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HomeMy Public PortalAbout2017 Audited Financial THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 Contents Page Independent Auditors’ Report........................................................................ 1 - 2 Management’s Discussion And Analysis ..................................................... 3 - 13 Financial Statements Statements of Fiduciary Net Position ..............................................................14 Statements of Changes in Fiduciary Net Position ............................................15 Notes to Financial Statements .................................................................. 16 - 31 Required Supplementary Information Under GASB No. 67 Schedule of Changes in Net Pension Liability ................................................32 Schedule of Employer Contributions ...............................................................33 Actuarial Methods and Assumptions Used ......................................................34 Schedule of Annual Money-Weighted Rate of Return on Investments ...........35 Statistical Section (Unaudited) Performance and Net Position Value ...............................................................36 Revenues by Source and Total Employer Contributions .................................37 Expenses by Type and Total Benefit Payments ...............................................38 Member Count and Total Benefit Recipients ..................................................39 Top Ten Holdings by Investment Manager and Percentage Distribution........40 Schedule of Investment Manager and Advisor Fees ........................................41 Page 1 CliftonLarsonAllen LLP CLAconnect.com 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 financial statements of The Metropolitan St. Louis Sewer District Employees’ Pension Plan (the Plan), which comprise the statements of fiduciary net position as of December 31, 2017 and 2016, and the related statements of changes in fiduciary net position for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Board of Trustees The Metropolitan St. Louis Sewer District Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the Plan as of December 31, 2017 and 2016, and the changes in fiduciary 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 13 and pension plan schedules on pages 32 through 35 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 audits of the basic financial statements. However, we did not audit the information and express no opinion on it. Other Information Our audit was conducted for the purpose of forming an opinion on the Plan’s financial statements. The schedules included in the statistical section on pages 36 through 41, are presented for purposes of additional analysis and are not a required part of the financial statements. The schedules included in the statistical section are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the 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. CliftonLarsonAllen LLP St. Louis, Missouri June 28, 2018 THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 3 MANAGEMENT’S DISCUSSION AND ANALYSIS For The Years Ended December 31, 2017 and 2016 As management of The Metropolitan St. Louis Sewer District Employees’ Pension Plan (“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 years ended December 31, 2017 and 2016. 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 14. The Plan is a noncontributory single employer defined benefit plan providing retirement benefits as well as death and disability benefits to all full-time employees of The Metropolitan St. Louis Sewer District (“District”) commencing service prior to January 1, 2011, the date entrance to the plan was frozen. 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 Fiduciary Net Position 2) Statements of Changes in Fiduciary Net Position 3) Notes to Financial Statements This report also contains required supplementary information to the basic financial statements, which provides actuarial information for use in analyzing the status of the Plan, and includes: 1) Schedule of Changes in Net Pension Liability 2) Schedule of Employer Contributions 3) Actuarial Methods and Assumptions Used 4) Schedule of Annual Money-Weighted Rate of Return on Investments Certain revenues, expenses associated with administering the Plan, and other trend data are presented immediately following the required supplementary information in the statistical section of this report. The basic financial statements contained in this report are described below:  The Statements of Fiduciary 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 minus liabilities equal net position] represents the value of net position restricted 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 Fiduciary Net Position display the effect of the Plan’s transactions that occurred during the year [additions minus deductions equal 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 Fiduciary Net Position from the prior year to the current year. Both statements are in accordance 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 provides additional levels of detail for selected financial statement items. See Notes to Financial Statements beginning on page 16 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 additional schedules entitled “Required Supplementary Information Under GASB No. 67.”  The Schedule of Changes in Net Pension Liability (page 32) includes actuarial information about the status of the Plan from an ongoing, long-term perspective and overall net position of the Plan. The total pension liability is actuarially determined. A total pension liability in excess of Plan fiduciary net position indicates that a net pension liability exists.  The Schedule of Employer Contributions (page 33) presents historical trend information regarding the value of total annual contributions actuarially determined to be paid by the District and the actual performance of the District in meeting this requirement.  