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HomeMy Public PortalAbout2012 Audited Financials THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 Contents Page Independent Auditors’ Report........................................................................ 1 - 2 Management’s Discussion And Analysis ..................................................... 3 - 11 Financial Statements Statements of Plan Net Position .......................................................................12 Statements of Changes in Plan Net Position ....................................................13 Notes to Financial Statements .................................................................. 14 - 28 Required Supplemental Information Schedule of Funding Progress .........................................................................29 Schedule of Employer Contributions ...............................................................29 Note to Required Supplemental Information ...................................................30 Statistical Section (Unaudited) Performance and Net Position Value ...............................................................31 Revenue by Source and Total Employer Contributions ..................................32 Expenses by Type and Total Benefit Payments ...............................................33 Member Count and Total Benefit Receipts .....................................................34 Top Ten Investment Holdings and Percentage Distribution ............................35 Schedule of Investment Manager and Advisor Fees ........................................36 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 Employees’ Pension 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 opinions 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 opinions. Board of Trustees The Metropolitan St. Louis Sewer District Page 2 Opinions 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 Employees’ Pension 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 11 and the schedule of funding progress and employer contributions on pages 29 and 30 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 statistical information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The statistical 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 statistical 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 EMPLOYEES’ PENSION PLAN Page 3 MANAGEMENT’S DISCUSSION AND ANALYSIS For The Year Ended December 31, 2012 As management of The Metropolitan St. Louis Sewer District Employees’ Pension Plan (the Plan), we offer readers of the Plan’s financial statements this Management’s Discussion and Analysis (MD&A) of the financial activities of the Plan for the year ended December 31, 2012. This MD&A 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 12. OVERVIEW OF THE FINANCIAL STATEMENTS The following MD&A is intended to serve as an introduction to the Plan’s financial statements. The basic financial statements are: 1) Statements of Plan net position 2) Statements of changes in Plan net position 3) Notes to financial statements This report also contains required supplemental information to the basic financial statements which provides actuarial information for use in analyzing the funded status of the Plan and includes: 1) Schedule of funding progress 2) Schedule of employer contributions 3) Additional information regarding required schedules 4) Note to required supplemental information Certain revenues, expenses associated with administering the Plan, and other trend data are presented immediately following the note to required supplemental information in the statistical section of this report. The basic financial statements contained in this report are described below: • The statements of Plan net position are 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 position value [assets plus deferral outflows - liabilities plus deferral inflows = net position] represents the value of net position held in trust for pension benefits. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 4 • The statements of changes in Plan net position displays the effect of pension fund transactions that occurred during the fiscal year [additions - deductions = net increase (decrease) in net position]. This net increase (decrease) in net position reflects the change in the net position value of the statements of Plan net position from the prior year to the current year. Both statements are in compliance with Governmental Accounting Standards Board (GASB) Pronouncements. • The notes to the 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 provides additional levels of detail for selected financial statement items. See notes to financial statements beginning on page 15 of this report. 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 supplemental information.” • The schedule of funding progress (page 29) 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, whereas, excess liabilities require future funding or investment performance in excess of the actuarial assumed investment returns. • The schedule of employer contributions (page 29) 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 supplemental information provides explanatory detail to aid in understanding the required supplemental schedules. FINANCIAL HIGHLIGHTS 2012 • Net position restricted for pension benefits totaled $223,467,512 as of December 31, 2012 for an increase of $23,126,890 or 11.5% as compared with December 31, 2011. This increase in net position primarily resulted from cumulative investment gains during the year. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 5 • The Plan’s funding objective is to meet long-term benefit obligations to the extent possible. As of December 31, 2012, the date of the latest actuarial valuation, the funded ratio of the Plan was 83.0%. In general, this means that for every dollar of pension benefits due, the Plan has approximately $0.83 of net position available for payment. The Plan’s funding ratio increased by 2.3 percentage points as compared with the funding ratio for December 31, 2011. The increase in the funding ratio is primarily attributed to the increase in the Plan’s actual value of assets outpacing the present value of future benefits to members and their beneficiaries. In addition, the present value of future normal costs decreased. • Total increase to the Plan’s net position (page 13) amounted to $23,126,890 for the year 2012 consisting of an investment gain of $23,391,578 offset by Plan payments net of contributions of $264,688. • Administrative expenses (deductions to the Plan’s net position, page 13) increased from $91,863 for 2011 to $96,434 or $4,571 or (5.0%) which primarily reflects an increase in US Bank Trustee fees of 3.9%. This represents 68% of the total increase in overall Administrative expenses. • On April 23, 2012, the Plan transferred $210 into the Defined Contribution plan. This covered the share of one employee having their funds enter the Defined Contribution plan. FINANCIAL HIGHLIGHTS 2011 • Net position restricted for pension benefits totaled $200,340,622 as of December 31, 2011 for an increase of $1,800,548 or 0.9% as compared with December 31, 2010. This increase in net position 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, 2011, the date of the latest actuarial valuation, the funded ratio of the Plan was 80.7%. In general, this means that for every dollar of pension benefits due, the Plan has approximately $0.81 of net position available for payment. The Plan’s funding ratio decreased by 0.9 percentage points as compared with the funding ratio for December 31, 2010. The decrease in the funding ratio is primarily attributed to the increase in the Plan’s present value of future benefits to members and their beneficiaries outpacing the Plan’s increase in net asset value. • Total increase to the Plan’s net position (page 13) amounted to $1,800,548 for the year 2011 consisting of an investment gain of $2,215,402 as offset by Plan payments net of contributions of $414,854. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 6 • Administrative expenses (deductions to the Plan’s net position, page 13) decreased from $115,434 for 2010 to $91,863 or $23,571 or (20.4%) which primarily reflects the additional legal costs incurred in 2010 associated with the research, development and spin-off of the newly created Defined Contribution plan from the Plan. • Effective April 1, 2011, the Plan transferred $70,869 into the newly created Defined Contribution plan. This covered the share of the twenty-three employees opting out of the Plan. 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 income from investments and employer contributions provide the reserves needed to finance future retirement benefits. Relative to the Public Fund peer group for 2012 and 2011, the Fund was up by 12.8% and 1.9%, respectively, which ranked in the 37th percentile for both years within the Public Fund universe. Net position restricted for pension benefits increased by $23,126,890 in 2012 and increased by $1,800,548 in 2011. This net position is used to meet ongoing benefit obligation to the Plan’s participants and their beneficiaries. The Metropolitan St. Louis Sewer District’s (the District) contributions into the Plan as determined by the Plan’s actuary increased for 2012 compared to 2011. The primary reasons for the increase were twofold: one rested with decreasing the interest rate from 7.5% to 7.25%. The second saw a five-year projection added to the healthy mortality assumption to reflect expected future mortality improvements. Overall, the Plan remains 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 the Plan’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 7.25% on average. Both the Plan’s investment performance and the rate of return on actuarial value have averaged 8.8% and 7.8%, respectively, over the last three years and are above the actuarially assumed investment rate of 7.25%. Even though these are positive factors for the Plan, should future investment performance fall below the actuarially assumed investment rate it could result in additional contributions in future years. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 7 Based upon our latest actuarial valuations for the years ended December 31, 2012 and 2011, the Plan’s actuarial value of assets was less than its actuarial value of liabilities by $45,226,736 and $49,205,164, respectively. Included in this liability is a deferred but unrecognized loss of $2,323,238 resulting from the difference in the value of Net Position at December 31, 2012 of $223,467,512 and the actuarial value of assets at December 31, 2012 of $221,144,274. This means that additional future funding will be needed to continue to reduce the liability including this deferred but unrecognized loss. FINANCIAL ANALYSIS The condensed statements of Plan net position as compared to prior years are as follows: 2012 2011 Amount $Percent ASSETS Investments at fair value 223,415,457$ 200,040,231$ 23,375,226$ 11.7% Other Assets 8,703,827 7,272,756 1,431,071 19.7% Total Assets 232,119,284 207,312,987 24,806,297 12.0% LIABILITIES 8,651,772 6,972,365 1,679,407 24.1% NET POSITION RESTRICTED FOR PENSION BENEFITS 223,467,512$ 200,340,622$ 23,126,890$ 11.5% For the Years Ended December 31,2012 Change 2011 2010 Amount $Percent ASSETS Investments at fair value 200,040,231$ 198,294,751$ 1,745,480$ 0.9% Other Assets 7,272,756 6,831,456 441,300 6.5% Total Assets 207,312,987 205,126,207 2,186,780 1.1% LIABILITIES 6,972,365 6,586,133 386,232 5.9% NET POSITION RESTRICTED FOR PENSION BENEFITS 200,340,622$ 198,540,074$ 1,800,548$ 0.9% For the Years Ended December 