HomeMy Public PortalAbout2004 Audited Financials
THE METROPOLITAN ST. LOUIS
SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 2004
Contents
Page
Independent Auditors’ Report .............................................................................1
Management’s Discussion And Analysis .....................................................2 - 10
Financial Statements
Statement Of Plan Net Assets...........................................................................11
Statement Of Changes In Plan Net Assets........................................................12
Notes To Financial Statements .................................................................13 - 17
Supplementary Information
Required Supplementary Information (Unaudited)...................................18 - 19
Statistical Section (Unaudited)....................................................................20 - 25
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 Employees’ Pension Plan (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’s management. 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 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 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 Employees’ Pension Plan 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 10 and the Schedules of Funding
Progress and Employer Contributions on pages 18 and 19 are not a required part of the basic
financial statements, but are supplementary information required by accounting principles
generally accepted in the United States of America. We have applied to the Management’s
Discussion and Analysis and Schedules of Funding Progress and Employer Contributions (the
“Schedules”) certain limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the required supplementary
information. However, we did not audit the information and express no opinion on it. The statistical
data included in the statistical section of this report has not been subjected to the auditing
procedures applied in the audit of the basic financial statements and, accordingly, we express no
opinion on them.
September 2, 2005
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
2
MANAGEMENT’S DISCUSSION AND ANALYSIS
As Management of The Metropolitan St. Louis Sewer District Employees’ Pension Plan (the “Plan”) we offer
readers of the Plan’s financial statements this narrative overview of the financial activities of the Plan for the years
ended December 31, 2004 and 2003. This narrative is intended to supplement the Plan’s financial statements and
we encourage readers to consider the information presented here in conjunction with those statements, which begin
on page 11.
Overview of the Financial Statements
The following discussion and analysis is intended to serve as an introduction to the Plan’s financial statements. The
basic financial statements are:
1) Statement of Plan Net Assets
2) Statement of Changes in Plan Net Assets
3) Notes to Financial Statements
This report also contains the following schedules as “Required Supplementary Information” to the basic financial
statements themselves.
1) Schedule of Funding Progress
2) Schedule of Employer Contributions
3) Note to the Required Supplementary Information.
Certain revenues, expenses associated with administering the Plan and other trend data are presented immediately
following the Note to the Required Supplementary Information in the statistical section of this report.
The basic financial statements contained in this report are described below:
• The Statement of Plan Net Assets is a point in time snapshot of account balances at year-end. It reports
the assets available for future payments to retirees, and any current liabilities that are owed as of the
statement date. The resulting Net Asset value (Assets – Liabilities = Net Assets) represents the value
of assets held in trust for pension benefits.
• The Statement of Changes in Plan Net Assets, displays the effect of pension fund transactions that
occurred during the fiscal year, where Additions – Deductions = Net Increase (or Decrease) in Net
Assets. This Net Increase (or Decrease) in Net Assets reflects the change in the net asset value of the
Statement of Plan Net Assets from the prior year to the current year. Both statements are in compliance
with Governmental Accounting Standards Board (GASB) Pronouncements.
• The Notes to Financial Statements are an integral part of the financial statements and provide additional
information that is essential for a comprehensive understanding of the data provided in the financial
statements. These notes describe the accounting and administrative policies under which the Plan
operates, and provide additional levels of detail for selected financial statement items. (See Notes to
Financial Statements beginning on page 13 of this report.)
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
3
Because of the long-term nature of a defined benefit pension plan, financial statements alone cannot
provide sufficient information to properly reflect the ongoing plan perspective. Therefore, in addition to
the financial statements explained above, this financial report includes two additional schedules entitled
“Required Supplementary Information.”
• The Schedule of Funding Progress (page 18) includes actuarial information about the status of the Plan
from an ongoing, long-term perspective, and the progress made in accumulating sufficient assets to pay
pension benefits when due. Valuation Assets in excess of Actuarial Accrued Liabilities indicate that
sufficient assets exist to fund the future pension benefits of the current members and benefit recipients.
• The Schedule of Employer Contributions (page 18) presents historical trend information regarding the
value of total annual contributions required to be paid by employers, and the actual performance of
employers in meeting this requirement.
• The Note to Required Supplementary Information provides background information and explanatory
detail to aid in understanding the required supplementary schedules.
Financial Highlights 2004
• Net assets held in trust for pension benefits totaled $149,053,173 as of December 31, 2004, or an
increase of $12,028,957, 8.8%, during 2004, which primarily resulted from cumulative investment
gains during the year.
