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HomeMy Public PortalAboutDeferred Comp 2004 Audited Financials THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFERRED COMPENSATION PLAN AND TRUST FINANCIAL STATEMENTS DECEMBER 31, 2004 Contents Page Independent Auditors’ Report............................................................1 Management Discussion And Analysis ....................................... 2 - 4 Financial Statements Statement Of Plan Net Assets .............................................................5 Statement Of Changes In Plan Net Assets .........................................6 Notes To Financial Statements ....................................................7 – 11 1 Independent Auditors’ Report Board of Trustees The Metropolitan St. Louis Sewer District We have audited the accompanying Statement of Plan Net Assets of The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust (the Plan) as of December 31, 2004 and 2003, and the related Statement 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 upon our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express 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. As described in Note 2 to the financial statements, the Plan has adopted the provisions of the Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures,” as of and for the year ended December 31, 2004. In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net assets of The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust as of December 31, 2004 and 2003, and the changes in plan net assets for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The Management’s Discussion and Analysis on pages 2 through 4 is not a required part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. 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 opinion on it. August 19, 2005 2 METROPOLITAN ST. LOUIS SEWER DISTRICT Deferred Compensation Plan and Trust Management Discussion and Analysis This report consists of a series of financial statements related to The Metropolitan St. Louis Sewer District’s Deferred Compensation Plan and Trust (the Plan). The Statement of Plan Net Assets and the Statement of Changes in Plan Net Assets (on pages 5 and 6) provide information about this plan. These statements include all assets and liabilities using the accrual basis of accounting. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. Our discussion and analysis of the Plan’s financial performance provides an overview of the Plan’s financial activities for the year ended December 31, 2004. Please read it in conjunction with the Plan’s financial section and notes to the financial section. FINANCIAL HIGHLIGHTS Plan Assets, Deferrals and Deductions Net assets available for plan benefits exceeded $19.4 million at the end of 2004 and the net assets value increased by $3.2 million from December 31, 2003, due to the combined impact of both an increase in the overall value of the equity markets and an increase in participant contributions. Contributions from participants were approximately $2.1 million, which was essentially the same as in the prior year. Net assets available for plan benefits exceeded $16.2 million at the end of 2003 and the net asset value increased by $3.5 million from December 31, 2002 due to the impact of the overall increase in value of the equity markets during the year. Contributions from participants were approximately $2.0 million, which was approximately $92 thousand or (4.3%) less than contributions in the prior year. The increase in the equity markets, which was measured by the S&P 500 Index, increased by 26.4% in 2003. This along with no change in the interest and dividends, along with a reduction of plan participants of some (11.0%) resulted in a net overall increase of plan additions of $4.8 million. Plan Additions for 2004, 2003 and 2002 (in thousands) 2004 2003 % Change 2002 % Change Participant Contributions $2,051 $2,042 0.4% $ 2,134 (4.3)% Dividends and Interest 343 288 19.1% 287 0.3% Appreciation/(Depreciation) in Fair Value of Investments - Net 1,567 2,459 (36.3)% (2,382) 203.2% Investment Expenses (1) (1) 0.0% (1) 0.0% 3 Distributions to participants decreased by (31.9%) from 2002 to 2003 and (36.0%) from 2003 to 2004. There were three directors that retired in 2002 that decided to move their money out of the Plan. One more director retired in 2003 that also moved money from the Plan. These directors had substantial balances in the Plan. These distributions account for a large portion of the fluctuations from 2002 to 2004. Plan Deduction for 2004, 2003 and 2002 (in thousands) 2004 2003 % Change 2002 % Change Distributions to Participants $793 $1,239 (36.0%) $ 1,819 (31.9%) Investment Aspects Employee participation in the Plan is on a voluntary basis. As of December 31, 2004 and 2003, there were 592 and 577 Plan participants, respectively, comprised of: active employees of the District, retirees or surviving spouses and terminated employees with account balances. Investment decisions are participant 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. Asset Allocation as of December 31, 2004 63% 22% 6%5%4% Asset Allocation as of December 31, 2003 61%19% 9% 6%5% Equity Balanced Fixed Income Stable Value Cash equivalents Asset Allocation as of December 31, 2002 58% 17% 11% 6%8% 4 Independent investment consultants, Yanni-Partners and New England Pension Consultants, monitored investment performance of the various options offered to the participants. For 2004, the investment consultant reported that all actively