of the fee arrangements,
the assets within
particularly the
revenue - sharing arrangement.
their plan."
There are also a number of cases pending on issues regarding the use
of proprietary investment products by plan sponsors who are financial
service companies. These include banks, insurance companies or
mutual fund companies that use exclusively or predominantly their own
investment products as options in their plans.
DCD:
In terms of fee litigation, what are some of the issues being raised
and how does a plan sponsor go about protecting themselves there?
Huss:
Starting with the fiduciary basics, it's important to seek out information
about the costs of plan investments in order to understand them, and
to have a prudent process in place to make your decisions. Basically,
the fiduciaries need to do their homework to understand the fee
arrangements, some of which are not readily transparent and are
perhaps constantly changing in the competitive marketplace. One
needs to stay abreast of how these arrangements are being structured.
They do change over time, and they can have a number of different
structures. So it's really in some ways as simple as doing a good job
as a fiduciary and going to the marketplace to test your plan's pricing
structure on a periodic basis. That, of course, can be a very effective
P
Page 6
way to test the appropriateness of the level of the charges in your plan's
pricing —to go to market.
r
r
OPIMCO
®C Practice
DCD: Could you talk about the nature of the fee lawsuits and where
they stand?
, _ -
Huss: The final outcome of a number of these cases remains to be seen.
Several are getting to the point where they're going to trial now.
In terms of the ones that have reached significant decisions at the
appellate court level, there have really been three main cases. The
well -known Hecker v. Deere & Co. case was a wide- ranging victory for
the plan fiduciaries and the bundled service provider for the
DC plan. This case addressed fee disclosure as well as revenue sharing
and the level of fees paid. The appellate court found Deere had met
its fiduciary duty under ERISA by offering investments with reasonable
fees (the funds did not need to be "the cheapest possible fund ") and
communicating the total expense of each fund (the plan fiduciaries
were not required under ERISA to disclose revenue sharing).
Another key 401(k) fee case is Taylor v. United Technologies Corp.,
in which the District Court granted summary judgment dismissing
breach of fiduciary duty claims against the plan fiduciaries concerning
"So there have
plan fees and non - disclosure of revenue - sharing arrangements. The
been sonte decisive
summary judgment ruling was affirmed by the Court of Appeals.
Again, this case was a wide - ranging victory for the defendants. So
victories for
those are two Court of Appeals -level cases that were very favorable to
defendants in
the defendants.
The counterpoint to those cases is Braden v.Wal -Mart Stores, Inc.
the 401 (k)
in which the District Court, similar to the Deere case, dismissed the
fee litigation."
complaint in its entirety early on in the case. But unlike Deere, the
Court of Appeals in the Wal -Mart case reinstated the complaint so that
the case could go forward. So there have been some decisive victories
for defendants in the 401(k) fee litigation, but since a number of cases
still are going forward, the ultimate outcome remains to be seen.
DCD: What have we learned from these cases and what can plan sponsors
take away as they manage their plans?
Huss: One thing that the results in the fee lawsuits to date have taught us on
a broad scale is how the courts consider the issue of the level of fees
in multiple investment options. What the courts have done is look
at whether the plaintiffs are able to allege that any particular fund in
a plan is itself unduly expensive as opposed to simply considering
the overall investment management approach, such as active versus
passive. Some of the plaintiffs' claims in these cases assert that the
offering of actively managed funds, as opposed to the use of passive
index funds, which are presumably less expensive, is a fiduciary breach
in and of itself, but these claims have generally been unsuccessful so far.
In the United Technologies case, for example, the plan committee was
able to show that it had considered the relevant factors in choosing the
plan investment lineup, including passive versus active. The defendants
demonstrated that they had reviewed the funds carefully, used outside
investment consultants, looked at the fee charges and looked at investment
performance —and then made their decision. The result may not have
been what the plaintiffs' lawyers thought the decisions should have
Pikge 7
DC Dialogue
Consequently, the employer stock cases have heightened the awareness
of plan sponsors and fiduciaries of the potential risks of including
employer stock in their plan, even though, obviously, there are very
good reasons to consider including employer stock in a DC plan in
terms of building employee loyalty and allowing employees to share in
the success of the company.
But there's a down side. It's a litigation risk to have a non - diversified
single -issue stock fund in your plan that is potentially volatile and is
also directly linked to other aspects of the employee's well- being, such
as their job and company performance through stock options. The
combination of all those factors, together with the investment of the
employee in the company through the employer stock in the plan, does
raise retirement security issues for the employees and potential liability
exposure for the plan sponsors. Some plan sponsors have looked at
these issues and taken a number of potentially protective steps. It is not
clear, however, how effective some of these steps will be.
DCD: What are some of the steps plan sponsors have taken to protect
themselves from liability related to offering company stock to
their participants?
Huss: Plan sponsors have rewritten their plans to mandate the employer stock
fund in the plan document. It's called being "hard- wired" in the plan
document, or "baked" into the plan document. The goal here is to
eliminate any discretion on the part of the fiduciaries of the plan as to
Page 8 whether to have the employer stock fund in the plan and to have it be
been, but the plan fiduciaries had employed a reasoned, thorough and
analytical process and had a sound basis for the decisions they had made.
And again, the test is very process driven, and fiduciaries should
be able to defend their decisions when they can show that they did
engage in that process. That's really nothing new. It's a demonstration
of a prudent process underlying an investment selection. If you engage
in that process, hopefully you will be able to uphold your decision if
it's questioned. This was the result in one of the most recent 401(k)
fee cases. In George v. Kraft Foods Global Inc., the plaintiffs asserted
"'Fiduciaries are
claims of fiduciary breach by the defendants in the use of unitized
employer stock funds, payment of recordkeeping fees and the retention
able to defend their
of float by the plan trustee. The court found the defendants not liable
decisions when they
because they had engaged in a reasoned decision making process and
had balanced competing interests in making their decisions.
can show that they
DCD:
did engage in
Can you address the company stock litigation?
Huss:
that process. "
Many of these cases have reached settlements without coming to a
resolution in court. Most of the cases that have gone to trial —and
there really have not been that many —have generally come out in
favor of the defendants rather than the plaintiffs. But that certainly
hasn't stopped many of these types of lawsuits from being filed. There
have been some fairly substantial settlements, which provide incentive
for the plaintiffs' attorneys to continue bringing the cases, but I think
the weight of the decisions on the merits have favored the fiduciary
defendants rather than the participant plaintiffs on those cases.
Consequently, the employer stock cases have heightened the awareness
of plan sponsors and fiduciaries of the potential risks of including
employer stock in their plan, even though, obviously, there are very
good reasons to consider including employer stock in a DC plan in
terms of building employee loyalty and allowing employees to share in
the success of the company.
But there's a down side. It's a litigation risk to have a non - diversified
single -issue stock fund in your plan that is potentially volatile and is
also directly linked to other aspects of the employee's well- being, such
as their job and company performance through stock options. The
combination of all those factors, together with the investment of the
employee in the company through the employer stock in the plan, does
raise retirement security issues for the employees and potential liability
exposure for the plan sponsors. Some plan sponsors have looked at
these issues and taken a number of potentially protective steps. It is not
clear, however, how effective some of these steps will be.