• The Plan’s funding objective is to meet long-term benefit obligations to the extent possible. As of
December 31, 2004, the date of the latest actuarial valuation, the funded ratio of the Plan was 85%. In
general, this means that for every dollar of pension benefits due, the Plan has approximately $.85 of net
assets available for payment.
• Total additions to Plan assets (page 12) amounted to $18,349,014 for the year 2004, principally due to
an investment gain of $11,551,937 and Plan contributions of $6,797,077.
• Administrative expenses (deductions to Plan net assets, page 12) increased from $106,892 during 2003
to $121,587 in 2004, or approximately 13.7%, which resulted from an increase in legal fees associated
with Plan improvements and investment diversification.
Financial Highlights 2003
• Net assets held in trust for pension benefits totaled $137,024,216 as of December 31, 2003, or an
increase of $23,847,668, 21.1%, during 2003, which primarily resulted from cumulative investment
gains during the year.
• The Plan’s funding objective is to meet long-term benefit obligations to the extent possible. As of
December 31, 2003, the funded ratio of the Plan was 84%.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
4
• Total additions to Plan assets (page 12) amounted to $29,561,894 for the year 2003, principally due to
an investment gain of $23,559,415 and Plan contributions of $6,002,479.
• Administrative expenses (deductions to Plan net assets, page 12) increased from $96,396 during 2002
to $106,892 in 2003, about 10.9%, as the result of supporting an increased number of retirees and
performing certain additional actuarial studies.
Analysis of Financial Activities
The Plan’s funding objective is to meet long-term benefit obligations through investment income and contributions.
Accordingly, the receipt of employer contributions and the income from investments provide the reserves needed to
finance future retirement benefits.
The District’s contributions into the Plan continue to increase as the result of a combination of factors, including an
increase in salaries and a lower than anticipated investment performance as measured on an actuarially smoothed
basis. The cost associated with a salary increase was partially offset by a decrease in the number of active
employees. Relative to the Public Fund peer group for 2004 and 2003, the Fund was up 8.8% and 21.2%,
respectively, which ranked in the 85th and 53rd percentile, respectively, of the Public Fund universe. Net assets in
trust for pension increased by $12,028,957 in 2004 and $23,847,668 in 2003. These net assets are used to meet
ongoing benefit obligations to Plan participants and their beneficiaries. Positive returns in excess of the 7.5%
actuarial assumption for both 2004 and 2003 have stabilized the Plan’s funding status.
Employer contributions continue to rise due to wage inflation and unfavorable market conditions as measured on an
actuarial basis. As the years roll forward, and total assets and liabilities grow, the Plan’s investment income will
play a more significant role in funding future retirement benefits – eventually providing 80% to 90% of the
necessary funds. Therefore, investment return over the long-term is critical to the funding status of the Plan.
In 2004 and 2003, net investment income of $11,551,937 and $23,559,415, respectively, was significantly higher
than the actuarially assumed investment income. Overall, the Plan is adequately funded and any cumulative
difference between actuarial liabilities and assets is being amortized and funded over an appropriate period. It is
important to remember that a retirement system’s funding is based on a long-time horizon, where temporary ups and
downs in the market are expected. The more critical factor is that the Plan be able to meet an expected earnings
yield of, on average, 7.5% annual return on investments for both 2004 and 2003. Even with a downturn in the
market in 2001 and 2002 included, the Plan’s 5- and 10-year returns have been 4.1% and 10%, respectively.
