HomeMy Public PortalAboutDeferred Comp 2006 Audited FinancialsTHE METROPOLITAN ST. LOUIS
SEWER DISTRICT DEFERRED
COMPENSATION PLAN AND TRUST
FINANCIAL REPORT
(Audited)
Year Ended December 31, 2006
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
FINANCIAL REPORT
Page
1
2
INDEPENDENT AUDITORS' REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL STATEMENTS
Statements of Plan Net Assets 5
Statements of Changes in Plan Net Assets 6
Notes to Financial Statements 7
SUPPLEMENTAL INFORMATION
Historical Trend Information
Investment Returns and Expense Ratios
14
15
Contents
Hochschild, Bloom & Company LLP
Certified Public Accountants
Consultants and Advisors
INDEPENDENT AUDITORS' REPORT
August 14, 2007
The Board of Trustees
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
We have audited the accompanying statements of plan net assets of THE METROPOLITAN ST. LOUIS
SEWER DISTRICT DEFERRED COMPENSATION PLAN AND TRUST (the Plan) as of December 31,
2006 and 2005, and the related statements of changes in plan net assets for the years then ended. These financial
statements are the responsibility of the Plan Administrator. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of express-
ing an opinion on the effectiveness of the Plan's internal control over financial reporting. Accordingly, we ex-
press no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net as-
sets of the Plan as of December 31, 2006 and 2005, and the changes in plan net assets for the years then ended, in
conformity with U.S. generally accepted accounting principles.
The management's discussion and analysis is not a required part of the basic financial statements, but is supple-
mentary information required by U.S. generally accepted accounting principles. We have applied certain limited
procedures that consisted principally of inquiries of management regarding the methods of measurement and
presentation of the supplementary information. However, we did not audit the information and express no opin-
ion on it.
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The
supplemental information, as listed in the table of contents, are presented for purposes of additional analysis and
are not a required part of the basic financial statements. This supplemental information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in
all material respects in relation to the basic financial statements taken as a whole.
CERTIFIED PUBLIC ACCOUNTANTS
❑ 16100 Chesterfield Parkway West, Suite 125, Chesterfield, Missouri 63017-4829, 636-532-9525, Fax 636-532-9055
❑ 1000 Washington Square, P.O. Box 1457, Washington, Missouri 63090-8457, 636-239-4785, Fax 636-239-5448
www.hbclp.com POiARIS .I Member: Polaris International with Firms in Principal U.S. and International Cities
IIEIIIIO
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2006
This report consists of the financial statements related to The Metropolitan St. Louis Sewer District De-
ferred Compensation Plan and Trust (the Plan). The statements of plan net assets and the statements of
changes in plan net assets (on pages 5 and 6) provide information about the Plan's assets and changes in
its assets during the year. These statements are prepared using the accrual basis of accounting. The in-
vestments held in trust for plan benefits are reported at fair value.
This management's discussion and analysis of the Plan's financial performance provides an overview of
the Plan's financial activities for the fiscal year ended December 31, 2006. Please read it in conjunction
with the Plan's financial statements section.
FINANCIAL HIGHLIGHTS
Plan Additions, Deductions, and Net Assets
Net assets available for plan benefits exceeded $26.1 million at the end of 2006 and the net asset value
increased by $3.9 million from that of December 31, 2005, due to the combined impact of both an in-
crease in the overall value of the equity investment markets and an increase in employee contributions.
Contributions from employees were approximately $2.5 million, an increase of $276 thousand.
Plan Additions for 2006, 2005, and 2004 (in thousands)
2006
2005
Percent
Change
2004
Percent
Change
Employee contributions
$2,479
$2,203
12.5%
$2,051
7.4%
Interest and dividends
951
604
57.5
343
76.1
Appreciation in fair value of
investments - net
1,840
708
159.9
1,567
(54.8)
Investment expense
(1)
(1)
-
(1)
-
Plan Deduction for 2006, 2005, and 2004 (in thousands)
2006
2005
Percent
Change
2004
Percent
Change
Distribution to participants
$1,406
$670
109.9%
$793
(15.5%)
Net Assets at December 31, 2006, 2005, and 2004 (in thousands)
2006
2005
Percent
Change
2004
Percent
Change
Net assets
$26,113
$22,249
17.4%
$19,404
14.7%
Page 2
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2006
Investment Aspects
Employee participation in the Plan is on a voluntary basis. As of December 31, 2006 and 2005, there
were 619 and 612 Plan participants, respectively, comprised of: active employees of the District, retirees
or surviving spouses, and terminated employees with account balances. Investment decisions are par-
ticipant directed. The participants are offered a diversified series of investment options to select from.
