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HomeMy Public PortalAbout2012 Audited Financials THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN FINANCIAL STATEMENTS DECEMBER 31, 2012 and 2011 Contents Page Independent Auditors’ Report ..................................................... 1 - 2 Management’s Discussion And Analysis ..................................... 3 - 7 Financial Statements Statements of Plan Net Position ...................................................... 8 Statements of Changes in Plan Net Position ................................... 9 Notes to Financial Statements ................................................ 10 - 18 Supplemental Information Expense Ratios .............................................................................. 19 Independent Auditors’ Report Board of Trustees The Metropolitan St. Louis Sewer District St. Louis, Missouri Report On The Financial Statements We have audited the accompanying Statement of Plan Net Position of The Metropolitan St. Louis Sewer District Defined Contribution Plan (the Plan) as of December 31, 2012 and 2011, and the related Statement of Changes in Plan Net Position for the years then ended, which collectively comprise the District’s basic financial statements as listed in the table of contents. Management’s Responsibility For The Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Board of Trustees The Metropolitan St. Louis Sewer District Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net position of The Metropolitan St. Louis Sewer District Defined Contribution Plan as of December 31, 2012 and 2011, and the changes in plan net position for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 7 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the Plan’s financial statements. The supplemental information which includes expense ratios are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplemental information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The supplemental information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. June 18, 2013 THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Page 3 MANAGEMENT’S DISCUSSION AND ANALYSIS For The Year Ended December 31, 2012 This report consists of a series of financial statements related to The Metropolitan St. Louis Sewer District’s Defined Contribution Plan (the Plan). The Statement of Plan Net Position and the Statement of Changes in Plan Position (on pages 8 and 9) provide information about this Plan’s net position and changes in its net position during the year. These statements are prepared using the accrual basis of accounting. The 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, 2012 and 2011. Please read it in conjunction with the Plan’s financial section. FINANCIAL HIGHLIGHTS 2012 • Effective January 1, 2011, the Plan was established per Ordinance 13180. This plan allows the Metropolitan St. Louis Sewer District (the District) to encourage its employees to establish a regular method of savings and to create a fund available for their use at retirement or in the event of death. Initial participation consisted of twenty-three employees who transferred balances totaling $70,869 from The Metropolitan St. Louis Sewer District Employees’ Pension Plan. Per the Ordinance, all new employees are entitled to participate in the Plan and the employer match. At December 31, the Plan consisted of 134 participants with account balances nearing $650,000 in net position. • Total increase to the Plan’s net position (page 9) amounted to $443,906 consisting of Plan contributions and other additions of $420,158 offset by deductions of $20,642 and net investment gains of $44,390. • Administrative expenses (deductions to the Plan’s net position) totaled $20,601. This consisted primarily of Vanguard record-keeping and compliance testing of $20,150. The balance was made up of legal fees related to compliance. FINANCIAL HIGHLIGHTS 2011 • Initial participation in the Plan consisted of twenty-three employees who transferred balances totaling $70,869 from the Metropolitan St. Louis Sewer District Employees’ Pension Plan. At December 31, the Plan consisted of 70 participants with account balances totaling over $203,000 in net position. • Total increase to the Plan’s net position amounted to $203,721 consisting of Plan contributions and other additions of $239,482 offset by deductions of $30,568 and net investment losses of $5,193. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Management’s Discussion And Analysis (Continued) Page 4 • Administrative expenses (deductions to the Plan’s net position) totaled $25,734. This consisted primarily of Vanguard record-keeping and compliance testing of $14,843. The balance was made up of legal fees related to the research, development and spin-off of the newly created Plan from the Employees’ Pension Plan. ANALYSIS OF FINANCIAL ACTIVITIES • The Plan had a fair value gain in investments of $23,691. This included all investment funds except the Vanguard LifeStrategy Income Fund, which showed a slight loss of $32. The Vanguard Target Retirement 2045 Fund had the greatest gain in value for any one individual fund at $4,621. The group of Vanguard Target Retirement Funds, in the aggregate, had a gain in value of $14,840. These funds also make up nearly 61% of the value in the Plan. See the chart below for the annual change in value for each fund. Value at December 31 Net Fund Name Cost 2012 Change Vanguard Target Retirement 2045 104,005$ 108,626$ 4,621$ 17.32 % Vanguard Target Retirement 2050 55,100 57,723 2,623 9.20 Vanguard Target Retirement 2040 53,694 56,174 2,480 8.96 Vanguard Target Retirement 2025 64,312 66,723 2,411 10.64 Vanguard Sm-Cap Index Inv 35,437 37,766 2,329 6.02 Vanguard 500 Index Inv 29,514 31,357 1,843 5.00 Vanguard Target Retirement 2035 43,026 44,704 1,678 7.13 Vanguard Mid-Cap Index Fd Inv 25,378 26,707 1,329 4.26 Vanguard Int'l Growth Fund Inv 22,273 23,081 808 3.68 Vanguard Balanced Index Inv 13,509 14,245 736 2.27 Vanguard Windsor II Fund Inv 10,816 11,535 719 1.84 Vanguard Target Retirement 2020 14,106 14,435 329 2.30 Vanguard Target Retirement 2030 16,795 17,119 324 2.73 Vanguard U.S. Growth Inv 4,337 4,658 321 0.74 Vanguard Target Retirement Inc 11,183 11,494 311 1.83 Vanguard LifeStrategy Growth Fund 12,940 13,245 305 2.11 Vanguard Total Bd Mkt Indx Inv 34,408 34,665 257 5.53 Vanguard LifeStrategy Conserv Growth 10,379 10,511 132 1.68 Vanguard LifeStrategy Mod Growth 6,515 6,619 104 1.06 Vanguard Target Retirement 2055 4,043 4,091 48 0.65 Vanguard Target Retirement 2015 1,051 1,066 15 0.17 Vanguard Prime Money Mkt 1,849 1,849 - 0.29 Vanguard Retirement Savings Trust 26,330 26,330 - 4.20 Vanguard LifeStrategy Income Fund 2,555 2,523 (32) 0.40 Totals 603,555$ 627,246$ 23,691$ 100.00 % Change in Fund Asset Values % of Current Value THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Management’s Discussion And Analysis (Continued) Page 5 Change in Fund Asset Values Value at December 31 Net Fund Name Cost 2011 Change Vanguard Target Retirement 2045 24,620$ 23,851$ (769)$ 12.31 % Vanguard Target Retirement 2050 13,462 13,031 (431) 6.73 Vanguard Target Retirement 2040 9,824 9,716 (108) 5.02 Vanguard Target Retirement 2025 27,346 26,101 (1,245) 13.47 Vanguard Sm-Cap Index Inv 18,591 17,356 (1,235) 8.96 Vanguard 500 Index Inv 12,459 12,116 (343) 6.25 Vanguard Target Retirement 2035 10,590 10,154 (436) 5.24 Vanguard Mid-Cap Index Fd Inv 13,100 12,276 (824) 6.34 Vanguard Int'l Growth Fund Inv 12,931 11,083 (1,848) 5.72 Vanguard Balanced Index Inv 7,430 7,367 (63) 3.80 Vanguard Windsor II Fund Inv 3,842 3,782 (60) 1.95 Vanguard Target Retirement 2020 1,064 1,048 (16) 0.54 Vanguard Target Retirement 2030 6,638 6,369 (269) 3.29 Vanguard U.S. Growth Inv 2,221 2,093 (128) 1.08 Vanguard Target Retirement Inc 4,713 4,699 (14) 2.43 Vanguard LifeStrategy Growth Fund 7,127 6,666 (461) 3.44 Vanguard Total Bd Mkt Indx Inv 9,554 9,767 213 5.04 Vanguard LifeStrategy Conserv Growth 4,960 4,864 (96) 2.51 Vanguard LifeStrategy Mod Growth 2,706 2,591 (115) 1.34 Vanguard Target Retirement 2055 - - - - Vanguard Target Retirement 2015 - - - - Vanguard Prime Money Mkt 549 549 - 0.28 Vanguard Retirement Savings Trust 7,041 7,041 - 3.63 Vanguard LifeStrategy Income Fund 1,225 1,216 (9) 0.63 Totals 201,993$ 193,736$ (8,257)$ 100.00 % % of Current Value THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Management’s Discussion And Analysis (Continued) Page 6 INVESTMENT ASSET ALLOCATION • Investment decisions are participant directed. The participants are offered a diversified portfolio of investment options from which to select. These investment options represent a series of mutual funds sponsored and managed by the Vanguard Group. A breakdown of the participant directed assets allocation as of the last day of the fiscal year ended 2012 follows: $382,153 61% $32,899 5% $28,178 4% $34,665 6% $14,245 2% $47,551 8% $64,474 10% $23,081 4%Target LifeStrategy Capital Preservation Fixed Income Balanced Large Cap Small/Mid Cap International THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Management’s Discussion And Analysis (Continued) Page 7 2012 2011 Percent Change Contributions and Other Additions 420,158$ 239,482$ 75% Net Investment Gain/Loss 44,390 (5,193) -955% Total Additions 464,548 234,289 98% 2012 2011 Percent Change Distribution to Participants 41 4,834 -99% Administrative Expenses 20,601 25,734 -20% Total Deductions 