Based upon our latest actuarial valuation for the years ended December 31, 2004 and 2003, the Plan’s actuarial
value of assets was less than its actuarial value of liabilities by $25,251,000 and $25,478,000, respectively. This
means that additional future funding will be needed to reduce this liability.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
5
Financial Analysis – Summary 2004
THE PLAN NET ASSETS (TABLE 1)
As of December 31, 2004 and 2003
2004 2003
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Cash Equivalents/Other Assets $ 15,850,622 $ 5,868,688 $ 9,981,934 170.1%
Investments at Fair Value 133,351,643 131,269,319 2,082,324 1.6%
Total Assets 149,202,265 137,138,007 12,064,258 8.8%
Current Liabilities 149,092 113,791 35,301 31.0%
Total Liabilities 149,092 113,791 35,301 31.0%
Net Assets $ 149,053,173 $ 137,024,216 $ 12,028,957 8.8%
Financial Analysis – Summary 2003
THE PLAN NET ASSETS (TABLE 2)
As of December 31, 2003 and 2002
2003 2002
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Cash Equivalents/Other Assets $ 5,868,688 $ 5,389,244 $ 479,444 8.9%
Investments at Fair Value 131,269,319 107,920,160 23,349,159 21.6%
Total Assets 137,138,007 113,309,404 23,828,603 21.0%
Current Liabilities 113,791 132,856 (19,065) (14.5)%
Total Liabilities 113,791 132,856 (19,065) (14.5)%
Net Assets $ 137,024,216 $ 113,176,548 $ 23,847,668 21.1%
As previously noted, net assets viewed over time may serve as a useful indication of the Plan’s financial position
(see Tables 1 and 2 above). At the close of calendar years 2004 and 2003, the assets of the Plan exceeded its
liabilities, with $149,053,173 and $137,024,216, respectively, in net assets held in trust for pension. The net assets
are available to meet the Plan’s ongoing obligation to Plan participants and their beneficiaries.
Despite variations in the stock market, management and the Plan’s actuary concur that the Plan remains in a sound
financial position to meet its obligations to the Plan participants and beneficiaries. The current financial position is
the result of a successful investment program and prudent management practices that have been in place for many
years.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
6
Appreciation – Additions to Fiduciary Net Assets 2004
Revenues - Additions to Fiduciary Net Assets (Table 3)
For the Years Ended December 31, 2004 and 2003
2004 2003
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Employer Contributions $ 6,797,077 $ 6,002,479 $ 794,598 13.2%
Net Investment Income 11,551,937 23,559,415 (12,007,478) (50.9)%
Total $ 18,349,014 $ 29,561,894 $ (11,212,880) (37.9)%
Appreciation – Additions to Fiduciary Net Assets 2003
Revenues - Additions to Fiduciary Net Assets (Table 4)
For the Years Ended December 31, 2003 and 2002
2003 2002
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Employer Contributions $ 6,002,479 $ 4,789,473 $ 1,213,006 25.3%
Net Investment Income 23,559,415 (9,726,380) 33,285,795 342.2%
Total $ 29,561,894 $ (4,936,907) $ 34,498,801 698.8%
As noted (see Tables 3 and 4 above), the funds needed to finance retirement benefits are accumulated through the
collection of employer contributions, and through earnings on investments (net of investment expense). Total
additions for the years ended December 31, 2004 and 2003, totaled $18,349,014 and $29,561,894, respectively.
Revenues for 2004 decreased by $(11,212,880), or (37.9)% from the prior year, primarily due extraordinarily large
investment gains in 2003. The investment section of this report summarizes the results of investment activity for the
year ended December 31, 2004.
Revenues for 2003 increased by $34,498,801, or 698.8% from the prior year, primarily due to investment gains.
The investment section of this report summarizes the results of investment activity for the year ended December 31,
2003.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
7
Expenses – Deductions from Fiduciary Net Assets 2004
Expenses - Deductions from Fiduciary Net Assets (Table 5)
For the Years Ended December 31, 2004 and 2003
2004 2003
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Benefits paid $ 6,198,470 $ 5,607,334 $ 591,136 10.5%
Administrative expenses 121,587 106,892 14,695 13.7%
Total $ 6,320,057 $ 5,714,226 $ 605,831 10.6%
Expenses – Deductions from Fiduciary Net Assets 2003
Expenses - Deductions from Fiduciary Net Assets (Table 6)
For the Years Ended December 31, 2003 and 2002
2003 2002
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Benefits paid $ 5,607,334 $ 4,830,167 $ 777,167 16.1%
Administrative expenses 106,892 96,396 10,496 10.9%
Total $ 5,714,226 $ 4,926,563 $ 787,663 16.0%
The Plan was created to provide retirement, survivor and disability benefits to qualified members and their
beneficiaries. The cost of such programs includes recurring benefit payments as designated by the Plan, and the cost
of administering the Plan.
As noted (see Table 5) expenses for the year ended December 31, 2004 totaled $6,320,057, an increase of 10.6%
over 2003. The increase in benefits paid resulted primarily from an increase in the number of retirees receiving
benefits. Deductions from Plan net assets of $6,320,057 were exceeded by additions to Plan net assets of
$18,349,014 by $12,028,957 for the year ended December 31, 2004. The Plan has consistently managed within its
administrative expense budget with no material variances between planned and actual expenditures.