These investment options represent a series of mutual funds primarily sponsored and managed by the
Vanguard Group. A breakdown of the participant directed asset allocation is as follows.
23%
Asset Allocation as of
December 31, 2006
5%
4%
8%
Asset Allocation as of
December 31, 2005
4%
Asset Allocation as of
December 31, 2004
59%
® Equity
■ Balanced
0 Fixed Income
❑ Stable Value
■ Cash Equivalents
Page 3
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2006
Certain participants with assets valued at $799,626 and $936,638 in 2006 and 2005, respectively, are
invested in a series of fixed and variable rate annuity contracts sponsored by Lincoln National Life In-
surance Company. The Lincoln National Life option was phased out in 1992, and any balances repre-
sent undistributed participant balances. This option is no longer available to new participants or for cur-
rent deferrals.
Fiduciary Responsibilities
The Board of Trustees and senior management are fiduciaries of the Plan and Trust. Fiduciaries are
charged with the responsibility of assuring that the assets of the Plan are used exclusively for the benefit
of Plan participants and the beneficiaries.
Request for Information
This financial report is designed to provide the Board of Trustees, participants, investment managers,
and other interested parties with an overview of the Plan's finances and accountability for the money
received. Questions concerning any of the information provided in this report or requests for additional
information should be addressed or e-mailed to:
Karl J. Tyminski, Secretary -Treasurer
The Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103-2555
or
kjtymi(a,stlmsd.com
Page 4
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
STATEMENTS OF PLAN NET ASSETS
December 31
2006 2005
ASSETS
Investments at fair value:
Mutual funds $ 23,204,823 19,672,631
Common/collective trust 1,581,886 1,271,843
Annuity contracts 799,626 936,638
Participant loans 526,636 367,999
NET ASSETS HELD IN TRUST FOR PLAN BENEFITS
See notes to financial statements
$ 26,112,971 22,249,111
Page 5
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
STATEMENTS OF CHANGES IN PLAN NET ASSETS
For The Years
Ended December 31
2006 2005
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Interest and dividends $ 951,126 603,665
Net appreciation in fair value of investments 1,839,805 708,447
Total Investment Income 2,790,931 1,312,112
Less - Investment expenses 500 450
Net Investment Income 2,790,431 1,31 1,662
Employee contributions:
Elected deferrals 2,413,736 2,165,854
Rollovers 65,331 37,249
Total Employee Contributions 2,479,067 2,203,103
Total Additions 5,269,498 3,514,765
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Distributions to participants and beneficiaries 1,405,638 670,007
NET INCREASE
NET ASSETS AVAILABLE FOR BENEFITS,
JANUARY 1
NET ASSETS AVAILABLE FOR BENEFITS,
DECEMBER 31
3,863,860 2,844,758
22,249,111 19,404,353
$ 26,112,971 22,249,111
See notes to financial statements
Page 6
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies consistently applied by THE METROPOLITAN ST. LOUIS
SEWER DISTRICT DEFERRED COMPENSATION PLAN AND TRUST (the Plan) in the prepa-
ration of the accompanying financial statements are summarized below:
1. Basis of Accounting
The financial statements of the Plan are prepared under the accrual basis of accounting.
Benefit payments to participants or beneficiaries are recorded upon distribution.
2. Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted ac-
counting principles requires the Plan Administrator to make certain estimates and as-
sumptions that affect the reported amounts in the financial statements. Actual results
could differ from those estimates.
3. Investment Valuation
Purchases and sales of mutual funds are recorded on the settlement date. Investments in
mutual funds are valued at fair value based on quoted market prices. Investments in an-
nuity contracts are valued at contract values reported by the insurance company, which
approximate fair value.
4. Administrative Expenses
All general administrative costs of the Plan are paid by The Metropolitan St. Louis Sewer
District (the District), except those attributable to participants' choice of optional invest-
ments or optional forms of benefit payments. Theses expenses are charged to the respec-
tive participants' account balance.