31,2011 Change THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 8 As previously noted, net position viewed over time may serve as a useful indication of the Plan’s financial position. At the close of calendar years 2012 and 2011, the assets of the Plan exceeded its liabilities by $223,467,512 and $200,340,622, respectively, in net position restricted for pension benefits. The net position is available to meet the Plan’s ongoing obligation to the Plan’s 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’s 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 condensed statements of changes in the Plan’s net position as compared to prior years are as follows: 2012 2011 Amount $Percent ADDITIONS Net investment income 23,391,788$ 2,215,402$ 21,176,386$ 955.9% Employer contributions 11,742,410 10,981,546 760,864 6.9% Total additions 35,134,198 13,196,948 21,937,250 166.2% DEDUCTIONS Benefits paid to retirees and beneficiaries 11,910,664 11,233,668 676,996 6.0% Transfers to Defined Contribution Plan 210 70,869 (70,659)(99.7%) Administrative expenses 96,434 91,863 4,571 5.0% Total Deductions 12,007,308 11,396,400 610,908 5.4% NET INCREASE 23,126,890 1,800,548 21,326,342 1184.4% NET POSITION RESTRICTED FOR PENSION BENEFITS, January 1 200,340,622 198,540,074 1,800,548 0.9% NET POSITION RESTRICTED FOR PENSION BENEFITS, December 31 223,467,512$ 200,340,622$ 23,126,890$ 11.5% For the Years Ended December 31,2012 Change THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 9 2011 2010 Amount $Percent ADDITIONS Net investment income 2,215,402$ 19,597,109$ (17,381,707)$ (88.7%) Employer contributions 10,981,546 10,347,592 633,954 6.1% Total additions 13,196,948 29,944,701 (16,747,753)(55.9%) DEDUCTIONS Benefits paid to retirees and beneficiaries 11,233,668 10,508,665 725,003 6.9% Transfers to Defined Contribution Plan 70,869 - 70,869 N/A Administrative expenses 91,863 115,434 (23,571)(20.4%) Total Deductions 11,396,400 10,624,099 772,301 7.3% NET INCREASE 1,800,548 19,320,602 (17,520,054)(90.7%) NET POSITION RESTRICTED FOR PENSION BENEFITS, January 1 198,540,074 179,219,472 19,320,602 10.8% NET POSITION RESTRICTED FOR PENSION BENEFITS, December 31 200,340,622$ 198,540,074$ 1,800,548$ 0.9% For the Years Ended December 31,2011 Change As noted 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 year ended December 31, 2012 and 2011, total $35,134,198 and $13,196,948, respectively. Additions to Plan assets for 2012 were due primarily to investment gains. The Investment Performance section of this report summarizes the results of investment activity for the year ended December 31, 2012. 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 10 As noted above, deductions for the year ended December 31, 2012 totaled $12,007,308, an increase of 5.4% over 2011. The increase in benefits paid resulted primarily from an increase in the number of retirees receiving benefits by 18 members or a 3.0% increase. Deductions from Plan net position of $12,007,308 were exceeded by additions to Plan net position of $35,134,198 for the year ended December 31, 2012. The Plan has consistently managed within its administrative expense budget, with no material variances between planned and actual expenditures. INVESTMENT PERFORMANCE - 2012 The following are a few characteristics and achievements for the Plan for the year ending December 31, 2012: • The Plan ended the year with a net position of $223,467,512. • The Plan’s performance for the year was 12.8% compared to the passive policy index of 11.6%, and the average five-year return was 4.5% compared to the passive policy index of 3.6%. • The actual asset allocation as of December 31, 2012, as compared to the December 31, 2011 actual allocation, is as follows: 2012 2011 Equities: Domestic large-cap stocks 20.0 %16 - 24 %19.6 %20.4 % Domestic small-cap stocks 5.0 3 - 7 5.2 6.4 International developed markets stocks 10.0 8 - 12 10.4 9.4 International emerging markets stocks 3.0 2 - 5 3.0 2.8 Fixed Income: Domestic core bonds 13.0 10 - 20 12.7 13.4 High yield bonds 5.0 3 - 7 5.2 4.5 Global bonds 8.0 6 - 10 7.8 8.7 Credit opportunities 2.0 0 - 5 2.0 2.0 Emerging fixed 5.0 3 - 7 5.2 5.0 Other: Global tactical 10.0 8 - 12 10.0 10.0 Real estate 5.0 3 - 7 4.4 4.5 Real assets 5.0 3 - 7 4.8 4.4 Market neutral 5.0 3 - 7 4.6 5.0 Cash equivalents ----0.5 0.3 Absolute return 4.0 3 - 7 4.6 3.2 Asset Class ActualProposed RangeTarget THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 11 All asset classes have been rebalanced when needed during the year in order to maintain a weighting consistent with the strategic allocation ranges. Resolution 2986, effective August 2011, authorized new proposed targets and ranges which are reflected above. Overall asset class allocations changed minimally. The Equity asset class decreased .8 percentage points while the Fixed income class saw a decrease of .7 percentage points. This was offset by the Other asset class seeing an increase of 1.5 percentage points. This was due to an increase of 1.4 percentage points in the Absolute Return sub-class, managed by PIMCO. While this increase put the sub-class over target, it was still within the target range. Resolution 2987, effective August 2011, authorized specific investment managers to act on behalf of the Plan to actively manage specific investment types. 