DCD: What are some of the steps plan sponsors have taken to protect
themselves from liability related to offering company stock to
their participants?
Huss: Plan sponsors have rewritten their plans to mandate the employer stock
fund in the plan document. It's called being "hard- wired" in the plan
document, or "baked" into the plan document. The goal here is to
eliminate any discretion on the part of the fiduciaries of the plan as to
Page 8 whether to have the employer stock fund in the plan and to have it be
r'
a settlor function not subject to fiduciary review. That's one defensive
technique plan sponsors have taken, but the issue is still being litigated
and we don't know the final outcome of that litigation.
Other plan sponsors we've worked with have imposed limits on how
much employer stock can be included in a participant's plan account.
Frequently, we've seen companies use an approach mandating that no
more than 25 percent of a participant's account can be invested in the
company stock, or perhaps they simply put a limit on how much of any
ingoing investment can go into the company stock.
There are other defensive techniques companies have looked into
more recently, such as enhancing communications to increase the
participants' awareness of the risks of over - concentration in company
stock. A number of our plan sponsors have taken steps to identify
participants who are heavily concentrated in company stock, which
tends to be a smaller subset of the participants in the plan, and to do
targeted communications to those participants about the need for
diversification and the risks of non - diversification in employer stock.
DCD: What about having an independent fiduciary to oversee the
company stock?
Huss: Some companies have done just that. The purpose of this strategy
is to distance responsibility from the company officers who may be
fiduciaries of the plan but who also, through their position with the
company, have access to non - public information about the company's
finances. There's inherent tension in that situation because, while it is
certainly permitted for company officers to be plan fiduciaries, there
can be a risk when a company's officers wear more than one hat. So
one approach is to employ qualified independent fiduciaries to, in
essence, be the investment manager for the stock fund and to make the
decisions on behalf of the participants. That puts a buffer, so to speak,
between that choice and the company fiduciaries.
DCD: Is it worth so much trouble to offer company stock in the plan? A'
Huss: Some companies may well think it is not worth the hassle. Some have
considered removing the employer stock from the plan altogether as
an investment option, yet taking company stock out of the plan can
carry its own risk. Perhaps it's not surprising that there are lawsuits
where there has been a divestment of the employer stock from a plan.
In some cases, the stock has gone up and the participants have sued f
because the stock was removed from the plan, while in many other
cases participants have sued when the stock went down, saying that it
should have been removed from the plan. So there are risks to keeping
the stock in the plan and risks to removing the stock.
DCD: If you look forward, do you think we'll see less stock in plans? Will
we see more independent fiduciaries if people do keep company
stock in their plans? Will we see more limits?
Huss: In our practice, we've not seen companies actually removing the
company stock from their plans. But we've certainly seen an increased
NPIMCO
DCPradice
"Perhaps it's not
surprising that there
are lawsuits where
there has been a
divestment of the
employer stock
from a plan."
P(We 9
DC Dialogue
awareness of the risks. One result has been a greater focus on the
company stock as an investment option. The investment merit of the
company stock is reviewed periodically, along with the merit of other
investment options.
If the company stock is going to be in the plan, it should receive
the same type of investment review and analysis that, say, mutual
fund options receive. Outside investment consultants frequently are
employed to look at the investments in the plan and they need to be
sure to include the company stock in that analysis, along with the other
investment options. Certainly we've seen the adoption of limits on how
much company stock participants are allowed to hold in their plan and
emphasis on increased communications regarding the risk of company
stock funds, as well as the need for diversification.
DCD:
So companies are likely to keep the stock, increase the education,
and possibly increase limits. Do you think more will end up having
independent fiduciaries as we//?
Huss:
"Independent
Yes. The issue of independent fiduciaries is a complex one. Earlier, I
mentioned the concept of a limit on liability that plan service providers
fiduciaries are
want. Independent fiduciaries also want to receive protection. They're
not a panacea by
not in business to be sued and be liable themselves, and they will
frequently ask for indemnification from the
any means."
company. That raises the
question of whether it's a kind of circular protection in that you employ
an independent fiduciary for the independence of their decision, but
the fiduciaries request indemnification from the company. So, if there
was a successful lawsuit or perhaps a settlement, it could still end
Lip being at the expense of the company in any event. Independent
fiduciaries are not a panacea by any means.
On the other hand, the independence of the fiduciary in terms of
their decision - making is still an important consideration. In addition,
the independent fiduciaries generally don't have the type of non-
public information that fiduciaries within the company have, which
can sometimes pose problems. Outside fiduciaries are making their
decisions about the company stock without that potential conflict of
interest that some of the company fiduciaries have. I think independent
fiduciaries are a worthwhile protective technique for the company and
also a technique that may benefit the plan participants. It's something
that should be considered if there is company stock in the plan.
DCD: In this area, if you were to tell a plan sponsor the best way to avoid
litigation when it comes to employer stock, would you just advise
them not to offer it?
Huss: if they don't have stock in the plan already, I think they want to
think very carefully about whether to put it in, given the litigation
environment we've seen over the past decade in employer stock.
Frequently, when there's a significant drop in stock value, there's an
ERISA lawsuit filed by the class action plaintiffs' lawyers, as well as a
securities stock drop lawsuit. So, if company stock is not in the plan now,
I think there are clear reasons to consider very, very seriously whether
Pace 10
1
PIMCO
CSC Practice
to add it. On the other hand, if the stock is already in the plan, you want
to think about protective measures, like the ones we've been discussing.
We've not seen any great wave of plan sponsors wanting to remove the
stock altogether from the plan once it's an established option.
DCD: Are plan sponsors well equipped to select and monitor their investments?
Huss: Most plan fiduciaries are not investment experts, so they should seek
advice from investment consultants or other qualified advisors to
help them understand the issues. It's key that, if the plan fiduciaries
don't have the investment expertise themselves, they need to seek
out qualified advisors who have the expertise to assist them on these
complex issues that, in many cases, don't have a definitive answer one
way or the other. These issues include determining the investment line
up, including when to use active or passive managers, as well as what
type of target -date philosophy is appropriate. There's a lot to consider
and there are not always black -and -white answers.
DCD: As you look out on the horizon, do you think that this is just a
particularly litigious time? Or do you think we may see more or less
litigation as more of these suits are settled in a particular way?
Huss: I think that plan fiduciaries are quite properly concerned about
fiduciary duties, fiduciary liability and litigation risk.
If you look at the whole universe of plans out there, the vast majority
of them are never involved in any litigation. However, the litigation
that does get filed receives a lot of attention and publicity in our
community, as well it should.
I'm sure plaintiffs' lawyers will continue to be interested in pursuing
suits involving ERISA plans. If for no other reason, the large pool of
money and capital that exists in the private employer pension system is
going to attract attention. I'm also sure, as shown by the recent market
downturn and the results in target -date funds, that as new products
and new techniques come into the market over the years, there'll be
disadvantages to some of those developments that will come to light,
which may result in potential litigation.