NOTE B - DESCRIPTION OF THE PLAN
The following description of the Plan provides only general information. Participants should refer to the
Plan agreement for a complete description of the Plan's provisions.
1. General
The Plan is a defined contribution benefit plan covering substantially all employees of the
District. The District's Board of Trustees established the Plan in September 1996. Plan
provisions are established and may be amended by the District's Board of Trustees. The
District does not contribute to the Plan. All assets of the Plan are the sole property of the
Plan and are not subject to the claims of the creditors of the District. The Plan Adminis-
Page 7
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE B - DESCRIPTION OF THE PLAN (Continued)
1. General (Continued)
trator issues a publicly available summary plan description. That information may be ob-
tained by writing to The Metropolitan St. Louis Sewer District, 2350 Market Street, St.
Louis, MO 63103-2555.
2. Contributions
Under the Plan provisions, employees of the District are eligible to contribute up to 100%
of their total compensation into the Plan, through payroll deferral, any amount not previ-
ously reduced or withheld from their total compensation. In accordance with the Internal
Revenue Code Section 457 as amended, the Plan limits an employee's annual contribu-
tion (adjusted annually) not to exceed $15,000 for the year ended December 31, 2006 and
$14,000 for the year ended December 31, 2005. If the employee is over the age of 50,
they can contribute an additional catch-up contribution up to $5,000 for the year ended
December 31, 2006 and $4,000 for the year ended December 31, 2005. Amounts con-
tributed by employees are deferred for federal and state income tax purposes until re-
ceived as a withdrawal or distribution from the Plan.
Employee contributions may be allocated to the Vanguard Group accounts only, in 1%
increments as the participant directs. No contributions are currently made to the Lincoln
National accounts.
Equity Option: Vanguard Windsor II Fund, Vanguard 500 Index Fund, and Vanguard
U.S. Growth Fund - Investment objective is long-term capital growth.
Diversification Option: Vanguard Small Cap Index Fund, Vanguard Mid Cap Index
Fund, and Vanguard International Growth Fund - Investment objective is long-term
capital growth.
Life Strategy Option: Vanguard Life Strategy Growth Fund, Vanguard Life Strategy
Moderate Growth Fund, Vanguard Life Strategy Conservative Growth Fund, and
Vanguard Life Strategy Income Fund - Investment objective is long-term capital
growth and/or income.
Bond Option: Vanguard Total Bond Index Fund - Investment objective is income
stability and conservation of principal.
Balanced Option: Vanguard Balanced Index Fund - Investment objective is income,
conservation of principal, and long-term growth.
Stable Value Option: Vanguard Retirement Savings Trust - Investment objective is
income stability and conservation of principal.
Page 8
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE B - DESCRIPTION OF THE PLAN (Continued)
2. Contributions (Continued)
Money Market Option: Vanguard Federal Money Market Fund - Investment objec-
tive is safety of principal.
Loan Fund: The District allows participants to borrow from their account, usually a
percentage of their vested balance.
3. Participant Accounts
Each participant's account is credited with the participant's contribution and allocations
of Plan earnings. Allocations are based on participants' account balances, as defined.
There are no forfeitures applicable to the Plan. Participants' contributions are immedi-
ately fully vested.
At December 31, 2006 and 2005, 619 and 612 participants, respectively, actively partici-
pated in the Plan.
4. Participant Loans
Active participants, with some exceptions, may borrow from their fund accounts a per-
centage of their vested account balances. Principal and interest is paid through payroll
deductions.
5. Distributions
Participants contributing to the Plan may receive benefits or withdraw the present value
of funds contributed to the Plan upon retirement, disability, or termination of employment
from the District or due to financial hardship as defined by the Plan, if approved by the
Plan Administrator.
Participants may select various payout options including lump sum or equal annual pay-
ments over various periods. Participants may also elect to have the value of the account
converted into fixed or variable annuity contracts. All investments, including annuity
contracts, remain assets of the Plan until payments are made to the participants.
6. Tax Status
The Plan received a favorable determination letter from the Internal Revenue Service on
June 23, 1999, indicating the Plan and its underlying trust are qualified under Section 457
of the Internal Revenue Code.