managed funds with the exception of the International Equity Fund met or exceeded the appropriate benchmarks. For the balanced or lifestyle funds, three of the five investment options met or exceeded their benchmarks in both 2004 and 2003. For 2003, the investment consultant reported that all actively managed funds with the exception of the large capitalization growth fund met or exceeded the appropriate benchmarks. Performance of the funds are measured net of the corresponding expense ratios. Certain participants with assets valued at $1,028,688 and $1,157,209 in 2004 and 2003, respectively, are invested in a series of fixed and variable rate annuity contracts sponsored by Lincoln National Life Insurance Company. The Lincoln National Life option was phased out in 1992, and any balances represent undistributed participant balances. This option is no longer available to new participants or for current 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 to: Karl J. Tyminski, Secretary-Treasurer 2350 Market Street St. Louis, MO 63103-2555 Phone: (314) 768-6222 Fax: (314) 768-2701 kjtymi@stlmsd.com 5 THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFERRED COMPENSATION PLAN AND TRUST STATEMENT OF PLAN NET ASSETS December 31, 2004 and 2003 2004 2003 Investments at Fair Value $ 19,404,353 $ 16,236,409 Net Assets Held in Trust for Plan Benefits $ 19,404,353 $ 16,236,409 See accompanying notes to financial statements. 6 THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFERRED COMPENSATION PLAN AND TRUST STATEMENT OF CHANGES IN PLAN NET ASSETS For the Years Ended December 31, 2004 and 2003 2004 2003 Additions: Participant Contributions $ 2,050,893 $ 2,041,688 Investment Income: Dividends and Interest 343,100 288,344 Net Appreciation in Fair Value of Investments 1,567,331 2,458,597 Less: Investment Expenses (600) (550) Net Investment Income 1,909,831 2,746,391 Total Additions 3,960,724 4,788,079 Deductions: Distributions to Participants 792,780 1,238,629 Net Increase 3,167,944 3,549,450 Net Assets Held in Trust for Plan Benefits, Beginning of Year 16,236,409 12,686,959 Net Assets Held in Trust for Plan Benefits, End of Year $ 19,404,353 $ 16,236,409 See accompanying notes to financial statements. 7 THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFERRED COMPENSATION PLAN AND TRUST NOTES TO FINANCIAL STATEMENTS December 31, 2004 and 2003 1. Plan Description: General: The Plan is a defined contribution plan covering substantially all employees of the District. The District’s Board of Trustees established the Plan in September 1996. The first contributions were made in October 1996. The Metropolitan St. Louis Sewer District (the District) does not contribute to the plan. All assets of the Plan are the sole property of The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust and are not subject to the claims of the creditors of the District. The Plan Administrator issues a publicly available Summary Plan Description. That information may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Contributions: Under the plan provisions, employees of the District are eligible to contribute into the Plan, through payroll deferral, any amount not previously reduced or withheld from their total compensation. In accordance with The Revenue Act of 1978, the Plan limits an individual’s annual contribution not to exceed $13,000 for the year ended December 31, 2004 and $12,000 for the year ended December 31, 2003. Amounts contributed by participants are deferred for federal and state income tax purposes until received as a withdrawal or distribution from the Plan. Effective January 1, 2002, the Plan was amended and restated to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001. The Act made significant changes to Section 457(b) of the Internal Revenue Code of 1986, as previously amended, such as: increasing the maximum allowable dollar contribution to $13,000 for 2004 and if the participant is over the age of 50, they can contribute up to $16,000, increasing the maximum deferral percentage of taxable compensation to 100% as well as other changes. Participant 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: ƒ Equity option: Vanguard Windsor II Fund, Vanguard Index 500 Fund, and Vanguard U.S. Growth Fund – Investment objective is long-term capital growth. ƒ Diversification option: Vanguard Small-Cap and Mid-Cap Index Fund and Vanguard International Growth Fund – Investment objective is long-term capital growth. 8 NOTES TO FINANCIAL STATEMENTS: Continued 1. Plan Description, continued: ƒ Life Strategy option: Vanguard Life Strategy Growth, Vanguard Life Strategy Moderate Growth, Vanguard Life Strategy Conservative Growth, and Vanguard Life Strategy Income Funds – Investment objective is long-term capital growth and/or income. ƒ Bond option: Vanguard Total Bond Index Fund – Investment objective is income stability and conservation of principal. ƒ Balanced option: Vanguard Balanced Index Fund – Investment objective is income, conservation of principal, and long-term growth. ƒ Stable Value option: Vanguard Retirement Savings Trust – Investment objective is income stability and conservation of principal. ƒ Money Market option: Vanguard Federal Money Market Fund – Investment objective is safety of principal. • Loan Fund: MSD allows participants to take out a loan from their account, usually a percentage of their vested balance that the participant will pay themselves back. Participant Accounts: Each participant’s account is credited with the participant’s contributions 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 immediately fully vested. At December 31, 2004 and 2003, approximately 592 and 577 District employees, respectively, actively participated in the Plan. Participant Loans: Active participants, with some exceptions, may borrow from their fund accounts a percentage of their vested account balances. Principal and interest is paid through payroll deductions. 