Actuarial Methods and Assumptions Used and the Schedule of Annual Money-Weighted Rate of Return on Investments (pages 34 and 35) provide information regarding assumptions and interest rates used in the actuarial calculations. FINANCIAL HIGHLIGHTS 2017  Net position restricted for pension benefits totaled $277,976,215 as of December 31, 2017 for an increase of $26,966,184 or 10.7% as compared with December 31, 2016. This increase in net position primarily resulted from a 155.0% increase in investment gains during the year and by a 21.5% increase in employer contributions offset by a 3.9% increase in benefits paid to retirees. 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, 2017, the date of the latest actuarial valuation, the funded ratio of the Plan, defined as the Plan’s fiduciary net position as a percentage of the actuarially determined total pension liability, was 85.2%. In general, this means that for every dollar of pension benefits due, the Plan has approximately $0.85 of net position available for payment. The Plan’s funding ratio increased by 6.25 percentage points as compared with the funding ratio for December 31, 2016. The increase in the funding ratio is primarily attributed to the increase in the Plan’s actuarial 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. For the December 31, 2017 actuarial valuation, the expected rate of return on assets was decreased from 7.0% to 6.9%. As a result of this change and a return on the actuarial value of assets below the expected rate of return, the recommended contribution for the calendar year ending December 31, 2018 is increasing slightly to $12,493,916 or 1.3% over the recommended contribution for the prior year of $12,328,093.  Additions to the Plan’s net position (page 15) increased from $22,152,288 for 2016 to $42,926,496 for 2017, an increase of $20,774,208 or 93.8%, due primarily to an increase of $18,906,123 in the appreciation of the fair value of the investments and an increase of $2,186,641 in the employer contributions offset by a reduction of $376,637 in interest and dividend income.  Benefits paid to retirees and beneficiaries (deductions from the Plan’s net position, page 15) increased from $15,260,904 for 2016 to $15,858,355 for 2017, an increase of $597,451 or 3.9%.  Administrative expenses (deductions from the Plan’s net position, page 15) increased from $93,592 for 2016 to $101,957 for 2017, an increase of $8,365 or 8.9%. FINANCIAL HIGHLIGHTS 2016  Net position restricted for pension benefits totaled $251,010,031 as of December 31, 2016 for an increase of $6,797,792 or 2.8% as compared with December 31, 2015. This increase in net position primarily resulted from investment gains during the year offset by a 5.4% increase in benefits paid to retirees and beneficiaries as employer contributions remained essentially flat compared to the prior year. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 6  The Plan’s funding objective is to meet long-term benefit obligations to the extent possible. As of December 31, 2016, the date of the 2016 actuarial valuation, the funded ratio of the Plan, defined as the Plan’s fiduciary net position as a percentage of the actuarially determined total pension liability, was 78.9%. In general, this means that for every dollar of pension benefits due, the Plan has approximately $0.79 of net position available for payment. The Plan’s funding ratio decreased by 3.36 percentage points as compared with the funding ratio for December 31, 2015. The decrease in the funding ratio is due to Plan performance below the assumed rate of return and an actuarial assumption change. For the December 31, 2016 actuarial valuation, the RP-2014 Mortality Tables were utilized while in prior years the RP- 2000 Mortality Tables were assumed. As a result of this change and the lower return on the actuarial value of assets, the recommended contribution for the calendar year ending December 31, 2017 is increasing to $12,328,093 or 21.5% over the recommended contribution for the prior year of $10,145,562.  Additions to the Plan’s net position (page 15) increased from $8,261,503 for 2015 to $22,152,288 for 2016, an increase of $13,890,785 or 168.1%, due primarily to an increase of $14,776,074 in the appreciation of the fair value of the investments and an increase of $88,544 in the employer contributions offset by a reduction of $1,034,603 in interest and dividend income.  Benefits paid to retirees and beneficiaries (deductions from the Plan’s net position, page 15) increased from $14,474,566 for 2015 to $15,260,904 for 2016, an increase of $786,338 or 5.4%.  Administrative expenses (deductions from the Plan’s net position, page 15) increased from $90,519 for 2015 to $93,592 for 2016, an increase of $3,073 or 3.4%. 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 Plans peer group for 2017 and 2016, the Plan was up by 12.3% and by 5.1%, respectively, which ranked in the 91st and 92nd percentile for 2017 and 2016, respectively. Net position restricted for pension benefits increased by $26,966,184 in 2017 and increased by $6,797,792 in 2016. This net position is used to meet ongoing benefit obligation to the Plan’s participants and their beneficiaries. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 7 The Metropolitan St. Louis Sewer District’s (“District”) contributions into the Plan, as determined by the Plan’s actuary, increased significantly for 2017 compared to 2016. The primary reasons for the increase was the return on the actuarial value of assets below the assumed rate of 7.0% and the actuarial assumption change due to utilizing the RP-2014 Mortality Tables instead of the RP-2000 Mortality Tables. 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 6.9% on average. Both the Plan’s investment performance and the rate of return on actuarial value have averaged 5.3% to 5.4% over the last three years, which is below the actuarially assumed investment rate of 6.9%. Since this year’s performance falls below the actuarially assumed investment rate, it could result in additional contributions in upcoming years. Based upon the Plan’s actuarial computations under Statement No. 67 of the Governmental Accounting Standards Board, the actuarially determined total pension liability increased from $318,049,216 as of December 31, 2016 to $326,365,153 as of December 31, 2017. To calculate the net pension liability, the Plan’s fiduciary net position is subtracted from the total pension liability. Reducing the total pension liabilities by the $277,976,215 and $251,010,031 Plan fiduciary net positions as of December 31, 2017 and 2016, respectively, results in net pension liabilities of $48,388,938 and $67,039,185 as of December 31, 2017 and 2016, respectively. The existence of a net pension liability means that additional future funding may be needed to reduce this liability. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 8 FINANCIAL ANALYSIS The condensed Statements of Fiduciary Net Position as compared to prior years are as follows: As previously noted, net position viewed over time may serve as a useful indicator of the Plan’s financial position. At the close of calendar years 2017 and 2016, the assets of the Plan exceeded its liabilities by $277,976,215 and $251,010,031, 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. 2017 Change 2017 2016 Amount $ ASSETS Investments at Fair Value 277,846,882$ 250,913,578$ 26,933,304$ Other Assets 263,078 245,903 17,175 Total Assets 278,109,960 251,159,481 26,950,479 LIABILITIES 133,745 149,450 (15,705) NET POSITION RESTRICTED FOR PENSION BENEFITS 277,976,215$ 251,010,031$ 26,966,184$ 2016 Change 2016 2015 Amount $ ASSETS Investments at Fair Value 250,913,578$ 244,122,518$ 6,791,060$ Other Assets 245,903 242,367 3,536 Total Assets 251,159,481 244,364,885 6,794,596 LIABILITIES 149,450 152,646 (3,196) NET POSITION RESTRICTED FOR PENSION BENEFITS 251,010,031$ 244,212,239$ 6,797,792$ December 31, December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 9 Despite variations in the markets, 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 their 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 Fiduciary Net Position as compared to prior years are as follows: 2017 Change 2017 2016 Amount $ ADDITIONS Net Investment Income 30,579,933$ 11,992,366$ 18,587,567$ Employer Contributions 12,346,563 10,159,922 2,186,641 Total Additions 42,926,496 22,152,288 20,774,208 DEDUCTIONS Benefits Paid to Retirees and Beneficiaries 15,858,355 15,260,904 597,451 Administrative Expenses 101,957 93,592 8,365 Total Deductions 15,960,312 15,354,496 605,816 NET INCREASE 26,966,184 6,797,792 20,168,392 NET POSITION RESTRICTED FOR PENSION BENEFITS, January 1 251,010,031 244,212,239 6,797,792 NET POSITION RESTRICTED FOR PENSION BENEFITS, December 31 277,976,215$ 251,010,031$ 26,966,184$ For the Years Ended December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 10 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 years ended December 31, 2017 and 2016, total $42,926,496 and $22,152,288, respectively. Additions to Plan assets for 2017 increased from 2016 due primarily to the increase in the fair values of the investments held by the Plan. 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 above, deductions for the year ended December 31, 2017 totaled $15,960,312, an increase of 3.9% over 2016. The increase in benefits paid resulted primarily from an increase in the number of retirees receiving benefits by 5 members or a 0.7% increase. Additions to Plan net position of $42,926,496 exceeded deductions from Plan net position of $15,960,312 for the year ended December 31, 2017. The Plan has consistently managed within its administrative expense budget, with no material variances between planned and actual expenditures. 2016 Change 2016 2015 Amount $ ADDITIONS Net Investment Income (Loss) 11,992,366$ (1,809,875)$ 13,802,241$ Employer Contributions 10,159,922 10,071,378 88,544 Total Additions 22,152,288 8,261,503 13,890,785 DEDUCTIONS Benefits Paid to Retirees and Beneficiaries 15,260,904 14,474,566 786,338 Administrative Expenses 93,592 90,519 3,073 Total Deductions 15,354,496 14,565,085 789,411 NET INCREASE (DECREASE)6,797,792 (6,303,582) 13,101,374 NET POSITION RESTRICTED FOR PENSION BENEFITS, January 1 244,212,239 250,515,821 (6,303,582) NET POSITION RESTRICTED FOR PENSION BENEFITS, December 31 251,010,031$ 244,212,239$ 6,797,792$ For the Years Ended December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 11 INVESTMENT PERFORMANCE - 2017 The following are a few characteristics and achievements for the Plan for the year ended December 31, 2017:  The Plan ended the year with a net position of $277,976,215.  The Plan’s performance for the year was 12.3% compared to the policy benchmark index of 12.2%, and the average five-year return was 6.0% compared to the policy benchmark index of 6.5%.  The actual asset allocation is as follows: 2017 2016 Equities: Domestic Large Cap Stocks 20.0 % 15 - 25 % 20.7 % 20.7 % Domestic Small-Mid Cap Stocks 6.0 2 - 8 6.7 6.6 International Developed Markets Stocks 10.0 5 - 15 10.3 10.4 International Emerging Markets Stocks 4.0 2 - 8 4.4 3.9 Fixed Income: Domestic Core Bonds 14.0 10 - 20 14.1 14.2 Domestic Core "Plus" Bonds 12.0 10 - 20 12.3 11.6 Global Bonds 9.0 4 - 14 9.2 8.8 Emerging Fixed Income — 0 - 7 — — Opportunistic Credit — 0 - 5 — — High Yield Bonds — 0 - 7 — — Other: Real Estate 5.0 0 - 10 8.8 6.4 Global Tactical — 0 - 12 — — Market Neutral — 0 - 7 — — Real Assets 5.0 0 - 10 — — Absolute Return — 0 - 7 — — Hedge Funds 15.0 0 - 20 12.9 13.6 Cash Equivalents — — 0.6 3.8 Asset Class Actual Allowable RangeTarget December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 12 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 initial proposed targets and ranges. Resolution 3318, effective November 2016, authorized new proposed targets and allowable ranges that were implemented in 2016 and are reflected above. Resolution 3226 was adopted July 2015 and resolved that the codified document entitled “Metropolitan St. Louis Sewer District, Statement of Investment Policy, Objectives and Operating Guidelines” including all appendices represents the Investment Policy, Objectives and Operating Guidelines of the Employees’ Pension Plan. Ordinance 13719, effective September 2013, authorized Pavilion to act as the Plan’s investment consultant for the District and provide investment advisory services. Pavilion’s contract to act as the Plan’s investment consultant for the District and to provide investment advisory services was extended with Resolutions 3170, 3234, 3298 and 3371 which authorized the exercise of one-year renewal options. Overall asset class allocations changed moderately. Annual changes in asset allocation are