As noted (see Table 6), expenses for the year ended December 31, 2003 totaled $5,714,226, an increase of 16%
over 2002. The increase in benefits paid resulted primarily from an increase in the number of retirees receiving
benefits. Deductions from Plan net assets of $5,714,226 were exceeded by additions to Plan net assets of
$29,561,894 by $23,847,668 for the year ended December 31, 2003. The Plan has consistently managed within its
administrative expense budget, with no material variances between planned and actual expenditures.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
8
Investment Performance - 2004
The following are a few characteristics and achievements for the Plan for the year ended December 31, 2004:
• The Plan ended the year with $149,202,265 in total assets.
• The Plan is in the process of increasing the level of Investment diversification and has targeted the
following asset classes to be added to the Plan: Emerging Markets International Equity, High Yield
Fixed Income, Global Fixed Income, Market Neutral and Real Estate. As of December 31, 2004, the
Global Fixed Income component had been funded and a search process has been initiated for the
remaining unfunded asset classes.
• The strategic asset allocation compared to the December 31, 2004 actual allocation was as follows:
Asset Class Target Actual
Large-Cap Stocks 27.0% 42.3%
Small-Cap Stocks 10.0 9.4
International Stocks 10.0 9.6
Fixed Income 27.0 29.6
High Yield 5.0 0.0
Global Bond 8.0 7.4
Real Estate 5.0 0.0
Market Neutral 5.0 0.0
Emerging Markets 3.0 0.0
Cash Equivalents 0.0 1.7
All asset classes have been rebalanced when needed during the year in order to maintain a weighting consistent with
the strategic allocation ranges.
• The large-cap stocks were diversified between active value, active growth and passive core strategies.
The fund had a 60% large-cap growth value and 40% large-cap growth allocation, which added value
to the Fund during the year as value stocks outperformed growth stocks.
• The Fund's performance for the year was 8.8% compared to the passive policy index of 10.5%, and the
average five-year return was 4.1% compared to the passive policy index of 2.8%.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
9
Investment Performance - 2003
The following are a few characteristics and achievements for the Plan for the year ending December 31, 2003:
• The Plan ended the year with $137,138,007 in total assets.
• The strategic asset allocation compared to the December 31, 2003 actual allocation was as follows:
Asset Class Target Actual
Large-Cap Stocks 45.0% 48.7%
Small-Cap Stocks 7.5 8.8
International Stocks 7.5 8.6
Fixed Income 35.0 32.2
Cash Equivalents 5.0 1.7
All asset classes have been rebalanced when needed during the year in order to maintain a weighting consistent with
the strategic allocation ranges.
• The large-cap stocks were diversified between active value, active growth and passive core strategies. The
fund had a 60% large-cap growth value and 40% large-cap growth allocation which added value to the fund
during the year as value stocks outperformed growth stocks.
• During the year, specific investment management changes were made to improve the risk/return
characteristics of the fund. Changes to the investment manager used by the Plan included large-cap value
and small-cap value assignments.
• The fund's performance for the year was 21.1% while the passive policy index was 20.4%.
• Relative to a universe of similar managed portfolios in 2003; during 2003 the Plan outperformed 6 out of
10 portfolios, and over the long-term (3 years) the Plan has outperformed its benchmark and the median
with less risk than the median.
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
their beneficiaries.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Management’s Discussion and Analysis (Continued)
10
Request for Information
This financial report is designed to provide the Board of Trustees, our membership, ratepayers, investment managers
and creditors 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 financial 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
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
See the accompanying notes to the financial statements.
11
STATEMENT OF PLAN NET ASSETS
December 31, 2004 and 2003
__________
2004 2003
ASSETS
Interest and dividends receivable $ 554,774 $ 589,335
Investments - at fair value:
Principal Cash 212,726 -
Money Market Funds 15,083,122 5,279,353
United States Treasury
& Agency Obligations 10,124,942 15,701,015
Corporate Obligations 32,137,433 27,184,271
Municipal Obligations 901,946 385,958
Domestic Common Stocks 35,958,532 42,068,699
Foreign Stocks 2,255,274 2,520,336
Mutual Funds 51,760,732 43,409,040
Partnerships and Joint Ventures 212,784 -
Total investments 148,647,491 136,548,672
Total assets 149,202,265 137,138,007
LIABILITIES
Accrued expenses 149,092 113,791
Net assets held in trust for pension benefits $ 149,053,173 $ 137,024,216
(A schedule of funding progress is presented on page 18.)
