News: 2006 3rd Quarter

IFS recently began several fiduciary transactional assignments and other projects:

• Wilmington Trust
• Utah Carpenters and Cement Masons
• NYSUT Member Benefits Trust
• Krispy Kreme Donuts defined contribution plans
• World Kitchen Incorporated 401k Plan

IFS recently added several Clients for Operational Reviews or Other Projects:

• Oregon Department of Treasury
• Sheet Metal Workers National Pension Fund
• Oregon Department of Treasury
• Utah Carpenters and Cement Masons

IFS recently completed an evaluation of the legal framework and governance of the investment program of the Chinese National Council for Social Security Fund, in Beijing-- work financed by the Asian Development Bank. Established to help close the gap between promised pension benefits and assets available to pay them, the Fund--now valued at approximately $25 billion (U.S.)-- is financed both by legislative appropriations and by proceeds from initial public offerings of formerly state-owned enterprises. IFS compared numerous aspects of the Fund's current operations to global "best practices" regarding, e.g., fiduciary standards, investment criteria, internal governance, ethics provisions, brokerage procedures and autonomy over procurement, budget and personnel.

The Board of Trustees of the Missouri State Employees' Retirement System ("MOSERS") retained IFS, pursuant to a competitive bid, in December 2005, to assist them in evaluating their role as fiduciaries and further to review various aspects of MOSERS' internal operations and investment programs. The operational review focused on 1) identifying and controlling risks, 2) enhancing long-term investment performance, and 3) adopting and implementing industry best practices. The specific scope of work for this engagement included the following key task areas: (a) Statutory Framework; (b) Governance policies; (c) Organizational Structure and Resources; (d) Investment Management Structure and Costs; (e) Investment Policy; (f) Asset Allocation and Investment Risk; (g) Risk Management and Internal Controls; (h) Due Diligence Procedures; (i) Trust and Custody; (j) Legal Issues; (k) Fiduciary Liability Insurance. IFS presented its final report to the MOSERS Board in July 2006.

The Public Employees' Retirement Board of Nevada is responsible for the administration, investment and management of the Public Employees' Retirement System of Nevada ("PERS"), the Nevada Legislators' Retirement System ("LRS") and the Nevada Judicial Retirement System ("JRS"). These systems provide retirement, disability and survivor benefits for public, legislative and judicial workers employed by the State of Nevada. Pursuant to Board policy, PERS must perform an "independent investment program review" at least every ten years "regarding the soundness of the PERS, JRS and LRS funds, including the assumptions, asset allocation, management structure, and performance results." The scope of work for this engagement included the following key task areas: (a) Review of Investment Policy; (b) Asset Allocation; (c) Investment Management Structure; and (d) Investment Performance.

IFS was engaged act as the independent fiduciary on behalf of three pension plans with respect to a warehouse property which the plans had purchased from and leased back to one of the companies pursuant to a prohibited transaction exemption issued by the U.S. Department of Labor. As independent fiduciary, we reviewed the status of the tenant company's compliance with the terms of the lease and the exemption. We engaged the services of an independent appraisal firm to appraise the property both currently and retrospectively as of the end of each year since the plans acquired it. After critically evaluating the appraisals, as well as the circumstances surrounding the plans' funding of renovation work done to the property, we determined that the tenant owed the plans underpaid rent, a return on the cost of the renovation and interest, which we collected on behalf of the plans. IFS also organized a Delaware limited liability company to hold the plans' title to the property in order to protect the plans' other assets from potential liabilities arising out of the property. We also determined that it was in the plans' interest to sell the property, and we recently completed its sale at a price well above the property's most recent appraised value.

The Board of Trustees (the "Board") of the City of Oakland Police and Fire Retirement System ("PFRS") retained IFS, through a competitive bidding process, to conduct a management audit. A review of this nature had never been conducted by PFRS. The scope of the project covered over a dozen task areas, including governance and accountability, expert advice and the role of legal counsel, disclosure requirements, investment analysis and performance, investment benchmarks, investment reporting and monitoring, custody and securities lending and internal controls.

IFS voted the shares of AmSouth Bank and Regions Financial Corporation held by the AmSouth Plans with respect to the proposed merger of AmSouth and Regions.

IFS has been serving since 2003 as the independent fiduciary for two retirement plans (one cash balance plan and one profit sharing plan) sponsored by Fortunoff with respect to a Long Island, New York warehouse the plans purchased from one of the Fortunoff companies in 1992 and leased back to the company. Acting for the plans, IFS had taken steps to bring the plans and the company into compliance with the terms of the lease, agreed to a lease extension and supported a successful application to the Department of Labor for a prohibited transaction exemption permitting the lease extension. IFS determined that it would be in the interest of the plans to sell the property. Working with one of the leading regional brokerage firms, IFS identified an unrelated purchaser and completed an all-cash sale of the property at a significant premium over the most recent appraised value.

IFS was retained by the plan to analyze the terms of the settlement of a class action alleging breaches of fiduciary by the plan's fiduciaries associated with the plan's ownership of Westar stock and determine whether the settlement was reasonable. Working with outside counsel, IFS reviewed the relevant plan documents and court filings and interviewed the attorneys involved in the lawsuit and the mediator who conducted the settlement discussions. We determined that the settlement was reasonable and that a release by the plan in connection with the settlement complied with the requirements of a Department of Labor prohibited transaction class exemption governing settlements of litigation by benefit plans subject to ERISA.

In its Sept/October edition, the Journal of Benefits and Compensation published an article entitled "The Role of the Independent Fiduciary," authored by Skip Halpern, President of IFS.

Ed Patchett, SVP and Managing Director of IFS' Retainer Consulting Practice, provided testimony to the 2006 ERISA Advisory Council. Ed's prepared testimony before the Working Group on Select Issues of a Procedurally Prudent Investment Process is available for download.

Frank Lilly, CEO, spoke at the Association of Investment Management Sales Executives Annual Conference in Orlando. He participated in a panel discussion relating to "The Impact of Government Regulation (and Legislation) on Employee Benefit Plan Investing."

Andy Irving, Managing Director and General Counsel spoke at the following:

• Proskauer Rose program entitled "ERISA Fest: Current High Stakes Employee Benefit Plan and Executive Compensation Issues for Directors and Officers" on the subject of "Best Practices Reviews: Enhance your Investment Program's Effectiveness and Efficiency".
• Andy was a panelist at a conference sponsored by Financial Research Associates LLC in New York. His panel discussed ERISA litigation, and his main focus was strategies to mitigate the litigation risks associated with plan investments.
• Andy was a panelist at the Glasser LegalWorks 6th Annual ERISA Fiduciary Conference. His panel discussed "Prudent Investments in 401k and Other Plans". His remarks focused on "Best Practices Reviews".

Ed Patchett, Senior Vice President and Managing Director, spoke at the Association IFEBP Annual Conference in Las Vegas. His presentation was entitled "How Investment Policies Can Impact Returns."

Skip Halpern, IFS President, spoke on the subject of "Current Fiduciary Issues in Investments".

Skip Halpern was one of three members of a panel that discussed how to develop, implement and upgrade a modern, public pension investment organization. Skip focused specifically on the governance and operation of the investment program of the fledgling Chinese National Social Security Fund (approximately $25 billion in assets), which IFS recently evaluated. His co-panelists were senior investment officers of the Japanese National Pension Investment Fund-- the largest pension fund in the world-- and the Korean Pension Service.