the result of relative asset class performance, redemptions from investments to pay benefits and Plan expenses, contributions to new or existing investments, and regular rebalancing transactions. The largest changes in sub-classes were due to the liquidation of the Real Assets investment in 2016. Those funds were held in cash at December 31, 2016 in preparation for additional funding into the Real Estate sub-class. While some of the sub-classes were over target by varying percentage points, they were all still within the target ranges. Resolution 2987, effective August 2011, authorized specific investment managers to act on behalf of the Plan to actively manage specific investment types. Resolution 3068, effective January 2013, amended the master list of authorized investment managers which was further amended for individual investment managers by Resolutions 3138 (February 2014), 3183 (December 2014), 3209 (May 2015), 3221 (June 2015), 3308 (October 2016) and 3319 and 3320 (both in November 2016). 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Management’s Discussion And Analysis (Continued) Page 13 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: Tim Snoke, Secretary-Treasurer The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 E-mail: tsnoke@stlmsd.com THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN See the accompanying Notes to Financial Statements. Page 14 STATEMENTS OF FIDUCIARY NET POSITION 2017 2016 ASSETS Investments at Fair Value: Collective Investment Funds 153,109,969$ 85,448,895$ Mutual Funds 50,068,771 85,978,099 Real Estate Investments 24,465,570 16,029,927 Corporate Obligations 20,901,966 21,073,241 US Treasury and Agency Obligations 17,350,296 12,165,384 Domestic Common Stocks 8,693,711 17,264,512 Money Market Funds 1,931,354 11,399,948 Municipal Obligations 762,356 872,406 Foreign Stocks 562,889 681,166 Total Investments 277,846,882 250,913,578 Receivables Interest and Dividends Receivable 263,078 245,903 Total Receivables 263,078 245,903 Total Assets 278,109,960 251,159,481 LIABILITIES Accrued Expenses 133,745 149,450 Total Liabilities 133,745 149,450 NET POSITION RESTRICTED FOR PENSION BENEFITS 277,976,215$ 251,010,031$ December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN See the accompanying Notes to Financial Statements. Page 15 STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION For the Years Ended December 31, 2017 2016 ADDITIONS TO NET POSITION ATTRIBUTED TO: Investment Income: Net Appreciation in Fair Value of Investments 28,819,871$ 9,913,748$ Interest and Dividends 2,517,622 2,894,259 Total Investment Income 31,337,493 12,808,007 Less - Investment Managers' and Advisors' Fees 757,560 815,641 Net Investment Income 30,579,933 11,992,366 Employer Contributions 12,346,563 10,159,922 Total Additions 42,926,496 22,152,288 DEDUCTIONS FROM NET POSITION ATTRIBUTED TO: Benefits Paid to Retirees and Beneficiaries 15,858,355 15,260,904 Administrative Expenses 101,957 93,592 Total Deductions 15,960,312 15,354,496 NET INCREASE 26,966,184 6,797,792 NET POSITION RESTRICTED FOR PENSION BENEFITS, January 1 251,010,031 244,212,239 NET POSITION RESTRICTED FOR PENSION BENEFITS, December 31 277,976,215$ 251,010,031$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 16 NOTES TO FINANCIAL STATEMENTS December 31, 2017 And 2016 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 accompanying financial statements have been prepared on the accrual basis of accounting and adhere to U.S. Generally Accepted Accounting Principles as issued by the Governmental Accounting Standards Board (“GASB”). 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 trustee (“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 amortized cost, which approximates fair value. Payment of Benefits Benefits are recorded when paid. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 17 Recently Issued Accounting Standards During calendar year 2016, the Plan implemented Governmental Accounting Standards Board (“GASB”) Statement No. 72, Fair Value Measurement and Application. This Statement supersedes selected paragraphs and footnotes and amends selected paragraphs in various Statements of the Governmental Accounting Standards Board. The primary objective of this Statement is to improve financial reporting by state and local governments by clarifying the definition of fair value for financial reporting purposes, establishing general principles for measuring fair value, providing additional fair value application guidance, and enhancing disclosures about fair value measurements. The disclosures required by this Statement are presented in Footnote 4, Fair Value Measurement and Application. During calendar year 2017, the Plan implemented Governmental Accounting Standards Board (“GASB”) Statement No. 82, Pension Issues – An Amendment of GASB Statements No. 67, No. 68, and No. 73. The primary objective of this Statement is to improve financial reporting by state and local governments by enhancing consistency in the application of financial reporting requirements to certain pension issues that include the presentation of payroll- related measures in required supplementary information, the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and the classification of payments made by employers to satisfy employee (plan member) contribution requirements. Subsequent Events Management has evaluated subsequent events through June 28, 2018, the date the financial statements were available for issue. Resolution No. 3415, adopted on April 12, 2018, authorizes the liquidation of all assets held in the Entrust Capital Diversified Fund and the Lighthouse Global Long/Short Fund and the allocation of those assets to the Large Cap Equity, Small Cap Equity, International Equity, Emerging Market Equity, and Real Estate strategies as recommended by the District’s pension investment consultant, Pavilion Advisory Group, Inc. Resolution No. 3416, adopted on April 12, 2018, authorizes changes to the District’s Defined Benefit Plan Statement of Investment Policy, Objectives, and Operating Guidelines. These changes will reduce the assumed actuarial rate of return from 7.0% to 6.9% and modify the Asset Allocation and Performance Benchmarks Tables within the Plan’s Investment Policy to reflect the results of the most recent asset allocation study. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 18 2. Description of Plan The following brief description of The Metropolitan St. Louis Sewer District Employees’ Pension Plan (“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 (“District”) commencing service prior to January 1, 2011, 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 Metropolitan St. Louis Sewer District Defined Contribution Plan and/or The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust. Current employees with less than ten years of service on January 1, 2011 could also voluntarily elect to transfer from the Plan and enter The Metropolitan St. Louis Sewer District Defined Contribution Plan. Membership in the Plan consists of: 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, and thus the Pension Committee is also known as the “Plan Administrator”. 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 (“Act”) and, as such, is not subject to the Act’s reporting requirements. For the Years Ended December 31, Increase 2017 2016 (Decrease) Active plan members 595 626 (31) Retirees and beneficiaries currently receiving benefits 722 717 5 Terminated members entitled to receive benefits 178 174 4 Total 1,495 1,517 (22) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 19 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 the greater of (a) 50% of the member’s monthly-accrued retirement benefit as of the date of death, or (b) 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. An employee retiring from the District with five or more years of service will be compensated for any unused accrued sick leave at the rate of 1.25% for each year of District service multiplied by the unused accrued sick leave remaining at the employee’s current rate of pay. 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 20 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.” 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 September 14, 2017, Ordinance No. 14776 amended the Plan to require enrollment in Medicare Parts A and B when Members first become eligible for such Medicare programs due to disability in order to receive, or continue to receive, retiree medical benefits under the Pension Plan and to clarify that any retiree medical benefits under the Pension Plan will be secondary to Medicare disability benefits in accordance with the Medicare secondary payor rules. 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. Pursuant to Resolution 3318, the Plan is authorized to invest in the following; see chart on page 11 for target and allowable ranges.  Equity Investments: Common stocks of corporations, mutual funds, or co-mingled equity funds (Domestic and International, both within defined limits).  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).  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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 21  Hedge Funds, Global Tactical, Real Assets, Market Neutral, and Absolute Return Investments; these investment strategies help diversify the investment portfolio.  For more detailed information, refer to the asset allocation table on Page 11 in the MD&A. The fair value of investments managed consisted of the following: 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: As of December 31, 2017 2016 Investments, at Fair Value Collective Investment Funds 153,109,969$ 85,448,895$ Mutual Funds 50,068,771 85,978,099 Real Estate Investments 24,465,570 16,029,927 Corporate Obligations 20,901,966 21,073,241 US Treasury and Agency Obligations 17,350,296 12,165,384 Domestic Common Stocks 8,693,711 17,264,512 Money Market Funds 1,931,354 11,399,948 Municipal Obligations 762,356 872,406 Foreign Stocks 562,889 681,166 Total Investments 277,846,882$ 250,913,578$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 22 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; and  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: As of December 31, 2017 Weighted Average Maturity Investment Type Fair Value (in Years) Corporate Obligations 20,901,965$ 4.41 U.S. Treasury and Agency Obligations 17,350,296 4.67 Municipal Obligations 762,356 2.47 Total 39,014,617$ Portfolio Weighted Average Maturity in Years 4.49 As of December 31, 2016 Weighted Average Maturity Investment Type Fair Value (in Years) Corporate Obligations 21,073,241$ 4.33 U.S. Treasury and Agency Obligations 12,165,384 5.54 Municipal Obligations 872,406 2.92 Total 34,111,031$ Portfolio Weighted Average Maturity in Years 4.73 THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 23  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 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 Rating Obligations Obligations Obligations Total AAA —$ —$ 1,904,484$ 1,904,484$ AA 17,350,296 462,580 692,334 18,505,210 A— — 5,561,589 5,561,589 BBB — 299,776 9,180,597 9,480,374 Not Rated — — 3,562,961 3,562,961 Total 17,350,296$ 762,356$ 20,901,966$ 39,014,617$ Credit Rating by Investment as of December 31, 2017 U.S. Treasury S & P & Agency Municipal Corporate Rating Obligations Obligations Obligations Total AAA —$ —$ 4,023,496$ 4,023,496$ AA 12,165,384 573,724 1,647,962 14,387,070 A— - 4,771,139 4,771,139 BBB — 298,682 8,976,980 9,275,661 Not Rated — — 1,653,664 1,653,664 Total 12,165,384$ 872,406$ 21,073,241$ 34,111,031$ Credit Rating by Investment as of December 31, 2016 THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 24 Investments Greater Than 5% Of Net Position Restricted For Pension Benefits Investments that exceed 5% or more of net position restricted for pension benefits at December 31, 2017 or 2016 are as follows: 4. Fair Value Measurement and Application The Plan categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The Plan had the following recurring fair value measurements of invested assets as of December 31, 2017 and December 31, 2016: 2017 % 2016 % BlackRock Russell 1000 Index Fund Non-Lending 57,533,365$ 21% —$ Prudential Core Plus Bond Fund 34,257,814 12% 29,118,894 12% Morgan Stanley International Equity Fund I 28,707,110 10% 26,020,030 10% Brandywine Global Bond Opportunistic Fixed Inco m 25,456,038 9% 21,990,783 9% UBS Trumbull Property Fund 24,465,570 9% 16,029,927 6% Lighthouse Global Long/Short Fund Limited 