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
See the accompanying notes to the financial statements.
12
STATEMENT OF CHANGES IN PLAN NET ASSETS
For The Years Ended December 31, 2004 and 2003
__________
2004 2003
Additions:
Employer contributions $ 6,797,077 $ 6,002,479
Investment income:
Net appreciation in fair value of investments 8,401,365 20,513,077
Interest and dividends 3,793,186 3,575,318
Total investment income 12,194,551 24,088,395
Less investment expense 642,614 528,980
Net investment income 11,551,937 23,559,415
Total additions 18,349,014 29,561,894
Deductions:
Benefits paid 6,198,470 5,607,334
Administrative expenses 121,587 106,892
Total deductions 6,320,057 5,714,226
Net increase 12,028,957 23,847,668
Net assets held in trust for pension benefits
Beginning of year 137,024,216 113,176,548
End of year $ 149,053,173 $ 137,024,216
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
13
NOTES TO FINANCIAL STATEMENTS
December 31, 2004 and 2003
__________
1. Plan Description:
The following brief description of The Metropolitan St. Louis Sewer District Employees’ Pension Plan
(the “Plan”) is provided for general information purposes only. Members should refer to the Plan
ordinance for more complete information.
The Plan is a noncontributory single employer defined benefit plan providing retirement benefits as
well as death and disability benefits. As a condition of employment, all full-time employees of The
Metropolitan St. Louis Sewer District (the “District”) are covered by the Plan.
At December 31, 2004 and 2003, membership consisted of:
2004 2003
Retirees and beneficiaries currently
receiving benefits 490 482
Terminated members entitled to
receive benefits 190 194
Active plan members 808 788
Total 1,488 1,464
The District’s Board of Trustees, primarily to improve benefits to members, amends the Plan,
established on November 1, 1967. 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. The Plan is exempt from the requirements of the Employee Retirement Income
Security Act of 1974 and, as such, is not subject to the Act’s reporting requirements.
All benefits vest after five years of credited service. Members retiring at or after age 65 with five or
more years of credited service are entitled to a pension benefit. The Plan permits early retirement with
reduced benefits beginning at age 55 if the member has completed 60 months of employment.
Ordinance No. 10664 provides for unreduced retirement benefits to any member whose combined age
and term of service is equal to 75. Effective January 1, 1999, Ordinance No. 10491 amended the Plan
benefits formula. The annual benefit payable became 1.4% of final average earnings plus 0.4% of
final average earnings that are in excess of covered earnings multiplied by the period of years and
months of credited service not to exceed 35 years. In addition, the annual reduction for early
retirement was revised from 5% to 2% prior to age 60 and from 2.5% to 1% after age 60.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Notes To Financial Statements (Continued)
14
1. Plan Description, continued:
Ordinance No. 10664, effective January 1, 2000, amended the plan benefits formula to 1.45% of final
average earnings plus 0.4% of final average earnings that are in excess of covered earnings multiplied
by the period of years and months of credited service not to exceed thirty-five years. This ordinance
also provided for a survivor’s benefit for vested members who have not yet reached their normal
retirement date or earned 75 points. The survivor’s benefit is equal to the greater of 50% of the
member’s monthly accrued retirement benefit as of the date of death, or 15% of the monthly earnings
and the member’s monthly accrued retirement benefit actuarially reduced under the 100% joint and
survivor annuity option. Members are also able to select a Contingent Annuity Pop-Up option. This
option allows the member to elect a survivor annuity for life, with the provision that if the beneficiary
should predecease the member, the benefit shall increase to the amount payable had the survivor
option not been selected.
Ordinance Number 10872, effective January 1, 2001, further amended the Plan to extend the cost of
living increases for retirees from a maximum of 30% to 45% of the original benefit.
Effective August 1, 2004, Ordinance No. 11781 amended the plan to change the benefit formula to
1.7% of final average earnings plus 0.4% of final average earnings that are in excess of covered
earnings multiplied by the period of years and months of credited service not to exceed 35 years
without including accrued sick leave. A member who retires between August 1, 2004 and July 1, 2007
is entitled to select the greater of the above or the benefit calculated under the 1.45%/1.85% benefit
formula including accrued sick leave. Sick leave is paid out at 1.25% per year of service times the
amount of leave accrued. Also, the Plan was amended to provide the retiring member with a 10%
partial lump sum payment option. The balance of the distribution will be paid in accordance with any
one of the other payment options available under the Plan.