So, the litigation will likely continue. It may take new forms, but
hopefully, the litigation risk will not discourage employers from
continuing to sponsor plans and to seek out improvements in the plans
for the benefit of plan participants.
DCD: Thank you, Brad.
Brad: You're welcome.
"There's a lot to
consider and there are
not always black -and-
white answers."
Page 11
About the PIMCO DC Practice
PIMCO DC Dialogue is prepared and distributed by the PIMCO DC
Practice. Based in Newport Beach, this practice is dedicated to promoting
effective DC plan design and innovative retirement solutions. Our team
is pleased to support our clients and broader community by sharing ideas
and developments in DC plans in the hopes of fostering a more secure
financial future for employees of corporations, not- for - profits, governments,
and other organizations.
If you have questions about PIMCO DC Dialogue or a topic you'd like
to discuss, please contact your PINICO representative or email us at
pimcodcpractice @pimco.com. We're interested in your ideas and feedback!
kiStacy Schaus, CFP'
� DC Practice Leader
Steve Ferber
CIT Strategist and
Account Manager
Bret Estep
Stable Value Services
Doug Schwab
Plan Sponsor Services
Christina Stauffer, CFA
Plattorm Provider Services
Joseph Simonian, Ph.D.
=w DC Analytics Leader
H co
Z
N J
wa
U c.
z
w0
QU
U. W
O�
w W
ATTACHMENT B
0
v,
N
M
O
,fl
O
m
f0
L
U
aLni
0
a
CL
0
U
N
c
Z
S.
E
N
Dl
S
0)
U)
U
m
c
(D
c
ca
ig
E
0
g
c
c LL
LL d O N
0
L 0�
4, M c Z
0
Z
0
Z
0
Z
0
Z
0
Z
0
Z
O
Z
O
Z
O
Z
O
Z
O
Z
O
Z
C � O C
O L.2
no
d
CL
4)
V
L.
=
•v O
0 0 2
0
0
0
0
0
0
O
0
0
O
O
O
ca >
Z
Z
Z
Z
Z
Z
Z
Z
Z
Z
Z
Z
N L6 Q
D
Y
L
m N
E ,0
C0
M
Z
0
Z
0
Z
0
Z
0
Z
0
Z
O
Z
O
Z
O
Z
O
Z
O
Z
O
Z
N
O
m
.0
L
,4 a a0i
m E�
D O •5
A
N
N
N
N
M
M
co
M
0
z
cn
U
U
O
U
—
Q
0
O
(n
• U
N
O
'''
U-
U
+�
Y
O
m
06
3
O
>,
B
E
C
cu
N
U
c
cu
N
c�
U +-�
C
O
�
O
w
3
O
ca V
O
c
O
G1
�
cl)
.5
C
_o
>
c
�
a
N
4-
T
IL+ 4L.+
•N
Qwcu
j
d
m
N
N
a
C
d
N
0
c
ATTACHMENT C
3
a�
3
a)
AR
CL °
C.) O N
a�
to
0 vi
v
E =
E
v
°
U
°°
O
U
N
c
a) c
° m C O
`
co
O
N 7
p a) O
0
O
0
Q
c
E
L-
f0 2 x 'c
E
'' E
O
d
`
w O —a5i
`
w a)
y
3
0
c'D d
w c E
U
E c
c
Q
2
c c O
Cc v M
Q
�-
a) a) U
C
a)
3
cu
E w
E
CD
O O L a)
0
C a)
£
CE=
cE
a)c
calla
vc>
V
Q U $
Q U
Z
E
a-0 c
Z
3
N
Q
m
ATTACHMENT C
3
a�
a)
C.) O N
a�
to
0 vi
v
:3
N
O O Y
t:
O
N 7
a. v m
>E
C.
c
m
°-°a,
c a
O°
C
c
•g
O
c >, 0
Q -0
c
Q
2
c c O
Cc v M
a)
Z
v
CD i
N
cu
CO CO N N
U-
(0 LL
,0
3
cu
°
°
E
>
-0 m.°
�, >
n °
CD
(n
0
N
3
N
3 N
E
_
}
U
z c
z
z c
U
d
N 0
C
O
= C
O
m
O
O
�-a)
'O
cn
i
a)
to
a)
(0
a)
a)
O U
N
_
O U
a)
as
Z
}
fn
}
}
Z .0
>,
Z C
>,
}
fn
U)
cu
U
O U
L
(0
E
U)
N
O
C
o `° —
° a
C—>,'
Q
W-- X
0
4)
D
_ `
c
Q
'a a)
� .
N
0
(0
N
>
r
z
U'o
a`a)
m
°
c
X
O
c
w
U-
w
U
c
a)
>
0
O
C
cu
},
cn
`m
E
m
0
°
E
E
c
°
c
u
0
't
+�'
`
V
Q
O
a)
LL
>
a
'd
C
N
C
°
•C
3E
`
0L-
N
Ems'
�
c
U
0
>
0
rn
O
c
O N
O
o-
N
y
(n
IX
.. a
le
E
c
ca
0
Q
2$
a
0
U
a�
U
"O
(0
C
N
E
N
C_
'O
d
N
Z
N
E
ca
U)
(D
E
ca
U)
c
.. o m
0 0 O
�aD (D c
U
�O � Y f0
tm
C C C
CL O
C w C �'
N > O tm
d.N.0 E'tn
�v
O
c
co
t
a�
�
cn
m
>
O
W a
cn
o
c�
O c
�
Z d
p
O
U
C
m
.n
E
O
U
75
LL
a�
U
C
(0
Q
E
O
U
75
U-
(D
U
C
m
.Q
O
7
LL
N
X
c0
r
U
0
An
v
Q
c
(D
E
cn
a�
c
NO
-40.
Central Contra Costa Sanitary District
March 30, 2012
TO: BUDGET AND FINANCE COMMITTEE
FROM: ANN FARRELL, DEPUTY GENERAL MANAGER 01�
SUBJECT: APPROACH TO SELLING BONDS TO ALLOW FOR PAYMENT OF A
PORTION OF THE DISTRICT'S UNFUNDED ACTUARIAL ACCRUED
LIABILITY
At the March 15, 2012 Board meeting, staff made a presentation regarding the options
to pay for a portion of the District's Unfunded Actuarial Accrued Liability (UAAL). The
Board expressed an interest in pursuing the sale of bonds to raise funds to fund the
next three years of the Capital Program such that a like amount of money could be used
to pay a portion of the UAAL. This approach is contingent upon certain conditions to be
established with the Contra Costa County Employees' Retirement Association
(CCCERA) which are the subject of ongoing discussions with them.
If the Board wished to move forward with the sale of bonds, the following steps are
suggested:
Select and enter into a contract with a Financial Advisor: The District has
traditionally used Stone and Youngberg as a Financial Advisor. Mr. Tom Lockard of
Stone and Youngberg has done some preliminary work on this issue gratis. Mr.
Lockard is familiar with the District and could efficiently assist staff with this bond
offering. Alternatively, staff could consider other Financial Advisors.
