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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. 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