19,348,870 7% 18,155,711 7% Entrust Capital Diversified Fund 16,525,809 6% 16,183,507 6% Vanguard Institutional Index Fund — 16,867,477 7% Vanguard Windsor II — 12,835,945 5% December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 25 Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Investments by Fair Value Level 12/31/2017 (Level 1) (Level 2) (Level 3) Debt Securities: Corporate Obligations 20,901,965$ —$ 20,901,965$ —$ US Treasury Notes and Bonds 14,834,340 11,015,059 3,819,281 — US Government Agency Obligations 2,515,956 — 2,515,956 — Municipal Obligations 762,356 — 762,356 — Core Plus Bond Commingled Trust Fund 34,257,814 — 34,257,814 — Global Fixed Income Collective Trust Fund 25,456,038 — 25,456,038 — Total Debt Securities 98,728,469 11,015,059 87,713,410 — Equity Securities: Domestic Equities 75,479,452 8,693,711 66,785,741 — International Equities 29,269,899 562,888 28,707,011 — Emerging Markets Fund 12,097,459 — 12,097,459 — Total Equity Securities 116,846,810 9,256,599 107,590,211 — Total Investments by Fair Value Level 215,575,279 20,271,658$ 195,303,621$ —$ Unfunded Redemption Redemption Investments Measured at the Net Asset Value (NAV) Commitments Frequency Notice Period Real Estate Funds (1)24,465,570 — Quarterly 60 Days Global Long/Short Hedge Fund of Fund (2)19,348,870 — Monthly/Quarterly 90 Days/60 Days Diversified Hedge Fund of Fund (3)16,525,809 — Quarterly 90 Days 60,340,249 Money Market at Amortized Cost 1,931,354 Total Investments at Fair Value 277,846,882$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 26 (1) Real Estate Funds - The portfolio assets in this investment consist primarily of high-quality real estate investments located in major markets throughout the U.S. and are diversified by property type, geographic region and economic sector. The majority of the investments are stable, primarily income-oriented properties. The fair values of the investments in this type have been determined using the NAV per share (or its equivalent) of the investments. Distributions from dispositions are reinvested as the underlying investments are liquidated. (2) Global Long/Short Hedge Fund of Fund - Multi-manager fund of funds that invests principally in global equity markets, combining long investments with short sales in the pursuit of opportunities in rising or declining markets. The fund of fund manager has the ability to employ hedge fund managers that employ a variety of strategies within the long/short strategy. The fair values of the investments in this type have been determined Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Investments by Fair Value Level 12/31/2016 (Level 1) (Level 2) (Level 3) Debt Securities: Corporate Obligations 21,073,241$ —$ 21,073,241$ —$ US Treasury Notes and Bonds 10,511,013 10,511,013 — — US Government Agency Obligations 1,654,371 — 1,654,371 — Municipal Obligations 872,406 — 872,406 — Core Plus Bond Commingled Trust Fund 29,118,894 — 29,118,894 — Global Fixed Income Collective Trust Fund 21,990,783 — 21,990,783 — Total Debt Securities 85,220,708 10,511,013 74,709,695 — Equity Securities: Domestic Equities 67,346,084 17,264,512 50,081,572 — International Equities 26,701,196 681,166 26,020,030 — Emerging Markets Fund 9,876,496 — 9,876,496 — Total Equity Securities 103,923,776 17,945,678 85,978,098 — Total Investments by Fair Value Level 189,144,484 28,456,691$ 160,687,793$ —$ Unfunded Redemption Redemption Investments Measured at the Net Asset Value (NAV) Commitments Frequency Notice Period Real Estate Funds (1)16,029,927 7,200,000$ Quarterly 60 Days Global Long/Short Hedge Fund of Fund (2)18,155,711 — Monthly/Quarterly 90 Days/60 Days Diversified Hedge Fund of Fund (3)16,183,508 — Quarterly 90 Days Total Investments Measured at the Net Asset Value 50,369,146 Money Market at Amortized Cost 11,399,948 Total Investments at Fair Value 250,913,578$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 27 using the NAV per share of the investments. Redemptions of greater than 90% of the shareholder’s shares are subject to an estimated 10% holdback to be paid promptly after the completion of the Fund’s year-end audit. (3) Diversified Hedge Fund of Fund - Seeks return, long-term capital growth and diversification through a combination of Managers trading a range of strategies, including, but not limited to, hedging, distressed securities, arbitrage and special situations. The fair values of the investments in this type have been determined using the NAV per share (or its equivalent) of the investments. Shareholders shall have the right to redeem Shares having a value of up to a maximum of 50% of the Net Asset Value of their shares, as of the close of business on the last business day of any calendar quarter (the “Redemption Date”). Remaining shares shall be redeemed on the next quarterly Redemption Date. Redemptions of greater than 90% of the shareholder’s shares are subject to an estimated 10% holdback to be paid generally no later than 30 days after the completion of the Fund’s year-end audit. 5. 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 $12,328,093 and $10,145,562, excluding certain professional fees paid by the District, were made to the Plan in 2017 and 2016, respectively. These contributions were made in accordance with actuarially determined contribution recommendations based on actuarial valuations performed at December 31, 2016 and 2015, respectively, and consisted of: Certain professional fees, included in administrative expenses, are paid by the District and are recognized as contributions to the Plan and totaled $18,470 and $14,360 for the years ended December 31, 2017 and 2016, respectively. The District provides office space, utilities, and other services to the Plan at no cost. Other costs of administering the Plan are financed from Plan net position. December 31, 2017 2016 Normal Cost 5,157,148$ 5,106,625$ Amortization of the Unfunded Actuarial Accrued Liability 6,364,434 4,375,209 Investment Rate of Return Factor of 7.0% 806,511 663,728 Current Year Contribution Due from the District as Calculated by the Plan's Actuary 12,328,093$ 10,145,562$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 28 6. Net Pension Liability of the District During the year ended December 31, 2014, the District