The retirement benefit payable to a member who retires after his or her normal retirement date is the
greater of (a) the benefit that would have been payable on the normal retirement date plus a special
annual retirement benefit provided by the accumulated value, at 4% per annum interest, of the monthly
benefit that would have been received prior to the postponed retirement date or (b) the benefit
determined as of the postponed retirement date under the normal formula.
2. Summary of Significant Accounting Policies and Plan Asset Matters:
Basis of Accounting: The Plan’s financial statements are prepared using the accrual basis of
accounting. Employer contributions are recognized as revenues in the period in which employee
services are performed. Benefits are recognized when due and payable in accordance with the terms
of the Plan. Plan expenses are recorded when the corresponding liabilities are incurred regardless of
when payment is made.
During 2004, the Plan adopted Governmental Accounting Standards Board (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.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Notes To Financial Statements (Continued)
15
2. Summary of Significant Accounting Policies and Plan Assets Matters,
continued:
Use of Estimates: The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ from those estimates.
Method Used to Value Investments: The Plan’s investment assets, which are trusteed by U.S. Bank,
N.A., are reported at fair value as determined and certified by the Trustee. Investments traded on a
national exchange are valued at reported sales prices. Investments that do not have an established
market are reported at estimated fair value. Cash equivalents are comprised of money market funds
and are reported at cost, which approximates fair value.
3. Cash and Investments:
Categories of Asset Risk:
The Plan is authorized to invest in:
• United States Government securities;
• Common stocks of corporations, mutual funds, or commingled equity funds organized under the
laws of the United States; however, the investment in equities cannot exceed 55% of total
investments;
• Publicly-issued corporate bonds, debentures, notes or other evidence of indebtedness assumed or
guaranteed by corporations organized under the laws of the United States with ratings of “BBB”
or better by Standard and Poors at the time of purchase; and
• Short-term securities invested in A1/P1 commercial paper, treasury bills, certificates of deposits,
and/or money market funds with a maximum maturity of one year at the time of purchase.
12/31/2004 12/31/2003
Principal Cash $ 212,726 $ -
Money market funds 15,083,122 5,279,353
U.S. Treasury and agency obligations 10,124,942 15,701,015
Corporate obligations 32,137,433 27,184,271
Municipal obligations 901,946 385,958
Domestic common stocks 35,958,532 42,068,699
Foreign stocks 2,255,274 2,520,336
Partnerships and joint ventures 212,784 -
Mutual funds 51,760,732 43,409,040
Total investments $ 148,647,491 $ 136,548,672
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Notes To Financial Statements (Continued)
16
3. Cash and Investments,
continued:
Interest Rate Risk
As of December 31, 2004, the Plan had the following debt securities and maturities:
Weighted Average Maturity
Investment Type Fair Value Maturity (years)
U.S. Treasury and agency obligations $ 10,124,942 0.75
Corporate obligations 32,137,433 3.05
Municipal obligations 901,946 0.05
Total $ 43,164,321 3.85
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:
1. 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.
2. Investing excess funds primarily in short-term securities.
3. State law limits the maximum stated maturities to five years on any investment from the date of
purchase.
Credit Risk
The Plan will minimize credit risk, the risk of loss due to failure of the security issuer or backer, by:
1. Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which
the Plan will do business; and
2. Diversifying the portfolio so that potential losses on individual securities will be minimized.
THE METROPOLITAN ST. LOUIS SEWER
DISTRICT EMPLOYEES’ PENSION PLAN
Notes To Financial Statements (Continued)
17
The following table provides information on the credit ratings associated with the Plan’s investments
in debt securities, excluding obligations of the U.S. government or obligations explicitly guaranteed by
the U.S. government at December 31, 2004:
Debt Securities
At Fair Value S&P Rating
$ 7,400,805 AAA
6,980,501 AA
16,435,910 A
3,062,837 BBB
$ 33,880,053
No investments in any one organization (other than those issued by the United States Government)
represent 5% of Plan net assets.
4. Contributions Required and Contributions Made:
Professional Fees: Certain professional fees, included in administrative expenses, are paid by the
District and are recognized as contributions to the Plan.
Ordinances establishing the Plan provide for actuarially determined annual contributions by the
District that are sufficient to pay benefits when due. The Entry Age Normal funding method is used to
determine contributions.