Page 9
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE C - INVESTMENTS
Investments held by the custodians in the Plan's name were as follows:
December 31
2006 2005
Mutual funds:
Vanguard Group, Inc.:
Windsor II Fund $ 6,883,911* 5,991,083*
Balanced Index Fund 3,234,625* 2,658,160*
500 Index Fund 3,197,006* 2,832,635*
U.S. Growth Fund 2,026,466* 2,088,231*
Total Bond Index Fund 1,465,661* 1,312,770*
Life Strategy Moderate Growth Fund 1,132,776 795,372
International Growth Fund 1,084,174 630,705
Small Cap Index Fund 930,345 762,454
Federal Money Market Fund 918,762 793,433
Mid Cap Index Fund 857,426 734,377
Life Strategy Growth Fund 837,496 583,219
Life Strategy Conservative Growth Fund 423,074 343,157
Life Strategy Income Fund 213,101 147,035
Total Mutual Funds 23,204,823 19,672,631
Common/collective trust
Vanguard Group, Inc.:
Retirement Savings Trust 1,581,886 1,271,843
Participant loans 526,636 367,999
*Represents 5% or more of the Plan's net assets.
Page 10
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE C - INVESTMENTS (Continued)
December 31
2006 2005
Annuity contracts:
Lincoln National Life:
Fixed earnings option:
Lincoln National Fixed 389,463 537,744
Variable earnings option:
Growth and Income Fund 147,055 153,645
Special Opportunity Fund 142,192 123,548
Money Market Fund 33,007 32,113
International Fund 28,272 21,527
Trend Fund 24,509 23,009
Social Awareness Fund 11,497 10,347
Equity -Income Fund 8,018 9,385
Aggressive Growth Fund 5,512 5,098
Capital Appreciation Fund 5,294 4,879
Managed Fund 4,807 9,955
Bond Fund - 4,642
REIT Fund 746
Total Annuity Contracts 799,626 936,638
826,112,971 22,249,111
Debt Securities Interest Rate and Credit Risk
The Plan will minimize the risk that the market value of securities in the portfolio will fall due to
changes in general interest rates by selecting mutual funds for the investment portfolio that manage
credit quality and duration of fixed income investments.
The Plan will minimize credit risk, the risk of loss due to failure of the security issuer or backer, by se-
lecting mutual funds for the investment portfolio that manage their respective fund under a predeter-
mined average credit risk investment management policy.
The following table provides information on the duration and credit ratings associated with the Plan's
investment in debt -backed mutual funds, excluding obligations of the U.S. Government or obligations
explicitly guaranteed by the U.S. government within these funds at December 31, 2006 and 2005:
Page 11
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE C - INVESTMENTS (Continued)
Plan Investments
With Debt Securities
December 31, 2006:
Vanguard Balanced Index Fund
Vanguard Retirement Savings Trust
Vanguard Total Bond Index Fund
Vanguard Life Strategy Moderate Growth Fund
Vanguard Federal Money Market Fund
Vanguard Life Strategy Conservative Growth Fund
Vanguard Life Strategy Income Fund
Lincoln National Fixed (Annuity Contracts)
Lincoln Money Market Fund
December 31, 2005:
Vanguard Balanced Index Fund
Vanguard Retirement Savings Trust
Vanguard Total Bond Index Fund
Vanguard Life Strategy Moderate Growth Fund
Vanguard Federal Money Market Fund
Vanguard Life Strategy Conservative Growth Fund
Vanguard Life Strategy Income Fund
Lincoln National Fixed (Annuity Contracts)
Lincoln Money Market Fund
Lincoln Bond Fund
*Information is unavailable for this mutual fund.