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 the Plan’s participants and their beneficiaries. REQUEST FOR INFORMATION This financial report is designed to provide the Board of Trustees, our members, 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: 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 EMPLOYEES’ PENSION PLAN See the accompanying notes to financial statements. Page 12 STATEMENTS OF PLAN NET POSITION 2012 2011 ASSETS Investments at fair value: Mutual funds 91,640,880$ 79,215,761$ Corporate obligations 29,045,800 29,288,059 Collective investment funds 37,082,646 32,742,140 Domestic common stocks 23,865,980 22,444,536 US Treasury and agency obligations 11,792,140 9,962,401 Foreign obligations 12,564,555 10,940,349 Money market funds 4,845,416 3,581,619 Foreign stocks 1,840,808 1,860,413 Municipal obligations 618,471 796,650 Domestic preferred stock 367,508 250,202 Real estate investments 9,751,253 8,958,101 Total Investments 223,415,457 200,040,231 Receivables Due from brokers for forward currency exchange contracts 7,221,683 6,578,581 Due from brokers for pending sales securities sold 847,166 60,299 Interest and dividends receivable 634,978 633,876 Total Receivables 8,703,827 7,272,756 Total Assets 232,119,284 207,312,987 LIABILITIES Due to brokers for forward currency exchange contracts 7,305,924 6,711,285 Due to brokers for securities purchased 1,129,160 56,394 Accrued expenses 216,689 204,686 Total Liabilities 8,651,772 6,972,365 NET POSITION RESTRICTED FOR PENSION BENEFITS 223,467,512$ 200,340,622$ December 31, For the Years Ended THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN See the accompanying notes to financial statements. Page 13 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 18,697,576$ (2,455,509)$ Interest and dividends 5,589,459 5,530,644 Total Investment income 24,287,035 3,075,135 Less - investment managers' and advisors' fees 895,247 859,733 Net Investment income 23,391,788 2,215,402 Employer contributions 11,742,410 10,981,546 Total Additions 35,134,198 13,196,948 DEDUCTIONS FROM NET POSITION ATTRIBUTED TO: Benefits paid to retirees and beneficiaries 11,910,664 11,233,668 Transfers to defined contribution plan 210 70,869 Administrative expenses 96,434 91,863 Total Deductions 12,007,308 11,396,400 NET INCREASE 23,126,890 1,800,548 NET POSITION RESTRICTED FOR PENSION BENEFITS, January 1 200,340,622 198,540,074 NET POSITION RESTRICTED FOR PENSION BENEFITS, December 31 223,467,512$ 200,340,622$ December 31, For the Years Ended THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 14 NOTES TO FINANCIAL STATEMENTS December 31, 2012 And 2011 1. Summary of Significant Accounting Policies The significant accounting policies applied by the Plan in the preparation of the accompanying financial statements are summarized as follows: 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 when due and the District’s Trustees have made a formal commitment to provide the contribution. 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. Investment purchases and sales are recorded on a trade-date basis. Estimates and Assumptions The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management and the Plan’s actuary 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 statements and the reported amounts of additions to and deductions from net position during the reporting period. Actual results could differ from those estimates. Investment Valuation The Plan’s investment assets, for which U.S. Bank, N.A., acts as a trustee, 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. The money market fund is reported at cost, which approximates fair value. Payment of Benefits Benefits are recorded when paid. Reclassification Certain amounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. Subsequent Events Management has evaluated subsequent events through June 18, 2013, the date the financial statements were available for issue. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 15 2. Description of Plan 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. General 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) commencing service prior to December 31, 2010, were eligible to be covered by the Plan. As of January 1, 2011 the Plan was frozen to new employees. Instead, new employees of the District may participate in the Defined Contribution Plan and/or the Deferred Compensation Plan. Current employees with less than ten years of service on this date could also voluntarily elect to transfer from the Plan and enter the defined contribution plan. In 2011, of the 404 District employees with less than ten years of service, twenty-three elected to leave the Plan. Membership in the Plan consists of: Increase 2012 2011 (Decrease) Active plan members 803 838 (35) Retirees and beneficiaries currently receiving benefits 614 596 18 Terminated members entitled to receive benefits 179 183 (4) Total 1,596 1,617 (21) For the Years Ended December 31, 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 16 Benefit Payments and Vesting All benefits vest after five years of credited service. Members retiring at or after age 65 with five or more years 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 five years 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 1.7% 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. Also, 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. 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 35 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. 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 METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 17 The retirement benefit payable to a member who retires after the 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. Effective August 27, 2011, Ordinance No. 13288 amended the Plan to include the following: “Upon termination or complete discontinuance of contributions under the Plan, the rights of all Members to benefits accrued to the date of such termination or discontinuance shall be non-forfeitable, to the extent then funded.” Amounts in participants’ accounts are distributed upon retirement, death, disability, or termination of employment. The normal form of retirement benefit is either a lump sum payment or equal monthly installments. 