implemented GASB Statement No. 67, Financial Reporting for Pension Plans – an amendment of GASB Statement No. 25. The schedule of net pension liability pursuant to the provisions of GASB Statement No. 67 as of December 31, 2017 and December 31, 2016 is as follows: Actuarial Assumptions: The total pension liability was determined by an actuarial valuation as of the measurement date (December 31), calculated based on the discount rate and actuarial assumptions below for December 31, 2017 and December 31, 2016: Net Pension Liability December 31, 2017 2016 Total Pension Liability 326,365,153$ 318,049,216$ Plan Fiduciary Net Position 277,976,215 251,010,031 Net Pension Liability 48,388,938$ 67,039,185$ Fiduciary Net Position as a Percentage of Total Pension Liability 85.17% 78.92% Covered Payroll 41,868,586$ 42,054,815$ Net Pension Liability as a Percentage of Covered Payroll 115.57% 159.41% December 31, 2017 2016 Inflation Rate 2.50% 2.50% Projected Salary Increases 4.25% 4.25% Investment Rate of Return 6.90% 7.00% Mortality rates were based on the RP-2014 Mortality for Employees and Healthy Annuitants Tables, male and female rates, with generational projection from 2006 based on the MP-2017 improvement scale for the December 31, 2017 valuation and MP-2016 improvement scale for the December 31, 2016 valuation and the RP-2014 Disabled Mortality Tables, male and female rates. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 29 Discount Rate December 31, 2017 2016 Discount Rate 6.90% 7.00% Long-Term Expected Rate of Return, Net of Investment Expense 6.90% 7.00% Municipal Bond Rate N/A N/A The plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the discount rate for calculating the total pension liability is equal to the long-term expected rate of return. Long-Term Expected Rate of Return Long-Term Expected Arithmetic Target Real Rate Asset Class Allocation of Return Large Cap US Equity 25.0% 4.5% Small Cap US Equity 10.0% 5.5% Developed International Equity 12.0% 4.9% Emerging Market Equity 6.0% 6.1% Domestic Core Plus Fixed Income 14.0% 1.5% Core Plus Bonds 13.0% 0.9% Global Fixed Income 8.0% 0.7% Real Estate 12.0% 4.0% Assumed Inflation - Mean 2.5% The long-term expected rate of return is assumed to be 6.9%. The long-term expected rate of return is determined by adding expected inflation to expected long-term real returns and reflecting expected volatility and correlation. The capital market assumptions are as follows: THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 30 Rate of Return For the years ended December 31, 2017 and 2016, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 12.28% and 4.95%, respectively. The money-weighted rate of return considers the changing amounts actually invested during a period and weights the amount of pension plan investments by the proportion of time they are available to earn a return during that period. External cash flows are determined on a monthly basis and are assumed to occur at the beginning of each month. External cash inflows are netted with external cash outflows, resulting in a net external cash flow in each month. The money-weighted rate of return is calculated net of investment expenses. 7. 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. 8. 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 change could materially affect the amounts reported in the Statements of Fiduciary Net Position. Sensitivity of the Net Pension Liability to Changes in the Discount Rate 1% Current 1% Decrease Discount Rate Increase 5.90% 6.90% 7.90% Total Pension Liability 363,040,211$ 326,365,153$ 295,190,651$ Plan Fiduciary Net Position 277,976,215 277,976,215 277,976,215 Net Pension Liability 85,063,996 48,388,938 17,214,436 The following presents the Net Pension Liability of the District, calculated using the discount rate of 6.90%, as well as what the District's Net Pension Liability would be if it were calculated using a discount rate that is 1 percentage point lower (5.90%) or 1 percentage point higher (7.90%) than the current rate. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Notes To Financial Statements (Continued) Page 31 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. 9. Tax Status The plan received a favorable determination letter from the Internal Revenue Service on September 10, 2014, indicating the Plan and its underlying trust are qualified under Section 414(d) of the Internal Revenue Code. REQUIRED SUPPLEMENTARY INFORMATION THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 32 REQUIRED SUPPLEMENTARY INFORMATION UNDER GASB NO. 67 Total Pension Liabilty 2017 2016 2015 2014 Service cost 5,157,148$ 5,106,625$ 5,253,091$ 5,409,485$ Interest 22,078,790 20,609,223 20,198,502 19,900,507 Effect of economic/demographic gains or losses (4,728,693) (882,851) (4,576,597) (3,667,991) Effect of assumption changes or inputs 1,667,047 11,664,881 — 6,500,227 Benefit payments (15,858,355) (15,260,904) (14,474,566) (13,387,127) Net Change In Total Pension Liability 8,315,937 21,236,974 6,400,430 14,755,101 Total Pension Liability - Beginning 318,049,216 296,812,242 290,411,812 275,656,711 Total Pension Liability - Ending 326,365,153 318,049,216 296,812,242 290,411,812 Plan Fiduciary Net Position Contributions - employer (including employer paid expenses) 12,346,563 10,159,922 10,071,378 10,682,846 Net investment income 30,579,933 11,992,366 (1,809,875) 7,066,420 Benefit payments (15,858,355) (15,260,904) (14,474,566) (13,394,219) Administrative expenses (101,957) (93,592) (90,519) (86,504) Net Change In Plan Fiduciary Net Position 26,966,184 6,797,792 (6,303,582) 4,268,543 Plan Fiduciary Net Position - Beginning 251,010,031 244,212,239 250,515,821 246,247,278 Plan Fiduciary Net Position - Ending 277,976,215 251,010,031 244,212,239 250,515,821 District’s Net Pension Liability - Ending 48,388,938$ 67,039,185$ 52,600,003$ 39,895,991$ Plan Fiduciary Net Position As A Percentage Of Total Pension Liability 85.17% 78.92% 82.28% 86.26% Covered Payroll 41,868,586$ 42,054,815$ 43,344,502$ 44,663,896$ The District's Net Pension Liability As A Percentage Of Covered Payroll 115.57% 159.41% 121.35% 89.32% Note: Schedule is intended to show information for 10 years. Additional years will be displayed as they become available. Schedule