Recently, the Securities and Exchange Commission (the "SEC ") approved proposed
amendments to the MSRB's Rule G -23 (the "Rule "), focusing on the activities of
Financial Advisors and on certain disclosures required of service providers in
connection with the issuance of municipal securities. Pursuant to the Rule, with respect
to new municipal bond issues priced and sold after November 27, 2011, a municipal
securities broker dealer is prohibited from acting as a Financial Advisor or Municipal
Advisor to an issuer for a municipal bond issue and subsequently switching roles to
underwrite the same issue. Therefore, the Financial Advisor may not act as the
Underwriter as has been done by the District in the past.
Select and enter into a contract with a Bond Counsel: The District has traditionally
used the firm Jones Hall and Mr. Chick Adams as Bond Counsel. Both Jones Hall and
Mr. Adams are highly regarded. It would be most efficient to continue using Mr. Chick
Adams with Jones Hall, as the District's Bond Counsel. Kent Alm will continue to act as
District Counsel and is prohibited from acting as Bond Counsel.
Determine the amount of Revenue Bonds to be sold: Staff is in the process of
determining the amount of capital projects that can be constructed over the next
approximately three years, and therefore the amount of debt financing that could be
obtained. In addition staff is examining the need for the District to adopt a resolution to
allow for reimbursement of some costs that have already occurred for capital projects.
Staff is preparing a list and dollar value of capital projects for reimbursement as well as
new projects to be built in the next three years. Staff will be discussing this information
at the April 3, 2012 Capital Projects Committee meeting. If the Budget and Finance
Committee wishes to recommend to the full Board to proceed with the sale of Revenue
Bonds, it will be advisable for staff to bring a resolution to an upcoming Board meeting
to allow for reimbursement of capital costs that occur prior to the sale of bonds.
Develop a Schedule: Stone and Youngberg has developed a tentative financing
schedule assuming the sale of Revenue Bonds, not Certificates of Participation
(COP's). They are suggesting that Revenue Bonds will have more favorable interest
rates than COP's. In order to sell Revenue Bonds, they note that a JPA must be
formed. Therefore, the formation of a JPA is included in the attached schedule. As you
can see, if we began the process now, we would be able to sell bonds in early July.
When a financial advisor is selected, the issue of forming a JPA will be reviewed and
the schedule will be updated as appropriate.
Estimated the Cost of Issuance: The following is a preliminary estimate of the cost of
selling bonds based on information provided by Stone and Youngberg. When a
financial advisor is selected, this information will be updated.
Bond Counsel
$
75,000
Disclosure Counsel
$
35,000
Financial Advisor
$
70,000
Trustee
$
5,000
Moody's Rating
$
45,000
Standard and Poor Rating
$
45,000
CPA Certificate for Additional Parity Debt
$
5,000
Printing
$
2,000
Contingency
18,000
Estimated Total $ 300,000
Conclusion:
If the Board is in agreement that bonds should be sold to fund a portion of the District's
UAAL, then staff should proceed to obtain the services of a financial advisor to refine
the approach, budget, and schedule outlined above. Staff is seeking direction from the
Committee on how they wish to proceed.
STONE &
YOUNG BE RG
�5 i�it "ICV h r.: 1i: t1l h1t� N N!.
One Ferry Building San Francisco, California 9411 1 (415) 445 -2300
CENTRAL CONTRA COSTA SANITARY DISTRICT
TENTATIVE FINANCING SCHEDULE
MARCH 23, 2012
Date Event
Responsible Party
Friday, April 6 Due Diligence Materials Collected CCCSD
Tuesday, April 10 1:30 Conference Call All Hands
Dial -in: 866 215 9287, access 415 445 2325#
Identify JPA Partner
Thursday, April 19 CCCSD Agenda Deadline for JPA formation JH
documents — Meeting on May 3
Friday, April 27 1" Drafts of the Indenture and Installment Sale JH
Agreement
Revised Drafts of the JPA documents
Thursday, May 3 CCCSD considers JPA Formation — Board Meeting CCCSD
Friday, May 4 1" Draft of the Preliminary Official Statement (POS) JH
Week of May 7 All Hands Document Review
Central Contra Costa Sanitary District
March 23, 2012
Page 2
Date Event
Responsible Party
Friday, May 11
Draft Credit Presentation Circulated
S &Y
TBD
Partner Agenda Deadline for JPA formation
JH
documents
Meeting on TBD
TBD
Partner considers JPA Formation — Board Meeting
Friday, May 18
Circulate Credit Materials to Moody's and S &P
S &Y
Thursday, May 24
CCCSD Board Agenda deadline for 6/7 Meeting
JH
Week of June 4
Conference Calls with Moody's and S &P
All Hands
Thursday, June 7
CCCSD Board Meeting to Adopt JPA by -laws,
CCCSD
conflicts policy, and establish regular meetings
CCCSD agenda deadline for 1/12 Meeting
Week of June 11
Rating Decisions
Thursday, June 21
CCCSD and JPA Board meetings to consider
CCCSD & JPA
financing. Adopt Authorizing Resolutions for
financing including the Indenture, Installment Sale
Agreement, POS, and Notice of Sale
Friday, June 22
Publish Notice of Sale in Bond Buyer
JH
Circulate POS and Notice of Sale
S &Y
Tuesday, July 3
9:00 am Bond Sale
All Hands
Central Contra Costa Sanitary District
March 23, 2012
Page 3
Date
Wednesday, July 18 Pre close
Event
Responsible Party
All Hands
Thursday, July 19 Close All Hands
Central Contra Costa Sanitary District 10.
March 30, 2012
TO: BUDGET AND FINANCE COMMITTEE
VIA: JAMES M. KELLY, GENERAL MANAGER
ANN E. FARRE , QEPUTY GENERAL MANAGER AND DIRECTOR OF
ENGINEERING
FROM: MARGARET P. ORR, DIRECTOR OF PLANT OPERATIONS
BA T. THAN, PLANT OPERATIONS DIVISION MANAGER
CRAIG MIZUTANI, SENIOR ENGINEERC/M
SUBJECT: STATUS OF LANDFILL GAS CONTRACT
The District has begun negotiations with Bulldog Gas and Power (Bulldog) for renewal
of the landfill gas (LFG) contract which expires on April 30, 2012. Bulldog responded to
the District's contract negotiation request on March 23, 2012.
The cost of LFG is calculated as a discount from the price of natural gas (NG). Under
the current contract, the discount averages 40 percent. The price of NG has declined
sharply in recent years while operations and maintenance costs continue to increase for
Bulldog. As a result Bulldog has proposed a discount that will average 14 percent.
Figure 1 presents the historical price for LFG over the past ten years. During the past
ten years, the price of LFG has ranged from $2.90 per decatherm to $4.60 per
decatherm in fiscal year 2008 -2009 and fiscal year 2002 -2003, respectively. The
average price of LFG for the current fiscal year (through March 2012) is $3.59. Figure 1
also shows the projected LFG price if the District were to negotiate a discount of 20 to
25 percent discount as outlined below. At a discount of 20 percent, the price of LFG
would be $3.51; at a discount of 25 percent, the cost would be $3.74.