3. Cash and Investments Categories of Asset Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the Plan’s investment in a single issuer. The Plan is authorized to invest in: • Equity Investments: Common stocks of corporations, mutual funds, or co-mingled equity funds (Domestic and International, both within defined limits); however, the investments in equities cannot exceed 47% of total investments. • Fixed Income Investments: U.S. government and agency securities, corporate bonds, debentures, notes, or other evidence of indebtedness assumed or guaranteed by corporations (Domestic and International, both within defined limits); however, the investment in fixed income cannot exceed 41% of total investments. • Short-term Securities: Commercial paper, treasury bills, certificates of deposit, and/or money market funds. • Real Estate Investments: Real estate investment trusts and multi-employer property trusts; however the investment in real estate cannot exceed 7% of total investments. • Global Tactical Asset Allocation, Market Neutral, Absolute Return, and Real Assets: These investment strategies help diversify the investment portfolio while increasing return and decreasing risk. These investments cannot exceed 12%, 7%, 7% and 7% of total investments, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 18 • Futures Contracts: Currency forward contracts for the purpose of currency risk management of non-U.S. investments. The fair value of investments managed consisted of the following: 2012 2011 Investments, at fair value Mutual funds 91,640,880$ 79,215,761$ Corporate obligations 29,045,800 29,288,059 Collective investment funds 37,082,646 32,742,140 Domestic common stocks 23,865,980 22,444,536 U.S. Treasury and agency obligations 11,792,140 9,962,401 Foreign obligations 12,564,555 10,940,349 Money market funds 4,845,416 3,581,619 Foreign stocks 1,840,808 1,860,413 Municipal obligations 618,471 796,650 Domestic preferred stocks 367,508 250,202 Real estate investments 9,751,253 8,958,101 Total Investments 223,415,457$ 200,040,231$ For the Years Ended December 31, Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Plan does not have a formal investment policy that limits investment maturities as a means of managing its exposure to interest rates. The Plan had the following debt securities and maturities: Weighted Average Maturity Investment Type Fair Value (in Years) Corporate obligations 29,045,800$ 4.08 U.S. Treasury and agency obligations 11,792,140 5.84 Foreign obligations 12,564,555 6.02 Municipal obligations 618,471 10.84 Total 54,020,966$ Portfolio weighted average maturity 4.99 As of December 31, 2012 THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 19 Weighted Average Maturity Investment Type Fair Value (in Years) Corporate obligations 29,288,059$ 4.32 U.S. Treasury and agency obligations 9,962,401 7.59 Foreign obligations 10,940,349 4.25 Municipal obligations 796,650 9.07 Total 50,987,459$ Portfolio weighted average maturity 5.02 As of December 31, 2011 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. • Monitoring fixed income investment managers’ performances to be sure the fixed income portion of the investment portfolio is managed to predetermined indexes. Credit Risk Investment credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. The Plan will minimize credit risk by: • Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which the Plan will do business; and • 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) Page 20 The following tables provide information on the credit ratings associated with the Plan’s investments in debt securities: U.S. Treasury S & P & Agency Municipal Corporate Foreign Rating Obligations Obligations Obligations Obligations Total AAA 11,792,140$ 146,285$ 4,675,683$ 1,569,365$ 18,183,474$ AA - 81,770 2,217,013 2,101,791 4,400,573 A - 390,416 8,107,340 6,099,353 14,597,108 BBB - - 3,798,394 994,087 4,792,482 BB - - 3,503,644 1,393,008 4,896,652 B - - 5,844,308 406,950 6,251,258 CCC - - 764,471 - 764,471 CC - - 134,947 - 134,947 Not Rated - - - - - Total 11,792,140$ 618,471$ 29,045,800$ 12,564,554$ 54,020,966$ Credit Rating by Investment as of December 31, 2012 U.S. Treasury S & P & Agency Municipal Corporate Foreign Rating Obligations Obligations Obligations Obligations Total AA+9,962,401$ 157,978$ 3,881,029$ 4,593,537$ 18,594,945$ AA - 294,865 1,340,190 777,052 2,412,107 A - 343,807 11,186,544 4,020,232 15,550,583 BBB - - 5,240,849 67,875 5,308,724 BB - - 1,743,573 1,237,128 2,980,701 B - - 4,906,798 244,525 5,151,323 CCC - - 891,958 - 891,958 Not Rated - - 97,118 - 97,118 Total 9,962,401$ 796,650$ 29,288,059$ 10,940,349$ 50,987,459$ Credit Rating by Investment as of December 31, 2011 THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 21 Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely impact the fair value of an investment. The Plan’s policy is to allow the individual investment manager to decide what action to take regarding their respective portfolio’s foreign currency exposure. The following table demonstrates the Plan’s current level of foreign currency exposure: Foreign Foreign Currency Stocks Obligations Total Australian Dollar -$ 1,549,362$ 1,549,362$ British Pound Sterling - 540,385 540,385 Euro - 1,129,938 1,129,938 Hungarian Forint - 691,920 691,920 Malaysian Ringgit - 729,445 729,445 Mexican Peso - 2,464,787 2,464,787 New Zealand Dollar - 504,646 504,646 Polish Zloty - 1,148,566 1,148,566 South African Rand - 626,618 626,618 South Korean Won - 790,745 790,745 Not denominated in a foreign currency 1,840,808 2,388,144 4,228,953 Total 1,840,808$ 12,564,554$ 14,405,364$ Foreign Currency Exposure by Asset Class as of December 31, 2012 (in USD) Foreign Foreign Currency Stocks Obligations Total Australian Dollar -$ 1,514,779$ 1,514,779$ British Pound Sterling - 1,467,156 1,467,156 Canadian Dollar - 1,202,752 1,202,752 Hungarian Forint - 454,988 454,988 Indonesian Rupiah - 485,240 485,240 Malaysian