20,642 30,568 -32% 2012 2011 Percent Change Net Increase 443,906 203,721 118% Net Position Restricted for Plan Benefits, January 1 203,721 - 100% Net Position Restricted for Plan Benefits, December 31 647,627$ 203,721$ 218% Plan Additions, Deductions, and Net Position are as follows: Plan Additions for 2012, 2011 Plan Deductions for 2012, 2011 Net Position for 2012, 2011 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: Brenda Schaefer, Secretary-Treasurer The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 E-mail: bschaefer@stlmsd.com THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN See the accompanying notes to financial statements. Page 8 STATEMENTS OF PLAN NET POSITION 2012 2011 ASSETS Investments at fair value: Mutual Funds 600,916$ 186,695$ Investments at contract value: Common/collective trust 26,330 7,041 Total Investments 627,246 193,736 Receivables Employer Contributions 20,381 9,985 Total Receivables 20,381 9,985 NET POSITION RESTRICTED FOR PLAN BENEFITS 647,627$ 203,721$ December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN See the accompanying notes to financial statements. Page 9 STATEMENTS OF CHANGES IN PLAN NET POSITION 2012 2011 ADDITIONS TO NET POSITION ATTRIBUTED TO: Investment income: Net appreciation (depreciation) in fair value of investments 32,207$ (8,504)$ Interest and dividends 12,900 3,559 Total Investment gain (loss)45,107 (4,945) Less - investment managers' and advisors' fees 717 248 Net Investment gain (loss)44,390 (5,193) Contributions and Other Additions: Employer contributions 419,948 167,298 Transfers from Employee's Pension Plan 210 70,869 Other Additions - 1,315 Total Contributions and Other Additions 420,158 239,482 Total Additions 464,548 234,289 DEDUCTIONS FROM NET POSITION ATTRIBUTED TO: Distributions to participants and beneficiaries 41 4,834 Administrative expenses 20,601 25,734 Total Deductions 20,642 30,568 NET INCREASE 443,906 203,721 NET POSITION RESTRICTED FOR PLAN BENEFITS, January 1 203,721 - NET POSITION RESTRICTED FOR PLAN BENEFITS, December 31 647,627$ 203,721$ For the Years Ended December 31 THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Page 10 NOTES TO FINANCIAL STATEMENTS December 31, 2012 And 2011 1. Summary of Accounting Policies The following accounting policies, which conform to generally accepted accounting principles, have been used consistently in the preparation of The Metropolitan St. Louis Sewer District’s Defined Contribution Plan’s (the Plan) financial reports. Basis of Accounting The financial reports of the Plan are prepared under the accrual method of accounting. Estimates and Assumptions The preparation of financial reports in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial reports and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates. Investment Valuation and Income Recognition The Plan’s investments in mutual funds are stated at fair value. Shares of registered investment companies are valued at quoted market prices which represent the net asset value of shares held by the Plan at year-end. Units of the Retirement Savings Trust are valued at contract value. Purchases and sales of investments are recorded on a trade-date basis. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Capital gain distributions are included in dividend income. Realized gains (losses) of $262 and ($248) are included in net appreciation (depreciation) in fair value of investments for the periods ended December 31, 2012 and 2011, respectively. Payment of Benefits Benefits are recorded when paid. Subsequent Events Management has evaluated subsequent events through June 18, 2013, the date through which the financial statements were available for issue. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 11 2. Description of Plan The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions. General The Plan is a defined contribution benefit plan established by the District’s Board of Trustees through Ordinance 13180 and became effective January 1, 2011. The following employees are eligible to participate in the Plan: (i) employees first hired on or after January 1, 2011, and (ii) employees hired prior to January 1, 2011 who elect to terminate participation in the Metropolitan St. Louis Sewer District Employees’ Pension Plan, effective as of April 1, 2011, in accordance with the provisions of such Pension Plan, and (iii) employees rehired on or after January 1, 2011 who are not eligible to accrue benefits under the Metropolitan St. Louis Sewer District Employees’ Pension Plan. An employee shall become a participant in the Plan on the first day on which he performs an hour of service for the District. The District’s Board of Trustees, primarily to improve benefits to