Figure 1 - LFG Historical Price
@C ^A
Budget and Finance Committee
March 30, 2012
Page 2
Bulldog has proposed a one year contract extension with a 10 percent discount on the
first $3.00 of NG cost and a 20 percent discount on gas over $3.00 with a cap of $5.90
and floor of $2.70. At current NG prices, this would result in an average discount of
14 percent as noted above.
A discount of 20 to 25 percent would bring the price within the range of historical
averages and would allow the District to meet the fiscal year 2012 -2013 budget.
Figure 2 presents the historical cost of LFG, the projected cost for the current fiscal
year, and the fiscal year 2012 -2013 budget amount of $475,000. With a discount of
20 to 25 percent, the projected cost for fiscal year 2012 -2013 would be $440,000 to
$470,000, respectively.
Figure 2 - Historical LFG Cost
$800,000 - -- —
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
o6 � °o ° °o
District staff has identified three contract options:
Request a contract extension utilizing the current pricing structure (40 percent
discount) on a month -to -month basis.
2. Negotiate a new contract for one year based on a revised pricing structure with a
target average discount of 20 to 25 percent as outlined above.
NAPOSUP \Board of Directors \Board - Budget & Finance Committee \BF Memorandum 03- 30- 12.doc
Budget and Finance Committee
March 30, 2012
Page 3
There are additional factors to consider regarding the continued use of LFG.
Advantages:
Use of LFG keeps the District out of the capped sector criteria for greenhouse
gas (GHG) emissions. A capped facility is defined as emitting 25,000 metric tons
or more of carbon dioxide equivalents. Entering the capped sector is projected to
cost the District in the order of $600,000 to $1,500,000 every year for GHG
allowances based on the projected cost of allowances. The current minimum
cost of allowances is $10 per metric ton, as established by the California Air
Resources Board. This means that the minimum cost, if the District becomes a
capped facility by not using LFG, would be $300,000 annually.
2. LFG can be used in the event NG is unavailable. Though rare, NG outages can
occu r.
3. LFG is purchased at a discounted rate compared to NG and saves the District
money.
Disadvantages:
1. Source testing is required and there is a regulatory obligation when burning LFG
(source testing, leak testing, etc.).
2. Increased equipment maintenance is required when burning LFG (i.e. equipment
corrosion, filter changes, cleaning, etc.).
3. LFG heat content can be variable, which affects furnace operations. (Recent
upgrades to the fuel blending system have helped this.)
4. There is some data indicating that burning LFG may result in the District not
meeting upcoming Section 129 emissions regulations for the furnaces. The
regulations become effective in 2016. Source test data shows that when burning
LFG, the emissions of dioxin, mercury, and hydrochloric acid came close to or
have exceeded the upcoming limits. District staff is currently conducting source
testing to verify the impact of LFG on the Section 129 limits. The recent
upgrades to the fuel blending system may alleviate these concerns; however, this
is still unknown and under study.
Staff recommends negotiating a one year contract extension with a revised pricing
structure that results in an overall discount of approximately 20 percent of the price of
NG.
CM /BTT /amt
N: \POSUP \Board of Directors \Board - Budget & Finance Committee \BF Memorandum 03- 30- 12.doc
E
E
''0^
v/
L
x
W
0
Z
n
LL
W
Z
9
D
co
Z
U-
J
W
cn
W
CO
Z
W
a
W
a
Z_
Z
Z
U)
V
W
7
w
a
co
E
N �
E U
Z
O J
J _
E N
'm c
U �
U
J J
U CD
U)
E
U
O
7
Q
U
Q
cn
E
U
a)
CL
0
CL
CL
12096
N
O
N
co
N
ch
C
a`
O
m
CA
N
a
o
CO
z
a)`
co
C
`
N
C-6
CD
C
cu
0
m
Z
o
cn
'
co
Z
CD
a`)
co
c
C
rn
N
U
U)
E
m
-
c
c
a)
coo
c)
-
c
a)
. D
CL
p
'�
cn
6
a)
CM
cu
co
'ca
a)
c
ca
U
Q
a)
a
O
:°
O
-a°
J
-°
ca
a•S
N
Ugh
O
N
E•c�
O
c
ca
c
LO
An
ca
E
<
ai
ca
c
mC7
=a
o
a�iQ
ii
=
J
mmmmm
00000CnC/)
CO
®
Q
Q
Q
Q
Q
W
W
C)
d
Q
Q
J
U
�
00
00
CD
m
co
m
O
M
cfi
O
O
CS)
CO
Co
d
d
M
d
M
O
It )
C
�-
CV
I-
M
m
.-
00
M
00
M
Lf)
O
N
o0
M
rl-
d'
O
Lf)
O
M
:3
14-
Ln
.-
r
c
U
Hc}
Ef3
He}
(f}
Hc}
Q
�
N
m
co
m
co
M
M
M
M
I,-
M
0
0
0
0
0
0
0
0
0
O
O
OO
00
00
00
00
00
00
00
00
N
00
CO
CO
CO
O
C0
0
0
0
0
.-
O
++
0
0
0
0
0
0
0
0
0
O
O
C
O
CD
O
C)
O
N
LO
r-
r-
O
O
O
C)
V
C:)
C)
O
O
O
O
O
C)
O
V
O
O
CV
d
LO
O
O
O
O
Lo
N
Q
CO
CO
C?
0
N
N
CO
d'
r-
.-
0
0
0
0
0
O
O
O
CD
0
0
0
0
0
0
0
O
r-
O
O
C:
0
0
0
0
CC
0
O
O
N
CO
m
Y
E
cQ
cu
Z
>
>
CT1
C
cu
>
Z
__
m
E
co
a
cn
N
E
c
cu
�
M
O
l
M
U
m
d
C
L
•-
�-
L
I--
E
U
Mm
�
C)
OMO
M
00
co
co
M
-4-
Lo
U)
V
W
7
w
a
co
E
N �
E U
Z
O J
J _
E N
'm c
U �
U
J J
U CD
U)
E
U
O
7
Q
U
Q
cn
E
U
a)
CL
0
CL
CL
12096
N
O
N
co
N
ch
C
a`
O
m
CA
N
a
O
\I
i
W
C7
Q
a
J
LL
LL
O
O
z
w
CL
IL
C7 a
O
J
Z
O
0
a
to Q
Z
a �
D
V
H
Z
W z
U)
W >
0
z
2
W
0
CL W
� o
U
Cl)
D
QLL°
r
Z �
vai 3
O � �
a � d
f
Z
O W
V Q
J z
a LU
W
IX 0
= o
Z
W z o
IY
U 2 u
0
W
7
O p rC
�c r
c a°
rok
$ m°
?
o
l
m
14
CL
O
A
Ww
z
O W
c
E
r
ai
o
3
W
co
2
I
�
d
w
z
F
z
7
a
E
`°
N
�
a
t
E
o
F-
LU N14)
:3
boo
v
9
—
cx
0.
O
N
M
t
a.