Contributions of $6,775,520 and $5,994,027, excluding certain professional fees paid by the District,
were made to the Plan in 2004 and 2003, respectively. These contributions were made in accordance
with actuarially determined contribution requirements based on actuarial valuations performed at
January 1, 2004 and 2003, respectively, and for 2004 consisted of (a) $4,223,796 normal cost plus (b)
$2,079,013 amortization of the unfunded actuarial accrued liability (c) multiplied by an inflation factor
of 1.075.
The District provides certain professional fees, office space, utilities, and other services to the Plan at
no cost. Other costs of administering the Plan are financed from plan net assets.
REQUIRED SUPPLEMENTARY INFORMATION - Unaudited
_________
18
Six-year historical trend information about the Plan is presented herewith as required supplementary
information. This information is intended to help users assess Plan funding status on a going-concern basis,
assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons with
other plans.
Schedule of Funding Progress (dollars in thousands)
Assets In
Excess of
Entry Age Actuarial AEAAL as a
Actuarial Actuarial Accrued Annual Percentage
Actuarial Value Accrued Liability Funded Covered of Covered
Valuation Of Assets Liability (AEAAL) Ratio Payroll Payroll
Date (1) (2) (1)-(2) (1)/(2) (3) (1-2)/(3)
01/01/05 $ 142,986 $ 168,237 $ (25,251) 0.85 $ 39,382 (64.1%)
01/01/04 133,966 159,444 (25,478) 0.84 37,637 (67.7%)
01/01/03 129,783 150,405 (20,622) 0.86 38,868 (53.1%)
01/01/02 133,012 139,336 (6,324) 0.95 37,600 (16.8%)
01/01/01 128,688 128,124 564 1.00 37,380 1.5%
01/01/00 120,109 113,217 6,892 1.06 36,415 18.9%
Analysis of the dollar amounts of plan net assets, actuarial accrued liability, and unfunded actuarial accrued
liability in isolation can be misleading. Expressing plan net assets as a percentage of the actuarial accrued
liability provides one indication of Plan funding status on a going-concern basis. Analysis of this percentage
over time indicates whether the Plan is becoming financially stronger or weaker. Generally, the greater this
percentage, the stronger the Plan.
Trends in the unfunded actuarial accrued liability and annual covered payroll are both affected by inflation.
Expressing the unfunded actuarial accrued liability as a percentage of annual covered payroll approximately
adjusts for the effects of inflation and aids analysis of Plan progress made in accumulating sufficient assets to
pay benefits when due. Generally, the smaller this percentage, the stronger the Plan.
Schedule of Employer Contributions
Annual Contribution as
Calendar Required Percentage a Percentage of
Year Contribution Contributed Covered Payroll
2004 $ 6,775,520 100.00% 18.0%
2003 5,994,027 100.00 15.9
2002 4,777,117 100.00 12.7
2001 3,964,040 100.00 10.6
2000 2,953,721 100.00 7.9
1999 2,941,323 100.00 8.1
REQUIRED SUPPLEMENTARY INFORMATION - Unaudited
_________
19
The information presented in the required supplementary schedules was determined as part of the actuarial
valuations at the dates indicated. Additional information as of the latest actuarial valuation follows:
Valuation date January 1, 2005
Actuarial cost method Entry Age Normal
Amortization method Level dollar closed
Amortization period 20-year period, re-established
each year
Asset valuation method Three-year average of adjusted
market values
Post-retirement benefit increases 3.0% of current benefit, or
$50, if less
Actuarial assumptions:
Investment rate of return 7.5% per annum (1)
Projected salary increases 5.5% per annum (1)
Social Security wage base 4.5% per annum increase (1)
(1) Includes inflation component of 3.0%
Statistical
Section
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
20
Performance & NAV