members, amends the Plan in all its respects. A pension committee consisting of two members of the District’s Board of Trustees, two elected employee members and four members of the District’s management staff administer the Plan. A committee of the District’s Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan’s investments and the related rates of return on a periodic basis. This Plan is intended to provide a means whereby the District may provide retirement benefits to eligible employees and encourage such employees to establish a regular method of savings, thereby providing a measure of financial security for such employees and their beneficiaries upon retirement or in the event of death or disability. Contributions Employer Basic Contributions. For each payroll period, the District contributes an amount equal to 7% of the covered compensation earned during such period by each participant entitled to an allocation of such contribution. Employer Matching Contributions. For each payroll period, the District contributes an amount equal to 50% of the covered compensation of such participant withheld as an annual deferral (as defined in the Deferred Compensation Plan) pursuant to the Deferred Compensation Plan; provided that, before-tax contributions in excess of 4% of the covered compensation of the participant for the payroll period shall not be considered for purposes of Employer Matching Contributions. Employer Matching Contributions shall be up to the maximum amount of compensation that may be taken into account for the Plan year. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 12 In no event shall the sum of the employer contributions and employee contributions allocated to the account of a participant for the Plan year exceed the lesser of: (a) The amount specified in the applicable Internal Revenue Code, as adjusted annually for any applicable increases in the cost of living. (b) 100% of the participant’s compensation for such year. The compensation limit referred to in (b) shall not apply to any contribution from medical benefits after separation from service. Participant Accounts The Plan administrator shall establish and maintain a separate individual account for each participant (which may consist of various sub-accounts established by the Plan Administrator) to reflect the participant’s share of contributions made and the income, loss, appreciation and depreciation attributable to the account. The Plan Administrator shall keep accurate records of all contributions, receipts, investment distributions and all other transactions. The amount credited to the individual account of a participant from time to time as of the most recent valuation date shall constitute the entire interest of the participant in the Plan. Vesting As of any time before the normal retirement age of a participant, the first day of the month coinciding with or next following a person’s sixty-fifth birthday and completion of sixty months of continuous service (other than upon death or permanent disability), the vested percentage of the amounts credited to the participant’s employer basic contributions account shall be determined in accordance with the following schedule: Months of Service Vested Percentages Less than 12 0% 12 but less than 24 20% 24 but less than 36 40% 36 but less than 48 60% 48 but less than 60 80% 60 100% The amount credited to the employer matching contributions account shall be fully vested at all times. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 13 Investment Options Vanguard offers participants in the Plan the following investment options: Equity option: Vanguard Windsor II Fund, Vanguard Index 500 Fund, and Vanguard U.S. Growth Fund - Investment objective is long-term capital appreciation. Diversification option: Vanguard Small-Cap and Mid-Cap Index Fund and Vanguard International Growth Fund - Investment objective is long-term capital appreciation. 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. Bond option: Vanguard Total Bond Market 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. Money Market option: Vanguard Prime Money Market Fund - Investment objective is income while maintaining safety of principal. Target retirement option: Vanguard Target Retirement 2015-2055 Fund - Investment objective is capital appreciation and current income consistent with its current asset allocation. Payment of Benefits Upon the severance from service of a participant, the amount credited to his/her individual account shall be payable to the extent such that it is vested. The value of a participant’s vested individual account balance shall be distributed as soon as administratively feasible. The amount payable to a participant shall be the vested amount credited to his/her individual account as of the valuation date immediately preceding such distribution. This amount shall be distributed in any one or a combination of the following forms as the participant may elect: (a) In one lump sum payment; or (b) In annual, quarterly or monthly installments. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 14 Forfeited Accounts Upon a participant’s severance from service, the unvested amount credited to his/her individual account shall be forfeited and credited to the employer basic contributions account and shall be used to reduce employer basic contributions. If a participant is rehired before incurring two consecutive years break-in service, the amount previously forfeited will be restored. If rehired after two consecutive years break-in service, the amounts previously forfeited will not be restored. Administrative Expenses The general administrative expenses shall be paid by the District. These expenses consist of legal and accounting expenses as well as the administration of the Plan. Expenses attributable to a participant’s choice of optional investments are charged to the respective participant’s account. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 15 3. Investments Investment balances Investments held by custodians in the Plan’s name are as follows: 2012 2011 ASSETS Mutual Funds Vanguard Target Retirement 2045 Fund Total 108,626$ *23,851$ * Vanguard Target Retirement 2025 Fund Total 66,723 *26,101 * Vanguard Target Retirement 2050 Fund Total 57,723 *13,031 * Vanguard Target Retirement 2040 Fund Total 56,174 *9,716 Vanguard Target Retirement 2035 Fund Total 44,704 *10,154 Vanguard Small-Cap Index Fund Investor Shares Total 37,766 *17,356 * Vanguard Total Bond Market Index Fund Investor Shares Total 34,665 *9,767 Vanguard 500 Index Fund Investor Shares Total 31,357 12,116 * Vanguard Mid-Cap Index Fund Investor Shares Total 26,707 12,276 * Vanguard International Growth Fund Investor Shares Total 23,081 11,083 * Vanguard Target Retirement 2030 Fund Total 17,119 6,369 Vanguard Target Retirement 2020 Fund Total 14,435 1,048 Vanguard Balanced Index Fund Investor Shares Total 14,245 7,367 Vanguard LifeStrategy Growth Fund Total 13,245 6,666 Vanguard Windsor II Fund Investor Shares Total 11,535 3,782 Vanguard Target Retirement Income Fund Total 11,494 4,699 Vanguard LifeStrategy Conservative Growth Fund Total 10,511 4,864 Vanguard LifeStrategy Moderate Growth Fund Total 6,619 2,591 Vanguard U.S. Growth Fund Investor Shares Total 4,658 2,093 Vanguard Target Retirement 2055 Fund Total 4,091 - Vanguard LifeStrategy Income Fund Total 2,523 1,216 Vanguard Prime Money Market Fund Total 1,849 549 Vanguard Target Retirement 2015 Fund Total 1,066 - 600,916 186,695 Investments, at contract value Vanguard Retirement Savings Trust 26,330 7,041 Total Investments 627,246$ 193,736$ For the Years Ended December 31, * Represents 5% or more of the Plan’s net position as of December 31, 2012 and 2011. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 16 Categories of Asset Risk - 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 selecting mutual funds for the investment portfolio that manage their respective fund under a predetermined 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, 2012 and 2011: S & P Average Value at Average Effective Debt-Backed December 31 Credit Not Duration Mutual Funds 2012 Rating Rated in Years December 31, 2012: Vanguard Target Retirement 2045 108,626$ AA yes 5.00 Vanguard Target Retirement 2025 66,723 AA yes 5.00 Vanguard Target Retirement 2050 57,723 AA yes 5.00 Vanguard Target Retirement 2040 56,174 AA yes 5.00 Vanguard Target Retirement 2035 44,704 AA yes 5.00 Vanguard Total Bond Market Index Inv 34,665 AA yes 5.10 Vanguard Retirement Savings Trust 26,330 AA yes 2.65 Vanguard Target Retirement 2030 17,119 AA yes 5.00 Vanguard Target Retirement 2020 14,435 AA yes 5.00 Vanguard Balanced Index Inv 14,245 AA yes 5.10 Vanguard LifeStrategy Growth Fund 13,245 AA yes 5.00 Vanguard Target Retirement Inc 11,494 AA yes 6.10 Vanguard LifeStrategy Conservative Growth Fund 10,511 AA yes 5.00 Vanguard LifeStrategy Moderate Growth Fund 6,619 AA yes 5.00 Vanguard Target Retirement 2055 4,091 AA yes 5.00 Vanguard LifeStrategy Income Fund 2,523 AA yes 5.00 Vanguard Prime Money Market 1,849 AA yes 0.15 Vanguard Target Retirement 2015 1,066 AA yes 5.40 Credit Quality Percentage of Total Mutual Fund THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 17 S & P Average Value at Average Effective Debt-Backed December 31 Credit Not Duration Mutual Funds 2011 Rating Rated in Years December 31, 2011: Vanguard Target Retirement 2025 26,101$ AA yes 5.10 Vanguard Target Retirement 2045 23,851 AA yes 5.10 