U
0: 2
O
p
Q
f
\�
r
v
x O
m IL
Ip
�0
zU
U)
Q
0ca
K ,
\
Q
U
ao
VI
L
H
LLI
V
O
U)
x
J
W
_
?
fr
LL
o
�
z
O
J
V)
I
Z
y
3
CL
CC
u
41
J
w
a
C
V
LU
o
1
Q
iE
O
Q
Q
O
Q)
(0
- 1- 1- 1�117121VI�1 ',2
I��������N
N
2
d
a
N
T
C
A
N
d
.s
C
d
E
m
N
9
J
Q
H
O
F-
U U U U
CL a a a
J
O p rC
�c r
c a°
rok
$ m°
?
o
l
m
14
W
K
z
z
y
K
W
0
O
x
a
U
x
W
a
z
Z N
j J
oa
U
QOLL
m
m L
> c 3 a
L rl C C w
N C O tD
VV d N l0 `+ ? C
L
Uo<ao`° c
m
E
v °-'
NI- 01 c L
C d L
C C N N O U
N l0 t wL D
a 41 U
z z z z Q a�ii6vi E
=) =) > > ~O m m m
Q Q Q Q Q` Q Q d
�°g4g E
0.
C
m ca c
yr. % m
o
O cLw -aN °a
a°�ccv L'm
U ° N y a
ID N I N O- �[
N 'o N N
r0
Q N, 2 cy 0 C U V p
W.0
N ° ° p
O O y 2 d C
o UN -6 ENa of
t v NU m ga d 5 p
c m win wL_ ELL
w, EomM0 c•-°
IN p 7+ d
f0 N; U V 2 M O d
z z z z oLV E� t° m
nm>cv59 dU
O O O O °E �'ONNtS
U U U U maciaci��0`�
St
Q Q Q Q U����Lc° 1�i0
O
J
Z
O
U
N
Z
I-
e�
V
H
Z
W
NW
Id.
U
a
UN_
I.f.
H
U)
0
a
H
Z
a/�
V/
H
U)
U
Z
O
J
Z
W
LL
O
w c
Q 1]
a w
J
g
U
LL
LL
O
Z
O
a.
a
CL
Q
C
m
C
c
N
c
0
a�
O
C
RS
a
z
0
N
p
zZ
w
Q:
a
w
0
N
0
N
1
N ,N
o �
N C
Y
m E
7 �
WQ
Z
0 0_
w
J
2 2
Z0
0
� U
0
y� c°
c ao oc
0
c
49"
Voc
S cco
w
F
a.
U)
N
O
a
c
E
Zz
a?
a
a
a
a
a
a a
a
m
a
a
a_
a__
a+
`o
9
0:
w
m
z
Z
Z
:)
m
O
o
N
O
O
m
O
CO
N
O
O
m
O
CD
N
a0
O
M
O
CO
N
O
O
m
O
o
N
O
O
m M
0 O
o CO
N N
O O
O O
M
O
CO
N
co
O
M
O
o
N
O
O
M
O
CO
N
O
O
co
0
N
a0
O
M
O
0
N
a0
O
M
O
0
N
a0
O
d'
O
aO
N
a0
O
C7
O
o
N
a0
O
C7
O
o
N
O
O
j
E
V
a
O
O
O
O
O
O
CD
O
O
O
O
O O
O O
O
o
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
R
t
NZ
X p
00
aN
CL
fnD
N
N
N
N
p
O
7
p
N N
tnfl
Cl) N
000
O
N
�
M
N
N
cq
N�p
M
Cn
I`
�
y
�
a
a0
�
m
�
caw
0. W
U 'd
0 2
C
Cl)
V
C0
n
n�pp
O
D
O
ca�pp
c')
O
c0
O
C5
cry
O
c0
O
O
M
c0
O
o
M n
O f0
ao N
r
O
W
n
O
n
O
N
W
n
N
c0
O
ON)
r')
N
C"
ch
O)
Ln
U.)
W
U
O
O
O)
N
V
U'1
c0
O
N
O
O
n
Ln
r-
Z
W. 0
w F
z
Zu
F W
00
m
00
CL 0
'f0
a)
a)
'f0
a7
N
C7
fC
a)
a)
a
m
0
a)
0
N
a)
7
U
C
O
0
T
f0 A
N a>
a:
N a)
0 C7
T
f0
m
a:
a)
(7
V7
a�
7
U
C
0
12
c0
a)
N
0
'l9
N
0
N
d
7
U)
C
N
0
N
a)
7
(n
C
!a
C
0
a)
O
3
0
N
m
7
U
C
N
0
H
a )
7
U
C
N
a)
0 CL
2
w
�
N
L
Z
®
a.
W
p
L
U)
y
a
O
a
_j
CD
a
H
$
0
E
7
a
Y>
U
o
U)
-'
>
E
7
n
a
ch
m
N
—
`o
w
m
L
c%
c
fn
y
4)
c
J
C
7
m
°S
c
LL
L
3 w
U m
a)
N U
Q.
U c
LL
C
Y >;
E
m 7
E c=
J c
r2
O
LL
m
p
�
O
�,
2
c
0 25.088.03
Q
YO
E
N
N
H
30
LL
t
0>
Z
'v
U
_
7
U
3
a
O
E
c
d
_
>
>
N
o
c
d
C
m
m
E
LL
0
Q
8
Z
fn
m cn
E
w
v
c
U
H
CD
7
m
w
a
C
C
C
C
m
mc
C
ci
c
U
O
—
m
E
—
m
E
O
m
o
c
—
U
RR 7
to c
_
y c
C
m )
a)
E
N
W
c
W
m
O
O
U
?
c
c
C
O
U
W
W
m
m
Q
E O
U
z
E
s
W
3
a
J
tO
+
O
U
W
y
az
OL
U
w
m
J
a)
c tm
m
W�'l
n
O
c` N
N
N
N
N
cl
N
01
N
cl
N
cO
N
c0
N
O
N
O
N
u'1
f0 I�
m
O1
E
V
5
a
N
c
m
N
d
.S
d
y
O)
c0
n
M
N
J
Q
O
H
N
7
O
a)
C
m
N
r
a a a a
N M r
cco N N
O)
F-
Z
O
Q
Cl)
CD
C9
O
Go
O
3
O
z
O
U
Q
> j z
Q Q Q
U
U
v
T
n
fh O
0
04 N O
CD CD
O
0
N
O O O
> > �
O O OU
Q Q Q
N
f
N
W
D:
z
z
0
U)
0:
W
p
J
O
x
p
a
v
d y
L_
ALE'
L C N c V c
CD mc•` 49
y
C
�nIEE�
U) y L 8
n
N a ' C C a c f`On
a�
c4) Eg
iE
p c C 1 .
1.. om m
y (p7�+ m n9pOl O
o
Oo L E
N W a)
J wtm m0a
O
L m z E 7 (D � y =_nom
Q 0 u < n
cr) E
N
t c `O W,
pp C
a) U N Co
c
c N �= a N d rte, �
w o t d v
7
a �oNui
i•�pio'igp�
L O V m G m
�� ma �c�
'O c d O O m d
L o o c o y
L) 0 2O=
rnm
U 7 my
CD ray. a m N O
a) m >,
me t5 —m
m as o
t 3 m c. o
0.2 W 6 •— V N Co
a) m o a) N_ Q
C c p a> p
m m d y U N
.0 IS 2" d6 c
w
o:
a
Z
2
N
J
a
V
LL
LL
O
0
Z
0
W.
a.
a
d
E
C
N
c
0
L
CL
d
L
V
c
I
c
E
0
v
E
Q1
C
C
O
L
Y
v m
L
v G
7
9 C
d
LL
0—
C d
O
w W.
o=
wU
w m
LL
cc` �
� m
� m
Q
�c
yU
y� c°
c ao oc
0
c
49"
Voc
S cco
d y
L_
ALE'
L C N c V c
CD mc•` 49
y
C
�nIEE�
U) y L 8
n
N a ' C C a c f`On
a�
c4) Eg
iE
p c C 1 .