of Changes in Net Pension Liability December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 33 REQUIRED SUPPLEMENTARY INFORMATION UNDER GASB NO. 67 (Continued) Schedule of Employer Contributions Plan Year Actuarially Contribution Contribution Ending Determined Annual Deficiency Covered as a % of December 31, Contribution Contribution (Excess) Payroll* Covered Payroll 2008 7,425,602$ 7,425,602$ —$ 48,077,000$ 15.45% 2009 8,859,535 8,859,535 — 52,267,000 16.95% 2010 10,306,739 10,306,739 — 51,703,000 19.93% 2011 10,969,154 10,969,154 — 49,432,000 22.19% 2012 11,737,168 11,737,168 — 48,333,000 24.28% 2013 11,391,287 11,391,287 — 46,600,000 24.44% 2014 10,675,321 10,675,321 — 44,663,896 23.90% 2015 10,059,004 10,059,004 — 43,344,502 23.21% 2016 10,145,562 10,145,562 — 42,054,815 24.12% 2017 12,328,093 12,328,093 — 41,868,586 29.44% * Payroll as of prior December 31 Measurement Date. THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 34 REQUIRED SUPPLEMENTARY INFORMATION UNDER GASB NO. 67 (Continued) Valuation Timing Actuarial Cost Method Entry Age Normal Amortization Method Level percent or level dollar Level dollar Closed, open, or layered periods Layered, 20 year periods Asset Valuation Method Smoothing period 3 years Inflation 2.50% Salary Increases 4.25% Investment Rate of Return 6.90% Cost of Living Adjustments 2.50%, with 45.00%/$750 per month lifetime cap Retirement Age Retirement rates are summarized in the 2018 Actuarial Valuation. Turnover Turnover rates are summarized in the 2018 Actuarial Valuation. Disability Disability rates are summarized in the 2018 Actuarial Valuation. Mortality The following actuarial methods and assumptions were used in the December 31, 2017 funding valuation. Please see the valuation report dated June 1 , 2018 for further details. Actuarially determined contribution rates are calculated as of January 1 of the fiscal year in which the contributions are reported. Healthy Lives: RP-2014 Mortality for Employees and Healthy Annuitants, male and female rates, with generational projection from 2006 based on the MP-2017 improvement scale; Disabled Lives: RP-2014 Disability Mortality, male and female rates. Actuarial Methods and Assumptions Used THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 35 REQUIRED SUPPLEMENTARY INFORMATION UNDER GASB NO. 67 (Continued) Money-Weighted Rate of Return Plan Year Ending Money-Weighted December 31, Rate of Return 2008 N/A 2009 N/A 2010 N/A 2011 N/A 2012 N/A 2013 N/A 2014 2.86% 2015 -0.76% 2016 4.95% 2017 12.28% Schedule of Annual Money-Weighted Rate of Return on Investments Note: Schedule is intended to show information for 10 years. Additional years will be displayed as they become available. STATISTICAL SECTION (UNAUDITED) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 36 STATISTICAL SECTION For The Year Ended December 31, 2017 Net Position Value (NPV) as of Year December 31, 2008 150,808,625$ (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 2013 246,247,278 10.2 2014 250,515,821 1.7 2015 244,212,239 (2.5) 2016 251,010,031 2.8 2017 277,976,215 10.7 Total Plan Performance 150.8 179.2 198.5 200.3 223.5 246.2 250.5 244.2 251.0 278.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net Position Value at December 31, ($ in millions) THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 37 STATISTICAL SECTION For The Year Ended December 31, 2017 Net Employer Investment Year Contributions Income/(Loss) Total 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 2013 11,397,904 24.5 24,001,334 35,399,238 2014 10,682,846 23.9 7,066,420 17,749,266 2015 10,071,378 23.2 (1,809,875) 8,261,503 2016 10,159,922 24.2 11,992,366 22,152,288 2017 12,346,563 29.5 30,579,933 42,926,496 Payroll Revenues by Source Employer Contributions as a Percentage of Covered THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 38 STATISTICAL SECTION For The Year Ended December 31, 2017 THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 39 STATISTICAL SECTION For The Year Ended December 31, 2017 Terminated Members Entitled to Receive Year Benefits Total 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 2013 636 1 179 761 1,576 2014 660 1 180 710 1,550 2015 691 1 175 665 1,531 2016 717 1 174 626 1,517 2017 722 1 178 595 1,495 1 New Actuarial excludes individuals covered by insurance policy. 2 New Actuarial excludes members with less than six months of service. Member Count Benefits Active Plan Members Retirees & Beneficiaries Currently Receiving THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 40 STATISTICAL SECTION For The Year Ended December 31, 2017 Market Percentage Value as of of Holding December 31, 2017 Plan BlackRock Russell 1000 Index Fund Non-Lending 57,533,365$ 20.7% Income Research Management 39,344,111 14.1% Prudential Core Plus Bond Fund 34,257,814 12.3% Morgan Stanley International Equity Fund I 28,707,110 10.3% Brandywine Global Bond Opportunistic Fixed Income 25,456,038 9.2% UBS Trumbull Property Fund 24,465,570 8.8% Lighthouse Global Long/Short Fund Limited 19,348,870 7.0% Entrust Capital Diversified Fund 16,525,809 5.9% Morgan Stanley Emerging Markets Fund I 12,097,459 4.4% Kennedy Mid Cap Value 9,470,154 3.4% Totals 267,206,300$ 96.1% Top Ten Holdings by Investment Manager THE METROPOLITAN ST. LOUIS SEWER DISTRICT EMPLOYEES’ PENSION PLAN Page 41 STATISTICAL SECTION For The Year Ended December 31, 2017 2017 2016 Investment Manager Fees: UBS Global Real Estate 218,702$ 178,112$ Income Research & Management Inc. 128,147 123,200 Brandywine Global Investment Management, LLC 111,242 103,741 Holland Capital Management 8,619 78,811 Wellington Trust Company NA — 70,366 Prudential Core Plus Bond Fund & Global Asset 95,225 88,746 Kennedy Capital Management, Inc. 75,014 68,624 BlackRock Institutional Trust Co. 16,570 — Total Investment Manager Fees 653,520 711,601 Advisor Fees: Pavilion Advisory Group Inc.104,040 104,040 Total Advisor Fees 104,040 104,040 Total of All Fees 757,560$ 815,641$ Note: Some investment managers report investment income net of related expense. The management fees of these investment managers are not reported in this table because the fees are not readily separable from investment income. Schedule of Investment Manager & Advisor Fees For the Years Ended December 31, Firm