Ringgit - 745,358 745,358 Mexican Peso - 1,149,470 1,149,470 New Zealand Dollar - 282,060 282,060 Norwegian Krone - 611,325 611,325 Polish Zloty - 818,931 818,931 South African Rand - 615,638 615,638 South Korean Won - 690,835 690,835 Not denominated in a foreign currency 1,860,413 901,817 2,762,230 Total 1,860,413$ 10,940,349$ 12,800,762$ as of December 31, 2011 (in USD) Foreign Currency Exposure by Asset Class THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 22 Derivatives Within narrowly prescribed guidelines the Plan permits one investment manager to enter into derivative and structured financial instruments only where appropriate and for the following reasons: • Hedging. To the extent that the portfolio is exposed to clearly defined risks and there are derivative contracts that can be used to reduce those risks, the investment managers are permitted to use such derivatives for hedging purposes, including cross-hedging of currency exposures. • Creation of Market Exposures. The manager is permitted to use derivatives to replicate the risk/return profile of an asset or asset class provided that the guidelines for the Manager allow for such exposures to be created with the underlying assets themselves. • Manager may not use derivative contracts or securities for the following purposes: a) Leverage. Derivatives shall not be used to magnify overall portfolio exposure to an asset, asset class, interest rate, or any other financial variable beyond that which would be allowed by a portfolio’s investment guidelines if derivatives were not used. b) Unrelated Speculation. Derivatives shall not be used to create exposures to securities, currencies, indices, or any other financial variable unless such exposures would be allowed by a portfolio’s investment guidelines if created with non-derivative securities. Permissible derivative investments include: • Futures, forwards and options on any approved physical instruments, including interest rate futures and options, provided that use of such contracts is designed to dampen portfolio volatility rather than leverage portfolio risk exposure beyond the limits described in the Plan’s Investment Policy Statement. • Opportunistic currency positioning, to hedge and cross-hedge the portfolio’s currency risk exposure or in the settlement of securities transactions, subject to the reasons as described in the preceding section. • Swaps on approved securities, including but not limited to interest rate swaps and currency swaps. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 23 Open Foreign Currency Exchange Contracts in US Dollars The investment managers enter into foreign currency exchange contracts to make payment for international investments and to hedge against changes in exchange rates related to foreign securities. Foreign currency exchange contracts are agreements to exchange the currency of one country for the currency of another country at an agreed upon price and settlement date. At December 31, 2012 and 2011 the Plan’s open contracts to purchase and sell by foreign currencies are as follows: Aggregate Cost Delivery Unrealized Unrealized Fair Value Value Dates Appreciation Depreciation Foreign Currency Exchange Contracts Purchased: Indian Rupee 664,720$ 687,217$ 3/20/2013 -$ 22,497$ Chilean Peso 475,434 469,253 2/12/2013 6,181 - Chilean Peso 78,888 77,863 5/15/2013 1,026 - Australian Dollar - 74,850 2/11/2013 - 74,850 Russian Rouble 350,268 340,014 1/14/2013 10,255 - Brazilian Real 149,647 147,325 3/19/2013 2,322 - Brazilian Real 635,212 625,355 3/4/2013 9,857 - British Pound Sterling 1,731,158 1,713,585 3/12/2013 17,573 - Euro - 175,418 1/3/2013 - 175,418 Aggregate Cost Value Fair Value Foreign Currency Exchange Contracts Sold: Australian Dollar 1,755,929$ 1,725,488$ 2/11/2013 30,442$ -$ Indian Rupee 28,574 - 3/20/2013 28,574 - Euro 614,250 554,340 2/5/2013 59,910 - Euro 171,797 155,041 1/3/2013 16,756 - New Zealand Dollar 565,804 560,175 3/13/2013 5,629 Total 7,221,683$ 7,305,924$ 188,524$ 272,765$ Open Contracts as of December 31, 2012 (in USD) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 24 Aggregate Cost Delivery Unrealized Unrealized Fair Value Value Dates Appreciation Depreciation Foreign Currency Exchange Contracts Purchased: British Pound Sterling 1,268,146$ 1,266,432$ 3/1/2012 1,714$ -$ Turkish Lira 594,091 617,525 2/10/2012 - 23,434 Chinese Yuan Renminbi 335,760 329,130 1/13/2012 6,630 - Chinese Yuan Renminbi 352,437 348,024 1/11/2012 4,413 - Chilean Peso 436,596 444,039 1/26/2012 - 7,443 Singapore Dollar 526,742 528,433 2/23/2012 - 1,691 Aggregate Cost Value Fair Value Foreign Currency Exchange Contracts Sold: Australian Dollar 1,589,786 1,705,934 1/13/2012 - 116,148 Canadian Dollar 319,765 320,157 1/15/2012 - 392 Norwegian Krone 598,802 591,493 1/11/2012 7,309 - New Zealand Dollar 556,450 560,112 3/9/2012 - 3,662 Total 6,578,573$ 6,711,277$ 20,066$ 152,770$ Open Contracts as of December 31, 2011 (in USD) The fair value of open foreign currency contracts, including any unrealized appreciation or depreciation, is recorded in the statements of Plan net position as amounts due from/to brokers for securities sold/purchased. Based upon the advice of the Plan’s investment consultant and the Plan’s investment policy and guidelines, the investments in foreign currency exchange contracts do not, in the Plan’s judgment, have any significant, if any, interest rate risk, basis risk, termination risk or rollover risk. The currency forward contracts are executed through large money center banks with credit rating standards. The credit risk exposure could be with the bank counterparty. Depending on the bank, the degree of credit risk could vary. To reduce the risk of counterparty nonperformance, the investment manager generally enters into these contracts with institutions regarded as meeting high standards of credit worthiness. Based on the assessment of the Plan’s investment manager trading the account and Plan’s investment consultant, the risk is considered minimal. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 25 Investments Greater Than 5% Of Net Position Held In Trust For Pension Benefits Investments that exceed 5% or more of net position held in trust for pension benefits at December 31, 2012 and 2011 are as follows: 2012 2011 Income Research Management 28,346,535$ 26,966,319$ Morgan Stanley International Equity 23,232,447 18,763,480 GMO Global Balanced Asset Allocation 22,296,706 19,963,793 Brandywine Global Bond 17,569,186 17,519,543 Vanguard Windsor II 15,597,069 14,508,407 Waddell & Reed 15,364,036 13,774,610 PENN Capital 11,672,173 <5% Pictet 11,543,870 10,013,456 Pyramis US Equity Market Neutral <5%9,994,944 PIMCO <5%<5% For the Years Ended December 31, 4. Contributions Required and Contributions Made 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 $11,737,168 and $10,969,154 excluding certain professional fees paid by the District, were made to the Plan in 2012 and 2011, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2012 and 2011, respectively, and consisted of: 2012 2011 Normal Cost 6,195,693$ 6,150,879$ Amortization of the unfunded actuarial accrued liability 4,748,053 4,052,985 Investment Rate of Return factor (7.25% for 2012 and 7.5% for 2011)793,422 765,290 Current Year Contribution due from the District as Calculated by the Plan's Actuary 11,737,168$ 10,969,154$ For the Years Ended December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 26 Certain professional fees, included in administrative expenses are paid by the District and are recognized as contributions to the Plan and totaled $5,242 and $12,392 for the years ended December 31, 2012 and 2011. The District provides office space, utilities, and other services to the Plan at no cost. Other costs of administering the Plan are financed from Plan net position. 5. Funded Status and Funding Progress The funded status of the Plan as of January 1, 2013, the most recent actuarial valuation date, and January 1, 2012, is as follows (dollar amounts in thousands): Valuation Entry Age for the Actuarial Actuarial Years Actuarial Accrued Unfunded Annual Beginning Value Liability AAL Covered January 1 of Assets (AAL)(UAAL)Payroll 2013 $ 221,144 $ 266,371 $ 45,227 83.0 %$ 48,333 93.6 % 2012 $ 205,792 $ 254,997 $ 49,205 80.7 %$ 49,432 99.5 % UAAL as a Percentage of Covered Payroll Funded Ratio The schedules of funding progress, presented as required supplementary information following the notes to financial statements, present multi-year trend information about whether the actuarial values of Plan assets are increasing or decreasing over time relative to the AALs for benefits. 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 dates January 1, 2013 Actuarial cost method Entry Age Normal Amortization method Level dollar closed Amortization period 20-year period Asset valuation method 3-year average of adjusted market values Post-retirement cost of living CPI with maximum 3% of current benefit or $50/month, and benefit increases lifetime maximum 45% in the original benefit or $750/month. Actuarial assumptions: Investment rate of return 7.25% per annum (1) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 27 Projected salary increases based on years of service Years of service 0 10.0% (1) 1 7.5% (1) 2 5.0% (1) 3+ 4.5% (1) Social Security wage base 4.0% per annum increase (1) (1) Includes inflation component of 3% 6. Risk Management The Plan is exposed to various risks of loss related to natural disasters, errors and omissions, loss of assets, torts, etc. The Plan has chosen to cover such losses through the purchase of commercial insurance. There has been no material insurance claim filed or paid during the past three fiscal years. 7. Risks and Uncertainties The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. 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 changes could materially affect the amounts reported in the statements of Plan net position. Actuarial present value of accumulated Plan benefits are reported based on certain assumptions pertaining to interest rates, inflation rates, and employee demographics, all of which are subject to change. Due to uncertainties inherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimates and assumptions in the near term would be material to the financial statements. 8. Tax Status The plan received a favorable determination letter from the Internal Revenue Service on June 13, 2011, indicating the Plan and its underlying trust are qualified under Section 414(d) of the Internal Revenue Code. The Plan has been amended since receiving the determination letter; however, the Plan administrator and the Plan’s tax counsel believe the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 28 9. 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. REQUIRED SUPPLEMENTARY INFORMATION THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 29 REQUIRED SUPPLEMENTARY INFORMATION For The Year Ended December 31, 2012 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. Valuation Entry Age for the Actuarial Actuarial Years Actuarial Accrued Unfunded Annual Beginning Value Liability AAL Covered January 1 of Assets (AAL)(UAAL)Payroll 2013 $ 221,144 $ 266,371 $ 45,227 83.0 %$ 48,333 93.6 % 2012 205,792 254,997 49,205 80.7 49,432 99.5 2011 189,012 231,599 42,587 81.6 51,703 82.4 2010 185,753 223,063 37,310 83.3 52,267 71.4 2009 183,679 212,066 28,387 86.6 48,077 59.0 2008 185,356 195,834 10,478 94.6 43,640 24.0 Schedule of Funding Progress ($ in thousands) of Covered Payroll Funded Ratio UAAL as a Percentage Analysis of the dollar amounts of Plan net position, AAL, and UAAL in isolation can be misleading. Expressing Plan net position as a percentage of