1.. om m
y (p7�+ m n9pOl O
o
Oo L E
N W a)
J wtm m0a
O
L m z E 7 (D � y =_nom
Q 0 u < n
cr) E
N
t c `O W,
pp C
a) U N Co
c
c N �= a N d rte, �
w o t d v
7
a �oNui
i•�pio'igp�
L O V m G m
�� ma �c�
'O c d O O m d
L o o c o y
L) 0 2O=
rnm
U 7 my
CD ray. a m N O
a) m >,
me t5 —m
m as o
t 3 m c. o
0.2 W 6 •— V N Co
a) m o a) N_ Q
C c p a> p
m m d y U N
.0 IS 2" d6 c
w
o:
a
Z
2
N
J
a
V
LL
LL
O
0
Z
0
W.
a.
a
d
E
C
N
c
0
L
CL
d
L
V
c
I
c
E
0
v
E
Q1
C
C
O
L
Y
v m
L
v G
7
9 C
d
LL
0—
C d
O
w W.
o=
wU
w m
LL
cc` �
� m
� m
Q
�c
yU
U-
0
U)
�I c
Q
a.
m
O
6 eJ
J
Z
O
a
Z
H
O
a
U
H
Z
W
2
W
Q
U
m
a
H
U
H
Cl)
D
H
'a'^^
V/
a
cn N
o N
a
Z LL
V
W
Z
W
v�
g
U
LL
LL
O
O
z
O
c
IL
IL
a
in
O
a
O
0
z
W
F
c
a
a
W
0
3
N
ca
RI I
w
i
a
z
c
w
0
O
0
c
U
z a a a a. a a a a cL a a a
w
c0 a
z 0 0 E
0 co co
a 8$ S$ 8 S S 8 S S 8 t
=Z
c� chi gn) Nm ano Si U')
Lei 0:
N N N
a
c�
a w g $ g
m NN
W co N ti N tn0
�z9�ro� ME
z
cc
w
w
m
7 o
z�
O a u°9i a cNp uN) U" r n r�p
W m tN0 u d
CC CD
CL 0 m 3 3 3 3 3 3 3 3 3 v
c
w
Q N N
U � y
E y
y 7
CL
C cm CA. F atS
a N w E 3 N Cl
Z rA C o C e C 16 N V C U
Fa ca c U 4 d > 0 -
3 3
w a) m c m (7 Y
w CC c c r
Q O O N O O ((a O
0:
C C C C N C
Z c � U °!%
O j 7 > C 7 7 7 N f0 7
.0 m c c c` C
cC v -O = L L
c a a¢ c7 = a a
Q N O O O O O
O a O O
o r a a a a a a a a a
0 0 0 0 0 0 0 0 0 0 0
W N f7 d' If1 10 f� aD CA O N cn C 1f1 t° f� aD CA N
E
z
a
r
e
N
O
F-
_r
3
r
m v
b �
all
c
O
E
O
d
U
a
a a a a
E
d
N N
co
c
m
�3 O
n �
9 y
T�
e
E
m
w
c
0
E
O
0
it
O
ffm
E
a
7
E
0
t
w
0:
z
N
CC
w
O
O
v likl�ll
Ol
w
z
Zy
J
Oa
v
CL CL LL.
4c
Im`o L
N m m C
mm;m�o
N L U
N C N O
"aa c R
O Op ctvviE
tD to N N ~myce F�
a C O L
C\j _ u) o
c � . �
Ul l� t OI LQ
y m V
m mN
ro L >
E z z z z
> > > > E� >
1.4
~ ! Eas uID
a
a a a a
<c,_ E `
m 0) 0 (D � m
t=
m U N E .N m m
> m 4) 230 N L` J
m V e L O
T:E OVA w
>�$ c0 N 0 O N U
Cl) Cl) t�$�`°ci �
co co CD gg vo
O Qqqq O mad p O N
Cl) co L
cmmc
U)'2 ST ca
N 'O a L
m c ..
a 36 r,OV m coO. o �¢
N
z z z z °g'mLCUm a
> > > > Nm>
m m O m N c
O O O O tom) 41 Z `off
a a a a U�� -�=. LL$
a
m
D c
Z Z
Z Z Z
Z Z
Z Z
Z Z Z
Z
c Z
L
r E
E
Z z
O Q N N
N G
G) N C
C I
ID N
N
C d
z L
L L z
z z
z z
z
C
C
C z
E
z
a
r
e
N
O
F-
_r
3
r
m v
b �
all
c
O
E
O
d
U
a
a a a a
E
d
N N
co
c
m
�3 O
n �
9 y
T�
e
E
m
w
c
0
E
O
0
it
O
ffm
E
a
7
E
0
t
w
0:
z
N
CC
w
O
O
v likl�ll
Ol
w
z
Zy
J
Oa
v
CL CL LL.
4c
Im`o L
N m m C
mm;m�o
N L U
N C N O
"aa c R
O Op ctvviE
tD to N N ~myce F�
a C O L
C\j _ u) o
c � . �
Ul l� t OI LQ
y m V
m mN
ro L >
E z z z z
> > > > E� >
1.4
~ ! Eas uID
a
a a a a
<c,_ E `
m 0) 0 (D � m
t=
m U N E .N m m
> m 4) 230 N L` J
m V e L O
T:E OVA w
>�$ c0 N 0 O N U
Cl) Cl) t�$�`°ci �
co co CD gg vo
O Qqqq O mad p O N
Cl) co L
cmmc
U)'2 ST ca
N 'O a L
m c ..
a 36 r,OV m coO. o �¢
N
z z z z °g'mLCUm a
> > > > Nm>
m m O m N c
O O O O tom) 41 Z `off
a a a a U�� -�=. LL$
�I
LL
O
U)
'I Z
CO
w m
O O
a p
Q
p
g
U
LL
O
0 W
Z Q
O =
U
a w
CL a.