S&P Average
Average Effective
Credit Credit Quality Percentage Duration
Fair Value Rating AAA AA A BBB BB B In Years
$3,234,625
1,581,886
1,465,661
1,132,776
918,762
423,074
213,101
389,463
33,007
2,658,160
1,271,843
1,312,770
795,372
793,433
343,157
147,035
537,744
32,133
4,642
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AA
AA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AA
AA
AA
33.3% 3.6% 2.8%
52.0 46.0 2.0
94.0 4.0 2.0
28.1 1.2 0.6
100.0
41.2 5.2 3.4
60.0 6.0 3.8
*
* * *
0.2
0.2
*
*
30.6 2.0 3.6 3.4
39.0 59.0 2.0 77.7 4.9 9.1 8.3
23.4 1.5 2.7 2.5
100.0 - 30.8 6.2 7.5 5.4
46.3 7.1 9.3 7.0
* * *
* * * *
* * * *
*
*
0.3
0.3
*
*
*
*
*
4.5
2.9
4.5
4.5
0.2
3.4
4.5
*
*
4.6
2.8
4.6
4.6
0.1
3.5
3.8
*
*
*
Page 12
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
SUPPLEMENTAL INFORMATION
SUPPLEMENTAL INFORMATION SECTION
Page 13
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
SUPPLEMENTAL INFORMATION
HISTORICAL TREND INFORMATION
For The
Years Ended Employee
December 31 Contributions
2006 $2,479,067
2005 2,203,103
2004 2,050,893
2003 2,041,688
2002 2,133,784
2001 1,986,726
2000 2,345,212
1999 1,608,507
Net Investment
Income (Loss)
2,790,431
1,311,662
1,909,831
2,746,391
(2,095,283)
(1,194,727)
(257,908)
951,611
Distributions To Increase
Participants (Decrease)
And Beneficiaries In Net Assets
(1,405,638) 3,863,860
(670,007) 2,844,758
(792,780) 3,167,944
(1,238,629) 3,549,450
(1,819,333) (1,780,832)
(793,369) (1,370)
(850,507) 1,236,797
(530,279) 2,029,839
Page 14
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
DEFERRED COMPENSATION PLAN AND TRUST
SUPPLEMENTAL INFORMATION
INVESTMENT RETURNS AND EXPENSE RATIOS
An independent investment consultant, New England Pension Consultants, monitored investment performance of the vari-
ous options offered to the participants. For 2006 the investment consultant reported that all actively managed funds posted
positive returns for the fiscal year ended December 31, 2006. Performance of the funds are measured net of the correspond-
ing expense ratios. Below is a table that reflects the funds available for participants to invest and the performance for the
years ended 2006 and 2005 as compared to the appropriate benchmarks as well as their current expense ratios:
Returns Net of Fees*
Funds/Benchmarks
Expense Ratios
2006
2005
Federal Money Market
0.30%
4.8%
3.0%
Retirement Savings Trust
0.30
4.4
4.0
90-day Treasury Bills
4.8
3.1
Bankers Trust 3-Year Guaranteed Investment
Contract Rate
3.8
3.2
Total Bond Market Index
0.20
4.3
2.4
Lehman Brothers Aggregate Bond Index
4.3
2.4
Balanced Index Fund
0.20
11.0
4.6
60% Standard & Poor's (S&P) 500/40%
11.1
4.0
Lehman Brothers Aggregate Bond Index
Life Strategy Income
0.25
7.9
3.2
Dow Jones U.S. Moderate Conservative Portfolio
7.5
4.7
Life Strategy Conservative Growth
0.25
10.6
4.4
Dow Jones U.S. Moderate Conservative Portfolio
7.5
4.7
Life Strategy Moderate Growth
0.25
13.3
5.7
Dow Jones U.S. Moderate Portfolio
10.3
6.0
Life Strategy Growth
0.26
16.1
6.8
Russell 1000
15.5
6.3
Standard & Poor's (S&P) 500 Index
0.18
15.7
4.8
Standard & Poor's 500 Index
15.8
4.9
Windsor II Fund
0.36
18.3
7.0
Russe111000 Value Index
22.3
7.1
U.S. Growth
0.53
1.8
11.1
Russe111000 Growth Index
9.1
5.3
Mid Cap Index
0.22
13.6
13.9
Russell Mid Cap Index
15.3
12.7
Small Cap Index
0.23
15.7
7.3
Russell 2000 Index
18.4
4.6
International Growth
0.63
25.7
14.9
Citigroup Primary Market Index (PMI) Europe,
Pacific, and Asian Countries (EPAC) Index
25.2
15.2
Morgan Stanley Capital International (MSCI)
Europe, Australia, and Far East (EAFE) Index
26.3
13.5
* The returns shown above are net of fees, as reported by the managers.
Page 15