Year Net Asset Value (NAV) 12/31 Total Plan Performance
1995 $ 74,066,618 20.2%
1996 $ 83,930,038 13.4%
1997 $ 101,384,482 21.4%
1998 $ 113,031,089 13.7%
1999 $ 125,365,457 12.3%
2000 $ 125,256,835 1.2%
2001 $ 123,040,018 -1.3%
2002 $ 113,176,548 -8.0%
2003 $ 137,024,216 21.7%
2004 $ 149,053,173 8.8%
Revenues by Source
Year Employers Contributions
Employers
Contributions as a
Percentage of Covered
Payroll Investment Income (Net) Total
1995 $ 2,165,220 7.3% $ 12,865,412 $ 15,030,632
1996 $ 2,458,958 7.9% $ 9,761,305 $ 12,220,263
1997 $ 2,734,418 8.5% $ 17,463,552 $ 20,197,970
1998 $ 2,810,289 8.1% $ 11,898,138 $ 14,708,427
1999 $ 2,968,216 8.1% $ 12,758,125 $ 15,726,341
2000 $ 2,986,650 7.9% $ 831,238 $ 3,817,888
2001 $ 3,971,540 10.6 $ (1,878,456) $ 2,093,084
2002 $ 4,789,473 12.7% $ (9,726,380) $ (4,936,907)
2003 $ 6,002,479 15.9% $ 23,559,415 $ 29,561,894
2004 $ 6,797,077 18.0% $ 11,551,937 $ 18,349,014
Net Asset Value (NAV) 12/31
$74.1
$83.9
$101.4
$113.0
$125.4 $125.3 $123.0
$113.2
$137.0
$149.1
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Millions
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
21
Expenses by Type
Year Benefit Payments
Administrative
Expense Total
1995 $ 1,889,667 $ 132,875 $ 2,022,542
1996 $ 2,217,635 $ 139,208 $ 2,356,843
1997 $ 2,604,476 $ 139,050 $ 2,743,526
1998 $ 2,874,930 $ 186,891 $ 3,061,821
1999 $ 3,250,637 $ 141,336 $ 3,391,973
2000 $ 3,694,444 $ 232,066 $ 3,926,510
2001 $ 4,211,174 $ 98,727 $ 4,309,901
2002 $ 4,830,167 $ 96,396 $ 4,926,563
2003 $ 5,607,334 $ 106,892 $ 5,714,226
2004 $ 6,198,470 $ 121,587 $ 6,320,057
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
22
Member Count
Year
Retirees & Beneficiaries
Currently Receiving Benefits
Terminated Members Entitled
to Receive Benefits Active Plan Members Total
1995 363 121 906 1,390
1996 377 129 898 1,404
1997 391 137 914 1,442
1998 406 145 942 1,493
1999 410 151 934 1,495
2000 428 164 890 1,482
2001 443 175 855 1,473
2002 459 182 829 1,470
2003 482 194 788 1,464
2004 490 190 808 1,488
Total Benefit Payments
$1,889.7
$2,217.6
$2,604.5
$2,874.9
$3,250.6
$3,694.4
$4,211.2
$4,830.2
$5,607.3
$6,198.5
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(Dollar Amounts in Millions)
Employer Contributions
$2,165.2 $2,459.0 $2,734.4 $2,810.3 $2,968.2 $2,986.7 $3,971.5 $4,789.5 $6,002.5 $6,797.1 $0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(Dollar Amounts in Millions)
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
23
Total Benefit Recipents
363 377 391 406 410 428 443 459 482 490
0
100
200
300
400
500
600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
24
Top 10 Holdings
As of December 31, 2004
Holding Market Value at 12/31/2004 Percentage of Plan
Vanguard Asset Allocation Fund $ 15,322,969 10.3%
Cash Assets Trust Money Market 15,083,122 10.1%
IRT-International Equity Fund 14,277,715 9.6%
Vanguard S&P 500 Index Fund 10,120,528 6.8%
CIGNA Small Cap Fund 6,254,143 4.2%
Vanguard Windsor II Fund 5,785,377 3.9%
U S Treasury Note 5.00% 8/15/2011 1,298,775 0.9%
FED HM LN BK BD 5.75% 10/15/2007 1,123,839 0.8%
Bellsouth Cap Fund 6.04% 11/15/2026 1,070,306 0.7%
Tenn. Valley Auth. 4.875% 12/15/2016 1,052,990 0.7%
TOTALS $ 71,389,764 48.0%
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
EMPLOYEES’ PENSION PLAN
25
Schedule of Investment Expenses
For the Years Ended December 31, 2004 and 2003
2004 2003
Investment Managers Fees $ 642,614 $ 528,980
Administrative Expenses 121,587 106,892
TOTALS $ 764,201 $ 635,872
Schedule of Payments to Investment Managers
The Plan paid the following Investment Manager Fees in 2004
Alliance Bernstein $ 137,593
Waddell & Reed 88,447
AMVESCAP 108,896
ARK Asset Managers 59,725
Buford, Dickson 39,867
Garner Asset Management 21,485
IRM 130,068
NEPC Investment Advisor 56,533
TOTALS $ 642,614