� ¢ a
O
J
Z F
o N C
C L
U o
Q C7
Cl)
Z m
N Cc
e_ c
co
Q 0
U as
f"
Z z
w O
w >-
O
F
Z
U
w
0
d n
w
O
U_
N
�NN
Z
Q
N
Q
(n N Z
O N
Q cc O
Q/ .O
F. a)
Z LL
0 w
V Z
Q LU
N � w
} 0
_
0
0
O LD
r» I c0
;
a
0 m d
O
i C
F f0
CL
0 e
W o
U m
a c
LL m V
O a) c
U m
Z
O
am
c °
U
W O c
O 4
to
U
7
2 a
I
O �I r
N
N
—I —1 nil —
C N
a1
« N
010
Qi
CL
N
L 9
ve
m
E N
E m
U c
E m
o�
col r-1 -I O11
N
ull
Q
f-
O
H
mom o`
?Q o
oam h `° Qn
m
°C ao °c °`
F
h � � .Q m
E
� UoQ'
caF
m
CL
N
V
T
C
m
r r
m m
Q O
I
c
E
d
n a�
r
r
0
E
o
Lo m
c �
o «
(D
v
C
C
m
0
m
N
>
a°
Y
c
v
m
•°
d
�
m
o
c
w
w W o
�
«
W
z
DZ) v
U) Z
E
w w w w
(D2
O
N
o J
U
c
(a ca as
¢ o°'.a LL
a
U a0
> t E 3 3
% C. G m
a E n c
y m
°
u > E 0
a) O cr C
N.- U
L
O C
a)N O
�aa ac a a
N N
cL'cyEa w
ce) ch
V'
@ w c O F
N ~:nca)a L
co °0
acNiOn c UR
cl N
a) 7 a7 'NO m N F
Vi ff!
N U T.7 O > •O a1
U (D 0 .
L
m N'O C
J
Z Z Q
� rnaj
a) a7 al
rna) m«
Z Z
n« u
O O O O
r2 r2 .2 r2
u a E
-
a NUQQa
Q Q Q Q
cm E
L) :6 U
N N O
r
% C C
a) tg N j a1 d
O Q
a) "' ra N U 7 L •al
U
a7
O
_ !LI 1y�
a)
a) N
O
> fa O 0 U
L O U 4) la O. m al w
L L
O
o�yo0mn Lnd
•o -
Lo
co
o. - N a,
C)
L U
m w w d
U m o
o
d °)« cu°,
d..
cmdUc»-
�L a7 ,N O C C
U a) m >, -y
CD
o 'O L_, L a) L c U
O 0
7 LL'
Z Z Z Z
010
-
g a
a
O O O O
>
N a) > C
0 C >
U U U U
i..i ci ci
rn c c p « m
m a)a)° ua)'6 c�
(]
r a) d N a,) r n
O
J
Z
O
v
Q
U)
Z
V
z
W
2
W
V
Yx
CL
H
UN_
Li
N
N�
LL
H
Z
N
co
0
Z
v
J
Z
W
0
O
N
CL
N
0
N
z
z
O
2
N
C
L
0
CC
5
U
LL
LL
O
C9
z
O
a
O
t
U
U
d
W
0
a
z
0
N
0
z
w
w
W
O
m
EL
d
m
c
a
tL
w
w
O
x
0
6
0
L
t 3
m E
L� =8=
m
w
c O
nEw-�
7
�
IL
N N L O'
o, 'O N C O
IL
d7
U Q
y
CL a
., � N E S
Lo
D
M
F = v c Q
n
c N
coil
�
�oU'ti >a
Ulm
j
W W
'
Z �
�
O
W
;
=
a=
w
i
W
m
M
O-
O
0
O
r
0
O
M
0
M
0
i
Z
r
co
O
O
r
O
O
I
M
0
0 0
co
co
co
co
U
9
QCN
00
O m
`
00
00
t
0
0
0
� 0
CV
n
co
r
rn
Iq
n
Lr)
o
o
co
CL
06
co
co
o
r
th
o
CO
N
C)
0
O
O
N
z
�sn
o
0)
n
O
Lo
0)
Lo
z
co
cl
E
v
U
=
CL
m
a
Zy
C00
w
22
C
d
w°
00aNO
m
A?
°)
30
Z
U -u
v1
..
U
L
m m
.� 3
w,
0
9 °D
O Cl
0
0. O
U
Z O`
cl.
U
=
U
CI. 4)
g
v
N
co
N
x
a
C
LL
m
U.
yOj
d
C
c
n
E
Z
M
>
0
L
N
>
O
a
C
0-0
y
C
O
p
O
C
c
m
m
?
LL
N
j
d
Y
d C f`
m
m
oNo
U
°
x�_
Q
w
>
m
to 3
Q
w
Z
N
U
U
z
U
p
_C
3
W
W
0
w
p
m
m
>
a� 0
c c
a� —
c
cn
c
2) —m
a
c
c
c
_
E
-
CD
w U
Y
Q
(9
Q
W
~
°M
r
u')
o
to
r
aaa
a
a
�t)
C4
co
v
u)
m
n
co
M
o
i
i
N
1
i m
i�
15
3
i y .�
C
' C
i m
7 N
m
7 C
. N
N
Nt
U')
v
J
QU QU U U
a a a a
01
ri
O
N
Z
Z)
O
Q
M
O
co
Co
O
co
0
O
O
�k
Z
Z)
O
U
Q
w
F
2
C7
N
w
W
0
J
O
x
0
Idit
J N 100 N m N �C
Z Z Z Q CDR m 1 N
F N _ m 49 0 O O O cti`w�E$
QQ <0)L)¢4ci
� -0c
,
U > =
23
m
m
a m
C g ,) c L
> lC y N
o Co t� c n�
r r m >,mdkE c 2
r t `i `p O m a
co 0 a ° p aci 0V79
o O `mnEE°0w
O .0 w IL
CN
a, 0 OI u m 'yy 0
Nm ;Lm
mc•_u
L 3 d C y
Z Z Z o d� V
O O O 0 E 0 w A
U U U E�c�'O�
Q Q Q Uc� c
w
z
2
f�
N
J
Q
V
LL
LL
O
C7
z
O
w
O.
a
m
E
c
d
C
O
Q
d
F
V
_
m
C
E
7
0
u
m
E
c
0 0,
L �
a�Y
u m
L 0
u
a _e
m€
O
m .LL+
C
O
d
0=
mU
ad
U. 0
J $
L
t 3
m E
L� =8=
m
c O
nEw-�
7
�
2'5 „
wa>E�
N N L O'
o, 'O N C O
U Q
y
CL a
., � N E S
Lo
Cj
M
F = v c Q
n
c N
coil
�
�oU'ti >a
Ulm
J N 100 N m N �C
Z Z Z Q CDR m 1 N
F N _ m 49 0 O O O cti`w�E$
QQ <0)L)¢4ci
� -0c
,
U > =
23
m
m
a m
C g ,) c L
> lC y N
o Co t� c n�
r r m >,mdkE c 2
r t `i `p O m a
co 0 a ° p aci 0V79
o O `mnEE°0w
O .0 w IL
CN
a, 0 OI u m 'yy 0
Nm ;Lm
mc•_u
L 3 d C y
Z Z Z o d� V
O O O 0 E 0 w A
U U U E�c�'O�
Q Q Q Uc� c
w
z
2
f�
N
J
Q
V
LL
LL
O
C7
z
O
w
O.
a
m
E
c
d
C
O
Q
d
F
V
_
m
C
E
7
0
u
m
E
c
0 0,
L �
a�Y
u m
L 0
u
a _e
m€
O
m .LL+
C
O
d
0=
mU
ad
U. 0
J $
c`
m
UoQO' v
7