Vanguard Target Retirement 2050 13,031 AA yes 5.10 Vanguard Target Retirement 2035 10,154 AA yes 5.10 Vanguard Total Bd Mkt Indx Inv 9,767 AA yes 5.10 Vanguard Target Retirement 2040 9,716 AA yes 5.10 Vanguard Balanced Ix Inv 7,367 AA yes 5.10 Vanguard Retirement Savings Trust 7,041 AA yes 2.62 Vanguard Target Retirement 2030 6,369 AA yes 5.10 Vanguard LifeStrategy Conserv Growth 4,864 AA yes 5.10 Vanguard Target Retirement Inc 4,699 AA yes 6.10 Vanguard LifeStrategy Mod Growth 2,591 AA yes 5.10 Vanguard LifeStrategy Income Fund 1,216 AA yes 4.10 Vanguard Target Retirement 2020 1,048 AA yes 5.10 Vanguard Prime Money Mkt 549 AA yes 0.15 Credit Quality Percentage of Total Mutual Fund 4. Risks and Uncertainties The Plan invests in various investment securities as directed by the Plan’s participants. Investment securities are exposed to various risks such as interest rate, market, and credit risk. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the participants’ account balances and amounts reported in the Statement of Plan Net Position. 5. Plan Termination Although it has not expressed any intent to do so, the District has the right under the Plan to terminate the Plan at any time. In the event of Plan termination, the Trustee shall liquidate the assets and disburse all funds to participants or their beneficiaries. THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN Notes To Financial Statements (Continued) Page 18 6. Related Party Transactions The Plan invests in shares of mutual funds managed by an affiliate of Vanguard Fiduciary Trust Company (VFTC). VFTC acts as trustee for only those investments as defined by the Plan. Transactions in such investments qualify as a related party transaction. 7. Tax Status The plan received a favorable determination letter from the Internal Revenue Service on January 31, 2012, in which the Internal Revenue Service stated that the plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. 8. Pending GASB Statements As of the date of the audit report, the Government Accounting Standards Boards (GASB) has issued the following statement not yet implemented by the Plan: Statement Number 67, Financial Reporting for Pension Plans - an amendment of GASB Statement No. 25, was issued June 2012 and will be effective for the Plan with the fiscal year ending December 31, 2013. The statement establishes standards of financial reporting for separately issued financial statements related to pensions for governments whose employees are provided pensions through pension plans that are covered by the scope of the statement. Management is in the process of determining the effect of the implementation of this statement on the Plan. SUPPLEMENTAL INFORMATION THE METROPOLITAN ST. LOUIS SEWER DISTRICT DEFINED CONTRIBUTION PLAN See the accompanying independent auditors’ report. Page 19 SUPPLEMENTAL INFORMATION EXPENSE RATIOS This asset-based fee is a measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets, lowering the return in the fund. Lower expense ratios reduce fees coming out of a fund, thus increasing the fund’s rate of return to the participant. The listing below shows all funds and their asset value with their corresponding expense ratio. Value at December 31 Fund Name 2012 Vanguard Target Retirement 2045 Fund Total 108,626$ 0.19 % Vanguard Target Retirement 2025 Fund Total 66,723 0.18 Vanguard Target Retirement 2050 Fund Total 57,723 0.19 Vanguard Target Retirement 2040 Fund Total 56,174 0.19 Vanguard Target Retirement 2035 Fund Total 44,704 0.19 Vanguard Small-Cap Index Fund Investor Shares Total 37,766 0.30 Vanguard Total Bond Market Index Fund Investor Shares Total 34,665 0.22 Vanguard 500 Index Fund Investor Shares Total 31,357 0.17 Vanguard Mid-Cap Index Fund Investor Shares Total 26,707 0.24 Vanguard Retirement Savings Trust Total 26,330 0.31 Vanguard International Growth Fund Investor Shares Total 23,081 0.47 Vanguard Target Retirement 2030 Fund Total 17,119 0.18 Vanguard Target Retirement 2020 Fund Total 14,435 0.17 Vanguard Balanced Index Fund Investor Shares Total 14,245 0.24 Vanguard LifeStrategy Growth Fund Total 13,245 0.17 Vanguard Windsor II Fund Investor Shares Total 11,535 0.35 Vanguard Target Retirement Income Fund Total 11,494 0.17 Vanguard LifeStrategy Conservative Growth Fund Total 10,511 0.15 Vanguard LifeStrategy Moderate Growth Fund Total 6,619 0.16 Vanguard U.S. Growth Fund Investor Shares Total 4,658 0.44 Vanguard Target Retirement 2055 Fund Total 4,091 0.19 Vanguard LifeStrategy Income Fund Total 2,523 0.13 Vanguard Prime Money Market Fund Total 1,849 0.16 Vanguard Target Retirement 2015 Fund Total 1,066 0.17 Vanguard Total/Average Ratio 627,246$ 0.22 % Fund Values and Their Expense Ratios Expense Ratio