the AAL 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 UAAL and annual covered payroll are both affected by inflation. Expressing the UAAL 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. For the Annual Years Ended Required Actual December 31 Contribution Contribution 2012 11,737,168 11,742,410 100.0 %24.3 % 2011 10,969,154 10,981,546 100.1 22.2 2010 10,306,739 10,347,592 100.4 20.0 2009 8,859,535 8,910,664 100.6 17.0 2008 7,425,602 7,460,492 100.5 15.5 2007 7,673,240 7,731,672 100.8 17.7 Schedule of Employer Contributions Contribution as a Percentage of Covered Payroll Percentage Contributed THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 30 REQUIRED SUPPLEMENTARY INFORMATION For The Year Ended December 31, 2012 NOTE TO REQUIRED SUPPLEMENTAL INFORMATION Annual Required Contribution (ARC) The ARC applicable to the Plan’s year ended each year on December 31 in accordance with GASB Statement No. 25 requires blending of the actuarial valuations. The ARC is presented each year using the aggregate of the District’s ARCs for the portions of the District’s fiscal years that overlap the Plan’s fiscal year. STATISTICAL SECTION (UNAUDITED) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 31 STATISTICAL SECTION For The Year Ended December 31, 2012 Net Position Value (NPV) as of Year December 31 2003 $ 137,024,216 21.1 % 2004 149,053,173 8.8 2005 157,822,577 5.9 2006 174,256,931 10.4 2007 191,382,492 10.8 2008 150,808,625 (21.2) 2009 179,219,472 18.8 2010 198,540,074 10.8 2011 200,340,622 1.9 2012 223,467,512 11.5 Performance and NPV Total Plan Performance 137.0 149.1 157.8 174.3 191.4 150.8 179.2 198.5 200.3 223.5 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Net Position Value at December 31, ($ in millions) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 32 STATISTICAL SECTION For The Year Ended December 31, 2012 Employer Investment Year Contributions Income Total 2003 $ 6,002,479 15.9 %$ 23,559,415 $ 29,561,894 2004 6,797,077 17.3 11,551,937 18,349,014 2005 7,192,531 17.9 8,475,275 15,667,806 2006 6,875,168 16.3 17,565,462 24,440,630 2007 7,731,672 17.7 18,111,294 25,842,966 2008 7,460,492 15.5 (38,697,159)(31,236,667) 2009 8,910,664 17.0 29,480,945 38,391,609 2010 10,347,592 20.0 19,597,109 29,944,701 2011 10,981,546 22.2 2,144,533 13,126,079 2012 11,742,410 24.3 23,391,578 35,133,988 Payroll Revenues by Source Employer Contributions as a Percentage of Covered 6,002.5 6,797.1 7,192.5 6,875.2 7,731.7 7,460.5 8,910.7 10,347.6 10,981.5 11,742.4 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Employer Contributions at December 31, ($ in thousands) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 33 STATISTICAL SECTION For The Year Ended December 31, 2012 Benefit Administrative Year Payments Expense Total 2003 $ 5,607,334 $ 106,892 $ 5,714,226 2004 6,198,470 121,587 6,320,057 2005 6,781,416 116,986 6,898,402 2006 7,841,783 150,548 7,992,331 2007 8,540,957 147,232 8,688,189 2008 9,232,979 104,221 9,337,200 2009 9,832,606 148,157 9,980,763 2010 10,508,665 115,434 10,624,099 2011 11,233,668 91,863 11,325,531 2012 11,910,664 96,434 12,007,098 Expenses by Type 5,607.3 6,198.5 6,781.4 7,841.8 8,541.0 9,233.0 9,832.6 10,508.7 11,233.7 11,910.7 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Benefit Payments at December 31, ($ in thousands) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 34 STATISTICAL SECTION For The Year Ended December 31, 2012 Terminated Members Entitled to Receive Year Benefits Total 2003 482 194 788 1,464 2004 490 190 808 1,488 2005 460 1 198 780 2 1,438 2006 481 1 199 798 2 1,478 2007 504 1 198 811 2 1,513 2008 532 1 196 885 2 1,613 2009 550 1 192 938 2 1,680 2010 571 1 183 917 2 1,671 2011 596 1 183 838 1,617 2012 614 1 179 803 1,596 1 New Actuarial excluded individuals covered by insurance policy. 2 New Actuarial excludes members with less than six months of service. Benefits Active Plan Members Member Count Retirees & Beneficiaries Currently Receiving 482 490 460 481 504 532 550 571 596 614 0 100 200 300 400 500 600 700 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Benefit Recipients at December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 35 STATISTICAL SECTION For The Year Ended December 31, 2012 Market Percentage Value as of of Holding December 31, 2012 Plan Income Research Management $ 28,346,535 12.7% Morgan Stanley International Equity 23,232,447 10.4% GMO Global Balanced Asset Allocation 22,296,706 10.0% Brandywine Global Bond 17,569,186 7.9% Vanguard Windsor II 15,597,069 7.0% Waddell & Reed 15,364,036 6.9% PENN Capital 11,672,173 5.2% Pictet 11,543,870 5.2% Wellington 10,735,447 4.8% PIMCO 10,373,826 4.6% Totals $ 166,731,295 74.6% Top 10 Holdings by Investment Manager 12.7% 10.4% 10.0% 7.9% 7.0%6.9%5.2% 5.2% 4.8% 4.6% 25.4% Percentage Distribution as of December 31, 2012 Income Research Management Morgan Stanley International EquityGMO Global Balanced Asset AllocationBrandywine Global Bond Vanguard Windsor II Waddell & Reed PENN Capital Pictet Wellington PIMCO Other THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 36 STATISTICAL SECTION For The Year Ended December 31, 2012 2012 2011 Investment Manager Fees: Income Research Management $ 102,851 $ 106,368 Loomis / Sayles 19,668 17,729 Brandywine Asset Management 76,802 76,993 Fidelity Investments (Pyramis)90,512 87,645 PENN Capital Management 79,311 79,435 UBS Real Estate 110,144 97,046 Wellington Management 83,011 86,004 Waddell & Reed 89,996 82,646 Buford, Dickson, Harper & Sparrow 49,530 46,011 Kennedy Capital/ARK Asset Managers 54,974 56,573 Total Investment Manager Fees 756,799 736,450 Advisor Fees: New England Pension Consultants 113,697 97,130 Milliman 24,750 26,153 Total Advisor Fees 138,448 123,283 Total of All Fees $ 895,247 $ 859,733 Schedule of Investment Manager & Advisor Fees For the Years Ended December 31, Firm