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 payments over various periods. Participants may also elect to have the value of their 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. 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 code. 9 2. Summary of Significant Accounting Policies and Plan Asset Matters: Basis of Accounting: The financial statements of the Plan are prepared under the accrual method of accounting. Benefit payments to participants are recorded upon distribution. During 2004, the Plan adopted GASB Statement No. 40, Deposit and Investment Risk Disclosures, an Amendment of GASB Statement No. 3 (GASB 40). The adoption of GASB 40 modifies certain financial statement disclosure requirements. The new standard enhances the deposit and investment risk disclosures by updating the custodial credit risk disclosure requirements of GASB 3 and addressing other common risks, including concentrations of credit risk, interest rate risk, and foreign currency risk. The implementation of GASB 40 had no effect on financial statement amounts. 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 annuity contracts are valued at amounts reported by the custodians, which approximate fair value. These values are based on actuarial assumptions as to anticipated mortality, withdrawals, and investment yield. Administrative Expenses: All general administrative costs of the Plan are paid by the District, except those attributable to each participants’ choice of optional investments or optional forms of benefit payments. These expenses are charged to the respective participants’ account balance. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires the Plan Administrator to make certain estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. 3. Investments in Mutual Funds: Investments in Vanguard Group accounts are made at the direction of the participants. Investments in mutual funds held by the custodians in the Plan’s name at December 31, 2004 and 2003, were as follows: 2004 2003 Vanguard Group, Inc. Vanguard Retirement Savings Trust $ 854,590 $ 791,894 Vanguard 500 Index Fund 2,667,147 2,368,225 Vanguard Balanced Index Fund 2,501,148 2,130,783 Vanguard Federal Money Market Fund 798,383 751,264 Vanguard International Growth Fund 367,931 235,261 10 NOTES TO FINANCIAL STATEMENTS: Continued 3. Investments in Mutual Funds, continued: Vanguard LifeStrategy Conservative Growth Fund 290,353 145,934 Vanguard LifeStrategy Growth Fund 420,718 348,679 Vanguard LifeStrategy Income Fund 162,000 78,539 Vanguard LifeStrategy Moderate Growth Fund 504,720 267,577 Vanguard Mid-Cap Index Fund 552,033 288,887 Vanguard Small-Cap Index Fund 757,287 522,329 Vanguard Total Bond Market Index Fund 1,098,685 1,000,699 Vanguard U.S. Growth Fund 1,854,074 1,719,901 Vanguard Windsor II Fund 5,221,440 4,143,634 Loan Fund 325,156 285,594 18,375,665 15,079,200 Lincoln National Life: Fixed earnings option: Lincoln National Fixed 611,133 648,275 Variable earnings option: Growth & Income Fund 156,159 198,487 Special Opportunity Fund 118,393 112,599 Managed Fund 12,379 23,727 Equity-Income Fund 11,505 32,441 Money Market Fund 31,822 5,847 Bond Fund 5,051 31,242 Aggressive Growth Fund 4,693 10,104 International Fund 18,552 35,398 Social Awareness Fund 9,584 9,296 Global Asset (Putnam) Fund 742 2,107 Trend Fund 21,954 19,693 Capital Appreciation Fund 4,732 4,543 DGPF Real Estate (REIT) Series 14,249 12,879 Small Cap Value Series 7,740 6,453 AMT Mid-Cap Growth Portfolio — 4,118 1,028,688 1,157,209 $19,404,353 $16,236,409 11 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 structuring the investment portfolio so that securities mature to meet cash requirements for benefit payments, thereby avoiding the need to sell securities on the open market prior to maturity. The Plan will minimize credit risk, the risk of loss due to failure of the security issuer or backer, by pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which the Plan will do business and by diversifying the portfolio so that potential losses on individual securities will be minimized. The following table provides information on the duration and credit ratings associated with the Plan's investments 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, 2004. Credit Quality Percentage of Total Mutual Fund S&P Average Average Effective Fair Credit Duration Debt-Backed Mutual Funds Value Rating AAA AA A BBB BB B In Years Vanguard Retirement Savings Trust $ 854,590 AAA 39% 59% 2% 0% 0% 0% 2.7 Vanguard Balanced Index Fund 2,501,148 AAA 6% 3% 10% 10% 0% 0% 4.5 Vanguard Federal Money Market Fund 798,383 AAA 100% 0% 0% 0% 0% 0% 0.1 Vanguard Life Strategy Conservative Growth Fund 290,353 AAA 14% 8% 16% 14% 1% 0% 3.6 Vanguard Life Strategy Income Fund 162,000 AAA 12% 7% 14% 13% 0% 0% 4.0 Vanguard Life Strategy Moderate Growth Fund 504,720 AAA 7% 3% 10% 11% 0% 0% 4.8 Vanguard Total Bond Market Index Fund 1,098,685 AAA 6% 3% 10% 10% 0% 0% 4.5 Lincoln National Fixed (Annuity Contracts) 611,133 AA * * * * * * * Lincoln Money Market Fund 31,822 AA * * * * * * * Lincoln Bond Fund 5,051 AA 52% 7% 15% 21% 3% 1% 8.6 * Information is unavailable for this mutual fund.